Bill Statistics
The Middle Class Position
How They Voted
Grades
The Senate receives a grade of C for its support of the middle class on this piece of legislation.
52 Senators voted for the middle-class position; 35 voted against.
See how each member voted on this bill:
Senate Version of the Auto Industry Financing and Restructuring Act of 2008
- Consumers
- Corporate Accountability
- Debt & Bankruptcy
- Efficient technology
- Energy & Environment
- Executive compensation
- Layoffs
- Unions
- Workplace & Job Creation
09.23.2008 [House]
Rep. Charles Rangel [D-NY]
The Senate version of the Auto Industry Refinancing and Restructuring Act adds several requirements to the restructuring plans included in the House legislation. Though a final draft of the Senate’s bill was not released, the statements of Senators and news reports indicate that the legislation requires the three American automakers (Chrysler, Ford, and General Motors) and the United Auto Workers union to reduce wage and benefit levels to “parity” with foreign auto manufacturers and eliminate payouts to terminated or furloughed workers. The reduction must be completed by the end of 2009. Under the legislation, half of the Voluntary Employee Beneficiary Association health care benefits paid by the automakers would be converted to equity stakes in the car manufacturers. Additionally, the automakers must reduce their outstanding indebtedness by two thirds as of March 15. Finally, the Senate version specifies that the restructured automakers need only meet federal efficiency and emissions requirements, not stricter state requirements.
The House version of the Auto Industry Refinancing and Restructuring Act, whose general principles the Senate version would likely have followed, directs the President to designate at least one executive branch official to supervise the restructuring of the three American automakers. This “car czar” will administer loans to the manufacturers, facilitate negotiation of restructuring plans, and measure progress towards restructuring.
The czar is authorized to issue up to $14 billion in loans immediately to the three automakers to facilitate continued operations and prevent collapse. The loans will be made based on need for financial assistance, potential impact on the economy of a manufacturer’s failure, and ability to use the loan for long-term restructuring. The money is appropriated from funds previously designated to assist manufacturers’ production of advanced technology vehicles; $500 million is set aside for this purpose.
In exchange for the loans, the auto czar must receive warrants for the purchase of equity in the automakers that are equal to 20% of the loan’s value. The legislation prohibits dividend payments and restricts executive compensation, including prohibitions on golden parachutes and bonuses for top executives, while the loans are outstanding. Loans are to be paid back before all other debt obligations owed by the automakers.
The automakers, assisted by the czar, must work with employees, trade unions, creditors, suppliers, dealerships, and shareholders to develop a restructuring plan designed to achieve long-term viability, international competitiveness, energy efficiency, and lower emissions.
The automakers have until March 31, 2009 to submit their final restructuring plans. If the car czar approves the restructuring plan, the legislation authorizes additional financial assistance. If a plan is not approved or is implemented inappropriately, the czar may cancel loans and/or submit his or her own restructuring plan or recommendation for bankruptcy. The auto czar will have access to the automakers’ financial records and can prohibit any financial transaction over $100 million.
The Auto Industry Refinancing and Restructuring Act requires that the automakers undertake a study of the potential use of excess manufacturing capacity for the production of public transit vehicles. An amendment to the legislation requires depository institutions to report any new lending made as a result of the financial bailout legislation (the Emergency Economic Stabilization Act) and the Energy Independence and Security Act of 2007. A provision granting federal judges a cost-of-living salary increase is also included.
The Middle Class Supports.
The automobile industry is a critical component of the American economy. Motor vehicle and parts industries employed over 700,000 people directly as of September and each job in the auto industry supports about 1.7 additional jobs in industries as diverse as textiles and retail. Auto industry workers with solid wages create jobs in their local economies with their spending. More importantly, the jobs in and supported by the auto industry are solid middle-class jobs that tend to provide health insurance and employment stability. At a time of economic recession when job losses are already steep, the middle class cannot afford to lose hundreds of thousands of well paying jobs.
Indeed, a failure of one or, significantly worse, of all three American automakers would seriously harm the middle class. The Economic Policy Institute predicts that over 900,000 jobs would disappear if GM collapsed, while a worst-case-scenario shutdown of the entire U.S. auto industry would eliminate 3.3 million jobs. Though this scenario is worst case and some jobs would eventually reappear as the industry reconstituted itself, the short-term damage to the American middle class would be severe. Unemployment would rise several percentage points in the hardest hit states and every state would experience job losses. Increased unemployment benefit payments, significant tax revenue losses, and government assumption of pension obligations are all additional outcomes that could result from an automaker’s failure.
