Michigan Republican Representative Thaddeus McCotter has proposed a plan to give the US auto industry a much needed bridge loan while also punishing the financial industry for its handling of bail-out funds.
Under McCotter’s plan, Reuters reported, Congress would refuse to approve the next US$350bn in funds for the $700bn Troubled Assets Relief Programme (TARP), and instead approve a $25bn auto bridge loan, coming from the TARP and the Energy Department‘s loan programme to encourage more energy-efficient cars.
“The $25 billion would not be a new appropriation,” he said in a statement.
Reuters said the TARP funds would be used to prevent a flood of new foreclosures from newly unemployed homeowners while the Energy Department funds would help preserve the domestic auto industry’s existing research and development of energy innovations.
However, a similar idea has come up earlier, and been opposed by environment groups who object to money already allocated to help automakers improve fuel efficiency and reduce emissions being diverted solely to improve immediate company liquidity.
McCotter’s plan reportedly also would include measures to ensure taxpayers’ money would be repaid and would require the chief executives of financial institutions that took TARP money to appear before Congress, much as the auto industry CEOs have been doing today (5 December) and yesterday.
“Every American demands and deserves an accounting before Congress by the CEOs of the financial institutions that have already received over $300bn in bailout money from taxpayers,” McCotter was quoted as saying.
GM and Chrysler have both indicated they will run out of cash as early as this month.
Though there is broad consensus between Congress and the Bush administration that the automakers need help, some officials are refusing to budge from their views on how to do it and some lawmakers are opposed to doing anything at all, Reuters said.
Meanwhile, GM CEO Rick Wagoner, in testimony to the House Financial Services Committee, blamed his company’s money problems on “burdens of the past,” saying that retiree healthcare and other ‘legacy costs’ have burdened GM’s balance sheet, Dow Jones reported.
A United Auto Workers ‘Q&A’ on its website says of legacy costs: “The main reason that Chrysler, Ford and GM have higher legacy costs than the foreign nameplate operations in the United States is not because their retiree benefits are much higher. It’s because they have so many more retirees. Because the domestic auto companies have been operating in this country for many years, they have large numbers of retirees. But the foreign nameplate operations only started operating in this country 25 years ago, and therefore have very few retirees.”
According to Dow Jones, Wagoner said GM’s overseas operations are stronger financially than its domestic operations because of pension and retiree healthcare costs associated with union contracts in the US.
“As we go into new markets, we go in on an unencumbered basis,” he said.
But he noted that the company has worked with the United Auto Workers union to significantly reduce those costs in recent years.
Last year’s contract talks between the Big Three and the UAW reached agreement on ‘VEBA‘ trust funds that the automakers would initially bankroll from about 2010 and the union would subsequently manage to provide healthcare and retiree benefits.
But the UAW this week agreed to delay company payments to the Voluntary Employee Beneficiary Association (and suspend the controversial ‘jobs bank’ programme as well consider making further modifications to the 2007 national agreements).
Gettelfinger stressed that, while the union would allow delayed payment schedule for the VEBA, the union would protect UAW retirees’ health care.
“We are simply going to defer those payments until a later date at a guaranteed interest,” he said.
The UAW has begin airing a new 30-second television ad in the Washington area calling on Congress to immediately provide an emergency bridge loan to Ford, GM and Chrysler.
“Earlier this week, the Big Three did something that Citibank, FreddieMac, FannieMae and AIG did not do; they presented Congress with a plan for using taxpayer money for a bridge loan in a transparent way,” the union said in a statement.