CE Week #15: “Senate Abandons Auto Bailout Bid”
WASHINGTON — The Senate on Thursday night abandoned efforts to fashion a government rescue of the American automobile industry, as Senate Republicans refused to support a bill endorsed by the White House and Congressional Democrats.
The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.
After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.
The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.
“It’s over with,” the Senate majority leader, Harry Reid of Nevada, said on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”
Mr. Reid added: “This is going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight.”
The Republican leader, Senator Mitch McConnell of Kentucky, said: “We have had before us this whole question of the viability of the American automobile manufacturers. None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.”
Mr. McConnell added: “The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work.”
Moments later, the Senate failed to win the 60 votes need to bring up the auto rescue plan for consideration. {Why 60 votes?} The Senate voted 52 to 35 with 10 Republicans joining 40 Democrats and 2 independents in favor. The White House issued said it would consider alternatives but offered no assurances.
“It’s disappointing that Congress failed to act tonight,” Tony Fratto, the deputy press secretary, said. “We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable. We will evaluate our options in light of the breakdown in Congress.”
Immediately after the vote, the administration was already coming under pressure to act on its own to prop up G.M. and Chrysler, an idea that administration officials have resisted for weeks.
House Speaker Nancy Pelosi and other lawmakers called on the administration to use the Treasury’s bigger financial system stabilization fund to but there may not be enough money left to do so. About $15 billion remains of the initial $350 billion disbursed by Congress and Treasury officials have said that money is needed as a backstop for existing programs.
Democrats also immediately sought to blame Republicans for the failure to aid Detroit, while a number of Republicans quickly blamed the union. But on all sides the usual zest for political jousting seemed absent given the grim economic outlook.
“Senate Republicans’ refusal to support the bipartisan legislation passed by the House and negotiated in good faith with the White House, the Senate and the automakers is irresponsible, especially at a time of economic hardship,” Ms. Pelosi said in a statement.
She added: “The consequences of the Senate Republican’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options. Senator George V. Voinovich, Republican of Ohio, and a supporter of the auto rescue efforts, said: “I think it might be time for the president to step in.”
So far, the Federal Reserve also has shown no willingness to step in to aid the auto industry, but Democrats have argued that it has the authority to do so and some said the central bank may have no choice but to prevent the automakers from bankruptcy proceedings that could have ruinous ripple effects.
G.M. and Chrysler issued statements expressing disappointment. G.M. said: We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.” Chrysler said it would: “continue to pursue a workable solution to help ensure the future viability of the company.”
Earlier in the day, G.M. confirmed that it had legal advisers — including Harvey R. Miller of the firm Weil Gotshal & Manges —to consider a possible bankruptcy, which the company until now has said would be cataclysmic not just for G.M. but for Chrysler and Ford as well. The rescue plan approved by the House on Wednesday by a vote of 237 to 170 would have extended $14 billion in loans to the troubled automakers and required them to submit to broad government oversight directed by a car czar to be named by Mr. Bush.
But even before the House vote, Senate Republicans voiced strong opposition to the plan, which was negotiated by Democrats and the White House. At a luncheon with White House chief of staff, Joshua B. Bolten, they rebuffed his entreaties for support.
On Thursday morning, Mr. McConnell dealt a death blow to the House-passed bill, giving a speech on the Senate floor in which he said that Republican senators would not support it largely because it was not tough enough.
“In the end it’s greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow,” Mr. McConnell said.
Mr. McConnell, however, held out slim hope for a compromise suggesting that Republicans could rally around a set of proposals by Senator Bob Corker, Republican of Tennessee, who said that the bill did not set stiff enough requirements for the automakers.
Mr. Obama, whose transition team had consulted with Congressional Democrats and the Bush White House on the efforts to help the automakers, used his opening remarks at a news conference in Chicago on Thursday to urge Congress to act.
“I believe our government should provide short-term assistance to the auto industry to avoid a collapse while holding the companies accountable and protecting taxpayer interests,” he said. But in Washington, there was little appetite among Senate Republicans for yet another multibillion-dollar bailout of private companies. Still, with the Democrats and the White House eager to reach a deal, Mr. Corker’s proposal became the subject of intense negotiations well into the evening.
