Senate Floor Statement on Auto Industry Financing and Restructuring Act

Mr President, the bill before us would do for the U.S. domestic auto industry what governments around the world are doing—provide emergency assistance to their auto industries because their survival is jeopardized by a worldwide recession, which has resulted in plunging auto sales. That global recession is not the making of the auto industries around the world, including our own domestic industry.

As much as some would want us to believe it, past mistakes of the Big 3 are not the cause of the worldwide recession and resulting credit freeze. People who want to make large purchases such as automobiles are unable to get credit, and 90 percent of people who buy automobiles buy on credit. And many people simply are afraid to make large-scale financial commitments in these scary economic times.

So the U.S. domestic auto industry is not alone in needing loans to make it through the global economic calamity that we are in.

Look at the rest of the auto-producing world -- here are some headlines in the news recently: “Facing a Slowdown, China’s Auto Industry Presses for a Bailout From Beijing”; “In Brazil… World Financial Crisis Cost Booming Auto Industry Its Middle-Class Customers …and the government stepped in with a $3.5 billion aid package for the auto industry”; “European Carmakers Get $50 Billion in Aid”; “Spain to support car industry within EU plan”; “Portugal rolls out loan, incentives for automakers”; and on and on.

And again, why are nations around the world stepping in to support their auto industries? Because the drastic decline in sales across the industries have given them no alternative. Hyundai is down 40 percent. Toyota is down 34 percent, and Honda down 32 percent, and Nissan down 42 percent. Mercedes is down 38 percent. And on and on.

In arguing against these loans for the Big 3, some continue to describe the domestic companies of the 1970’s and 1980’s, when fuel efficiency was not high up on the list of Big 3 goals or achievements. Some would have us ignore the dramatic gains in quality and vastly greater number of fuel-efficient models being offered now by the Big 3. In the area of quality, Big 3 autos are equal to or better than their foreign competitors. For example , the J.D. Power Initial Quality Study scores the overall quality of Buick, Cadillac, Chevrolet, Ford, Mercury, Pontiac and Lincoln as high as or higher than Acura, Audi, BMW, Honda, Nissan, VW and Volvo. They rate the Chevy Malibu the highest-quality midsize sedan, and both the Malibu and the Ford Fusion score better than the Honda Accord or Toyota Camry.

On the fuel-efficiency front, here are some facts that hopefully colleagues will consider. Long before the credit crisis hit, GM laid the groundwork to offer 15 hybrids by 2012. Thanks to investments in recent years, GM already has 20 models that achieve 30 MPG or better, twice the number of its nearest competitor. All the Big 3 are working to ensure at least 50 percent of their American production is capable of running on biofuels by 2012. Domestic automakers produce numerous cars that have equal or better fuel efficiency than their foreign competitors. For example, the most fuel-efficient Chevy Malibu gets 33 miles per gallon on the highway, 2 miles per gallon better than the best Honda Accord. The most fuel-efficient Ford Focus has the same highway fuel economy ratings as the most fuel-efficient Toyota Corolla.

In the area of productivity, Chrysler tied Toyota as the most productive automaker in North America this year, according to the Harbour Report on manufacturing, which measures the amount of work done per employee. Eight of the 10 most productive vehicle assembly plants in North American belong to Chrysler, Ford or GM.

And there are some who want to ignore the reductions in benefits that have already been taken by UAW workers and retirees. In collective bargaining agreements negotiated in 2005 and again in 2007, the UAW along with GM, Ford and Chrysler found billions of dollars of cost savings and set the companies on course to bring labor costs – including benefits – in line with their foreign competitors in the United States by 2012. Wages were cut; pension and health care benefits are greatly reduced as well. The UAW is taking responsibility for managing its own retiree health care benefits beginning in 2010 by setting up its own Voluntary Employee Beneficiary Association (VEBA). The VEBA plan will transfer responsibility for health care benefits for existing employees from the companies to an independent trust. This eliminates half the companies’ liabilities for retiree health care, with billions of dollars of savings.

