For Immediate Release
November 19, 2008 |
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FOR MORE INFORMATION:
Cullen Schwarz
Office: 202.225.4961
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Rep. Levin Testifies on the Need for Bridge Loans for Automakers |
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Levin Tells Committee that Bankruptcy Is not an Option; Action Must be Taken to Protect Jobs |
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(Washington D.C.)- In testimony before the House Financial Services Committee today, Congressman Sander Levin emphasized the urgent need to provide bridge loans to American automakers to protect millions of U.S. jobs and allow the companies to continue the historic restructuring they have been undergoing in recent years. Congressman Levin told the committee that the current financial crisis threatens the domestic auto industry, the backbone of the U.S. manufacturing and industrial base.
To view Rep. Levin testifying before the Committee, click here.
Below are Rep. Levin’s written remarks, as entered into the Committee record:
Chairman Frank, Ranking Member Bachus and Members of the Committee, thank you for this hearing today about the current financial crisis and the damage it is doing to the backbone of our manufacturing and industrial base.
The rippling effect of the Lehman failure on the financial system would pale in comparison to the economic consequences that would result from the demise of even one of our domestic automakers. The supply and dealer chains are all economically interconnected.
General Motors, Ford and Chrysler account for roughly 70 percent of U.S. auto production and support five million jobs across all 50 states. The U.S. auto industry represents almost four percent of U.S. gross domestic product and 20% of all U.S. retail sales.
According to the Center for Automotive Research (CAR), should one or more of the Big 3 fail in 2009, 2.5 million jobs in the U.S. economy could be lost in that first year. In economic terms, CAR estimates a 50 percent cut in Big 3 U.S. operations would reduce personal income by $275.7 billion over the course of three years and result in a total government tax loss of at least $108 billion over three years.
The domestic automobile industry is absolutely nothing like the one I worked in as a young student. It is nothing like the one of even ten years ago. It must be in a far different place five or ten years from not than it is today. To have a chance to get there, there is an urgent need for action this week, so it is vital to dispel the myths and misconceptions that are clouding that need and to separate fact from fiction.
The Companies are Cutting Costs and Restructuring
These last years have seen the domestic automakers and their workers pursue an unprecedented restructuring and cost-cutting.
In the last three years, General Motors has reduced structural costs in North America by 23% or $9 billion, reduced production capacity by 24% or 1.3 million units, and has reduced its headcount by 84,000 workers, a 47% reduction.
Since becoming a privately held company, Chrysler has discontinued four vehicle models, reduced production capacity by 30% or 1.2 million vehicles annually, reduced fixed costs by $2.2 billion and furloughed 32,000 employees.
In the last three years, Ford has closed 17 plants in North America, reduced its workforce by 51,000 employees and cut costs by $5 billion.
The Companies Are Producing High Quality, Fuel Efficient and Advanced Technology Vehicles
- Ford has tied Toyota and Honda in quality according to Consumer Reports
- GM had more segment leaders in quality than Toyota or Honda according to J.D. Power
- Chrysler has seen warranty claims drop 29% and offers lifetime powertrain warranties
- GM offers 20 models that get 30 MPG, twice their nearest competitor
- GM’s Chevy Volt is a game-changing pure electric and zero emissions vehicle
- Chrysler has unveiled three advanced technology electric-drive vehicles for 2010
- Ford will double its hybrid models and its hybrid production capacity in the next year.
Even as the Big Three work to bring the vehicles of tomorrow to the market, they are aggressively boosting the fuel economy and lowering the emissions of current models. Ford’s F –Series Super Duty truck employs an advanced clean diesel engine that runs on ultra-low sulfur fuel that dramatically lowers emissions and improves fuel economy. All three companies are developing advanced engine technologies for consumers that will squeeze more miles per gallon of gas and reduce emissions.
Workers Have Made Concessions
Recent UAW contract negotiations have resulted in wage and benefit cuts and the transfer of health care obligations from the companies to an independent fund. Specifically, since 2005, these negotiations have resulted in:
- A 50% wage reduction for new workers, to $14 or $15 per hour in addition to wage reductions for current employees
- No guaranteed retiree health care or defined benefit pensions for new workers
- A court-approved transfer of existing retiree health benefits to an independent VEBA managed by the UAW
- A 50% reduction of the Big Three’s retiree health care liabilities
Even Toyota thinks their cost advantage could disappear by 2011. "I think [the Detroit automakers] could easily equal us or even exceed us in terms of having lower labor costs," says Pete Gritton, human resources chief for Toyota in North America.
