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Auto Deal Falls Apart

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Auto Deal Falls Apart

Politics

Auto Deal Falls Apart

Auto Deal Falls Apart

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The auto bailout had the support of a majority in Congress, yet the deal fell apart. On Thursday, the measure to provide struggling automakers with a $14 billion emergency loan failed after opposition from Senate Republicans.

ROBERT SIEGEL, host:

The 110th Congress ended last night not with a bang, but with deadlock. Hours of negotiations failed to produce a bailout plan for General Motors and Chrysler. White House officials now say they'll consider using money from the TARP, the multibillion dollar fund that was intended for financial companies. Today, as NPR's David Welna reports, two senators who tried to forge the deal - one, a Republican, the other, a Democrat - offered different versions of what went wrong.

DAVID WELNA: In the Senate saga of the failed auto firm bailout, there's one senator who stands out as a driven deal maker.

Senator BOB CORKER (Republican, Tennessee): It's almost surreal to me today that we didn't reach an agreement.

WELNA: That's Bob Corker, the freshman Tennessee Republican who came up with his own plan to save the car companies from doom. Corker convinced Senate Democrats that the plan they worked out with the House White would not win the support it needed from Republicans. So last night, he found himself negotiating in an ornate Senate room with United Auto Workers representatives and two Democratic colleagues. His proposal simply put was that auto companies should get rid of two-thirds of their debt by March and unionized auto workers should agree to wages and benefits comparable to U.S. employees of Toyota, Honda and Nissan.

Sen. CORKER: I basically pleaded with them to give me something - give me some kind of language where we would know that at some point, date certain. They were, quote, "competitive, not parody, competitive with these other companies."

WELNA: But Corker says the UAW representatives would only agree to a plan to become competitive, not a date certain.

Sen. CORKER: Had we agreed on a date, any date that's reasonable? I think last night, it would have passed the Senate by 90 votes. I really believe that.

Senator CHRISTOPHER DODD (Democrat, Connecticut; Chairman, Senate Banking Committee): Well, I think there were a very strong minority in the Republican caucus that was determined that this blowup.

WELNA: That's Banking Committee chairman, Christopher Dodd. The Connecticut Democrat was the other lead negotiator trying to get a deal last night. He says Republicans who rejected the deal in fact, favored forcing the car companies into bankruptcy. For Dodd it wasn't just that these Republicans wanted a car czar forcing workers to take a wage cut.

Sen. DODD: But they were insisting that they agreed to it on a certain date knowing that that might be impossible. Thus, the czar would have to say the restructuring plan doesn't work. Thus, bankruptcy gets involved. So, this was the bankruptcy crowd. And they couldn't achieve it, so they tried one way, so they tried to achieve it the other.

WELNA: Dodd says Corker was given an impossible task by Republicans who asked him to craft a deal that could pass the Senate.

Sen. DODD: I just regret that the leadership having sent him on this mission was not willing to respect him when he came back, outlining what he thought were the parameters of something to get us a deal. And if perfection was supposed to be his goal, he was sent on a mission he could never complete.

WELNA: Still, both Corker and Dodd came away from the auto bailout ordeal with some new friends. Corker says he talked earlier today with UAW chief Ron Gettelfinger, who seems not to be counting on Congress anymore to help his industry.

Sen. CORKER: He believes he's gotten indications from the White House that TARP money is coming, and I think he believes that at this point, there's really no reason to carry the conversations any further. So I - he has of course, my number. I have his cell phone number.

WELNA: And Banking Chairman Dodd, has through days of talks, found new allies at - of all places - the White House.

Sen. DODD: Most of you know that I'm not at a habit of standing at a podium here and being complimentary about this White House. But I want to tell you, over the last 10 days, they were terrific. They brought very good people to the table. They negotiated in great good faith, in my view, had good ideas, became very knowledgeable, made very good suggestions.

WELNA: Dodd also said he trusts the White House will do now what he's long been urging it to do - tap the financial bailout funds to help the auto industry.

Sen. DODD: I'm very confident as I stand here before you this afternoon that the White House will not allow this industry to collapse.

WELNA: Dodd says he hopes a White House rescue of the auto industry could keep it going until March or at least until next month when a new Congress filled with many more Democrats is sworn in. David Welna, NPR News, the Capitol.

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Big Three Snubbed: What's Next For Automakers?

A security guard stands near a GM factory in St. Petersburg, Russia, in November, when it opened. Because GM has business outside the U.S., the suppliers might not play hardball with them to demand cash, according to Brian Johnson, a research analyst at Barclays Capital. Alexander Nikolayev/AFP/Getty Images hide caption

toggle caption
Alexander Nikolayev/AFP/Getty Images

A security guard stands near a GM factory in St. Petersburg, Russia, in November, when it opened. Because GM has business outside the U.S., the suppliers might not play hardball with them to demand cash, according to Brian Johnson, a research analyst at Barclays Capital.

Alexander Nikolayev/AFP/Getty Images

Congress failed Thursday to approve a $14 billion package for the Big Three automakers, leaving big questions about what will happen to the teetering companies.

General Motors and Chrysler are in particularly precarious financial situations, both warning they are close to running out of cash.

Against that uncertain backdrop, what is likely to happen to the industry?