Under his plan, the automakers would have been required by March 31 to slash their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in outstanding debt.
The automakers would also have been required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees in the United States. .
It was over this proposal that the talks ultimately deadlocked with Republicans demanding that the automakers meet that goal by a certain date in 2009 and Democrats and the union urging a deadline in 2011 when the U.A.W. contract expires.
G.M. and Chrysler had already agreed to carry out sweeping reorganization plans in exchange for the help.
The negotiations over Mr. Corker’s proposals broke up about 8 p.m. and Mr. Corker left to meet with Republican senators to brief them on the developments. The Republicans emerged from their meeting an hour later having decided they would not agree to a deal. Several of them blamed the autoworkers union.
“It sounds like the U.A.W. blew it up,” said Senator David Vitter, Republican of Louisiana.
Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee and a leading critic of the auto bailout proposal, said: “We’re hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give. If they want a bill they can get one.”
The last-ditch negotiations made for a dramatic scene on the first floor of the Capitol, where high-level lobbyists for G.M. and Ford, as well as Stephen A. Feinberg, the reclusive founder of Cerberus Capital Management, the private equity firm that owns 80 percent of Chrysler, gathered with senators and legislative staff in a conference room.
A Democratic aide said that there were no lobbyists present who represented Chrysler.
At times, various participants huddled in corners of the cavernous hallway outside the conference room, shielding their documents and whispering into their cellphones, as a throng of reporters and photographers waited nearby. Some of the lobbyists and banking committee staff members huddled by two towering windows, looking out on a frigid rain that had been falling all day.
To be honest, I am not sure how I feel about this decision. It would be horrible to see thousands of Americans lose their jobs, but at the same time, I do feel that it is not the responsibility of the people or the government to pull businesses out of the holes that they have dug for themselves. Given the fact that the UAW would not likely allow wages for autoworkers to drop, I don’t feel that, in this economy, the workers can be kept. $79 an hour is not something that these companies can afford right now (obviously).
There were a few points in the article that stood out to me. First of all, I was very surprised that no lobbyists for Chrysler were present at the final negotiations. Also, it was interesting to look at the numbers. The Senate would have only needed 8 more votes to keep the rescue plan in consideration, and almost all of the opposition came from Republicans. There is a very good chance that, under the 111th Congress, such an initiative would easily pass. With a majority of senators in support of the plan and many new Democrats elbowing out Republicans, it is likely that, if the industry can survive until January, such a plan will be reexamined.
Connection: Class Discussion
On Thursday, we discussed this topic in detail. It came up in discussion that, because the UAW, a labor union, is heavily Democrat, it is likely that under the Obama administrationand the new congress (heavily Democrat), the auto industry will see an increase in governmental support.
I agree with Senator Vitter, the UAW has dug itself into a hole that it will be lucky to make it out of. They have negotiated wages to exorbitant levels and added some of the best benefits on top of it, this may have been beneficial to the “neh-neh” riveter guy on the assembly line up till now, but the UAW should have realized that they could not live in that world of sunshine and rainbows and $79 an hour plus benefits wages forever. The workers belonging to the UAW are now being forced to come back to the real world and realize that they are being paid over 8 times the national minimum wage for work that requires much less or equal schooling than jobs in retail and service businesses and restaurants and jobs like that. I believe that the Senate did the right thing in not passing the proposal as it stands, the major auto companies need to realize that until they prove that they can be responsible with taxpayers’ money they do not deserve to be bailed out no matter how badly the economy may suffer and the UAW needs to realize that it is not the all mighty power and has to be willing to give a little to be able to take as much as they have.
Connection: Legislative process, bill must pass both houses and the White House, the bill passed the HOR because it is the people’s party and it is more likely to vote with the people, but in this case it seems to have voted against the vast majority while the Senate voted with the majority of the people who are voicing an opinion.