And each of the Big 3 has made significant job cuts already. GM has reduced salaried workers by 25 percent and hourly workers by 50 percent, and expects to save $6 billion a year starting in 2010 under its new union contract. Similarly, Ford has reduced labor costs by 25 percent. It has already closed 12 plants and is in the process of closing 14 more. Chrysler has cut 29,000 employees in the past 2 years alone.

The memory of mistakes made decades ago lingers and remains the impression that many have of the Big 3, despite those facts that I’ve just outlined. Beliefs are always hard to change. So, the facts that I’ve just shared about improved quality and more fuel-efficient vehicles and alternative energy vehicles being produced by the Big 3 may not be readily accepted by people who have beliefs that are to the contrary.

But one fact is indisputable and will hopefully influence some who are open to argument. Auto industries around the world are seeking the support of their governments through loans and other methods. No other auto-producing country is failing to act to make sure its industry is alive when the deep global recession is over. We shouldn’t either.

The stakes for our economy nationally are huge. Failure of the Big 3 would send a tsunami through this already-battered economy. Millions of workers would lose their jobs. Dealers in every town and on every main street are already reeling from the economy’s plunge. Auto component suppliers – who are in fully half our states – are on the knife’s edge already, waiting for us to act. Men and women who work in steel mills and textile factories and glass factories and computer chip factories are waiting and hoping.

The financial industry would be at risk as well. A collapsed auto industry would lead to defaults on over $1 billion in corporate bonds, credit default swaps and other financial instruments tied to the auto industry and could send the stock market into another, deeper tailspin. Major additional damage to U.S. financial institution balance sheets would result, throwing our credit markets into even deeper turmoil.

Despite these facts, there are still some who say, “let them go bankrupt, let them go under,” even though 1 in 10 jobs in this country are tied to the auto industry. In addition to hoping that they will ask themselves why no other government is allowing that to happen to their auto industry, I would also hope they would listen to some experts on the subject of bankruptcy for the auto industry.

A recent report released by J.P. Morgan titled, “Cost of the Alternative,” described the scenario where one or more of the Big Three are left to file for bankruptcy as “Credit Crisis Part II.” It indicated that unemployment would shoot up by 2 percent if one of the Big Three failed, and this failure scenario would require the Pension Benefit Guarantee Corporation take over more than $100 billion in obligations that the Big Three currently hold. It noted that Ford and GM and their financial arms “comprise over 10% of the high yield bond market and the auto sector represents one of the largest sectors in leverage finance for banks.”

Another recent report by the Anderson Economic Group and BBK calculated the costs in the first year following the failure of two of the Big 3. Such a scenario would cost states $12 billion in tax revenues; it would cost the federal government $40 billion in income and social security taxes, and it would cost an additional $8 billion in unemployment insurance and $5 billion in significantly increased costs to the Pension Benefit Guarantee Corporation. The report indicates a high risk that inaction by Congress would result in a permanent shift of manufacturing jobs out of the United States and a dependence on foreign technology.

Mr. President, these are risks we can’t take. We must pass this legislation. Without this legislation, one or more of the Big 3 will likely collapse in the coming weeks. The U.S. taxpayers would provide a bridge loan to avoid this catastrophe under this bill, but with important protections for their investment, including stock warrants for the government; limits on excessive executive compensation; a prohibition on golden parachutes; and a prohibition on payments of dividends until the loans are fully repaid. And the so-called auto czar has the ultimate power under this legislation to enforce compliance with the long-terms plans of the auto companies that accept these loans: he can call or cancel the loans if he disapproves the auto companies restructuring plans.

We can’t afford to further destabilize Wall Street, and we can’t afford to allow millions of jobs on Main Streets in communities across the country to disappear. The domino effect of failure would ripple across our entire nation and add untold suffering to an already dire situation.

I urge my colleagues to support this critical legislation.