Pelosi's Big-Three Bailout DealNovember 21, 2008 - by Donny Shaw
The lame duck session is over and the Big-Three auto companies didn’t get their bailout. But the companies will have another chance to convince Congress this session to give them the money they say they need to stay out of bankruptcy.
When the bailout was shelved on Thursday by Democratic leaders in the House and Senate, House Speaker Nancy Pelosi also offered the companies a new deal: if they can submit a plan to Congress by December 2 explaining exactly how $25 billion from the government can make them financially viable, she’ll consider calling Congress back again for a second lame-duck session to re-consider the issue.
“Until they show us the plan, we cannot show them the money,” Pelosi said on Thursday.
So what do the auto companies need to do to convince Congress that they are a good investment?
Nancy Pelosi is already inclined to give the companies some assistance. “Doing nothing is I don’t think an option," she said at a press conference on Thursday. For reasons of national security, the health of our financial system and the needs of U.S. workers, the survival of the auto industry is essential, she said. Furthermore, she specifically rejected the idea of allowing the companies to restructure through bankruptcy.
Really, it’s the rank-and-file of both parties that need to be convinced of the bailout.
Executives from the three companies testified before Congress this week (that’s them, pictured above), and the general consensus is that they didn’t do a very good job. Rather than focus on how their collapse would damage the economy, the company executives needed to build confidence in their vision for success in the future. Lawmaker after lawmaker repeated the same concern (typified here by Republican Rep. Jeb Hensarling): “What I have not heard is a plan that convinces me that with the $25 billion, that you will achieve sustainability.”
The executives also didn’t help their cause much by traveling to Washington in private jets. “There’s a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands,” said Rep. Gary Ackerman (D-NY) at hearing on Thursday.
The companies have already begun dealing with the jet issue. GM announced today that they are putting two of their jets out of service. Now they need to present Congress with a clear, convincing plan for financial viability.
In a letter sent to the executives this afternoon, Speaker Pelosi and Senate Majority Leader Harry Reid spelled out exactly what they think needs to be in the plan submitted to Congress in order to gain support for the bailout:
>The plan must:
- Provide a forthright, documented assessment of the auto companies’ current operating cash position, short-term liquidity needs to continue operations as a going-concern, and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability as they retool for the future;
- Provide varying estimates of the terms of the loan requested with varying assumptions including that of automobile sales at current rates, at slightly improved rates, and at worse rates;
- Provide for specific measures designed to ensure transparency and accountability, including regular reporting to, and information-sharing with, any federal government oversight mechanisms established to safeguard taxpayer investments;
- Protect taxpayers by granting the most senior status for any government loans provided, ensuring that taxpayers get paid back first;
- Assure that taxpayers benefit as corporate conditions improve and shareholder value increases through the provision of warrants or other mechanisms;
- Bar the payment of dividends and excessive executive compensation, including bonuses and golden parachutes by companies receiving taxpayer assistance;
- Include proposals to address the payment of health care and pension obligations;
- Demonstrate the auto companies’ ability to achieve the fuel efficiency requirements set forth in the Energy Independence and Security Act of 2007, and become a long-term global leader in the production of energy-efficient advanced technology vehicles; and
- Require that government loans be immediately callable if long-term plan benchmarks are not met.
The full letter can be read by clicking here.