Since Congress didn't reach a deal, the White House has said it is considering tapping money from the Troubled Assets Relief Program, or TARP, for the auto companies. How quickly could this happen?

The money could get to the companies immediately if the White House approves it. The $700 billion bailout that was signed in October was broken into two chunks of $350 billion. There is about $15 billion left of that first batch of money. Congressional approval is required if the White House needs to tap the second $350 billion.

In a news conference Friday, Press Secretary Dana Perino said the White House will "consider other options if necessary ... including use of some of the TARP; that's one of the options."

If the money is approved through TARP, the money could get to the auto companies in a matter of days.

What further concessions, if any, can the UAW make to help the Big Three survive?

United Auto Workers President Ron Gettelfinger said on Friday that if the White House steps in to rescue the auto industry, then the union won't necessarily have to make additional concessions, such as wage cuts, for the industry to be eligible for federal funds.

That's because the Bush administration gave its nod of approval to a bill, passed by the House, that would appoint a "car czar" to negotiate terms with a range of parties, including the union, dealers and others.

Earlier this month, the UAW announced that it was willing to make additional concessions including renegotiating part of contracts that were signed in 2007 that could change wages, delaying the automakers' payments to a multibillion-dollar health care trust and suspending a jobs bank program for laid-off workers.

Eve Weinbaum, director of the Labor Relations and Research Center at the University of Massachusetts, Amherst, says the UAW has already done its fair share.

"The budget is not going to be balanced on the backs of the workers. There's not enough money there to add up to the $14 billion or the $60 billion that those companies are going to need," she says.

Can GM and Chrysler survive the next month without an infusion of funds? What happens if they don't get it?

Both companies have said they're running out of cash. GM has said it needs $4 billion by the end of the month to pay its bills. Chrysler has said it needs $7 billion immediately.

The issue is cash flow. GM has its next set of bills due Jan. 2, according to Brian Johnson, senior research analyst for Barclays Capital. Chrysler also has a bill coming up, but it's unclear when.

"Neither of them has a chance of getting through its next bill payment," Johnson says.

GM has retained bankruptcy counsel and restructuring advisers, according to The Wall Street Journal. But GM Chief Executive Rick Wagoner has said bankruptcy "is not a viable option."

Can GM and Chrysler do anything else to raise cash or cut costs immediately?

GM said Friday it will temporarily close 21 factories across the country and cut 250,000 vehicles from its first-quarter production schedule. Also, as part of its plan submitted to Congress, it would sell its Hummer, Saab and Saturn brands and radically downsize Pontiac.

But these solutions will not give it the cash it needs to pay its bill to the suppliers. One thing the government could do is create a backup line of credit, says Barclay's Johnson.

"If the suppliers could understand that sooner rather than later, they would continue to ship the goods," Johnson says.

The companies could also defer items they have ordered. But any other measure, like layoffs, might not be fast enough for the companies, he says.

"The only one tool in this situation is to pretend the bills were lost in the mail," Johnson says.

What about money from the Federal Reserve?

This is unlikely. Fed Chairman Ben Bernanke said in a Dec. 5 letter to U.S. Senate Banking Committee Chairman Christopher Dodd that the central bank would be "extremely reluctant to extend credit" to the auto industry. If the Fed agreed to dole out money to the Big Three, it would open the door to other nonfinancial companies to seek help as well. Because the Fed's leadership does not change in January with the new administration like the Treasury does, Bernanke has more incentive to hold the line, Johnson says.

What would the impact on Ford be if one of the other two files for bankruptcy? Ford is said to be in better shape and was asking only for a standby line of credit initially.

Ford has said it is still liquid, but the company would suffer if GM or Chrysler files for bankruptcy. All of the automakers, not to mention a vast network of suppliers — such as companies that sell axles, seat belts, paint and steel — are interconnected. The auto companies buy from the same suppliers. If they go under, they won't be able to deliver the parts to Ford. Also, if one Detroit automaker were to not honor its warranties, consumers might shun other Detroit vehicles in favor of cars from more financially stable foreign companies, Johnson says.

What about the fallout for foreign competitors, including those who manufacture in the U.S.?

There are shared suppliers between the Big Three and the foreign companies who manufacture in the U.S. If the suppliers shut down and the foreign companies can't get the gaskets or windshield wipers, says Johnson, they would also be idled. But there is a debate in Detroit as to how long it would take to re-establish suppliers, Johnson says.

Is the auto industry being treated differently from Wall Street?

Weinbaum says there's a double standard with regard to how funds are doled out from the $700 billion bailout to the financial services industry, which has been labeled essential to the economy.

"That happens with zero restrictions," she says, adding that the average worker in the financial services industry didn't have to take any pay cuts as a condition of the bailout.

Weinbaum says the UAW is "up against a huge amount of propaganda and a pretty anti-union culture in this country." She says Chrysler, Ford and GM workers are earning wages that are "mostly lower" than the average for Toyota or Honda (workers for those companies are not unionized).

Better health insurance and retirement benefits for the Big Three, however, come with a price. Weinbaum says the Big Three have huge numbers of retirees, so the companies are under pressure to provide more in pensions and health care benefits for their former workers.

Additional reporting from NPR's Joshua Brockman and wire reports