Pelosi's Auto-Rescue Plan Sets Up Clash With Bush, Republicans

[Matter-Eater Lad]

Pelosi's Auto-Rescue Plan Sets Up Clash With Bush, Republicans

 

By Laura Litvan

 

Nov. 12 (Bloomberg) -- House Speaker Nancy Pelosi's plan to aid troubled U.S. automakers threatens to spark a final clash with President George W. Bush before he leaves the White House in January.

 

Pelosi said yesterday she wants ``immediate action'' to give automakers additional assistance as shares of General Motors Corp. hit their lowest level since 1943 and analysts said the company faces possible bankruptcy. Bush hasn't said he would approve any further aid to those companies. Richard Shelby, the Senate Banking Committee's top Republican, opposes the measure.

 

Senate Democratic Leader Harry Reid made clear the bill's prospects of winning passage in this month's ``lame duck'' session rely on help from both congressional Republicans and Bush. Democratic gains in both chambers from the Nov. 4 elections won't go into effect until the new Congress convenes on Jan. 6. President-elect Barack Obama takes office two weeks later.

 

``There's no doubt in my mind that a bailout is on the way, I'm just doubtful it will happen during a lame duck,'' said Clint Currie, transportation analyst for Stanford Group Co. in Washington. ``Pelosi and Reid and the incoming administration wants to help them, while the current administration, not so much.''

 

Pelosi said any aid to the automakers would come with conditions, including restrictions on executive compensation, ``a prohibition on golden parachutes'' and ``rigorous independent oversight.'' She didn't specify the level of assistance she supports, but said it should come from the $700 billion Congress authorized the Treasury to use to help stabilize the financial services industry. Pelosi said she is tapping House Financial Services Committee Chairman Barney Frank to write the legislation that may be considered as early as next week.

 

Treasury's Stance

 

While the Treasury Department is considering ways to expand its use of the $700 billion relief package to non-bank financial companies, Secretary Henry Paulson has refused entreaties from the auto companies for capital injections. Such a move would significantly change the program from a financial rescue to one for industrial companies as well -- a step that the Bush administration still isn't willing to take, according to people familiar with its thinking.

 

One concern is that aiding the auto companies would lead to an expectation of assistance from other industries that are going through a slowdown, the people said. Unlike financial firms, which can take the taxpayer money and use it to spur growth by lending it out, industrial companies would use the capital for their own purposes.

 

Bush Awaits Details

 

The Bush administration is waiting to see the details of Pelosi's proposal before reacting to it, White House spokesman Tony Fratto said.

 

The Treasury-led bailout plan is currently being used ``consistent with the law and congressional intent,'' Fratto said. ``If Congress wants to change the law, we'll see how they intend to do it.''

 

Fratto said Congress had already passed a $25 billion loan package for the industry, which frees up money for GM, Ford Motor Co. and Chrysler LLC to retool factories to make more fuel- efficient vehicles.

 

The three companies are seeking an additional $50 billion in federal loans to help them weather the worst auto market in 25 years, according to a person familiar with the matter.

 

``It's strange that congressional Democrats would choose to ignore the $25 billion program they actually created to assist the automakers,'' Fratto said. ``That would be a better place to start.''

 

Low on Cash

 

Pelosi's plan comes as shares of GM, the biggest U.S. automaker, reached a more than six-decade low yesterday. The company said last week it may run out of operating cash as soon as year's end.

 

GM had $16.2 billion on hand as of Sept. 30, down from $21 billion at the end of June, and needs at least $11 billion to pay its monthly bills. Its shares slid 44 cents, or 13 percent, to $2.92 at 4:15 p.m. in New York yesterday. Ford fell 13 cents to $1.80.

 

The automakers embraced the possible action on government aid this year.

 

``We appreciate the speaker's call for urgent action,'' GM said in a statement. ``We are ready to work with Congress and the administration to secure the immediate support we need to bridge the current economic crisis.''

 

Ford said in a statement that it applauded the efforts of Pelosi and Reid to help the industry. Pelosi was among the lawmakers who met last week with the chief executives of GM, Ford and Chrysler.

 

`Not an Option'

 

GM reiterated this week that bankruptcy is ``not an option'' even as Deutsche Bank AG said the shares may be worthless in a year. ``A bankruptcy wouldn't address our immediate liquidity concerns,'' said Renee Rashid-Merem, a spokeswoman for Detroit- based GM.

 

Chief Executive Officer Rick Wagoner said GM's U.S. sales ``would be devastated'' by a bankruptcy filing. Deliveries fell 21 percent last quarter and 45 percent in October. The ``unimaginable consequence'' of a bankruptcy ``motivates us to really come up with cash in every way possible,'' Wagoner said in a Nov. 7 Bloomberg Television interview.

 

Some say GM's portrayal of its choices as government aid or liquidation may be a ploy to get a bailout, said lawyer Mark Bane, co-head of the bankruptcy department of Ropes & Gray, a law firm.

 

``GM is rolling the dice,'' he said. ``They're playing chicken with the government.''

 

Senate Obstacles

 

Some lawmakers may be only too happy to play. In addition to passing through the Pelosi-led House, any legislation must be approved by the Senate, where the minority Republicans can stall legislation through endless debate.

