Sutton's 'Cash for Clunkers' Bill Gaining Steam

U.S. Representative Betty Sutton (D-OH) has been pushing legislation that would give people vouchers as an incentive to trade in their old used vehicles for new, more fuel-efficient vehicles. The vouchers would be worth between $3500-$4500 depending upon the MPG differential of the cars exchanged in the transaction.

Sutton, a member of the House Energy and Commerce Committee, was successful a couple of weeks ago in having her legislation (H.R. 1550) be part of the larger climate change bill working its way through Congress. Now, she has decided to re-introduce the legislation back into the House as a stand-alone bill with Senator Debbie Stabenow (D-MI) following suit by sponsoring similar legislation in that body (S. 1135). According to a press release from Sutton's office, the bill is aimed at "helping consumers purchase more fuel efficient vehicles, helping boost sales of our domestic auto and related industries and helping our environment."

Sutton's leadership on this issue is important for her constituents and politically shrewd--the 13th Congressional District, which stretches from Barberton to Akron to Lorain, has many people and businesses directly dependent upon the American auto industry. Five of the top six industry contributor categories in her 2oo8 reelection campaign were unions and labor PACs composed a majority of her PAC contributions.

Here is a summary of the legislation (posted in the Plain Dealer's Open Blog):

• Passenger Cars: The old vehicle must achieve less than 18 mpg. New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the voucher will be worth $4,500.


• Light-Duty Trucks: The old vehicle must achieve less than 18 mpg. New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck or SUV is at least 5 mpg higher than the old truck, the voucher will be worth $4,500.


• Large Light-Duty Trucks: New large trucks (pick-up trucks and vans weighing between 6,000 and 8,500 pounds) with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least 1 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck is at least 2 mpg higher than the old truck, the voucher will be worth $4,500.


• Work Trucks: Under the agreement, consumers can trade in a pre-2002 work truck (defined as a pick-up truck or cargo van weighing from 8,500-10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. There will be a finite number of these vouchers, based on this vehicle class's market share. There are no EPA mileage measures for these trucks, however, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality. Consumers can also "trade down," receiving a $3,500 voucher for trading in an older work truck and purchasing a smaller light-duty truck weighing from 6,000 - 8,500 pounds.

GM Hurtling Towards Bankruptcy

Absent additional government aid, it is possible that General Motors, the largest American automaker which began in 1908, will have to file for Chapter 11 protection in short order. This despite the fact that it will have shed around 50,000 jobs, closed 14 plants in the next few years, and eliminated such iconic American nameplates as Pontiac. GM's stock price is in free fall: it closed at $1.86 per share, down 34 cents or 15.5%.

I was at the Cleveland Auto Show Wednesday for NASCAR night. Daytona 500 winner Matt Kenseth was there signing autographs and taking pictures with fans, as were other big names such as Clint Bowyer and A.J. Allmendinger. The crowd was sparse to say the least. The Chrysler exhibit was a ghost town--it gave me an eery feeling. The GM exhibits weren't much better. Of the American automakers, only Ford had a crowd and seemed to spark any enthusiasm.

Big 3 Finally Get Their Pittance

Finally.

According to the Detroit Free Press: "President George W. Bush this morning announced plans to immediately extend $13.4 billion to struggling Detroit automakers, adding that in normal times it is a step he would be unlikely to take. It signals the end of an anxious week for Detroit’s auto industry, with worries that the Bush administration might not move fast enough to keep General Motors and Chrysler LLC from collapsing, which both said could occur if they didn’t receive a quick infusion of capital. The terms of the loans authorize $4 billion each for GM and Chrysler on Dec. 29 and another $5.4 billion for GM on Jan. 16....In the end, Bush felt he had no choice – he said in his statement this morning that the necessary legal and financial preparations for an orderly bankruptcy were not in place and a disorderly one could have disastrous effects – and authorized the $13.4 billion from the Wall Street cash."