I am not surprised that the auto bailout did not pass the senate. I remember hearing about opposition from some republicans in the senate on the news. I will say, if chrysler and GM go under I will feel very sorry for all that lose their jobs. However, I don’t necessarily think that this is a bad thing. Who is to say that the auto companies will make wise choices and get back on their feet? Who is to say that government money would help spring the economy? The wallstreet bailout hasn’t done anything for us yet. Republican opponents said that they would not support the bailout because it did not have strict enough requirments for the auto industries. It is weird, I wonder if another proposal will be made and their will be a compramise of some sort. Yet I wonder how some requirments could be met under such bad conditions. Mr. Corker proposed that by March 31 the companies had to have 2/3 of their debt slashed. But how can that happen when GM alone is $60 billion in debt. I guess it will be interesting to see what happens.
Connection: In class we were discussing how difficult the legislative process is. This article proves it. The bailout proposal made it past the house and was shut down in the senate.
I haven’t been keeping up with the auto bailout ideas so this article was very enlightening. It showed me exactly how both sides felt and that the bailout can still be achieved. I also see the blame game being played. I think this happens all the time, but it’s just brought into focus when a big issue is being focused on by the media. The Democrats are blaming the senate Republicans, sighting their fear the economy as why the Republicans voted wrong. The Republicans are blaming the auto workers union. It was also interesting to see all of the different point of views. I found a few that seemed pretty important. “‘In the end its greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow,’ Mr. McConnell said.” This is important to note because the last thing people want to be doing is paying higher taxes. “‘We’re hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give. If they want a bill they can get one,” said Richard Shelby.” This brings up a good point. Sure you want to keep your benefits and higher wages and stuff like that but at some point you have to realize it’s not worth it. I think that in this case, the bigger picture has been taken out of the equation and that is what is preventing this from going forward. The union doesn’t see that they can always fight to get their benefits back they only see what is being taken and they don’t like it. I hope this bailout will go forward but if concessions aren’t made I can only see our economy getting worse.
Connection: I would connect this to what we discussed in class Friday. We talked about the Democrats leaning more towards the unions and labor while the Republicans tend to lean toward business. This is a really good example. The majority of the Democrats in the senate voted for the auto bailout while a majority of Republicans voted against the bailout saying it was too soft.
Well, the auto bailout is still on hold…and will probably stay on hold unto both parties can agree on a stiff enough plan that the Republicans can swallow and an immediate rescue that the Democrats want to see. Honestly, I was a little confused and upset with the Republicans for their stubborness in something that will and already has had a drastic effect for millions of people who are now without jobs. Furthermore, wouldn’t they want to help Bush, their party leader, exit the white house with at least something being done instead of just adding to his list of inefficiency? Sadly, the Republicans will now just further their bad rep, being seen as Mr. Scrooges who ruined millions of poor Christmases because they were unwilling to share their money pot. However, the idea of unions and seeing how much power the UAW holds kind of disgusts me. As we were discussing in class, why can’t the union just wake up, do the math, and realize that cutting salaries of 80 bucks down to 60 will still be better than nothing, and in fact is still more than any average person usually earns? Also, benefits are all nice and dandy, but when millions are losing jobs then I would hope that those retirees receiving their monthly pay checks so they can sit on the couch all day could take one for the team and offer to have their benefits cut. All in all, I believe that this question of rescuing the auto industry will continue to be under fire and will not be resolved until the Democrats, Republicans, and Union workers can see eye to eye…or at least just look each other in the face.
Connection: The power of filibustering and how hard it is do get any legistlation passed. The Republicans ultimately have stalled this auto bailout yet again, by hoping to talk this bill to death and by making more and more strict restrictions. Also, in order for the bill to be reconsidered it needed to have 60 votes i.e think cloture…but failed with only receiving 52. This shows how hard it is to even get a bill up for discussion again.
In response to Felicia: I agree; I was not surprised either to hear that the bailout did not pass. The economy is already in really bad shape, and I could not see the public or Congress favoring something that would take money from the people to help out a couple of very large, very wealthy companies who cannot survive. I think that what is happening is meant to happen, just like when a species of animal is too weak to survive or adapt, it dies out. GM and Chrysler are either going to have to figure out how to adapt and survive in these hard economic times, or they are going to have to give up. I’m sure the owners of the companies are going to be fine, they will probably declare bankruptcy before they actually have to lose any of their own money or make any sacrifices. I do feel sorry for the people who will be losing their jobs, especially around the holidays. But in the end, everything will work out I am sure. I do not think that the government is going to sit back and do nothing, but they are going to have to find some other way of fixing the problem.
