The White House on Tuesday hailed an agreement with Congressional Democrats on measures it said would lead to a dramatically restructured and financially viable US car industry, as negotiations between the Bush administration and Capitol Hill on a $15bn emergency loan for Detroit neared their close.
A Capitol Hill aide confirmed that the two sides had reached agreement in principle and looked forward to a Congressional vote on Wednesday.
The Bush administration had charged that earlier Democratic proposals failed to head off the risk of wastefully providing the industry with more cash once the initial $15bn was exhausted in coming months. General Motors and Chrysler say they need the cash to survive until March, while Ford has asked for a federal credit line.
But administration officials last night said both sides had agreed on a series of measures to impel deep restructuring in the industry, including the requirement that a “car tsar” with broad authority over assisted firms demand the return of the $15bn if the companies’ stakeholders fail to agree to viable plans for survival by March 31.
“If that loan is called, these companies would not be able to survive,” said a senior administration official late on Tuesday night. “That is a real stick that would encourage and incentivise all the parties to be serious.”
He added that if stakeholders, including management, union, shareholders and creditors, failed to agree such a plan by that time, the car tsar would have to come up with a restructuring plan of his or her own, which could include forcing the companies to file for chapter 11 bankruptcy protection.
The three carmakers have asked for a total of $34bn, while one independent analyst told Congress last week they might eventually need up to $125bn. But any further federal financing beyond the initial $15bn bridge loan would depend on the companies meeting what the official called a “hard economic definition” of financial viability, including their ability to pay back the loans and positive net present value taking into account all existing and future costs.
Under the emerging consensus the car tsar – usually described by the administration as a “viability adviser” - would have unprecedented sway over one of the US’s most important industries. President George W Bush is set to nominate an individual for the post who would exercise with the possibility that the new tsar could exercise wide-ranging powers even after president-elect Barack Obama assumes office on January 20.
”A great deal of progress has been made on auto legislation that will protect the taxpayer and ensure that short-term financing is available only to companies prepared to undertake the dramatic restructuring necessary to become viable and competitive,” said Dana Perino, White House spokeswoman, in a statement last night. “We will continue to work with Congress to finalise legislation the President can support.”
“There is agreement on some fundamental principles,” Barney Frank, Chairman of the House of Representatives Financial Services Committee, said earlier in the day. He added that he did not “see any outstanding issues” over which the talks would break up, but acknowledged “different ways of doing things.”
The Bush administration also indicated that Congress had resolved the debate over proposals that would give the government authority over individual transactions of $25m or more, as well as demands that car companies drop legal challenges to state laws on greenhouse gas emissions. The administration official said the new figure for transactions was “significantly higher” than $25m and that he did not expect the provision on the legal challenges to remain in legislation set to be introduced to Congress this week.
If backed by Congress, the $15bn loan would begin being disbursed next week. But if the deal between the White House and Congressional Democrats is to win final approval, it needs support from Republicans in the Senate, who are less beholden to the soon-to-depart Mr Bush than ever before and who are numerous enough to hold up any legislation.
On Tuesday Mitch McConnell, the Republican minority leader in the Senate, highlighted his concerns with the Democrats’ initial “deeply flawed” plans which he said failed to address the industry’s high labour costs, extensive dealership networks or “uncompetitive” retirement and health care benefits.
Stressing that the economic importance of the car industry was beyond dispute, he added: “I will not support a bill that revives the patient with taxpayer dollars yet doesn’t secure a commitment that the patient will change its ways so future help isn’t needed.”
The proposal initially sent by the Democrats to the White House lists a series of objectives, including the goals of boosting car sales, improving energy efficiency, creating a “viable and competitive domestic automobile industry” and preserving the jobs of 355,000 workers in the industry, 4.5m in related sectors and the pensions of 1m retirees.