As yesterday’s Senate hearings wound down, it was hard not to be impressed with how pragmatic the conversation had become. By DC standards, at any rate. But any hope that the second day of testimony would build on the previous day’s momentum was misguided. Far from picking up on the previous day’s progress, the House Financial Services Committee testimony and questioning returned the conversation to step one, in a flurry of irrelevant posturing and evasive non-answers. Backsliding and tangential wanderings notwithstanding, we did learn a little more from today’s hearings.
When Rep Barney Frank gaveled the House Financial Services Committee to order, he began by noting that consensus that had been reached on the need for reorganization, changes in product mix and union concessions. This positive start was followed by immediate disappointment. Frank spent the rest of his opening statement explaining that bankruptcy wasn’t an option, and that the financial bailout made it somehow morally impossible to turn Detroit down.
Following Frank’s opening salvo, Pennsylvania Democrat Paul Kanjorski highlighted Moody’s Money Man Mark Zandy’s estimate of a $75b-$125b total bailout price tag. “We need a solution, not a first payment,” Kanjorski said. He matched Frank rhetoric for rhetoric: a Detroit bailout would bring lines of businesses to DC’s demanding the same congressional favors. The divide between the speakers– from members of the same party, no less– showed just the distance traveled from yesterday’s apparent consensus.
Not that the witnesses were worried about the re-do. Rather than preparing new statements reflecting the previous day’s debates, all three executives and their UAW compadre recycled the exact same statements they’d made before the Senate the day previous. The folksy one-liners, such as Mullaly’s invitation to “come over and kick the tires” and Gettelfinger’s “bridge to a brighter future” bon mot, were repeated with the same insincerity.
But why would the supplicants remind the lower house of congress that their more distinguished colleagues had all but damned Detroit to a four-month crash reorganization? By returning to their opening bid, they allowed the committee members to break the discursive trajectory, and head in their most favored directions. This being the house of representatives, the oportunity was not ignored.
A particularly egregious example: the opening statement by Rep Donald Manzullo (R-IL). His suggestion that automaker plans should include a request for an auto demand stimulus would do nothing to address the core issues: short-term cash infusion and long-term reorganization. Luckily, his remarks were easy to ignore, thanks to his insistence that workers in his district built “the world’s finest compact autos, the Caliber, Patriot and Compass.”
Rep Ron Klein (D-FLA) raised the specter of American Leyland, arguing that research and development for The Big 2.8 should be brought “physically under one roof,” so the American taxpayer would “understand that they were getting something tangible.” Of course, rather than referencing the failed British state conglomerate, Klein introduced his proposal as Ye Olde Manhattan Project. Knowing it would never happen, the plan was enthusiastically endorsed by all three CEOs. GM’s Wagoner insisted that this kind of collaboration and government support is “why the leaders in battery technology are in Japan and Korea.”
On a more substantive front, several representatives were less-than-enthusiastic about GMAC and Chrysler Financial’s plans to attain bank holding company status to “liberate” Troubled Asset Relief (TARP) funds. As we’ve pointed out previously, Detroit has largely survived thus far by creating a “subprime auto loan” market which is no longer sustainable. Yes, well, Toyota and Volkswagen have lenders with bank status, so these concerns disappeared in another blinding flash of relativism.
But for every Spencer Bachus and Barney Frank arguing for expediting bank status, there was a Manzullo saying “you’re there to make cars, not run a banking operation.”
Rep Thaddeus McCotter made a run at the Bob Corker award, by proclaiming a “solomonic” [sic] compromise. Unlike Corker’s far-reaching, pragmatic proposal, McCotter simply suggested splitting the expense between TARP and the section 136 (D.O.E. retooling) money.
The man the DetN likened to Winston Churchill (although they don’t share an antipathy to passive construction and misplaced prepositions) pronounced that “opposition in Congress is not to the idea of helping the automakers but rather to where the money would come from.”
The fact that only $7b of the 136 money is currently available didn’t give McCotter pause. Nor will it stop Congress. In an earlier exchange, Frank swept aside concerns that rash action on debotr seniority could undermine the entire basis of America’s credit system. “We wrote the bankruptcy laws,” Frank snapped. “We can change them.”