From President Bush's statement this morning: "This is a difficult situation that involves fundamental questions about the proper role of government. On the one hand, government has a responsibility not to undermine the private enterprise system. On the other hand, government has a responsibility to safeguard the broader health and stability of our economy.
Addressing the challenges in the auto industry requires us to balance these two responsibilities. If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers. Under ordinary economic circumstances, I would say this is the price that failed companies must pay –- and I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed. Some argue the wisest path is to allow the auto companies to reorganize through Chapter 11 provisions of our bankruptcy laws -– and provide federal loans to keep them operating while they try to restructure under the supervision of a bankruptcy court. But given the current state of the auto industry and the economy, Chapter 11 is unlikely to work for American automakers at this time. American consumers understand why: If you hear that a car company is suddenly going into bankruptcy, you worry that parts and servicing will not be available, and you question the value of your warranty. And with consumers hesitant to buy new cars from struggling automakers, it would be more difficult for auto companies to recover."

The restructuring will be painful for the companies that take the loans--GM and Chrysler for now--and for the UAW. According to The Hill: "Bush said conditions for the loans were similar to those considered by Congress, where a bailout package was approved by the House last week but was blocked in the Senate by Republicans. The president stated that companies accepting the loans would have three months to offer plans for restructuring themselves into viable companies. Those that fail will have to repay the loans by March 31, he said. Bush said the timeframe would also give companies time to draw up orderly plans for a Chapter 11 bankruptcy process. He said the credit crunch troubling the wider economy, which has led to the weakest auto sales since World War II, meant auto companies had not had time to prepare for an orderly bankruptcy. Last week’s package collapsed in the Senate over GOP demands that the UAW agree to a date certain in 2009 when U.S. worker wages, benefits and pensions would be leveled with those paid by foreign auto companies producing in the U.S. The UAW said it could agree to such a date in 2011, when its current contract expires....On Friday, Bush said workers would have to agree to wages competitive with foreign companies, but he did not mention any specific date."

I've said before--why are the Big 3 American automakers being held to a different standard than the financial companies? Over the last several months, "the Bush Administration returned $158 billion to taxpayers in the form of rebates to try and stimulate consumer spending. It also provided a $29 billion loan so that JP Morgan Chase would rescue Bear Stearns; bailed out Fannie Mae and Freddie Mac the mortgage giants, AIG the world's biggest insurer; rescued Citigroup and earmarked $700 billion of taxpayer money to protect Wall Street from collapse." (For a nice commentary on where the $700 billion TARP money is going, see this article in Salon). AIG alone has gotten $150 billion, no strings attached even as their executives are cashing in. I just don't get it.

As Detroit Burns...Our Government Fiddles

We are a week out from Christmas, two weeks out from the New Year, and the Big 3 American automakers still wait for a crucial lifeline from the federal government. The Democratic-led Congress tried and failed last week to deliver a much needed shot of capital to Detroit. Meanwhile, President Bush says he is still weighing his options, including a "managed bankruptcy."

As options are weighed, the crisis for GM and Chrysler, in particular, deepens: "GM and Chrysler have said they need at least $8 billion by the end of the month to avoid bankruptcy and at least $14 billion to get through the first quarter. Chrysler said Wednesday it would shutter all 30 of its factories for one month and idle 46,000 workers, while GM said it was delaying a key supply plant for the Chevrolet Volt, as both attempted to avoid imminent collapse while the Bush administration pondered its rescue. Chrysler's move signals the first of a cascade of dire actions that will result if the automakers don't receive government aid. Following a 47% decline in sales last month, some Chrysler plants will be closed until February. While the company has a swollen inventory of new vehicles, it records revenues when a vehicle leaves the factory." If either GM or Chrysler fail, Ford is likely to follow shortly thereafter.

As I've stated before, collapse of any of the Big 3 would have catastrophic consequences for the American economy: "A bankruptcy filing by either company would mean production cuts and plant closings, and tens of thousands of workers would be fired, industry analysts say. That would cause many suppliers to collapse, triggering more job losses, straining the cities and states where the car and parts companies operate, as well as federal safety-net programs. It would also deliver another psychological blow to consumers and a major shock to Main Street following the crises on Wall Street."

