This is an important news brief from CalCars. It will be available on
their news-archive soon, but I thought I would copy the whole thing
here anyway.
This is one of these years when history moves in high gear, like
1989, when the Berlin Wall fell and cold fusion was announced. The
latter will still be important thousands of years from now, when no
one remembers or cares what Communism or Capitalism were.
- Jed
Subject: [calcars-news] Will the US Increase Support to the Detroit Three?
Here's a summary of what's happened in the past week with what used
to be called the "Big Three" -- they're no longer the largest; since
Daimler and Chrysler split, now they're called the "Detroit Three."
(Shortly after it goes out on email, this posting will also be
viewable at http://www.calcars.org/news-archive.html -- there you
can add CalCars-News to your RSS feed.)
LAST MONTH: As October car sales tumbled 20-40% compared to October
2007, and all retail sales went down 10-20%, raising the prospects
that auto sales will fall further for many months, more and more
analysts question US carmakers' long-term prospects. GM engaged in
several weeks of merger discussions with Chrysler, then pulled back
to concentrate on its immediate challenges. Automakers welcomed the
$25B in loans that were passed as part of the bank bailout bill.
First they asked the Energy Department to expedite its development of
regulations to govern the program. Then they said $25B wouldn't be
enough -- especially because the funds are not unrestricted, but
rather to support the "retooling" of the auto industry to build more
advanced cars. Now they seek $50B more.
LAST WEEK: House Speaker Nancy Pelosi and Senate Majority Leader
Harry Reid met with automakers met last Thursday and told them any
additional support was conditional on their evolving their products.
Pelosi and Reid also met with the autoworkers' union, and then wrote
a formal letter to Treasury Secretary Henry Paulson. (Text at
http://blogs.wsj.com/washwire/2008/11/08/pelosi-reid-letter-to-paulson-on-auto-aid/
.) They sought carmaker eligibility for loan funds from the $700B
bank fund for "temporary assistance to the auto industry" with
"strong conditions on such assistance in order to protect taxpayers
and maximize the potential for the industry's recovery. An automobile
industry that is forward-looking and focused on ingenuity,
competitiveness, and the creation of green jobs for the future is
essential to its long-term viability." They also suggested limits on
executive pay as well as equity stakes "to provide taxpayers a return
on their investment upon the industry's recovery." Pelosi and Reid
concluded with a call to "restore the preeminence of our domestic
manufacturing industry so that it can emerge as a global, competitive
leader in fuel efficiency and in new and path-breaking
energy-efficient technologies that protect our environment."
SPEAKING IN CODE: Now when legislators, journalists and analysts call
for "new" and "green" automotive technologies, they mostly refer to
plug-in cars. That's the result of all the efforts by advocates --
and, of course, carmakers' announcements that PHEVs and EVs will be
available globally in 2010-2012. Other solutions are less scalable,
less green, or more long-term because they that need new fuel
delivery infrastructures or technologies. These include the
relatively simple conversion of existing vehicles to be able to
accept ethanol blends. Of course, if they use corn ethanol, there's
little if any CO2 benefit, and we don't know when we'll get
cellulosic ethanol. And, influenced by Pickens' $56 million efforts,
they consider compressed natural gas, which still has the
inefficiency of internal combustion, and has only 20-30% lower CO2
than gasoline.
BARACK OBAMA WEIGHS IN. At his first press conference on Friday, the
President-Elect honed in on the issue, saying:
"The news coming out of the auto industry this week reminds us of the
hardship it faces, hardship that goes far beyond individual auto
companies to the countless suppliers, small businesses and
communities throughout our nation who depend on a vibrant American
auto industry. The auto industry is the backbone of American
manufacturing and a critical part of our attempt to reduce our
dependence on foreign oil. I would like to see the administration do
everything it can to accelerate the retooling assistance that
Congress has already enacted. In addition, I have made it a high
priority for my transition team to work on additional policy options
to help the auto industry adjust, weather the financial crisis, and
succeed in producing fuel-efficient cars here in the United States of
America. And I was glad to be joined today by Governor Jennifer
Granholm, who obviously has great knowledge and great interest on
this issue. I've asked my team to explore what we can do under
current law and whether additional legislation will be needed for
this purpose."