Bankruptcy is Not an Option
Those who counsel inaction point to past mistakes by the Big Three and claim that bankruptcy is a better option. Studies are clear that consumers will not buy cars (a family’s second largest purchase) from a bankrupt company. Chapter 11 would likely lead directly to Chapter 7 liquidation and the profoundly negative impact on our economy that would come with it.
We are here Today because the Progress of Recent Years and Programs for the Future have been Overtaken by the Current Global Financial Crisis
This Committee knows better than any of us the deep financial crisis we are facing and the economic distress that is felt throughout our nation. We are spending a trillion dollars to try to stabilize our financial system. The mortgage industry is in shambles. So is it any wonder that the industry that represents the second largest purchase a family makes is the next in line to be devastated by this global financial crisis?
Consumers can’t get credit to purchase vehicles. Dealers can’t get credit to move cars through their lots, and the car companies can’t access the private credit market. U.S. auto sales in the month of October plummeted 23.4% from 2007 to an annualized rate of 10.5 million units. The significant slowdown in sales is industry-wide. For example, Toyota sales were down 23%, Honda was down 25% and Nissan was down 33% compared to October 2007.
This current problem is not unique to the U.S. Governments throughout Europe are faced with the same crisis in their automotive sectors and they are moving to provide loans during this global financial crisis. The Wall Street Journal reported yesterday that the European Union is crafting a plan to lend European automakers “tens of billions of dollars.”
We Would Lose More than the Production of Cars and Automotive Supplies
Maintaining a domestic technological and industrial capacity is not only vital for our economic prosperity, but also for our national security. As retired general and former NATO Supreme Allied Commander Wesley Clark pointed out this week in the New York Times, “What’s Good for GM is Good for the Army.” General Clark notes that hundreds of lives have been saved in Iraq because the Army has been able to quickly procure more than a thousand mine-resistant vehicles. Further, the loss of even one of the auto companies would have a huge impact on the supplier base that serves both the commercial and military vehicle markets, driving up costs for the Army and reducing the availability of critical vehicle components.
My congressional district is home to the National Automotive Center (NAC) located at the Tank Automotive and Armaments Command. The NAC serves as a catalyst to leverage government, industry and academia R&D investment with the goal of incorporating commercial technology into Army vehicles. The most recent DoD Base Closure Report sums up the relationship between the military and the auto industry quite well. The reports states: “the synergies from having a critical mass located in southeast Michigan and being able to leverage the world’s capital for automotive ground vehicle research and development and acquisitions will ensure the Department of Defense is prepared to meet its future demands.” I would point out that the Detroit Arsenal is located next door to the GM Technical Center and that these synergies assume the continued existence of a healthy auto industry.
The engineers at TARDEC and the National Automotive Center are working with the auto industry on critical research and development to reduce fuel consumption in the Army’s ground vehicles through electric propulsion and fuel cells, to create a mobile electrical grid, and to develop the use of advanced batteries, artificial intelligence and nanotechnology for the next generation of military vehicles. The partnership between industry and the military has put us in the forefront of research and development of future military vehicles that are substantially lighter, more fuel efficient, and more lethal than current vehicles.
A Bridge to the Future
The Big Three don’t need a bailout; they need a bridge loan so they can weather this global financial crisis and accelerate implementation of plans for restructuring and technological advancements. The draft legislation prepared by Chairman Frank is hardly a handout. It contains tough taxpayer protections and oversight to ensure that the federal government is repaid and that the auto industry completes the restructuring that is already underway. It places limits on executive compensation beyond those in Emergency Economic Stabilization Act (EESA), bans dividends, provides for the Treasury to take warrants equal to 20% of the loan, and distributes loan proceeds gradually as the companies need them to ensure that the funds are also used to build the long term health of the industry.
The Backbone of Our Manufacturing Base
I come from Michigan. My brother, Carl, and I like to say we have the auto industry in our blood. But this is not a Michigan problem, this is a national, indeed, an international problem.
I hope today the Members of this Committee and of the Congress will listen anew to each of the CEOS and the President of the UAW and ask tough questions. We are not afraid of the facts, and I would not be here today if I did not think that these companies and their workers represented the future of automobiles, advanced technology and energy independence.
But they have to be able to survive in order to thrive.
To throw the bankruptcy of one or more of the Big 3 on top of a once-in-century financial crisis would be a terrible, potentially catastrophic blow to the U.S. economy.
President-elect Barack Obama called the domestic auto industry the “backbone of American manufacturing” and President Bush's chief spokeswoman said the administration “does not want U.S. automakers to fail” and “the auto industry is an important part of our manufacturing base, and we want the industry to succeed and compete in the global economy.”
The Congress must find common ground this week to provide the domestic automotive industry a bridge to the future.
Thank you for your attention, and thank you Chairman Frank for all the work you and your staff have put into this urgent effort.
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