Congressional Leaders Pelosi, Reid Push for Automaker Aid from $700 Billion Bailout Package

By Chris Haak

11.09.2008

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent a joint letter to Treasury Secretary Hank Paulson in recent days asking that under the broad powers granted to him by Congress through the $700 billion TARP (Troubled Asset Relief Program) – otherwise known as the “Wall Street bailout” – he consider broadening the program to include helping the Detroit-based automakers.  Reid and Pelosi are also expected to deliver a similar letter to the White House this weekend.

The TARP program was crafted by Congress (with consultation with Paulson and the Treasury Department, as representatives of the Bush Administration) with the intent of shoring up the nation’s financial system by allowing the Treasury Secretary to purchase “troubled assets” from financial institutions to help those companies shore up their balance sheets and reduce the likelihood of further massive write-downs.

The Detroit Three have been getting some mixed signals from Washington for the past few weeks, but a lot of that depends on to whom they have been approaching with hats in hand.  Generally, Democrats such as Pelosi and Reid, and indeed President-elect Barack Obama, have been far more receptive to their requests for assistance, mainly due to concerns about the effect that a collapse of the industry would mean to the workforces and the unions that have historically been very supportive of Democratic candidates.

Republicans, on the other hand, have been more reluctant to offer aid to the industry other than the $25 billion approved for retooling automobile plants to produce fuel-efficient vehicles.  President Bush famously said three years ago that Detroit “needed to build relevant products” when dismissing the idea of loan guarantees or other assistance when the situation was far less dire for the three companies (back when they were some of the few unhealthy companies in an otherwise fairly-healthy economy).  Today, most sectors of the economy are showing weakness, and GM specifically is probably on its last few weeks before declaring bankruptcy without bailout money.  More recently, Bush’s spokesman Tony Fratto said that the TARP program wasn’t set up for buying equity stakes or otherwise assisting manufacturing companies such as automakers, so it remains an open question as to whether Secretary Paulson would be inclined to go against his boss’s philosophy to expand the reach of the TARP program from financial institutions to other sectors of the economy.  And if the automakers receive a few billion in aid, that creates the dual problems of reducing the funds available for the specific intent of the program going forward, and potentially creating a long line of companies with their hands out for bailout money.  The airline industry didn’t have a good summer, for example; will they want a chunkof that bailout money?

Further muddying the request is the fact that in about 2 1/2 months, a new administration will take over in Washington, so the Bush administration is not necessarily inclined to throw around any more taxpayer money until the Obama Administration takes over on January 20, letting the problems fall into the lap of the incoming president instead.  That’s fine in theory, but pretending that there’s enough time to not do anything will not work, as GM will probably not make it to January 20.  If the decision of policy makers in Washington is to let GM enter Chapter 11 and deal with the fallout on the back end in terms of unemployment benefits, re-training workers, etc. instead of on the front end, that’s fine, but it would be wise to make a decision – consulting between both the Bush and incoming Obama Administrations – considering the likely real and human costs of either alternative.  It’s possible that it would eventually be cheaper to bail the companies out now, but it’s also possible that bankruptcy would be cheaper for the taxpayers and the broader economy.

As I said on Friday, these are certainly interesting times.

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Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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4 Comments

  1. I wonder if the DuPont corporation might come to the rescue of GM again? I know they was forced to drop their part in GM in the late 1950s due to the antitrust act but now the situation had changed since http://en.wikipedia.org/wiki/DuPont#1914 I know than it’s doubtful then the lightning could strike twice at the same place but it might be worth to try.

  2. DuPont? I don’t think so. What’s the point for them/ Where is their gain? There is none. There is no company that whose interests coincide with GM’s interests that can afford to bail GM out. Only the feds fit that description, I think.

  3. If US automakers cannot find a way to stop losing market share, any aid package will ultimately be futile. The new product GM and Ford have put out lately has not stemmed the tide (even though the Malibu, Flex, and others are actually pretty good products). I think Chrysler is too far gone to save. If they’re unable to grow their market share in the foreseeable future, the only alternative is to fall back, retrench, and shrink.

  4. Bankruptcy would be good for the big 3. The US automakers have needed to significantly restructure for some time. The Government should not let them continue with business as usual at taxpayer expense. Letting them file for bankruptcy protection, if needed, will force them to restructure their business to be competitive for the coming decades, which will look drastically different than the past several due the forthcoming alternative energy power sources for cars and light trucks. Simplified product lines, major cutbacks in middle management, new Executive managment, stranglehold union contracts can all be rethought and retooled for the next century. Handing them $Billion will just delay the inevitable and perpetuate the same mindset in Detroit right now.

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