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Rep. Frank: Passable Auto Bailout Bill by Next Week

Rep. Barney Frank (D-Mass.) just wrapped up a five-and-a-half-hour(!) hearing of his Financial Services committee, mulling over a proposed $34 billion bailout of the struggling auto industry.

At the hearing's conclusion, Frank said he has "more optimism than before" that Congress would craft some sort of relief bill by next week, which means lawmakers will be working throughout the weekend.

"If we are lucky, we will come out with a bill next week that nobody likes," Frank said, "because if any one individual likes the bill, it can't pass."

Lawmakers must now decide how much of a game of chicken they want to play with the White House.

Congress has continually said that it is within the scope of the $700 billion rescue/bailout package, and within the administration's authority, to use that money to bail out Detroit. Congress's view got backing today from at least one notable economist, Columbia University Prof. Jeffrey Sachs, who said an autos bailout would be an appropriate use of the already-approved bailout.

But the administration has steadfastly refused to use bailout money on the autos, saying it's best spent on stabilizing the financial system. The White House wants Congress to rejigger the language in the $25 billion in direct loans already approved to help Detroit modernize its factories to allow the automakers to use the money as bridge loans to stay in business.

In the middle of this game of chicken are GM, Ford and Chrysler, two of which -- GM and Chrysler -- have said, essentially, if we don't get a few billion by the end of the month, we may go out of business.

So Congress's choice is:

a) Capitulate to the administration's request and rewrite the language in the factory-upgrade bill or

b) Buck the White House and pass a new autos relief bill that President Bush may refuse to sign.

Of course, the Federal Reserve could step in at any moment and make loans to the Big Three collateralized by their billions in assets. But that's sort of like diving into an empty swimming pool hoping someone's going to fill it up with water before you hit the bottom.

Either way, it's going to be a long weekend for all concerned.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  December 5, 2008; 3:47 PM ET
Categories:  The Ticker  | Tags: Chrysler, Ford, GM, General Motors, Treasury, automakers, bailout  
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Here is a different idea for helping the car companies. All of the proposals now focus on the supply side - but it is the drop-off in demand that has brought the industry to a crisis point. Demand stimulation would give companies cash flow and time to adjust to new market realities.

The government could take $16 billion of the funding under consideration, divide it into increments of $8,000 each, which equals 2 million increments. There would be a giant, nation-wide lottery each week. Every person who either paid income taxes or received social security payments during the past two years would be in the pool. Every week 25,000 names would be drawn. The winners would have one month to buy a car, using the $8,000 as a down payment. Awards could not be sold or transferred except within the immediate family (spouse, child, parent). If not used within one month, the award would go back into the pool for future awards. Car companies would compete in the market to get a share of the new purchases and that would stimulate change faster and more effectively than dumping the money in the car company accounts.

The government could sell the TV rights, which would probably bring in at least $1 billion. The car companies could use the TV show to promote their new brands. Some of the money (maybe the TV rights funding) could go to buy cars for needy people who can't afford a new car even with the $8,000 contribution. Imagine Ed McMahon knocking on a door every week to award the lucky winner with the keys to a new car. Other celebrities - maybe even President Obama - could make cameo appearances at dealerships and award ceremonies (Would you buy a car from Paris Hilton?).

Seriously, however - I do believe it would be much better to put the money into the demand side instead of dumping it into the black hole of the car companies. In the end, it may not be possible to save all of the companies or jobs, but at least two million Americans would get a new car out of the deal. Analysis of the purchasing pattern from this two million unit increase in sales will provide everyone with a window on the market and could guide new car designs in the future. Better that way than having cars designed by a congressional sub-committee.

Posted by: newrussianguy | December 5, 2008 4:02 PM | Report abuse

Yes and if I win the $8000.00 lottery the car I would buy would be a Toyota Camry not the present Detroit dog.
Seriously I watched both the Senate and House question the auto industry. The Senate did a good job and the some of the Reps were OK. I agree that the US auto business needs to be kept alive in some form. It is the only heavy manufacturing base we have. If another war comes would you like your tanks, humvees etc. made in Japan? Busses and large transports made in Japan? Engineering and design expertise from Korea or Germany or Japan? As far as Chrysler goes it should be toast or integrated with GM or Ford. Three US auto Mfgrs is too much capacity. I like the plan to give it until March 31st to come up with a long term solution with Government oversight. Cripes no one even questioned the financial institutions, they just said here it is with little or no controls. Lets give the auto industry a chance.

Posted by: rLilstar | December 5, 2008 6:41 PM | Report abuse

Barny Frank should be barred from this discussion and bared from any dicision making on money. He brought us this crisis in the first place.

