By William Patalon III
Money Morning/The Money Map Report
The U.S. House of Representatives approved a $14 billion federal loan package for Detroit's embattled "Big Three" late yesterday (Wednesday), overcoming Republican opposition in the House but leaving the bill to face an uncertain fate in a hostile Senate.
The bailout package bill for General Motors Corp. (GM), Ford Motor Co. (F) or Chrysler LLC was passed by House lawmakers by a vote of 231-170. Democrats said they reached agreement with the White House on the details of the plan yesterday.
"If we do nothing, we take the risk that, sometime soon, there'll be no American automobile industry," House Majority Leader Steny Hoyer, D-Md., told MarketWatch.com.
The $14 billion is a long way from the $34 billion now being sought by the Big Three. And that $34 billion was well in excess of the $25 billion in loans the carmakers said they would need. Of the three companies, GM and Chrysler are in the greatest need of cash. Ford says it is seeking a long-term line of credit and doesn't need money in the short term.
The House bill, if enacted, would do several things. It would:
- Grant the U.S. government warrants for nonvoting stock equal to 20% of the value of the loan it makes to each company.
- Create a White House-chosen "car czar," an appointee empowered to hold the companies accountable for developing long-term viability plans. The czar would be able to require immediate repayment of the loans if the companies don't make adequate progress by Feb. 15.
- Require GM, Ford and Chrysler to submit "final" restructuring plans by March 31.
- End such financial standard fare as dividends for shareholders and "golden parachutes" and bonuses for executives – in the interest of conserving cash.
House Speaker Nancy Pelosi, D-Calif., said the bill is "tough love" for the industry but offers the Big Three "a chance to get back on track."
The Bush Administration said yesterday that the "car czar" would have the power to revoke the loans and develop a new plan – including one that would have the Big Three seek Chapter 11 bankruptcy protection if the carmakers don't make progress toward long-term viability by March 31.
"If there's not a plan that makes these firms viable, the government gets its money back," Joel Kaplan, deputy White House chief of staff for policy, told reporters.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., unveiled a bill similar to the House measure late yesterday. A vote in the Senate may not come until the weekend, Senate Majority Leader Harry Reid, D-Nev., said yesterday. Congress has been working on this for several weeks.
Shares of GM closed at $4.60 each yesterday, down 2%. Ford shares advanced 2 cents, or 0.62%, to close at $3.25. Chrysler is privately held, with private-equity firm Cerberus Capital Management LP holding a controlling interest. Before Cerebrus bought it, Chrysler had spent years as part of Germany's Daimler AG (DAI).
Throughout the day yesterday, House and Senate Republicans repeatedly said that a Big Three bailout wouldn't lead to a long-term viability or competitiveness for GM, Ford and Chrysler. In fact, U.S. Sen. Richard Shelby, R-Ala., who is the ranking GOP player on the Senate Banking Committee, vowed to block the legislation with a filibuster.
"Unless Chrysler, Ford and General Motors become lean and innovative and competitive in the marketplace, this is only delaying their funeral," Shelby told journalists yesterday.
Of course, as MarketWatch reported, Shelby's home state of Alabama has provided millions of dollars in subsidies to attract Japan's Honda Motor Co. Ltd. (ADR: HMC), South Korea's Hyundai Motor Co. (PINK: HYMLF) and the Mercedes-Benz unit of Germany's Daimler AG, to build plants that provided 48,457 jobs in 2007. The Toyota Motor Corp. (ADR: TM) factory in Huntsville, Ala., makes motors for SUVs and pickup trucks.
The Wall Street Journal reported that a breakthrough in the negotiations between the White House and Democrats came after Democrats agreed to scrap language that would have forced the carmakers to drop lawsuits challenging tough emissions limits in California and other states.
Reid told MarketWatch that that he needs 60 votes to get the plan through the Senate. A key Democrat, Finance Committee Chairman Sen. Max Baucus, D-Mon., actually came out against the bill, since it contains a tax provision he said that he opposes. Democrats control the Senate by a narrow 50-49 majority.
Dodd said the Senate bill is "a far cry from a blank check to the industry."
Said Dodd: "The legislation requires these companies to make painful, fundamental changes if they are going to be competitive internationally and viable in the long term."
News and Related Story Links:
Money Morning News Analysis:
Auto Bailout Could Have Strings Attached: Ousting CEOs, Appointing Car Czar.
Money Morning Investigative Report:
Congressional Members Hold Stakes in the "Big Three."
Money Morning News Analysis:
That $25 Billion in Loans America's "Big Three" Automakers Had Sought … It's Now $34 Billion.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.