http://www.cnn.com/2008/POLITICS/11/07/obama.conference.transcript/
On CBS' Sunday Face the Nation, Obama's newly-named Chief of Staff
Rahm Emanuel said "there are existing authorities within the
government today that the administration should tap to help the auto
industry." And on Monday, Obama took the occasion of his visit to the
White House and his private meeting with President Bush to talk about
the auto industry in addition to the financial crisis and
international issues.
PROSPECTS FOR FEDERAL SUPPORT: President Bush indicated his
willingness to support additional measures, but tied it to Democratic
support for a controversial free-trade agreement with
Colombia. (Yesterday, GM stock lost 23% of its value, as analysts
questioned the company's financial position; its stock continues to
fall today.) Say tuned; meanwhile, here are some excerpts from NY
Times, Detroit Free Press and Wall Street Journal reports that lay
out the issues and implications (for the car industry, not for the
horse-trading):
"OBAMA ASKS BUSH TO PROVIDE HELP FOR AUTOMAKERS" The New York Times,
November 11, 2008, by Jackie Calmes
http://www.nytimes.com/2008/11/11/us/politics/11auto.html
The struggling auto industry was thrust into the middle of a
political standoff between the White House and Democrats on Monday as
President-elect Barack Obama urged President Bush in a meeting at the
White House to support immediate emergency aid. The Bush
administration, which has presided over a major intervention in the
financial industry, has balked at allowing the automakers to tap into
the $700 billion bailout fund, despite warnings last week that
General Motors might not survive the year. Mr. Obama and
Congressional Democratic leaders say the bailout law authorizes the
administration to extend assistance.
Separate from his differences with Mr. Bush, Mr. Obama has signaled
to the automakers and the unions that his support for short-term aid
now, and long-term assistance once he takes office, is contingent on
their willingness to agree to transform their industry to make
cleaner, more energy-efficient vehicles.
A week after Mr. Obama's election, and more than two months before he
takes office, the steadily weakening economy and the prospect of many
more job losses are testing his effort to remain aloof from the
nation's business on the argument that "we only have one president at a time."
The Democratic leaders in Congress, the speaker of the House, Nancy
Pelosi, and the Senate majority leader, Harry Reid, have declined to
call a lame-duck session for next week, as they had hoped, without
assurance that Mr. Bush would support a stimulus package.
Mr. Obama has called on the Bush administration to accelerate $25
billion in federal loans provided by a recent law specifically to
help automakers retool. Late in his campaign, Mr. Obama proposed
doubling that to $50 billion. But industry supporters say the
automakers, squeezed both by the unavailability of credit and
depressed sales, need unrestricted cash now, simply to meet payroll
and other expenses.
On Friday, Mr. Obama said he would instruct his economic team, once
he chooses it, to devise a long-range plan for helping the auto
industry recover in a way that is part of an energy and environmental
policy to reduce reliance on foreign oil and address climate change.
The major automakers -- G.M., Ford and Chrysler -- are each using up
their cash at unsustainable rates. The Center for Automotive
Research, which is based in Michigan and supported by the industry,
released on Election Day an economic analysis of the impact of one or
all of them failing. If the Big Three were to collapse, it said, that
would cost at least three million jobs, counting autoworkers,
suppliers and other businesses dependent on the companies, down to
the hot-dog vendors and bartenders next door to their plants. The
center also concluded that the cost to local, state and federal
governments would reach to as much as $156.4 billion over three years
in lost taxes and higher outlays for things like unemployment and
health care assistance. Separately, some economists say the demise of
even one of the automakers could tip the current recession toward a depression.
