Automakers to Plead Case for Bailout

Representatives from the Big Three automakers will appear before Congress this week to plead their case as to why they should be allowed to get $25 billion in loans from the government’s $700 billion bailout.

Today, Senate Majority Leader Harry Reid (D-NV) plans to attach a provision to a bill that was passed by the House to extend unemployment insurance. Senate Democrats are hoping to bring the matter to a vote by Wednesday.

Executives from General Motors Corp., Ford Motor Co. and Chrysler L.L.C. are gearing up to appear before the House Financial Services Committee tomorrow to request more governmental assistance in the wake of slowing sales. “U.S. auto industry bankruptcies would have a devastating impact on the domestic economy, many times larger than the aid automakers seek,” said Rick Wagoner, GM chief executive said on Sunday.

Sales of new cars and trucks in the U.S. are projected to decrease 12% this year compared with a year earlier, according to the McLean, Virginia-based National Automobile Dealers Association, reports Bloomberg. Together the Big Three automakers posted a net loss of $7.6 billion.

Congress has already approved a $25 billion loan program through the Department of Energy that requires car makers to produce energy-efficient cars. However, Wagoner suggests that the money from that program won’t reach GM in time to head off bankruptcy or worse.

“This is a national problem, without any question. We’ve got at least 3 million jobs dependent upon this industry surviving. This is not a Big Three problem alone,” said Carl Levin (D-MI), a senior member of the Committee on Small Business and Entrepreneurship, on NBC’s Meet the Press. “This current crisis is a crisis in the economy where there is no credit available to purchase and where people are not buying cars because they are afraid.”

Congress has three options to take in considering a rescue of the auto industry. First, some Democrats in Congress would like for the au

tomaker rescue to come from the $700 billion bailout of the financial industry. Others believe that it would be better to create a separate $25 billion bailout. Lastly, Congress could allow automakers to use the $25 billion that was previously approved for developing energy-efficient cars to aid in their overall financial problems.

The White House opposes giving automakers an additional $25 billion. White House press secretary Dana Perino said giving more funds to Detroit is more of a subsidy that won’t be paid back, whereas the financial industry bailout was an investment.

“TARP was not intended for individual industries,” says Perino, who believes opening up the Troubled Asset Relief Program to the auto industry would not pass the Senate. “TARP was specifically designed to help taxpayers get a return on their investment.We are providing capital. And it has to be paid back.”

Perino said that President George W. Bush wants to help the automakers get through this “rough patch” and provide for their long-term

viability, but not at the expense of taxpayers. Bush would prefer that Congress loosen restrictions on the $25 billion already appropriated to build energy-efficient cars and let automakers use the money instead to temper their inclement financial situations.

President-elect Barack Obama has expressed his desire to see a bailout for the Big Three, but has said that if a bailout passed, automakers need to use the opportunity to become more competent manufacturers.

Many Republicans oppose the idea of any type of bailout. They believe that U.S. automakers are in danger of closing because their business tactics have been subpar for several decades and not because of tightened credit markets or poor sales. Sen. Richard Shelby (R-AL), who is the most vocally opposed Republican to an automaker bailout, described a bailout for GM, Ford, and Chrysler as “postponing the inevitable” on Meet the Press.

“I think it’s a mistake. They would be, in a lot of people’s judgment, a lot better off to go

through Chapter 11 where they could reorganize, get rid of the management, get rid of the boards, the people who’ve brought them to where they are today,” Shelby said. “This is a dead-end, it’s a road to nowhere, and it’s a big burden on the American taxpayer.”

Last week, Treasury Secretary Henry Paulson agreed with Bush that any assistance for automakers should be separate from the bailout passed in September for financial institutions. Paulson and Federal Reserve Chairman Ben Bernanke, are scheduled to appear tomorrow before the House to update Congress on how the $700 billion bailout is being spent.

To make matters worse, neither automakers nor members of the United Auto Workers (UAW) are open to legislative changes in how they run their businesses. They do not want to make concessions to reduce executive bonuses or wages for union workers or to institute higher mileage standards. All of these actions would encourage lawmakers to push the bailout through.