ANALYSIS:
The Bush administration’s auto bailout package largely follows the playbook laid down by Senate Republicans in requiring General Motors and Chrysler to try to achieve drastic reductions in their debt and labor costs as part of a total restructuring.
The loan contract providing up to $17.4 billion to the companies requires them to try to cut their debt by two-thirds as well as achieve labor cost rates and work rules similar to foreign transplant automakers such as Nissan and Honda by the end of next year.
That means not only that Detroit’s gold-plated health and retirement benefits would have to be downsized quickly to be competitive with the rest of the industry, but workers could not be paid any more for not working under the notorious “jobs bank” program. These were key concessions sought by Senate Republicans in their unsuccessful attempt to rewrite the House bailout package earlier this month.
The deal gives the companies some room to wiggle out of the requirements, however, by designating those changes only as “targets.” If they miss the targets, the companies would be required only to explain why.
The deal also gives President-elect Obama and a so-called auto “czar” that he will appoint discretion to change the playbook when he takes office. The overall goal of the Bush requirements is to make the companies become solvent as soon as possible, and to lay down plans to remain viable in the future.
While Mr. Obama has said he supports requiring the companies to move quickly toward viability, he could fudge the targets, for example, in the interest of promoting the production of more fuel-efficient cars — another goal he wants to achieve through the restructuring.
The Treasury Department laid down several requirements that are not negotiable, however, as it did with the banks that obtained funding earlier through its troubled asset program.
The car companies would have to limit executive compensation and corporate jet services, while providing Treasury with stock warrants worth 20 percent of outstanding shares.
Treasury Secretary Henry Paulson said he had to exhaust all of the first $350 billion of authority he was given under the financial bailout program to provide the auto loans. An additional $4 billion of loans would be contingent on the Treasury receiving the second $350 billion installment from Congress next year.
The administration is not necessarily committing itself to asking for the additional funds, however, and indicated that it may leave that to the Obama administration. The Treasury stressed that it has sufficient uncommitted money in the bailout fund to address any emergencies between now and when Mr. Obama takes office on Jan. 20.
While the administration sought to honor the goals laid down by Senate Republicans in their unsuccessful attempt to negotiate big concessions from the automakers and their unions, the plan was not greeted with applause by one of the Senate conservatives.
Sen. Judd Gregg, New Hampshire Republican, said he was disappointed that the administration dipped into the bank bailout fund to help Detroit.
“Unfortunately, this decision sets a troublesome new precedent that the next administration may use to expand government control over numerous specific industries that are having troubles during these difficult times,” he said. “I also question whether General Motors and Chrysler will try take the painful, yet necessary restructuring measures to ensure that these so-called loans aren’t simply throwing good money after bad.”
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