The legislation will prevent the short-term failure of the automobile industry in the United States and makes a leaner, more energy-efficient Detroit plausible. An auto czar cannot make the Big Three automakers profitable. But the czar’s influence – backed up by the capacity to speed loan repayment and impose bankruptcy – and the thorough restructuring guidelines laid out by Congress can ensure that the American automakers do not once again fail to confront environmental concerns and recalcitrant management. Most experts agree that bankruptcy in the current liquidity crisis would be devastating to the auto manufacturers: already weak sales would be exacerbated by consumers frightened to buy from a bankrupt manufacturer, while lending institutions normally accessible to bankrupt companies would be unavailable. The Auto Industry Refinancing and Restructuring Act imposes reasonable restructuring requirements, while ensuring that solid middle-class jobs are preserved in a period of deep economic crisis.
The Senate version’s addition of heavy-handed requirements for reduction of labor costs is unjustified and even reckless. We fear that the inclusion of such requirements is no more than an attempt by conservatives to blame management’s poor judgment on middle-class workers making decent wages and earning decent benefits. Further, imposing such requirements prior to restructuring limits what negotiations between a car czar, the UAW, and the automakers can accomplish. While they bemoan business decisions being made in Washington, some conservatives evidently are confident enough in their business savvy to decide the appropriate level of autoworkers’ wages. Still, preservation of millions of jobs in the auto industry makes support for the Auto Industry Refinancing and Restructuring Act absolutely necessary.
“The bankruptcy of one or more U.S.-based automakers would lead to the shutdown of significant portions of the U.S. motor vehicle industry. This would, in turn, cause a wave of plant closures and bankruptcies throughout the manufacturing and services sectors of our economy. Under this scenario, as many as an estimated 3.3 million U.S. jobs would be eliminated, with thousands of jobs lost in every state. Massive increases in unemployment would result. But this would just be the first wave of consequences of an auto industry bankruptcy. Massive job loss and community disruption would result.”
– Robert E. Scott, Economic Policy Institute, 12/3/2008
“We can't be certain that the rescue will work. Even with the money, one or more of the automakers could end up in bankruptcy at some point in the future. But the timing makes the case for this kind of effort compelling. If GM stopped producing, a million people could easily lose their jobs, including employees at dealers and suppliers…Paying them $25,000 in unemployment compensation for a year would be an outright expenditure of $25 billion--to say nothing of the three-quarters of a million UAW retirees whose pensions the federal government would inherit, via the Pension Benefit Guaranty Corporation, or the tax revenue lost when workers become unemployed. A $25 billion loan, at least some of which is bound to be repaid, seems like a pretty cheap alternative.”
– Susan Helper, Economics Professor at Case Western Reserve University, and John Paul MacDuffie, Management Professor at Wharton School of Business, 12/2/2008
There is no doubt that change is needed in the American auto industry. This change should not be borne, however, on the backs of middle-class workers. Nor can the necessity of such change be blamed on them. Disingenuous conservatives would have unions and high labor costs be the cause of Detroit’s misfortune. But while American autoworkers are paid more than their counterparts employed by foreign manufacturers, the difference is not as large as often cited and costs associated with labor are in fact dwarfed by other production costs. Poor management decisions, not autoworkers’ ability to earn a middle-class standard of living, are to blame for the predicament of the auto industry.
Additional action from the federal government is necessary. The lack of a comprehensive national health care program does indeed often burden employers with high health care costs. Low gas prices might make more expensive, fuel efficient cars less attractive to consumers: the federal government should thus ensure that consumers have incentives to buy cleaner cars. Finally, strict nationwide emissions standards are necessary to encourage automakers to build environmentally friendly vehicles.
Support for this bill does not mean support for a culture – and an economy – overly reliant on dirty automobiles. The nation’s future economic success depends on efforts to build more fuel efficient cars, but also to use cars less. Support for alternative transportation – high speed rail, light rail, subways – will be critical to a clean and economically viable future.