Probably the only common thread from yesterday’s hearing was a deep contempt for Chrysler. At this point it seems fair to stick a fork in a certain well-cooked three-headed dog. Nardelli faced yet more contempt on the “if it’s such a great plan why don’t you get your Mr. Moneybags owners to put up the damn money?” front. His answer, “they haven’t shared that with me,” convinced no one.
Rep Kanjorski got all three failed automakers to agree that they could survive 90 days on $14b worth of “bridge bridge” loans, with Chrysler getting $4b, GM getting $10b and Ford getting nothing. This will allow a government brokered agreement. The Congress recognized that extracting the major concessions needed from all the automakers’ stakeholders (where did I put my Buffy?) to create a mega-bailout ain’tgonnahappen.com.
Expect these funds to be appropriated fairly quickly, with a government oversight board assigned to guiding major reforms. Based on the evidence of today’s hearing, there are no guarantees that a coherent vision for the industry will emerge in only three months. And so it goes.
Donald Manzullo is R-IL, not R-IN.
Santa…I want 14B for Christmas..
Thanks motron, fixed.
Please just list him as a Representative; don’t associate him, or those cars, with Illinois.
Also, Corker’s “compromise” was just him getting completely manipulated by Dodd. When Corker was talking Chapter 11 I was impressed, but his proposal to put a March “ultimatum” on the automakers is idiotic in the assumption that the “ultimatum” will really matter.
After January 20 the big-3 are in the clear with a blank check, any “ultimatum” will be out the window.
Right now I’m hoping the compromise will be to give GM support in exchange for letting Chrysler go Chapter 7.
I’m not sure how all this is about “jobs”. Aren’t the jobs based on how many cars are sold and not how many car companies there are? If we’re going down from 16M to 9-10M cars, those jobs are going to go. They’ll either go vertically (losing a company or two) or they’ll go horizontally (taking a slice from everyone), but either way they’ll go won’t they? Unless they’re paid NOT to make cars…perhaps we should get the Dept of Agriculture on the line.
Re: HeBeGB “Unless they’re paid NOT to make cars”
Been there, done that. It’s called “the jobs bank”.
Tex
Wagoner even went as far as to say that this kind of collaboration and government support is “why the leaders in battery technology are in Japan and Korea.”
Collaboration? Between Honda and Toyota? Are you kidding me?
Yeah, its not like the US government ever gave GM money to build the EV-1, which GM gave up on and crushed…
oh wait.
I believe yesterday’s Senate Banking Committee hearings, except for the “ANY BAILOUT IS A SELLOUT!” chanting from the cheap seats for about a minute, was a high-water mark for the congress. The Senators were well read, clearly had spoken with many experts on the subject, asked insightful and well-reasoned questions, and generally got a lot out on the table. Dare I say aides must be tuning in to TTAC for some clarity of thought?
Quite disturbing was the fact that General Motors has 66 Billion dollars of debt with assets that would probably bring no more than 2.5 Billion dollars at auction.
To have debt 25 times larger than ones assets is mind boggling. Spending TWICE what one has is somewhat of a marvel; how in the frigging world did they manage to spend 25 TIMES what they have???
To those who say GM is burning the furniture to keep warm: No. They are way past that. They’ve burned the whole house and are now sitting on the ground around a rapidly dimming pile of ashes.
To those who say “We are trying to save a 5-Star hotel!”: No. You are trying to save an abandoned, burned out old gas station. There ain’t nothing there to save.
General Motors isn’t just bankrupt, they are PROFOUNDLY bankrupt.
The solution began coming clear in the Hearings: convert more than half of this totally unpayable debt into equity and CH11 bankruptcy in everything but name.
This is all just re-arranging the deck chairs on the Titanic until the CAFE gets dumped in favor of a $50/barrel tax. (We’ll talk more about this later.)
Oh, man. I still can’t believe this is actually in Congress. These three pan-handlers should be in a bankruptcy court now; Not asking for tax payer money. It makes me pissed, as I’d never put money on an American car. Never have and never will unless the Government makes me. Darwin was correct in that the fittest survive, and the American auto manufacturers are failures. Ford is the only one with a chance, and the other two are doomed to go under eventually, so why throw good money after bad? Business 101 says not to.
M1EK: Collaboration does occur to develop basic core technologies, but then the implementation of the technology for each manufacturer is unique.
Electrical storage technology is a good example of this. You could have numerous manufacturers collaborate on the development of materials and standards for high-energy-density batteries, but then the packaging, power management, monitoring, and charging implementations would all be unique to each manufacturer’s vehicle, each one optimized for that vehicle’s purpose.
