The stakes are extraordinary, with two of Detroit’s Big Three — General Motors Corp. and Chrysler — near bankruptcy and a third, Ford Motor Co., at risk of being pulled down. Unlike the banking industry, the carmakers have no strong in-house champion like Treasury Secretary Henry Paulson or Federal Reserve Chairman Ben Bernanke to help make their case. In fact, the companies’ task is that much harder because of the greater anti-bailout sentiment in Congress now following Treasury’s use of the rescue funds approved this fall.
Detroit begins then at a disadvantage and without a solid majority for the $34 billion in government loans it’s seeking. Senate Majority Leader Harry Reid (D-Nev.) warned as much Wednesday, and this remains the assessment of Senate Banking Committee Chairman Chris Dodd (D-Conn.), who is hosting Thursday’s hearing.
But the White House and Democratic leadership are also watching the two days of hearings in hopes of some political shift. And if the industry can establish a foothold, the pressure will mount on all sides — including Obama — to engage more fully to find the needed financing.
The United Auto Workers set the new tone Wednesday by offering labor adjustments to reduce costs, most directly impacting GM. A small army of auto-parts makers is coming to Washington to lobby, and the Big Three CEOs have undergone a personality change since their disastrous hearings last month.
Corporate jets are out; hybrid cars are in, along with admissions of errors and even apologies.
Suspicions remain, to be sure, given the industry’s checkered past. Does privately-held Chrysler want its $7 billion loan to survive — or help it to be sold? If GM needs $4 billion just to get through December and possibly $15 billion before the end of March, what was it doing — and not saying — just weeks ago when it was before the same committees?
â€œThese guys never put all their cards on the table,â€
But with new unemployment numbers out Friday morning, the fate of an industry that affects 3 million jobs is very real; rarely have two Capitol Hill economic hearings been so important politically.
“This is a dramatic example of circumstances coming to a head,” Rep. Sander M. Levin (D-Mich.) said in an interview. “Nobody wrote the script this way, but it’s coming to a conclusion.”
President-elect Barack Obama is pictured during a news conference in Chicago, Wednesday, Dec. 3, 2008. …
Within the administration, there has been increased activity, including high-level meetings Wednesday, and Commerce Secretary Carlos M. Gutierrez has been in regular contact with the companies. “Things are going to have to give soon,” Gutierrez told Politico. “People know that. No one wants these companies to fail."
If Obama comes off the sidelines, one logical leverage point is the second half of Treasury’s $700 billion financial markets rescue fund. Paulson is down to his last $15 billion from the first $350 billion, and preparations began last week in case he wants to ask for the second.
No final decision has been made amid indications that the administration is watching the process play out with the auto hearings this week. But if Paulson and the White House should proceed, it would almost certainly include consultations with the incoming Obama Treasury team and open the door to talks with Democratic leaders.
The second $350 billion is a shared responsibility between the two administrations, and Obama has real standing if he wants to use some of the money to help finance auto loans — like those already given to the financial giants. The White House has resisted, fearful that this will open the floodgates to more demands from other industries. But publicly held GM and Ford will argue that their survival is linked to the same financial markets — and the collapse of the auto industry would affect domestic banks and retirees.
House Republicans are increasingly hostile toward Paulson; in a letter released Wednesday, top leaders chastised the secretary for his handling of the rescue funds. Getting Republican votes in the House for the package was never easy, and Minority Leader John A. Boehner (R-Ohio) has warned Treasury that there is far less support now for releasing the second $350 billion.
Despite his Midwestern roots, Boehner has hung back in the auto debate, leaving House Speaker Nancy Pelosi out front alone. Never a natural ally for the auto companies given her environmental priorities, the California Democrat again said Monday that bankruptcy was not an option. But her first preference is for Treasury to take executive action with the funds and power it already has. And she has repeatedly scotched an administration proposal to divert money from a $25 billion Energy Department loan fund supporting investments in advanced technology and retooling auto plants to produce energy efficient cars.
Desperate for relief, the companies have given tacit support to this approach, but in fact their own restructuring plans — submitted Tuesday — are heavily dependent on the same dollars. Chrysler alone wants more from these Section 136 funds than it is asking for in bridge financing, and, all together, the Big Three list applications for $21.9 billion of the $25 billion approved this fall.
This would seem to strengthen Pelosi’s stand and force the issue back toward some compromise that would use at least some of the monies available to Treasury. Getting support for entirely new appropriations would be very difficult at this stage, and the atmosphere is a world apart from those pre-election days when Congress quickly approved the 136 funding as part of a stop-gap bill at the end of the fiscal year.
“Maybe that’s the problem,” said one veteran House staffer, assessing the industry’s once cavalier attitude. “Getting the first $25 billion was too easy.”