Nov. 16 (Bloomberg) — U.S. automakers should not get $25 billion in proposed federal loans to save them from possible bankruptcy, Senator Richard Shelby, the top Republican on the Banking Committee, said.
“Companies fail every day and others take their place,” Shelby said on CBS’s “Face the Nation” today. “There’s not a bank in this country that would loan a dollar to these companies.”
Shelby’s opposition could complicate the already difficult prospect of passing legislation this year to aid General Motors Corp., Ford Motor Co. and Chrysler Corp. When Congress reconvenes this week for a lame-duck session, it will contend with different bailout proposals from Senate and House Democrats as well as the Bush administration.
Shelby and other Republicans could prevent the Democrats from getting the 60 votes needed in the 100-member chamber to bring the measure to a vote. Last month he failed to rally enough lawmakers to defeat the $700 billion financial industry rescue measure. Democrats control the Senate with a 51-49 majority.
House Financial Services Committee Chairman Barney Frank said he will push for $25 billion in loans anyway.
The measure “may not happen,” said Frank, a Massachusetts Democrat, on “Face the Nation.” Yet “the question is, how much pain do you inflict on an already very weakened economy by blithely saying, well, let them have Chapter 11” bankruptcy protection, he said.
A GM collapse alone would cost the government as much as $200 billion for costs associated with unemployment insurance and other programs after millions of auto-related job losses, according to a forecast from IHS Global Insight Inc. in Lexington, Massachusetts.
A GM shutdown would cost jobs among suppliers as well as at the automaker itself, pushing the U.S. unemployment rate next year to 9.5 percent, compared with current projections of as high as 8.5 percent due to the weakened economy, said Nariman Behravesh, chief economist at IHS.
Federal, state and local governments would lose $108.1 billion in tax revenue over three years in the event of a 50 percent reduction in U.S. automaker operations, according to a Nov. 4 report by the Center for Automotive Research in Ann Arbor, Michigan.
Some Senate Democrats favor getting the money for loans to automakers from the already-approved $700 billion financial industry rescue plan, a move Frank said he would oppose for now. Frank backs the idea of providing an additional $25 billion for the industry, while President George W. Bush supports a plan to provide $25 billion from Energy Department loans set aside by the 2007 energy measure to encourage more environmentally friendly cars.
Senator Carl Levin, a Michigan Democrat who supports using part of the $700 billion to help the auto industry, said he wouldn’t object to Congress requiring the resignation of company executives as a stipulation for the loan.
“If it was the difference between getting this kind of support or not, obviously the management should consider resigning,” Levin said on NBC’s “Meet the Press.”
Won’t Step Down
GM Chief Executive Officer Rick Wagoner, who has worked for the company for 31 years, told Automotive News last week he won’t offer to step down.
House Speaker Nancy Pelosi said yesterday that U.S. automakers need to restructure “to ensure their long-term economic viability.” Ron Gettelfinger, president of the United Auto Workers, said yesterday the government must provide aid before President-elect Barack Obama takes office on Jan. 20.
“Companies should commit to investing in green technologies” as a condition for getting the Bush administration proposal of $25 billion in loans, Commerce Secretary Carlos Gutierrez said today on CNN’s “Late Edition” program. “They also have to commit to either demonstrate that they are viable or commit to a plan that makes them viable.”
GM, Ford and Chrysler are using up cash as U.S. auto sales have fallen 15 percent this year through October. Detroit-based GM said last week it may run short of funds before the end of this year, and Auburn Hills, Michigan-based Chrysler said Nov. 13 that survival would be difficult without aid.
Ford, based in Dearborn, Michigan, burned through $7.7 billion of cash reserves during the third quarter. Chief Executive Officer Alan Mulally said Nov. 7 that Ford has “sufficient liquidity.”
Last Updated: November 16, 2008 14:21 EST
By Jeff Bliss