@06M3S54B32:
C’mon man. You just haven’t tried the Kool-Aid. Here, take a drink. It’s really good. One sip and you too will be convinced it’s all about saving jobs.
Now, c’mon down and kick some tires at a Ford lot.
The House Bankng Committee hearings will be re-broadcast at 8 Eastern on C-Span this evening. Round up a half-rack of Longnecks and tune in.
what about giving ALL of the money to Ford. they are the ones with the best shot why not make them extremely strong right now so once all this blows over they come out on top. that idea almost sounds like an Investment rather then a handout.
Chrysler is a waste. they should just excuse Nardelli from the hearings.
What’s the House Financial Services Committee doing conducting these hearings anyhow? How is carmaking financial services?
So a private equity firm gets 4B of our money, the worst CEO in America gets 10B, and Ford gets nothing but rules the other two are going to live under for a short spell?
Alan got raped on this one. At least they could have gotten what the Dog got, I mean fair is fair. And if the Union has to give in to all three, what happens when they post a profit? Will the Union be first in line or the taxpayer?
….for anybody that thinks labor will “cooperate”
this is from the Soldiers of Solidarity web site…
Live Bait & Ammo #116: Legacy Cost, a Smokescreen for Fraud
The media keeps reporting that GM workers make on average $70 per hour in total compensation, and that Toyota workers only make $45.
The $25 difference is attributed to legacy costs.
Legacy benefits were earned in the past. Tacking compensation earned in the past onto active workers in the present is deceptive bookkeeping.
Since legacy benefits were earned in the past, why are they now charged to workers in the present?
Since GM included the cost of deferred compensation in the price of cars sold in the past, why are they charging customers for that cost again?
Since the compensation was deferred, was any of that money put into a trust fund?
If so, didn’t GM get tax breaks for money deposited in the trust fund?
What happened to the trust fund?
Should the victims of fraud be blamed for destroying the American auto industry?
Management, not labor, is responsible for legacy cost. Management, not labor, is over compensated in comparison to foreign competitors.
“In the fiscal year that ended in March 2007, Toyota’s top 32 executives — a group that included CEO Katsuaki Watanabe — together pulled in $7.8 million in bonuses on top of salaries of $12.1 million. For the comparable period, one single GM exec, CEO Rick Wagoner, raked in $10.2 million.” [www.toomuchonline.org/tmweekly.html]
In 2008 Wagoner got a $5.3 million dollar raise.
Economist David Gordon in his book “Fat and Mean” said, “In the 1980s, by common measures, the proportion of managerial and administrative employment was more than three times as high in the United States as in Germany and Japan.” Gordon points out that in the US we have a higher percentage of supervisors than Germany, Japan, and Sweden combined.
According to Gordon, 20% of the purchase price of every product made in the USA goes to supervisors and monitors, not including secretaries and assistants and bean counters. In other words, when you buy a $20,000 vehicle, $4,000 goes to pay for the burden of supervisors, managers, and executives whose sweatless efforts add no value to the product. Less than 10% of the purchase price can be attributed to assembly line workers.
Perhaps the biggest question is: Why doesn’t Ron Gettelfinger, the President of the UAW, raise these issues?
Why doesn’t he defend the reputation of his members?
Why doesn’t he publicly acknowledge that the legacy cost mantra is a smokescreen for fraud?
Stay Solid, Gregg Shotwell
Huh? Just what we don’t need, indecision, delay, ingrain the uncertainty of these Companies surviving or not which ensures nobody will buy their cars (especially Chrysler, after what has been said) AND quite possibly, lose these billions like a giveaway!
Meanwhile up here in Canada the same motley crew’s minions have just demanded well over 2 TIMES per capita more money from the Canadian governments than they are asking in the US. This on a day where Canadian job losses as a percentage of employment for the month of November were way higher than in the States.
Approved…pull up to the next window.
No question, today’s hearings were a waste. Seriously, the House seems intent on demonstrating the intellectual inferiority of its members. Regardless, it appears some sort of deal will be made, according to the latest wire reports. That’s no surprise, except for mention of Chrysler as one of the handout recipients. I just don’t see this whole scenario working out positively for anybody.
