Comments on: Auto Bailout Update

By: Bob Van Der Velde

Bob Van Der Velde — Wed, 10 Dec 2008 21:13:41 +0000

There is also a two-page summary of the latest draft bill at http://www.house.gov/apps/list/press/financialsvcs_dem/auto_bill_summary.pdf

By: Bob Van Der Velde

Bob Van Der Velde — Wed, 10 Dec 2008 21:11:29 +0000

The House Finance Commmitte has an updated (1050 am 12/10/08) version of the auto bailout bil. http://www.house.gov/apps/list/press/financialsvcs_dem/autobill.pdf It will be interesting to see what has changed.

By: p roberts

p roberts — Wed, 10 Dec 2008 20:37:23 +0000

After the bailout is finalized comes the hard part: convincing people that American cars are worth buying.

By: Yasser

Yasser — Wed, 10 Dec 2008 19:58:44 +0000

CNN confirms it is a bridge loan.

“The White House and leading congressional Democrats reach an agreement on legislation to provide a stopgap $14 billion bailout to ailing U.S. automakers, according to officials from the administration and Congress.”

By: DCLawyer

DCLawyer — Wed, 10 Dec 2008 19:31:49 +0000

“In any case, when a company is headed for bankruptcy, it is logical for the new lender to insist that its new loans be senior to existing loans.”

Exactly – another sign that this is looking more like a bankruptcy without having to call it that.

By: DCLawyer

DCLawyer — Wed, 10 Dec 2008 19:29:26 +0000

A few things:

First, your correct that the statutory reference is to the $25m in loans already appropriated in P.L. 110-329, the omnibus appropriations act that is funding most of our government agencies right now.

Next, there’s no real pretense that this is anything but a bridge loan to give the automakers time to come up with a real restructuring plan. In this sense, the bailout is looking like it could be functioning much the same as a bankruptcy with the USG functioning as the provider of DIP financing.

The notion that the car companies can’t participate in lawsuits re state greenhouse gas laws is very silly, and certainly unconstitutional. We CAN say that no funds from the bailout can be used for these purposes, but the way the bill is drafted, a company couldn’t even put its name on an amicus brief, even if it were provided gratis to them. The less control the government has in telling the automakers what to make the better. It wasn’t the product mix, but their failure to control their labor costs, that got them into this mess.

What’s really not clear to me is where the long term financing is coming from that is to be provided once the car czar approves the restructuring plans.

Potentially, this could operate as a bankruptcy in name only, but it will require that Obama administration to get really tough with their own political allies, the unions.

By: James Kwak

James Kwak — Wed, 10 Dec 2008 19:17:55 +0000

Gli: Thanks for catching that. I saw it but forgot to include it in my summary. Making the U.S. debt senior to existing bonds will reduce the value of those bonds, which may be intended to pressure those bondholders to exchange them for equity. On the other hand, it may make those bondholders less willing to go along with any restructuring plan that involves large amounts of government loans. I’m not sure how this will work out.

In any case, when a company is headed for bankruptcy, it is logical for the new lender to insist that its new loans be senior to existing loans.

By: Taxpayer

Taxpayer — Wed, 10 Dec 2008 19:07:14 +0000

Why not liquidate big 3 and invest bailout funds ($34bn) to start up new industries in MI.
I do not see any significant demand for autos in 2009 (Look at major automakers sales number for last month and numbers are just going to get worse, at the same time they are going to burn multiple billions of dollars every month). We are just going to put money in some black hole and never going to see it again.
Also, govt has no business of saving private industries, it has already sent wrong messages. Big financial COs will keep taking bad risks and behave irresponsibly because they know they are too big too fail. Taxpayers will have to suffer in multiple ways, e.g. one with lost money in bailouts and other with bubbled up prices of assets.

By: Wednesday links: trade trends « Abnormal Returns

Wednesday links: trade trends « Abnormal Returns — Wed, 10 Dec 2008 18:01:20 +0000

[...] The auto bailout bill kicks the problem into next year. (Baseline Scenario) [...]

By: Drivelikeagirl.com » Blog Archive » Corvette ZR1 Video Review

Drivelikeagirl.com » Blog Archive » Corvette ZR1 Video Review — Wed, 10 Dec 2008 17:15:47 +0000

[...] if GM made more cars like this, they wouldn’t need the bailout money they’re asking for now. The state of US automakers is really sad… it’s as if they stopped trying a few decades [...]

By: Gli Liphon

Gli Liphon — Wed, 10 Dec 2008 14:49:18 +0000

I think you hit all the main points James. The only other thing in the bill that I think worth noting is on page 23 in reference to debt seniority. They managed to include the stipulation that government loans take precedence over any other existing debt. I definitely agree that this is needed, but I have a feeling their existing debtors are going to put up a fight. I think its interesting for them to detail it out in two subsections. It looks to me like they are making sure there aren’t loopholes and over emphasizing the fact that the government assistance will be the most senior. I have no idea what stipulations and contractual obligations are in place for the big 3′s existing debt, but it could get ugly.

By: bobsbailoutplan

bobsbailoutplan — Wed, 10 Dec 2008 00:37:08 +0000

GOP objections certainly include the requirement that the Big 3 drop any challenges to greenhouse gas regulations; some like Sen. Shelby (R-Hyundai) don’t want to rescue any unionized businesses. Something caught my eye at the end, where listed under “Coordination with other laws” on page 31 is a provision that allows federal judges to have their annual cost-of-living pay increase. Not to be too cynical, but it is the first of many Christmas ornaments, I suspect.

By: James Kwak

James Kwak — Wed, 10 Dec 2008 00:21:38 +0000

That was actually just a side observation of mine. It’s not clear the Senate Republicans will block the bill; they have just expressed reservations about it, I think claiming there is insufficient taxpayer protection. I do believe I read somewhere that Bush had threatened to veto the bill if it had the greenhouse gas provision; I don’t know where the negotiation stands on tha tpoint.

By: Jesse

Jesse — Tue, 09 Dec 2008 23:45:30 +0000

Am I reading this right? The bill is stalled because they dont want to force them to drop the lawsuits vs certain states for imposing greenhouse gas emissions?
Isn’t part of the deal so they will make “greener” cars?
So they want a bailout to pay legal fees on a lawsuit that will let them make vehicles nobody wants?

By: _caustic

_caustic — Tue, 09 Dec 2008 23:09:07 +0000

another problem solved by Congress. with just a few tiny exceptions: a) proper funding, b) a plan, c) clear objectives.

otherwise it’s flawless. senate banking committee time well spent.