Organized labor is not the only interest group with influence in the
Democratic Party that is weighing in as Mr. Obama plans his
transition. Environmentalists are adamant that any aid be conditioned
on the auto industry's dropping of its opposition to higher
fuel-efficiency standards and investing more in new technology. That
puts them at odds with unions, who oppose any strings, leaving it to
Mr. Obama to mediate.
Both as a candidate and now as president-elect, Mr. Obama has been in
contact with former Vice President Al Gore, who last year won the
Nobel Peace Prize for his work on climate change. In a column
published in Sunday's New York Times, Mr. Gore wrote that "we should
help America's automobile industry (not only the Big Three but the
innovative new start-up companies as well) to convert quickly to
plug-in hybrids that can run on the renewable electricity that will
be available."
Mr. Obama has said that he wants to meet with the Big Three auto
executives, but advisers say no meeting is scheduled. Among his
advisers who have communicated with the industry chiefs and their
representatives are Jason Furman, the Obama campaign's economic
policy director; John D. Podesta, the head of Mr. Obama's transition;
and former Treasury Secretary Lawrence H. Summers, an Obama adviser
who is under consideration to be Treasury secretary again.
GM'S OUTLOOK TUMBLES; OBAMA, BUSH TALK AID, Detroit Free Press,
November 11, 2008 by Justin Hyde and Brent Snavely
http://www.freep.com/article/20081111/BUSINESS01/811110328
As Washington officials squabbled Monday over a $50-billion auto
industry bailout, Wall Street cast an alarming vote on the future of
General Motors Corp., driving the company's shares to their lowest
value since 1949.
President-elect Barack Obama used his first post-election visit with
President George W. Bush to raise the prospects of a rescue plan for
the industry. Michigan's congressional delegation urged U.S. Treasury
Secretary Henry Paulson to use his powers under the $700-billion
financial industry bailout to provide immediate loans to automakers,
a request that the Bush administration did not appear ready to grant.
That lobbying came as a key analyst slashed his estimated price for
GM shares to zero, saying the company could run short of cash by
December and, even with government aid, shareholders are likely to
lose their investment. "Even if GM is able to secure immediate U.S.
government support, we believe that GM's predicament has the
potential to set in motion a sequence of events that would be
bankruptcy-like," said Deutsche Bank analyst Rod Lache. GM said it
was focused on cutting costs and seeking aid. GM, Ford Motor Co.,
Chrysler LLC and the UAW have asked for $50 billion in aid for the
industry -- $25 billion for general business use and $25 billion to
put toward the UAW's trust fund for retiree health care.
"It is our view that providing emergency assistance to this uniquely
important industry, which is struggling to meet the challenge of a
severe financial crisis that has spread far beyond Wall Street, is
consistent with the authority granted to you," Michigan's lawmakers said.
Deutsche Bank's Lache said GM's U.S. cash could fall to $5 billion by
December, which would not be enough to pay the supplier bills for
U.S. operations that will come due in January. In lowering his rating
on GM shares to "sell" from "hold," Lache said any government aid
likely would come with conditions that would lower or eliminate the
ownership stake of other investors, especially shareholders. Other
analysts took a similar view, even if their numbers were slightly
different. Barclays Capital equity analyst Brian Johnson said in a
research note that GM could face a bailout similar to Chrysler's 1979
deal, which required deep cuts by unions, managers, investors and
suppliers. "In any scenario, we see little value for current equity," he said.
After burning through $6.9 billion in the third quarter, GM said
Friday its cash could run low by the end of this year; the company
has said it needs between $11 billion and $14 billion to simply keep
its operations running. It has also warned that its outside auditors
could question its status as a going concern at the end of the year,
which would trip several triggers in debt agreements causing at least
$6 billion in loans to come due immediately.
Congressional Democrats called on the Bush administration over the
weekend to use a portion of the $700-billion financial industry
bailout administered by the Treasury Department to aid automakers.
The administration has said the only tool it has to help the industry
is the $25 billion in loans for fuel-efficient vehicles, which will
be disbursed over several months. Chrysler became the first Detroit
automaker to apply for a portion of the loans Monday; the company
declined to release details of its request.
