Saving the Detroit-based domestic auto industry clearly isn’t as simple as giving them a $34 billion federal “bridge loan.” One industry supporter and two skeptics made that clear during hearings on Thursday before the Senate Banking Committee.
Mark Zandi, chief economist and co-founder at Moody’s, supports federal action to aid the Detroit-based domestic auto industry. Senators Bob Corker (R-Tenn.) and Robert Bennett (R-Utah) seem far less sympathetic.
But during the hearings, the three of them played crucial roles in laying bare the likely reality of what would happen if Congress puts taxpayer money at risk to bail out General Motors, Ford and Chrysler.
Zandi, the lone voice of caution at the witness table, drew uncomfortable glares from his fellow witnesses as he expressed his expectation that the requested $34 billion in “bridge loans” — $9 billion more than the automakers requested in mid-November — would not be nearly sufficient to keep the Big Three out of bankruptcy.
Jaws dropped as Zandi, under questioning by Committee Vice Chairman Richard Shelby (R-Ala.), expressed his belief that it would take between $75 billion and $125 billion — nearly 1 percent of the entire nation’s gross domestic product — to keep the Big Three out of bankruptcy. But no one disputed the assertion, nor did they seriously dispute Zandi’s prediction that a $34 billion would only clear the way for the automaker to return asking for more.
Understand, Zandi did not attend to argue against the bailout. He believes the collapse of the auto industry will cause extensive and potentially unmanageable problems. He simply wants Congress to go into the bailout with eyes wide open and thinks it would be deluding itself in thinking $34 billion would solve the problem.
Corker, who is a former union member and a rare member of Congress who actually understands business and finance, seems to have gotten the message. When his turn came to ask questions, he first put Chrysler Chairman Robert Nardelli on the spot about two crucial issues. The first was the fact that its own holding company, Cerberus, is not inclined to invest the cash it is requesting from the federal government. The second was the undeniable fact — although Nardelli tried to downplay it — that Chrysler is merely trying to stay alive until it can find a (probably foreign) buyer.
Corker then turned his sights on United Auto Workers president Ron Gettelfinger, seeking a straight answer as to whether he would accept equity, rather than cash, as the basis for funding the impending Voluntary Employee Benefits Association, which is the intended successor to the huge costs the Big Three now face paying retiree health benefits. Gettelfinger, as Corker probably expected, shifted uncomfortably and tried to change the subject to auto workers who scrimp for Christmas money.
One of the industry’s defenders’ key talking points has been the supposed idea that the Big Three — especially GM — are lopping off their retiree health care costs onto the union. What they usually gloss over is the fact that GM is on the hook for $24.1 billion to bankroll the VEBA by Jan. 1, 2010. The day before the hearings, the UAW reluctantly agreed to delay, but not forgo, much of that payment. They know GM can’t make it.
Finally, Bennett cut to the chase and told the industry’s leaders that loans are the last thing it needs, because loans mean interest, and interest from debt is enough of a problem for the industry already.
Throughout much of the hearing, it seemed the industry’s defenders and its critics on the committee were having simultaneous, unrelated monologues. The Big Three CEOs, Gettelfinger and others who spoke on the industry’s behalf chose to focus on how bad things will be if one or more of the Big Three go under (and in Gettelfinger’s case, why free trade is to blame for all the automakers’ problems in the first place.)
No one disputed that one or more automaker collapses would be an economic catastrophe, but Corker and Bennett — with air cover from Shelby — tried to explore whether the proposed bailout would do anything other than expensively forestall the inevitable.
If the Big Three’s goal was to persuade skeptical committee members that a bailout is good risk, and that bankruptcy is not an option, there was no evidence they persuaded anyone. Even Zandi, who thinks the government should save the automakers, said they could achieve the restructuring they truly need more effectively in something resembling a managed bankruptcy.
Senate Majority Leader Harry Reid said before the hearings that the votes don’t appear to be there to approve action before the end of the year, even though GM and Chrysler insist they need such action to survive. If Thursday’s hearings were designed to win over those votes, it’s hard to see how it succeeded.