US automotive bailout measure is in trouble

09 December 2008 19:57  [Source: ICIS news]

WASHINGTON (ICIS news)--Efforts in the US Congress to create a bailout loan package for troubled Detroit automakers appeared to be in jeopardy on Tuesday as the Senate Republican leader demanded tougher accountability controls and wage cuts.

Congress is considering a $15bn (€11.5bn) emergency federal loan package for the so-called Big Three automakers based in Detroit, Michigan - Ford Motor Co., Chrysler and General Motors (GM).

Chief executives of the three firms warned in testimony to Congress last week that they may be on the verge of bankruptcy - and massive job losses - if federal loans are not forthcoming.

The $15bn is designed chiefly to sustain the troubled carmakers, especially GM, into the first quarter of next year when, following the 20 January inauguration of President-elect Barack Obama, the new administration and Congress can consider a long-term fix for the auto sector.

The congressional negotiations have implications for the US chemicals industry because the nation’s automotive manufacturers and supplier industries are important downstream consumers of chemicals and plastics.

Democrat leaders in the US House of Representatives sent a draft rescue bill to the White House late on Monday, according to congressional officials.

House Speaker Nancy Pelosi (Democrat-California) said the loan package must include provisions so that “We will be able to review the performance of the auto companies as we go forward”.

“In order to do that, it is important for us to pass legislation that will set criteria for restructuring and reorganisation of that industry and the companies within it,” she said.  Reportedly, the draft bill sent to the White House would provide for a “car czar”, an appointed federal overseer who would closely monitor how Detroit car makers use the $15bn in loan money.

Pelosi said survival of the Detroit automakers is essential to the nation’s economy and said she expects a deal by the end of this week. “I am very encouraged by the conversations so far,” she said. “We are on the right path.”

However, Senator Mitch McConnell of Kentucky, leader of the Republican minority in the Senate, raised objections on Tuesday, saying the Democrat-drafted rescue bill does not do enough to require fundamental restructuring by the automakers and wage reductions for auto workers.

“On the management side, the draft plan released yesterday fails to require the kind of serious reform that will ensure long-term viability for struggling auto companies,” he said.  The draft bill would allow the so-called car czar to withdraw loan benefits if Detroit car makers fail to make needed operational and product changes.

McConnell said that was not strong enough. “By giving the government the option of cancelling government assistance in the event that reforms are not being achieved - rather than requiring those reforms - we open the door to unlimited federal subsidies in the future,” he said.

“On the labour side, this bill proposal fails to require any serious reform of legacy costs,” he said.  “Indeed, it states explicitly that that one of its purposes is to preserve the same retirement and health care benefits that have made these companies so uncompetitive.”

“It is delusional to expect a company that spends $71 per labour hour to compete with a company in a neighbouring state that spends $49 per labour hour,” McConnell said.

McConnell did not specifically say that Senate Republicans would block the Democrat rescue bill, but he indicated the measure could not get through the Senate in its current form.

“In short, this proposal is deeply flawed because it fails to assure taxpayers that they will not be asked to shell out billions more a few years or even a few months from now,” he said.

($1 = €0.77)

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By: Joe Kamalick
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