Automaker Bailout

On December 19, 2008, the U.S. government agreed to give Chrysler and General Motors a $13.4 billion dollar emergency loan to help the financially strapped companies stave off bankruptcy. The plan, announced by President Bush, requires the companies to undergo aggressive restructuring. Bush said "allowing the U.S. auto industry to collapse is not a responsible course of action."¹ The funds will be drawn from the $700 billion Troubled Asset Relief Program (TARP). According to the Bush administration, GM and Chrysler could be eligible to receive an additional $4 billion in February 2008. Under terms of the rescue plan, automakers must demonstrate financial viability by March 2009.²

Fast Facts

1. American automakers Ford, GM, and Chrysler known collectively as the "Big 3"
2. Federal government providing $13.4 billion initial emergency loan for Chrysler and GM
3. $14 billion bailout rejected by the U.S. Senate on December 11, 2008
4. Ford has refused bailout money³
5. Final vote was for much less than the $34 billion originally requested by the automakers⁴
6. General Motors warned on December 3, 2008, that without a bailout, the company may not see 2009⁵
7. Representatives from GM, Ford and Chrysler first met with lawmakers during the week of November 17, 2008
8. Executives were criticized for traveling to Washington in multi-million-dollar private jets⁶
9. Congress has already pledged $25 billion in funds to retool and modernize aging factories⁷
10. Barack Obama discussed the issue with President Bush during their November 10 White House meeting⁸

Private Jet Controversy

The use of private jets by the CEOs of the major American automotive companies as they headed to Washington to ask Congress for bailout money has drawn heavy criticism. Democratic Representative Gary Ackerman compared it to showing up "at the soup kitchen in a high hat and tuxedo," and asked the CEOs if they could have jet-pooled to Washington as a cost-saving measure.⁹ Republican Peter Roskam, in response, queried the executives as to whether or not they'd be willing to work for salaries of $1 a year until the companies were again financially stable. Washington Post columnist Dana Milbank noted that the executives could have taken any one of 24 non-stop flights from Detroit to Washington DC.¹⁰

Congressional Demands and Accountability

After lawmakers first met with representatives from the "Big 3," House speaker Nancy Pelosi, Senate majority leader Harry Reid and other high-ranking Democrats held a press conference on November 20, 2008, to discuss the possibility of a bailout. Reid and Pelosi asked the company executives to produce a viable and reasonable plan by December 2, detailing how the bailout money would be spent. During the press conference, Pelosi said, "Until they show us the plan, we cannot show them the money."⁶

The day before the tentative deal was struck, the automakers submitted their plans to Congress detailing how they would spend proposed bailout funds provided by the U.S. government. All of the companies claim that they will not be able to survive without some form of federal bailout.⁷ Congress has already committed $25 billion for retooling plants in Detroit, but the automakers are seeking billions more in bridge loans to keep their companies from filing for bankruptcy.⁷

Current Status of the Car Companies

Automobile manufacturers internationally are facing bleak sales outlooks and stock drops. Sales for Honda, Toyota and Nissan were down 43%, 40% and 66% respectively.⁷ However, the Big 3 are feeling the worst of the downturn.

GM reported a 3rd-quarter loss of $2.5 billion in November 2008, and announced it will cut an additional 10% of its workforce in addition to the 20% already planned.^{11 7}

GM is believed to be the worst off of the Big 3, and has stated that it may require up to $12 billion of the bailout money. Even then, Chapter 11 Bankruptcy may still be a possibility according to some analysts.¹²

Ford executives had refused bailout money, and will instead rely on a $23.5 billion government credit the company received in 2006 to stave off bankruptcy.³ The plan was approved by the U.S. House of Representatives on the evening of December 10.¹³

On December 11, 2008, members of the GOP filibustered, and the bill to bail out automakers failed. The Senate voted, but Democrats could only muster 52 votes, eight short of that required to overcome the filibuster. On December 12, 2008, the White House promised to consider using TARP funds to bail out the automakers.¹⁴

On December 12, 2008, one day after Senate Republicans sank the proposed automaker bailout, the Bush administration indicated it would consider using some of the $700 billion Wall Street bailout fund, specifically the Troubled Assets Relief Program (TARP), for emergency aid for the automakers.¹⁵

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