An estimated $15 billion emergency loan package for the auto industry — now taking shape in Congress — leaves open the door for the incoming Obama administration to add more money if needed this winter by tapping into the Treasury’s financial rescue package.
While President Bush has refused to make available the same Treasury funds, the White House has signaled tacit support of the legislative provision as part of the bargaining aimed at winning House and Senate passage this week.
On its face, the draft language simply preserves the status quo, saying nothing in the new bill would “preclude” the use of existing powers. But its inclusion is important given the delicate tradeoffs now and the fact that few are convinced the $15 billion will be enough even to get the industry through the first quarter of 2009.
General Motors Corp alone has estimated it could need $15 billion through the end of February, and that is under a scenario which may prove too optimistic given the dismal car sales in November. Chrysler LLC also is seeking $4 billion soon after January. And as much as lawmakers once hoped the Federal Reserve would help, Chairman Ben Bernanke has grown suddenly cautious after committing huge sums to help the banking industry.
This puts the focus on President-elect Obama, who added his voice Sunday to those supporting passage of the loan package and promised to have specific recommendations in hand when he takes office Jan. 20.
Automakers are “the backbone,” of American manufacturing, Obama said in an appearance on NBC’s “Meet the Press.” “Millions of people directly or indirectly are reliant on that industry, and so I don't think it's an option to simply allow it to collapse.”
“What we have to do is to provide them with assistance, but that assistance is conditioned on them making significant adjustments. They're going to have to restructure, and all their stakeholders are going to have to restructure—labor, management, shareholders, creditors—everybody is going to recognize that they have—they do not have a sustainable business model right now. And if they expect taxpayers to help in that adjustment process, then they can't keep on putting off the kinds of changes that they frankly should have made 20 or 30 years ago.”
During two days of hearings last week, Detroit’s Big Three improved their position in seeking aid, but the political atmosphere is immensely difficult still because of the fallout from the $700 billion financial rescue package enacted in October. Going back to the well for not-always-popular car companies is a dangerous task, made harder in this case by Bernanke’s stance and the deteriorating relations between Treasury Secretary Henry Paulson and old allies in Congress.
The $15 billion estimate reflects less a judgment of what is needed than of what has the best shot to get through Congress.
The loans would be supported by diverting about $7.5 billion enacted only months ago to support so-called Section 136 Energy Department loans to speed the production of fuel efficient cars. Budget analysts had assumed the initial 136 program could support $25 billion in loans. But given the higher risk of default now, the $7.5 billion appropriation won’t go as far, so the projected loan level has fallen to about $15 billion.
On paper, the goal still is to get through the first quarter of 2009. And the draft bill is expected to create a new federal board to set goals for the industry and review plans in the early spring before any new aid is approved.
But all this could fall apart if the funding proves inadequate—requiring Obama to have the flexibility to step in sooner.
Until Friday, Speaker Nancy Pelosi (D-Calif.) had refused to tamper with the 136 funds, and the hearings last week tended to reinforce her case that the advanced technology investments are crucial to the future of the industry. But after Friday’s unemployment numbers — and with the Senate prepared to go against her — she cleared the way for the negotiations over the weekend.
In this context, her flexibility appears to have won some too from the White House. The outgoing administration can’t stop Obama from tapping the Treasury funds if he chooses. But by tacitly giving its blessing to the language, the Bush administration also makes it easier for Democrats to go ahead—with a safety valve intact.