 

``The financial situation facing the Big Three is not a national problem, but their problem,'' Shelby said in a statement. ``I do not support the use of U.S. taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers in such a way that allows them to continue and compound their ongoing mistakes.''

 

Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell, said McConnell is reviewing Pelosi's plan and didn't have immediate comment. Democrats have a 51-49 majority in the outgoing Senate.

 

``We still have the slimmest of majorities in the Senate,'' Reid said in a statement. ``This will only get done if President Bush and Senate Republicans work with us in a bipartisan fashion, and I am confident they will do what is right for the economy.''

 

http://www.bloomberg.com/apps/news?pid=20601070&sid=aGBPGVcbMa84&refer=home

 

 

There is no need to worry, the government and people will go bankrupt but failed businesses and corporations are safe!:veryangry2:

[Maldini]

She is right (Nancy Pelosi) because if they let the giant automakers collapse maybe they will make the world face a big turmoil like the one before when they let Lehman Brothers collapse.

[Tnspieler1012]

after all, we know how well the 700 billion housing bailout has gone...it's only money, it's not like we're in debt or anything.

[Matter-Eater Lad]

GM and Ford are finished, it's just do we want to waste years and billions of dollars on them or let them fall and use that money somewhere else or just keep it?

 

In the end we'll just waste billions on a failed business.

[Matter-Eater Lad]

delete.

[Saffire]

Now American Express is asking for some taxpayer money, and they've reconstituted themselves as a commercial bank in order to qualify for it. There are reports that various banks (including Goldman Sachs, which also transformed into a commercial bank overnight in order to get some taxpayer dollars) are still doling out multi-million dollar bonuses to executives. Warren Buffett recently bought $17 billion in preferred shares of Goldman Sachs - notice he's also among Obama's "trusted economic advisors". How convenient.

 

Today Treasury Sec Paulson announced the government would be using the $700 billion to buy bank stock instead of the distressed mortgage backed securities. That's a clear bait-and-switch, because had Congress known this, they probably wouldn't have passed the second bailout bill (but then again maybe they would have, because apparently if you put enough pork in there...).

 

Finally, there is news that the Republican minority leader in the House is demanding the Federal Reserve to reveal where they sent that $2 trillion, and he might use the Freedom of Information Act to find out. The Fed is keeping mum in the meantime.

 

What is happening now is the most blatant example of government robbing its citizens one could ask for. Are the American people paying attention?

[Matter-Eater Lad]

Are the American people paying attention?

 

No and the voting in of Obama shows this. Obama is so deeply and corruptly tied to corruption in wall street and people still elected him. He favored along with other dems policies that helped create this and yet was still elected.

 

Big government corrupting big business and banks are the problem and American just voted for it.

 

And any bank that receives a bailout should get massive interest on the loans 30 % and slapped with a huge fee's like they do to credit card holders!

[chuck kottke]

Warren Buffet at Goldman Snack's Buffet Table?:P

Well, letting major auto makers fail probably would crash the economy, and suck the globe down with the wake of our ship, but more to the point - why are sales so low?? (a.) rising fuel costs until very recently hurt sales of their biggest money makers - gas guzzlers, (b.) poor management, (c.) competition, and (d) global economic instability.

The U.S. bailed out Chrysler in the 70's, and after Iacocca took over, he got the auto lines people wanted and the sales staff geared to sell autos and make deals. Sounds like a repeat of history! But the government ought to demand better management and better foresight - maybe a rethinking of the way companies operate, so they are less dependent on 1/4 profits, and more thoughtful of what the market will bear down-the-line, as the fuel pinch ultimately affects consumer choices, as well as manufacturing costs.

But loosing "Generous Motors" would be sad, as so much of our history is tied up with the company that started as the Little Car Company, and a bunch of Detroit investors in the growing auto industry in 1908. If not for GM, makes like Welsh would have failed long before GM ended their manufacture!:laugh3:

But seriously though, GM and Ford (Ford! Think about it - Henry Ford's empire, and proof of the success of finely honed mass-manufacturing!!) are as American as Apple Pie and Hockey Moms. :P If we loose our automotive sector, that's roughly 1/4 or 1/5th of the jobs tied directly or indirectly to this industry - something to ponder!

 

 

[Matter-Eater Lad]

Crash now or wait til its 10x worse in the future?

 

Again Chuck you're wrong on what is causing the auto makers to go under. It's the high cost of producing in America. High taxes, high labor cost's, unions and labor laws make producing cars in American un-profitable vs producing in Asia.

 

We either have to adapt our auto industry to those that are successful in Asia or waste billions and let them fail later on after draining the average american people of all our money.

 

People who favor the auto industry are putting failed business over the Average American's well being.

[Matter-Eater Lad]

We want all the wealth and none of the effort and that is destroying our nations.

[chuck kottke]

One Phrase: Fair Trade.

[Matter-Eater Lad]

That wouldn't be enough. High labor cost's, labor unions and taxes, and labor laws would drive up cost's still and in Asia they wouldn't have to pay for that thus making massive amounts of profits.