Over the course of the past few decades, Detroit’s Big Three automakers have continually refused to modernize their outdated business model. As a result, the American auto industry has failed to compete in the global market and now stands on the brink of failure. In an attempt to save their ailing businesses, these automakers have asked the American people for a loan to help them get back on the right track.
On Wednesday, December 10th, House Financial Services Chairman Barney Frank [D-MA] presented a bill to the House of Representatives that would provide the automakers with a $14 billion taxpayer-funded loan. The loan was widely viewed as only the first of many payments necessary to prop up the auto industry. I voted against the Auto Industry Financing and Restructuring Act (H.R. 7321) because the bill did not require adequate reforms necessary to make these companies more competitive.
The Auto Bailout would not ensure long-term job security for the hardworking men and women who depend on the success of the auto industry. Instead, this legislation would have granted the automakers a temporary band-aid in a hasty effort to heal much bigger wounds. The bill failed to condition the loan on timely reform of the automakers’ business practices; reform is necessary for the industry to be viable and competitive into the future.
My Republican colleagues in the House developed an alternative plan that would require the automakers to reorganize their business models and meet specific goals in order to become competitive. The proposal would impose hard benchmarks on debt and labor contracts, while providing a federal backstop through an insurance program instead of a bailout to help incentivize private investment. Unfortunately, Speaker Pelosi refused to consider this proposal.
The Auto Bailout passed the House by a vote of 237 to 170. However, Senate Republicans insisted that the bill include tougher benchmarks. Senator Bob Corker [R-TN] put forth a proposal that would have provided emergency loans to the automakers, provided that union wages were made competitive with those of foreign automakers in the U.S. (like Toyota in Kentucky) and that the bondholders agree to write down a substantial portion of the companies’ debt. The Senate was unable to compromise on requiring tougher reforms as a condition of the loan and the bill failed in the Senate.
While it is possible that Congress would return to Washington to address this issue, neither Majority Leader Reid [D-NV] nor Speaker Nancy Pelosi [D-CA] have indicated they will call members back to the Capitol. President Bush and his Administration are evaluating ways to provide the automakers with funding. It is possible that the Administration will use part of the $700 billion financial bailout fund to provide loans to the car companies. However, as of December 16th, no official announcement had been made.
At a time when the U.S. federal budget deficit is nearing $1 trillion, we must be very cautious about lending more money to failing industries without any credible assurance of a solution and financial return to the taxpayers. If the government decides to provide loans to the automakers, the Big Three must be required to revamp their outdated business models and agree to strict accountability standards.