Posted by: markandbeth | December 5, 2008 6:43 PM | Report abuse

Do you think if GM goes bankrupt their factories and technology will magically disappear and end up in Japan? The only thing that will magically disappear is the albatross of the UAW and their greedy demands for more money and benefits than their members' labor could justify in the marketplace. Look south, U.S. manufacturing is just fine, and will be even better as soon as the assets of companies like GM and Chrysler come up for sale. Then they can be bought, along with the necessary labor, and turned into profitable enterprises again in much smaller, leaner, more competitive formats. My tax dollars should not be spent propping up an industry that lacks the ability to stay on its feet otherwise, just for the sake of somebody else's pension payments. That is a misallocation of the available resources, something we have precious little of these days.

Posted by: josh37 | December 5, 2008 7:19 PM | Report abuse

This is mostly political theater. The vast majority of Democrats and a minority of Republicans are eager to pass a bailout for the Big Three. They only require a few small concessions, which have already been given.
A bill will pass next week.

Posted by: Aprogressiveindependent | December 5, 2008 7:37 PM | Report abuse

The congressional hearings have been informative and serious in tone, as they should be. These automotive companies have been unsuccessfully trying to recapture their past glory when they had less competition and significantly more internal resources. The domestic auto market has changed faster than their collective actions has been able to adjust to. This has been highlighted by the lack of cooperation between management and the union, which has only lately become more focused on a common interest, their survival.

Regardless of poor performance on the business side, these companies have a unique set of skills and technology that is based in the United States. This can not be said for the newest or oldest of the foreign based transplant auto brands.

For example: GM has been doing serious research and development on PEM Fuel Cells for automotive propulsion since about 1990. This is arguably too foward thinking even for today, but they have and will continue to develop advanced technical capabilities, if they survive. The implication is that their technical capability exceeds their management skills (IE:labor problems).

It is in our national self interest to help these people survive and become commerically competative in the US market. If the ripple effect as cited in the hearings is approximately correct, the failure by GM or Ford would devastate US based industrial employment. With the current downward trend in employment, 2 to 3 million additional job losses within a couple months would at least simulate depression conditions. This mess can be avoided by using or appropriating about 5% of the TARP fund total (with oversight and meaningful controls). Refusing to seriously consider this line of thought, is as smart as re-electing Mr Bush to another term as president and expecting change.

Posted by: yankeehorde | December 5, 2008 8:38 PM | Report abuse

We have to look at "the big picture." The days of tunnel vision need to cease. Our nation better wake up and smell the coffee. With all our bail outs along with the 168 billion economic stimulus package, that btw did nothing for our economy it is hard to understand why our government can't see the need to bail us out of our dependence on foreign oil. The high cost of fuel this past year did serious damage to our economy and society. While we are doing the "happy dance" around the lower prices at the pumps they are planning to cut production to jack prices back up. Instead of spending billions on stimulus pkgs that don't work and millions to bail out everyone and his brother why don't we invest a few on renewable energy projects. WE could provide cheap clean energy, create millions of badly needed green collar jobs and reduce our dependency on foreign oil. This would be a win-win situation all the way around. Jeff Wilson has a great new book out called The Manhattan Project of 2009 Energy Independence NOW, these guys all need to read this book.

Posted by: BeyondGreen | December 5, 2008 8:54 PM | Report abuse

So we give the auto industry 15 billion......who is going to buy these cars???? Get real no matter what, people do not have money. That's why all car maker's profits are down.

Posted by: questwhy | December 5, 2008 10:16 PM | Report abuse

Boycott GM, Ford, and Chrysler! Then they will reorganize into smaller, better companies that won't continue to blackmail this country with threats of depression. American consumers should have the last say on which companies survive and which don't, not Congress.

Posted by: Kyle44 | December 6, 2008 7:09 AM | Report abuse

Our Government allowed foreign auto factories in without legacy costs until they killed our industries, allowed speculators to drive up oil prices, refused to approve drilling, required lenders to loan to people who couldn’t afford it. High fuel prices mean people cut back, buy fewer cars and businesses fail. The industry should have seen it and built hybrids sooner.
Could any company turn around amid 8 months of financial turmoil?
They say, “Too much legacy cost!” That legacy is your dad, mom, friend who worked 30-40 years on the line, day after day, to buy things for you and from you. They’re retired, living on Social Security, modest pensions. They’re the legacy disgusting you. Foreign automakers laugh at us. They won’t have legacy costs until our industries are into dust. Then they’ll move to Mexico or Guatemala, leaving their workers without retirement and a dead industrial force. The Big Three beg to the perpetrators, asking for guaranteed loans, not “free money.” Congressmen arrive in chauffer-driven limos; enjoy Cadillac health care, generous guaranteed retirement, second incomes as lobbyists, and say, “How did you get here?” “What’s your plan”? “Work for $1.” “Cut more workers, lower wages, cancel life insurance and pensions.”

Will Congress do the same? They caused the problem and blame workers and industry.

Older workers built this nation. Now they’re the problem. Cut pensions, kill health care, life insurance; they’ll die quicker and get out of our hair.

Oh well. “What goes around comes around.”

Posted by: rkymtn1 | December 6, 2008 4:26 PM | Report abuse

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