H.R. 7321—Auto Industry Financing and Restructuring Act
H.R. 7321— Auto Industry Financing and Restructuring Act (Frank, D-MA)
Order of Business: H.R. 7321 is expected to be considered on Wednesday, December 10, 2008. At press time, the text of the rule is not available, but the expectation is that the legislation will be considered under a closed rule.
Summary: H.R. 7321 provides up to $14 billion of loans to U.S. automakers. The legislation makes this money available by tapping $7.01 billion previously appropriated for the “green car” fund as part of the FY 2009 continuing resolution (P.L. 110-329). In addition, the legislation appropriates whatever unspecified amount of money (beyond the $7.01 billion) is necessary to support the full $14 billion of loans to the automakers. Highlights of the legislation:
$14 Billion in Direct Loans from the Advanced Technology Vehicles Manufacturing Incentive Fund: The Energy Independence and Security Act created an Advanced Technology Manufacturing Incentive Program (the so-called “green car” fund) to give direct loans to automakers under the condition that the money be used to manufacture cars with 25% greater fuel economy than similar vehicles sold in model year 2005. The FY 2009 CR appropriated $7.51 billion to cover the 30% subsidy share for this program, thus allowing loans to be made under the program.
H.R. 7321 allows access to $7.01 billion (so all but $500 million of the $7.51 billion originally appropriated for this purpose) from the “green car” fund to support bridge loans of up to $14 billion for U.S. automakers. Of note, none of the funding under the legislation comes from the Emergency Economic Stabilization Act (TARP). The legislation also appropriates any additional money needed beyond the $7.01 billion (up to an unspecified amount) necessary to support the $14 billion loan program created by H.R. 7321.
“Green Car” Fund: The legislation reserves $500 million of the money available in the “green car” fund, allows the Department of Energy to continue to process applications for this funding, and authorizes appropriations necessary to replenish the fund. Speaker Pelosi has indicated that Congress will appropriate new money for the “green car” fund within a matter of weeks, possibly as part of a larger stimulus bill.
“Car Czar:” The bill creates a new position to be appointed by the President, the “President’s designee” (the so-called “car czar”) to carry out the provisions of H.R. 7321. Among other things, the President’s designee is tasked with facilitating negotiations that lead to “long-term viability” plans for each automaker receiving loans under the legislation.
Long-Term Viability Plans: H.R. 7321 directs the President’s designee to facilitate negotiations leading to a long-term restructuring plan, for each automaker receiving financing under the legislation, negotiated to and agreed to by all interested parties—employees, retirees, trade unions, creditors, suppliers, automobile dealers, and shareholders. The legislation requires the President’s designee to report to Congress no less than every 15 days on progress of efforts to achieve a negotiated plan.
The legislation requires each automobile manufacturer to submit to the President’s designee, by March 31, 2009 (extendable for 30 days), a long-term restructuring plan that will lead to:
Provision for Call of Loans: If the President’s designee does not approve a long-term restructuring plan by March 31, 2009 (or 30 days thereafter with the extension), the President’s designees is directed to require repayment of loans within 30 days. The President’s designee may also call loans or require accelerated repayment of loans if:
Terms and Conditions of Loans:
Oversight and Audits:
Automobile Manufacturers Study on Potential Manufacturing of Transit Vehicles: H.R. 7321 requires automakers to conduct a study on the possibility of using excess capacity to make vehicles for sale to public transit agencies.
Federal Stake in Companies: As a condition of receiving financing, an automaker would have to give warrants for non-voting stocks equal to 20% of the amount of financing received.
Option for President’s Designee to Propose Plan to Reorganize Automobile Industry: If the President’s designee determines by March 31, 2009, that progress is not being made toward a negotiated plan, the President’s designee may propose a plan of his own—along with what legislative provisions would be needed to implement the plan.
Cost of Living Adjustment for Federal Judges: Authorizes a cost of living adjustment to federal judges.
Background: On September 24, 2008, Congress enacted H.R. 2638, the FY 2009 Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, which provided for $25 billion worth of loans to U.S. automakers.
In early November, General Motors warned that it had lost $21.2 billion in 2008 and might run out of cash in 2009. More recently, the company has warned that it risks having to file bankruptcy by the end of the year without Congressional action. Chrysler and Ford also have financial problems, though Ford has said it can operate with federal assistance through the end of 2009. The total amount of financing requested by the “Big Three” is $34 billion: $18 billion for GM, $7 billion for Chrysler, and $9 billion for Ford.
The financial problems of GM, Ford, and Chrysler can be traced to several factors including, but not limited to:
Possible Conservative Concerns: Many conservatives have expressed concerns with using taxpayer money to provide loans to U.S. automakers. Some of these concerns are noted below:
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course - the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I'd wager even the supporters in the DC area would admit that GM is probably going to be back for more within the year. The company has the capacity to produce 17 million cars, a little more than it sold two years ago. Projected sales next year are under 12 million. Their cash burn rate right now is $2 billion a month, which could well get worse. Unless GM starts slashing jobs, closing plants, and shuttering venerable marques like Buick, $25 billion is about a year's worth of lifeline.
Support for this legislation could make it harder to oppose any additional bailout request for the automakers down the road.
But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.
I guess somebody who’s never read a real business plan might mistake this document for one, but it’s a joke. It’s basically a list of assertions of amazing improvements, entirely discontinuous with actual performance to date, that they will achieve. What’s missing is any real indication of how they will go about accomplishing this.
Administration Position: No Statement of Administration Policy (SAP) for H.R. 7321 is available at press time.
Committee Action: The bill was filed on December 10, 2008.
Cost to Taxpayer: H.R. 7321 allows access to all but $500 million (so the remaining $7.01 billion) from the “green car” fund for bridge loans up to $14 billion for U.S. automakers. The legislation also appropriates any additional money needed beyond the $7.01 billion (up to an unspecified amount) necessary to support the $14 billion loan program created by H.R. 7321. Reportedly, if this legislation is enacted, Congress will consider legislation to replenish the “green car” fund early in the 111th Congress.
Does the Bill Expand the Size and Scope of the Federal Government?: Yes, the legislation increases federal intervention in the U.S. automobile industry and may set a precedent for other bailouts to the U.S. auto industry, or to other troubled companies.
Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?: No CBO score is available to determine compliance with the Unfunded Mandates Reform Act of 1995, though many new regulations are imposed on automakers, but as a condition of receiving financing under the bill.
Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?: A committee report designating compliance with clause 9 of rule XXI is unavailable, and no statement was filed in the Congressional Record.
Constitutional Authority: A committee report citing constitutional authority is unavailable. House Rule XIII, Section 3(d)(1), requires that all committee reports contain a statement citing the specific powers granted to Congress in the Constitution to enact the law proposed by the bill or joint resolution. [emphasis added]
RSC Staff Contact: Brad Watson, email@example.com, 202.226.9719.