The posturing of the Reps was annoying to watch, as they worked feverishly to eat up 4.5 of their 5 minutes allotted to grandstand on their soapboxes. This is clearly the dysfunctional group of Congress, despite Frank’s rigid logistical rule. The Senate hearings were far more productive.
The particular ass chapper for me was listening to the “gentleman from New York” Carolyn Maloney pine for her patchwork-state’s California Emissions fetish. Not to take the defensive line of the automakers, but pipe-dream fingersnap solutions had no place in this week’s meetings where serious and pragmatic decisions need to be made. Furthermore, this “holier than thou” attitude that states like California and NY dangle over the rest of us in the “who needs em” flyover states makes me sick, especially when their logic is completely devoid of, well, logic. I have a big, Minnesota-sized “eff-you” for their hairbrained, condescending ideas.
Here is the Deal:
Chrysler is cut loose. They can sell the few good bits: Jeep Wrangler and Grand Cherokee, the Minivans, and the Ram factory. The rest: liquidation. This will all be done through a C11. The dealers and the union have to be crammed down before they are flushed down the WC.
GM: DiP financing. GM files C11 and Uncle Sugar puts up the DiP financing. GM gets new top management. GM sells Buick to SAIC, sells or shuts Pontiac, Saturn, Hummer, SAAB, Shuts GMC*. Chevrolet and Cadillac are the survivors. They probably ought to be spun off as completely separate companies. Open questions on foreign operations.
*Why has GM sold the same vehicles under two different labels? It is so profoundly stupid that must be diagnostic.
Ford: TARP buys $4B in preferred stock. Ford family abolishes dual voting common stock structure. UAW agrees to cram down legacy costs and take stock in payment. Dealers must die, so Congress must override state franchise laws.
UAW: Gregg Shotwell is mostly right … but it makes no difference. If the union had wanted to put the money for the deferred benefits into a trust, it would be there. They didn’t, it is too late, and the unions and their members can get into a very long line of creditors in the GM and Chrysler C11s. They will have to give Ford as good a deal as the GM workers get or face a C11 and a pissed off Congress.
I’m trying to figure out why the Intrade bailout contract price dropped from 33 to 10 at about 9:00 this evening and is now trading at about 6.
Goin’ to bed now… if anyone knows, do a post and I’ll check in the morning.
oh, I’m in Orlando now. Goin’ to Epcot tomorrow, and I’ll ride the Test Track. I’ll snap a few pics…
CNN reports that the latest job loss figures seem to tilt things in the automakers favour.
But we are not acting for executives’ sake; we are acting on behalf of the workers and their families. This week’s hearings have made clear that we cannot let these companies fail.”
So, basically they are turning these companies into welfare agencies. Makes sense I guess, if I were in government I wouldn’t know what to do with thousands of suddenly jobless either.
Ford is making quite a play here – by stating they do not need a bailout now, they will be drawing customers that are furious over Congress throwing tax dollars left and right.
Yes, they’ve stated they might want a credit line to draw on, but don’t know whether they’ll need it …
@CarPerson
To have debt 25 times larger than ones assets is mind boggling. Spending TWICE what one has is somewhat of a marvel; how in the frigging world did they manage to spend 25 TIMES what they have???
That’s what international finance is for. It all became ridiculous, and it’s all falling apart. It began with sensible lending, to fund expansion. Then it became bridge loans, and then they sequed into tricky accounting in order to keep paying dividends and fund executive options packages and bonuses.
GM hasn’t made an honest dollar in over ten years.
The news is reporting that George Bush has agreed with Nancy Pelosi and Harry Reid on a $14B to $17B bailout using the $25B earmaked in the financial services bailout for new energy-efficient cars.
I thought George Bush was finally showing some sense in his last few weeks in office by opposing the carmaker bailout. What an idiot he turned out to be. Wars in Afghanistan and Iraq, financial meltdown, and now socializing the economy. I’d move back to Japan except their government is even more f***ed up.
Of course, rather than referencing the failed British state conglomerate, Klein introduced his proposal as a “Manhattan Project.”
Klein should be reminded that the first Manhattan Project created a massive toxic crater. Just like this one will.
How are the Detroit three ever going to be satisfied even in the short term,with a lot less money than they asked for? More plants getting terminated?
The Big 3 have asked Canadian governments for $7 Billion in loans, bailout money, whatever. They said this was in proportion to what they asked for in the US. Lemme see, a country of 30 million, versus a country of 300 milion. That would equate to $70 billion.
