Finally, the politics has (very temporarily) been put aside and Washington appears poised to help Detroit. House Speaker Nancy Pelosi gave in to strike a deal that will pave the way for the government to bail out Detroit’s carmakers. Late Friday, Congressional Democrats settled on a compromise that will use funds from the Department of Energy’s $25 billion line of credit to lend money to General Motors and Chrysler, sources say. One Big Three lobbyist said that, if passed by Congress next week, it is expected that GM could tap $12 billion to $14 billion to keep going through the first quarter and Chrysler would borrow the $4 billion it needs to make it into March.
The amount is well shy of the $34 billion the three carmakers want. But this deal would keep the three carmakers going and punt a decision on a bigger loan program to President-elect Obama. When he takes office, his administration could use the money from the Troubled Asset Relief Program, which is the $700 billion set aside to help the banking system. The administration would also replenish DOE funds from another government source, likely TARP.
While both the House and Senate spent the last two days grilling the automakers on how they will use the money and whether or not they are viable, the real impasse was politics. Republicans and the Bush Administration wanted to use the DOE funds. But Pelosi and some Democrats opposed that saying that the DOE money should be used to help the automakers improve fuel economy. They wanted to use TARP money.
Of course, Pelosi’s argument was one smelly political red herring. The government already has stiffened fuel economy rules. So any car company that survives will have to improve fuel economy in the cars they build and sell anyway. Pelosi was just pandering to the environmental groups in her base that fund her campaign.
Republicans had an equally silly argument. They will loan the carmakers funds from the DOE fuel-economy fund, but not from the save-the-irresponsible-banker fund. When you’re risking billions of dollars on troubled car companies, does it really matter which account the cash comes from?
This just proves that many members of Congress weren’t worried about risking taxpayer’s capital. They were worried about risking their own political capital. Some Republicans couldn’t stomach a deal that might save union jobs. Though they’ll cut a big check to Citi Group in the blink of an eye. And some Democrats couldn’t anger the greens. That might mean less green to their next campaign.
In any case, it looks like Congress will save the carmakers. That’s certainly a worthy cause. But big questions remain. Will this pass? Probably. Will it be enough? Maybe, but only if still greater concessions are made by the carmakers’ creditors and union workers. Will Chrysler now be a viable, stand-alone company? No. My fearless forecast is that GM is waiting in the wings to snap up the rest of Chrysler as soon as the market and its balance sheet are stabilized. Then Chrysler gets folded into GM.