The head of the Senate Banking Committee said Thursday that if the U.S. government can spend hundreds of billions of dollars to bail out the financial industry then $34 billion in taxpayer money should be used to rescue Detroit’s Big Three automakers.
Witnesses appearing before the panel in the crowded hearing room argued emphatically against the automakers declaring Chapter 11 bankruptcy as an option for restructuring, saying bankruptcy would do more harm than good.
Mark Zandi, chief economist for Moody’s Economy.com, recommended that Congress appropriate the $34 billion because a government response is “vitally needed.”
But he warned that although $34 billion may not be enough, Congress should make it clear to the carmakers that “no more government loans will be forthcoming.”
There was no immediate indication that the committee would draft legislation accepting his recommendation despite friendly questioning and an endorsement of financial help for the ailing industry by Sen. Chris Dodd, D-Conn., the panel’s chair.
But he served notice that such assistance must be accompanied by “tough conditions.”
The committee held the hearing to determine whether Congress should extend a $34 billion loan to the auto industry at a time when lawmakers already have approved $700 billion to help the nation’s financial institutions. All of the loans to the carmakers would be repaid.
The Big Three’s chief executives first appealed to Congress for help two weeks ago but were told to return with a better plan to restructure their industry to ensure its viability.
Ron Gettelfinger, president of the United Auto Workers, said the union was ready to make sacrifices to help the industry and said the automakers would collapse unless Congress loaned them money.
“If the federal government can provide a blank check to Wall Street, it also can provide an emergency bridge loan to General Motors, Ford and Chrysler,” he said.
Sen. Charles Schumer, D-N.Y., echoed Mr. Dodd’s endorsement of the bailout but said he doesn’t trust the carmakers to supervise the restructuring.
“To hand over money without enforcement is not enough,” he said.
“We can’t let the industry fail,” Mr. Schumer said. Failure, he added, “would make a sick economy sicker. Bankruptcy is not an option. We need to do something, but not bankruptcy.”
Panel members focused on the mechanics of how the government could help the industry, perhaps using the 1979 $1.5 billion Chrysler loan guarantee program as a model. Gene Dodaro, acting U.S. comptroller general, suggested creation of an oversight board.
The CEOs of General Motors, Ford and Chrysler Robert Wagoner, Alan Mulally and Robert Narbelli, respectively — approved the idea of such a board when asked by Mr. Dodd.
In brief testimony, all three of them said their companies had restructuring plans in the works that included the production of gas-saving hybrid and electric vehicles.
Chrysler expects to have 500,000 electric-drive vehicles on the road by 2013, Mr. Narbelli said.
The respective CEOs said GM needed $12 billion in short-term loans plus another $6 billion line of credit; Chrysler needed $7 billion by the end of December; and Ford wants access to $9 billion, which Mr. Mulally said is “something we hope not to be able to use.”
Mr. Dodd said that if the federal government can spend $150 billion to bail out the American International Insurance Group, $30 billion to help Bear Stearns, and $200 billion to save the mortgage houses of Fannie Mae and Freddie Mac, “then there ought to be a way to come up with a smaller amount” for the automakers.
He said the money given to the financial institutions by the Treasury Department was handed over “remarkably free of conditions.”
“The largest financial companies are the largest culprits in causing the crisis,” Mr. Dodd said of the economic meltdown.
He said the financial plans presented by the Big Three to the committee Tuesday were “not perfect by any means.”
But, the senator said, the “auto companies have done far more than the financial companies to show that they deserve taxpayer support.”
He said action must be taken “to help the auto companies and American workers.”
Mr. Dodd said the committee must decide the answer to three questions:
— Are the auto companies in dire straits?
— If the automakers fail, what are the consequences for the U.S. economy?
— Does the U.S. government have an obligation to help the carmakers?
Failure of the auto industry, a mainstay of the U.S. manufacturing sector, would mean major losses to the economy, Mr. Dodd said.
“Those consequences would be severe and sweeping,” he said, causing the losses of hundreds of thousands of jobs.
Further, the Connecticut Democrat said, pension obligations alone for the autoworkers would run into the hundreds of billions of dollars.