Congressional Panel Scrutinizes Use Of Auto Bailout Funds

By Learned Foote- Talk Radio News Service



Representatives from GM, Chryler, and the White House’s auto-task force defended the bailout of the two auto manufacturers and their subsequent use of TARP funds during a hearing Monday with Congressional Oversight Panel held in Detroit, Michigan. 



Walter Borst, Treasurer of the General Motors Company, said that “we are grateful for our nation’s support,” and promised that the “new GM will repay our nation’s investment.”

He noted that GM is a “new company with less debt, a stronger balance sheet, with the right size manufacturing, products, and dealer network to match today’s market realities.”

Borst emphasized that “both the Obama and Bush administration made it quite clear that they were reluctant investors. We were equally reluctant recipients.” 

Ron Bloom, the head of the Obama administration’s auto task-force, said that “every creditor will almost certainly receive more than they would have had the government not stepped in.” 



Bloom illustrated the main principles by which the government is operating in its partial ownership of the auto companies. He said that the government “has no desire to own equity in companies any longer than necessary,” it will manage its “ownership stake in a hands-off, commercial manner” and “will only vote on core governance issues, including the selection of the company’s board of directors.”  



Committee Chairman Elizabeth Warren, a bankruptcy expert who teaches at Harvard Law, questioned when the federal government will relinquish ownership of the auto companies, asking, “When can we expect to see some timelines?” 

Bloom responded that “the decision has been made to not articulate a specific timeline.” Bloom noted that presenting a timeline would “create an overhang in the market that would be deleterious to receiving the best price,” but the government will act “as soon as is practicable.”  



Warren also asked why the leadership of financial institutions had not been altered as drastically as the leadership of the auto companies, but Bloom said his “sole focus...has been on the auto companies.” “I’ve had my hands full trying to wrestle with two very large troubled auto companies. That takes up 21 hours of the day,” he said.

Bloom stated that his tasks include three priorities, including financial and operational restructuring, as well as a “third leg...the cultural change,” which included establishing a new board of directors, which will be made up of “people of extraordinary accomplishment in the private sector, people who have had experience effectuating turn-around.”



Rep. Jeb Hensarling (R-Texas) adopted a critical tone towards the actions taken by the Obama administration. Hensarling argued that TARP was “ostensibly designed for financial firms, [and it] is clearly now being used to rescue auto manufacturers.” He added that the fund “now appears to be nothing more than a 700 billion dollar revolving bailout fund used to promote the administration’s political, social, and economic goals.” He also argued that senior bondholders were set aside and “junior creditors like the UAW [United Auto Workers]...were given far more preferential treatment.” He said that he worried that the Treasury Department would “politicize our economy and hinder our economic recovery.”



Hensarling asked whether it was “wise economic policy” to subsidize GM and Chrysler while Ford, who had reported financial trouble in 2008, functions without federal assistance. In response, Bloom said that Ford officials supported the bailout of the other two auto companies.

Auto-makers To Cut Off Dealerships

The U.S. financial crisis facing auto-makers has begun to take its toll on the dealers as well. Following the declaration of bankruptcy by both Chrysler and General Motors, two of the U.S.’s largest auto-manufacturers, the companies put forward a plan to restructure their dealership networks. Chrysler will terminate the contracts for 789 dealerships while General Motors plans on terminating over 1,100.

“This has been the most difficult business decision I’ve ever personally had to take, but the decisions had to be made. They were gut-wrenching, but absolutely necessary for Chrysler’s survival,” said James Press, Chrysler President, during a hearing with the Senate Committee on Commerce, Science, and Transportation today.

Dealers have cited a number of concerns over the restructuring. Many dealers were not told why their contracts will be cancelled as opposed to others and questions remain over the reasoning behind shutting down the franchises when the dealers cover all expenses.

Perhaps most distressing for the dealerships is the timeframe in which they have to close-shop. While General Motor’s is giving their franchises till October 2010 to gradually sell their inventory, Chrysler has ordered its dealerships to perform the same task within twenty-six days.

“You just can’t close a dealership in 3 weeks,” said Russell Whatley, a Chrysler dealer who appeared as a witness before the committee. “We have an 8 month supply of vehicles and only three weeks to clear them out.”

Automakers will have second chance to request bailout

The Democratic leadership from the House and Senate held a press conference to announce that since the auto industry has failed to convince Congress that their suggested rescue plan will not be their last request, there will be no agreement on a bailout this week. However, the CEOs from the Big 3 automakers will have another opportunity to make their case to Congress

"We're requesting that they submit a plan to Congress through Chairman Frank and Chairman Dodd no later than December 2nd. These two very able men will review the plan if necessary hold hearings during the week of December 2nd to fully vet the auto industry's proposal," said Senate Majority Leader Harry Reid (D-Nev.).

Reid stated that Congress was prepared to come back in session the week of December 8th, but only if the Big 3 auto makers submitted a plan that will provide accountability.

"Until we see a plan where the auto industry is held accountable and a plan for viability on how they go into the future...we cannot show them the money," said House Speaker Nancy Pelosi (D-Calif.).

Pelosi went on to reject the calls that have been made for the automakers to declare bankruptcy.

"This is our response to those who would say 'let them go, let them go and deal with it after that'. This is an important industry in our country and we intend to save it. We can only do this if we work together and the auto industry has to come up with a plan for innovation, accountability, and viability," said Pelosi.