In such a scenario, how much unemployment insurance would have to be paid? How could states such as Ohio, currently facing a $7 billion deficit over the next years, possibly afford the deluge it would face in the unemployment lines? Ohio Senator Sherrod Brown (D-OH), echoed these sentiments on Sunday's Face the Nation: "We’re already in a deep recession in my state, as we are in most of the 50 states....And this would just plunge us deeper into economic problems, into a hole that it would take a long, long time to extricate ourselves from."

It is time for our elected officials to stop fiddling--Rome is burning.

Dear Mr. President

Dear Mr. President:

I am writing to you today to ask that you, Treasury Secretary Paulson, and Fed Chairman Bernanke do something that Southern Republican Senators are unwilling to do: help save the American auto industry. America is depending on you. Though your retirement is just over a month away, you are still the president and you have all the powers of the office. The problems the Big 3 face are beyond petty party politics. It goes beyond the GOP trying to deal a death blow to the UAW. It goes beyond regional politics--North versus South, American car companies versus foreign transplants.

I know it's going to cost money, a lot of money. But the financial industry was worth saving and that cost tax payers twenty times what the Big 3 are asking for. The financial industry doesn't make anything--it moves paper around. Our auto makers are the manufacturing backbone of our nation. Could we really call ourselves a superpower anymore if we don't make are own vehicles? Will our Army Jeeps be made by Toyota? Honda? Kia? VW?

Ten percent of the American economy is dependent upon the auto industry. If our Big 3 go under, the ripple effect will be astronomical and will cost our economy much more than the tens of billions needed to prop up the industry. Think of all the unemployment payments that will be paid out when that happens. Oh, and those American parts suppliers that the foreign transplants use for their plants in places like Alabama, Georgia, and Tennessee won't be there. Guess where those transplants will shift their manufacturing--back to their home countries.

So Mr. President, I am asking you, imploring you, to give the car companies the life saving shot of capital they need in this woeful economy. GM is already on life support having announced it will mothball 20 factories in early 2009 and cutting 250,000 vehicles from production. This goes beyond our auto industry though, the American economy is reeling. If the Big 3 go under, our economy may plunge into hardship not seen since the 1930s.

It's up to you and your team Mr. President. The Congress tried and failed. You are the last hope. Please don't let us down.

"I Come From Michigan"

Truly one of the best speeches I've seen delivered by a member of Congress fighting for his constituents. Thaddeus McCotter, Republican from Michigan's 11th District, spoke in support of the $14 billion auto industry bridge loan. The legislation passed the House late yesterday 237-170, but faces a massive uphill climb in the U.S. Senate due to resistance from Senate Republicans many of whom are Southern legislators whose states are populated by foreign automakers. McCotter's impassioned 8 & 1/2 minute speech is all the more impressive since it was delivered extemporaneously.

If the embed below isn't working, here is a link to the video.

Time to Open the Books

Congress and President-elect Barack Obama are expressing concern over lack of information about how the bailout money is being allocated and spent: "House Financial Services Chairman Barney Frank, D-Mass., blasted Treasury on Wednesday following the release a day earlier of a report saying the government has no effective way to verify that money spent as part of the $700 billion rescue will increase lending. 'The bad news was confirmation by the [Government Accountability Office] in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law — to increase lending,' Frank said. 'The much worse news is Treasury’s response that it does not even have the intention of doing so.'"

Yep, time to shine a little sunshine on the process. It's interesting how AIG, Citigroup, and others didn't have to submit detailed plans on how they were going to reorganize and use taxpayer money and the Big 3 automakers did.

Big 3 Bringing Tin Cup Back to The Hill, Hopefully by Coach

The Big 3 automakers are coming back to Capitol Hill this week in an effort to get Congress and the President to loan them $25 billion. The House Financial Services Committee is scheduled to hold hearings to review restructuring plans of the Big 3--part of the song and dance the Big 3 must go through before getting their money (funny, I don't recall AIG or Citigroup officials being forced to dance for their money).