The Treasury Department hasn't officially responded to Saturday's
letter from House Speaker Nancy Pelosi, D-Calif., and Senate Majority
Leader Harry Reid, D.-Nev., but White House spokeswoman Dana Perino
said Monday that the administration did not see how automakers could
fit under the program. Saving financial markets "is what Congress had
in mind when it passed that rescue package," Perino said. "There was
not discussion of specific help to auto companies during that debate,
and so Congress' intent was to help financial institutions."
Members of Congress did bring up aid for auto finance companies by
boosting the market for car loans during the debate on the bailout,
but did not address broader help for automakers. Perino added that
the administration would listen to Congress if it decided to provide
more help to automakers and suppliers. Sen. Carl Levin, D-Mich, has
vowed to write an amendment for the financial bailout to include
automakers and pass it as part of a lame-duck session. Pelosi has yet
to say whether the House will reconvene next week, saying she would
convene lawmakers only if the administration and Senate Republicans
agreed to an economic stimulus. There was no such agreement Monday.
"OBAMA PRODS BUSH TO AID DETROIT: WHITE HOUSE TALK IS CORDIAL, BUT
TROUBLED AUTO MAKERS WORRY PRESIDENT'S SUCCESSOR," The Wall Street
Journal, November 11, 2008, by Jonathan Weisman and John D. McKinnon
http://online.wsj.com/article/SB122633055060013799.html
President-elect Barack Obama met at the White House Monday with the
man he will succeed in January, and pressed President George W. Bush
to take immediate action to help stave off the collapse of the U.S.
auto industry and to aid the economy more broadly.
Mr. Obama's focus on the auto industry came as fellow Democrats on
Capitol Hill started moving on their own to help Detroit gain access
to federal rescue funds allocated for the financial sector. Sen. Carl
Levin of Michigan said Monday that he is drafting legislation, aimed
for quick passage, that would free up money from the $700 billion
Wall Street rescue for Detroit auto makers careening toward seeking
bankruptcy protection.
Obama aides spoke with congressional leadership aides ahead of the
meeting to discuss the two most pressing questions: How quickly could
Washington move to assist the U.S. auto sector, and whether a
lame-duck session of Congress next week could pass an economic
stimulus plan, which would then be in place before Mr. Obama's inauguration.
The Bush administration continues to be reluctant to intervene. While
the president-elect has called for immediate action, transition aides
say he is hesitant to assert himself too boldly in the process before
being sworn in as president. What Mr. Obama does not want, they say,
is to be saddled with responsibility for the crisis in Detroit before
he has the authority to do anything about it.
On Saturday, House Speaker Nancy Pelosi (D., Calif.) and Senate
Majority Leader Harry Reid (D., Nev.) asked the administration to
study whether it has the authority under current law to tap the $700
billion Wall Street bailout fund to aid Detroit, and if not, to tell
Congress what action is needed. Ms. Perino signaled on Monday that
the White House doesn't believe it has the authority, and won't act
without further legislation. "We have moved forward with what we can
do with the statutes that Congress has authorized," she said,
referring to an Energy Department loan program to help Detroit make
the transition to a more fuel-efficient fleet. "Congress will have a
chance to meet next week, and if they decide to move forward with
something additional, we will be able to listen to their ideas," Ms.
Perino added.
Sen. Levin has started working to address those White House concerns.
"If the Treasury Department rejects the suggestion of Pelosi and
Reid, and says the language is not flexible enough, a bipartisan
amendment to clarify the existing language is being prepared for
consideration during the lame-duck session of Congress," the senator
said in a statement.
(By the way, most analyses of the impacts of automaker bankruptcies
don't mention that contract provisions agreed to last year by the
autoworkers union include measures to protect workers' and retirees'
pension and health benefits -- but they won't won't get set up until 2010.)
-- -- -- -- -- -- -- -- -- -- -- --
Felix Kramer [EMAIL PROTECTED]
Founder California Cars Initiative
http://www.calcars.org
http://www.calcars.org/news-archive.html
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