There are certain rules of life which, while not inviolate, are so often proved correct they may as well be. One of these is whenever something or someone comes along that sends both fringes into a tizzy, odds are good to excellent it or the individual in question is the correct choice for the situation at hand. Such is the case with the Big Two Out Of Three auto manufacturer loan put together by President Bush.
While the right can scream all it wants about caving into labor while the left harps about continuing to feed corporate greed, the fact is while both labor and management are equally to blame for the sorry state of American auto manufacturers allowing the whole rotten mess to collapse on itself is not an option. Another fact conveniently ignored is how any government measures to wield a stick labeled “clean up thy house or else” alongside the loan carrot are severely hamstrung by both the excessive deregulation and labor protection laws enacted over the years. Translation: Republicans and Democrats are equally at fault for the present mess. However, this is a world allergic to telling itself the truth, therefore expect no mea culpas from anyone involved.
A look at the fact sheet for the loans is revealing:
Financing Assistance to Facilitate the Restructuring of Automobile Manufacturers to Attain Financial Viability
Purpose: The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing.
Amount: Auto manufacturers will be provided with $13.4B in short-term financing from the TARP, with an additional $4B available in February, contingent upon drawing down the second tranche of TARP funds.
Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.
Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.
Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:
- Firms must provide warrants for non-voting stock.
- Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
- Debt owed to the government would be senior to other debts, to the extent permitted by law.
- Firms must allow the government to examine their books and records.
- Firms must report and the government has the power to block any large transactions (> $100 M).
- Firms must comply with applicable Federal fuel efficiency and emissions requirements.
- Firms must not issue new dividends while they owe government debt.
Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:
- Reduce debts by 2/3 via a debt for equity exchange.
- Make one-half of VEBA payments in the form of stock.
- Eliminate the jobs bank.
- Work rules that are competitive with transplant auto manufacturers by 12/31/09.
- Wages that are competitive with those of transplant auto manufacturers by 12/31/09.
These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.
In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.
Free money this ain’t.
Although there is no direct address of the fundamental difference between UAW shops and transplant auto manufacturers, namely how the UAW’s benefits package runs the Big Three on average $22 an hour more in total cost per employee than what is paid by Toyota and variations thereof, the hope is this will be considered part of the overall wage and work rules package. Unfortunately, with a rabidly pro-union President coming into office mark this down as questionable. Only public pressure can bring about such a change, and if the media’s love affair with Obama continues to render it doing its best see no evil-hear no evil-speak no evil routine exactly where the pressure will come from is anyone’s guess. (Would the blogosphere kindly not bother raising its hand?)
The loan package is the best that could be done. The laws aren’t going to be changed to make it possible for a more unilateral approach that better addresses both management and labor’s culpability, so no matter how much anyone may howl about this or that the only viable approach to the American car cesspool is dealing with it as it is while hoping somewhere along the line all parties involved grow a sense of accepting responsibility. I wouldn’t hold my breath, though.