In anticipation of their Beltway maneuverings, it is being reported that General Motors is actively considering shedding several brands: Pontiac, Saab, Hummer, and Saturn. It wants to sell the Hummer brand and I would assume it would be able to do the same with Saab, a relatively recent acquisition. I don't quite get the reason for the bullseye on Saturn which seems to have more life in it than Pontiac or some other GM brands not on the chopping block like Buick. Speaking of, how often do you see someone younger than 60 driving a Buick? And, they usually drive it for 20 years. Heck, not even Tiger Woods could sell the dang things and now he's been let go as spokesman. Maybe Wilford Brimley would be a better spokesman for that demographic.

Ford's plan is to apparently not cut executive compensation. CEO Alan Mullaly only received $22 million in total compensation last year, a year in which Ford lost $2.72 billion, so you can totally understand why he would resist having his $2 million salary reduced to $1--because people like him care nothing for their own company or stock holders. It's all about their own pocketbook and perquisites.

As I've state before, I do hope the Big 3 get help and survive--they are too important to the fabric and economy of America to go under. However, I hope that as part of the condition of "tax payer compensation", the executives of the Big 3 are forced to give up their ridiculous compensation packages and that Ford and GM replace their CEOs with people with less hubris (Chrysler's CEO works for $1 a year currently until Chrysler is sold).

Bailing Out the American Auto Industry

I've been waiting to write anything about this topic--I am not an economist after all. However, after thinking about this topic for weeks, I don't know how this country, a superpower after all, could possibly let it's domestic automakers go out of business as well as all the supporting parts suppliers dependent on the Big 3 (GM, Ford, & Chrysler). About 2% of the nation's workforce work for the Big 3 automakers alone and 1 out of every 10 American workers is dependent upon the auto industry. Three million people would lose their jobs according to one study by the Center for Automotive Research.

If the Big 3 go under, think of the effect it will have on communities all over the country. Take Lordstown, Ohio, for example: "If the industry failed, among the hardest-hit communities would be Lordstown, Ohio, a village of 3,600 people about 50 miles east of Cleveland that has been home to a GM factory since 1966. If the plant closed, Lordstown would lose up to 70 percent of its budget, a scary scenario that proponents of a multibillion dollar bailout say would be repeated across the industrial Midwest."

The fight over the American auto industry is dividing the country along sectional lines to a certain extent. Lawmakers from Ohio, Michigan, and other Midwestern states are in favor of helping the industry, regardless of party. Ohio Senator Sherrod Brown, a Democrat, makes the sensible argument that it's not just about jobs but also about national security: "If we ever need that national security production for serious defense, for any kind of significant war, it's gone." Other lawmakers, particularly those from states who are not dependent upon the auto industry, are skeptical of any help by the government. Arizona Republican Jon Kyl, Senate Minority Whip: "Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning." Senator Jeff Sessions (R-AL) is similarly critical: "How is this money going to make a positive difference in creating a new competitiveness? Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?"

The quote from Sessions highlights a question for me which has yet to be answered. Why the resistance to helping the auto industry, upon which so many Americans rely, when the White House and so many lawmakers seem so eager to help America's struggling financial institutions? What exactly does AIG make anyway? How about Citigroup? These paper-pushers are the recipients of hundreds of billions of dollars from American taxpayers even when their leaders are pocketing hundreds of millions of dollars in executive bonuses. AIG will burn $150 billion in taxpayer money; the U.S. government will be insuring $300 billion in Citigroup assets. Yet the automakers must beg and plead for a pittance in comparison and even so, it's not clear whether they will get help or get the door slammed in their face. Why the double standard? As Senator Carl Levin (D-MI) says: "It's a double standard, basically. Holy cow, AIG gets $150 billion for one insurance company that not only made mistakes but engaged in very dubious practices ... and they're bailed out? I'd love to see what their financial plans are, but I doubt they were even asked for them."

There is no doubt the U.S. automakers--their corporate leadership and powerful unions--will have to restructure and make concessions to survive. Making affordable, safe, fuel-efficient cars will be necessary in the long and short term. Not having the CEOs show up to Congressional hearings in expensive corporate jets would be another step. But it would be an American tragedy to let America's auto industry go extinct. At that point, the United States could no longer be considered a world superpower but rather a paper tiger set for a rapid and calamitous decline.