In response to Felica:
I agree with you on the idea that the auto bailout was a poorly calculated plan not worthy of passage in the Senate. “In class we were discussing how difficult the legislative process is” (Felica Soderstrom). It was a difficult decision when you look at both sides of the argument. The pro-bailout advocates brought up such issues as economic stability, job security (avoiding massive unemployment), and business recovery. The anti-bailout advocates pointed out how even if we bail these guys out now, where does it end? How do we really know that our money will ensure their recovery? I remember hearing in class that the failure of this bailout proposal could move us from a recession into a national depression. Mr. McConnell made a very good point when he said: “ ‘In the end it’s greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow.’ ” I guess when you really think about it, the biggest problem that most people have with this whole situation is the great amount of uncertainty, so the auto leaders should make sure to present a clear, logical proposal the next time they ask for such an enormous bailout.
In response to Felica Soderstrom, I will be a lot more than sorry for those that lose their jobs if General Motors and Chrysler go under. Those companies employ a lot of people which means those people would be unemployed in a rather bad economy that is not exactly locative in the job department. I also do not see how the loss of all those jobs would not be a bad thing. The loss of those jobs would make the economic situation even worse. I respect that the Republican opponents did not want to support the proposed bailout because they did not believe that the requirements were strict enough, but Congress is supposed to change and alter a proposal so that it can reach an agreement. I certainly hope that they will attempt a compromise of some sort. The Democrats in Congress had drafted a number of proposals to restrict the companies, but Congress did not agree. If I recall correctly, the Wall Street bailout also failed its first time through the legislative process but is now in effect. I am not so much interested in what could happen as much as I am slightly worried about what could happen.
In response to Annika LaVoie:
I don’t think you realize how economics work. The auto bailout will probably never pass, and I’ll tell you why. First, the UAW union has too much power. When you say cutting wages from 80 bucks an hour to 60 bucks, it should be more like 80 bucks an hour to 20 bucks an hour. I’m serious. Most of these workers don’t even have a college degree, and they’re making as much as many doctors. What’s wrong with that picture? Also, the reason why GM, Chrysler, and Ford are failing, especially the first two, is two-fold. First, they are paying too much to their workers. Why are foreign automakers so profitable? Because they don’t have to pay their workers ridiculous amounts of money. Democrats don’t realize that the workers aren’t the only factor in the economic situation. Businesses need money to run and increase production. They can’t when they are paying their workers so much. Without the businesses making money, workers can’t get paid and they lose their jobs, which in the end is much worse than just getting paid less. The second reason is that the American automakers need to realize that their cars plain suck. I’m going to be buying a new car this spring, and I sure as heck won’t be buying domestically produced cars. When I was in Germany 2 summers ago, I did not see a single Ford or GM car. Why? Because they know American cars suck and their own country produces stellar cars, thus resulting in a better domestic economy. This is not the Republican’s doing… look who started the unions.
In response to Annika:
I agree that the bailout will more than likely stay on hold until the Republicans see it as solid enough so there is not a repeat of what happened with AIG. That is probably the reason why this bailout did not pass in the senate. I also agree that if they do pass it they could make the people say I guess the Republicans aren’t that bad they save millions of jobs as well as a solid base of the economy. In the last bailout it was a lot of companies whose CEO’s were complaining because their salaries were not high as they have been in the past but here the three major car companies in America are about to go under and many people will lose job and the car industry has been a very solid base for the economy because of the amount of people who worked there. Maybe this week the Senate will think this one through again since Canada said they would give more money for the bailout. I will admit the guy that sticks a few rivets here and there who is currently earning $80 a hour could deal with a small cut in pay down to maybe $60 a hour because thats pretty comfortable. If you are making $60 a hour and working about 40 hours a week and only work 30 weeks a year you are still making about $65,000 a year which is more than the average American. I think a smaller amount with a paycut will keep all of these auto companies afloat.