Maybe we have proportionately more Big 3 activity here than in the US, don’t know, but that sum seems amazing to me.
Now that $14 billion seems to be the amount Congress is presently willing to donate to Wagoner’s downward spiral, it doesn’t seem too likely that this request will be granted here.
Not that it matters, but the proportion they’re referring to is percent of production, I think.
On Friday, Ms. Pelosi said she would allow that money to be used provided “there is a guarantee that those funds will be replenished in a matter of weeks” and there was no delay in working toward greater fuel efficiency.
What a crock. Within a matter of weeks? I’m no MBA, but where are they going to find the money to replenish billions in weeks? What a farce.
They finally did it! Congress now given the feeling of being very powerful is content to hand over $14-$17B now with no strings and untold billions later, even to Cerberus.
There is no doubt in my mind that GM is toast. They owe so much (senior) debt that even with a C11 they will never be able to pay it back, even at 10 cents on the dollar. Without a C11 they cannot get rid of the brands, dealers, and the UAW contract to get competitive again. So they are screwed. They waited too long. Chrysler is in much better shape vis a vie brands/dealers (but that’s not saying much), and because of it’s size is easier to turnaround. But they are owned by a firm that has lots of money and should at least put up part of it or collateralize something of theirs in return. Ford is in the best shape, but that does not in any means guarantee that they will turn things around.
If congress had any real guts they would seize Chrysler’s assets from Cerberus and make them a ward of the state for stated period of time. If they can get their act together they are spun off. If not the pieces can sold to the highest bidder. That would get Gettlefinger’s brain focused like a laser beam on working with management.
The big question: when does the economy turnaround, when does credit become available for auto loans. If the market stays at 12m or lower it may not matter what the government or the automakers do. It seems that we need a market of at 14m to keep them viable.
Was any mention made in these hearings about state franchise laws?
$14 billion down the drain, more jobs and regressing about to take place, and still no reduction of 5000 dealers that GM needs.
To me the dealer franchise fiasco is so glaringly ridiculous that the state laws should be overturned. But, I know nothing about the separation of powers between federation and states in the US, and what’s possible.
Let’s face it, if a company could just drop dealers at will, then the Big 3 wouldn’t have too many today, and prouct lines would have evolved to the situation.
Also, there is no clear answer to the question whether Chapter 11 re-org would allow a manufacturer to drop a dealer, at least on TTAC. Many assumptions, but no clear answer.
In the future, if we buy on the Internet and just need a place to pick up and service a car, then Toyota’s present 1700 dealers will be a significant millstone hung around their neck. They’ll be stuck just like the Big 3 today.
In these days of world “free trade”, the antithesis of free trade within the borders of the USA seems anachronistic, and promotes only the development of new business ideas without cutting out the old stuff that doesn’t work any more. Old businesses are left to twist, turn and die in the winds of fortune with no hope of change.
To that extent, government is responsible for not leveling the business playing field.
The Senate hearing partially restored my faith in politics, in that were a number of reasonably sharp senators, especially Mr. Corker.
The Congressional hearings on the other hand were an endless parade of arrogant, lightweight, empty-suited dunderheads.
It was an epiphany however. …a life changing event.
I’ve determined if some of these knuckleheads can wreak havoc in the halls of Congress, so can I.
In fact I’m announcing here on TTAC that I’ve decided to quit my job and run for Congress.
First, I have to relocate to either Berkely Ca or some trailer park in Alabama. (Haven’t decided which yet; have consultants determining where the stupidest constituents are).
The hallmark of my platform will be that I’m going to streamline the ongoing transfer of wealth in America.
My plan is to do away with the myriad programs, bureaucracies, and red tape it currently takes to move massive amounts of money from the “haves” to the “have nots”.
I will issue an official Bureau of Engraving and Printing printing press to every citizen over the age of 18. (Illegal aliens get one per family; residents of the Grosse Pointes, Hyanis Port, West Palm et al, none).
Voila! Federal bureaucracy streamlined. Credit crisis solved. Everyone just prints what they need – honor system of course. Brilliant if I say so myself!
Thing is they’re still going to have to “liquidate” more than 1/3rd of their workforces to stay afloat, quickly. So even if they do get a bailout, it’s not like everything will be ok again.