By a vote of 237 to 170, the House of Representatives passed the Auto bail out bill this evening.
The Auto bill is being sold as funding to ensure that Detroit can survivef the recession and restructure their businesses so that they are leaner and better competitors once the restructuring is complete.
After reading the bill, I’ve come to the conclusion that the bill will not allow for the survival of the Detroit automakers. Rather, the bill is a disguised suicide pact.
You’ve probably heard about most of the provisions in the bill: There will be an auto czar who will have significant influence over the indebted auto manufacturers, all private airplanes must go, salaries and bonuses have been capped, the Government will get stock warrants for 20% of the company. What you may not have heard about is the process that the Auto Czar will use to determine who gets loans and how much they get.
The process of doling out “loans” is two fold. The three auto makers will go to the Czar for bridge loans. These loans are intended to keep the manufacturers solvent while they work on their “Restructuring Plan.” According to the legislation, the Czar must consider the following criteria, in the order presented, when determining who gets how much:
SEC. 9. ALLOCATION.
PRIORITIZING ALLOCATION
The President’s designee shall prioritize allocation of the provision of financial assistance under this Act to any eligible automobile manufacturer, based on
(1) the necessity of the financial assistance for the continued operation of the eligible automobile manufacturer;
(2) the potential impact of the failure of the eligible automobile manufacturer on the United States economy; and
(3) the ability to utilize the financial assistance optimally to satisfy the operational and long-term restructuring requirements of the eligible automobile manufacturer.
That seems reasonable. If we’re really working to have the companies survive and be able to repay the loans we would want to put their financial viability as a first priority.
After the companies are approved for the bridge loan, they are given until March 31, 2009 to put detail to the plans they presented to Congress and produce a “Restructuring Plan.” The “Restructuring Plan” is the plan they will execute, and that the Czar will hold them to, until they have paid their loans back to the Government. Based on this plan, the Czar will make determinations about any additional money that the auto company may receive.
The Auto Czar is supposed to use the same criteria, as noted above, to evaluate the “Restructuring Plan.” However, the legislation provides for a different priority to consider and weight the three criteria:
(c) ORDER OF PRIORITY; SECTION 7."”For purposes of allocating financial assistance for restructuring pursuant to section 7, the President’s designee shall prioritize the considerations set forth in subsection (a) in the following order: paragraph (3), paragraph (2), and paragraph (1).
Well gee, that’s kind of odd. Rather than focusing on the financial viability of the company, the long term plan is to be evaluated based upon:
the ability to utilize the financial assistance optimally to satisfy the operational and long-term restructuring requirements of the eligible automobile manufacturer.
What do you suppose that means?
Along with the list of provisions that I gave you early in this post, are a couple of others that you’ve likely heard in passing: If the automaker does not comply with the federal fuel efficiency standards, they can have their loan called, to commence domestic manufacturing of advanced technology vehicles (read that as non fossil fuel vehicles) and do an analysis of how to take excess manufacturing capacity and use it to make mass transit vehicles.
Once the automakers sign up for this loan the government can change the federal fuel standards to anything they want and force to automakers to make the goal. Once the automakers sign up for this loan they have to make non fossil fuel vehicles. Once the automakers sign up for this loan they will be expected to provide manufacturing for mass transit vehicles. All of this will be required or expected of the automakers with the threat of loan recalls if they balk or miss on any of it. All of this will be required or expected without regard to the market or the financial viability of the requirements.
While it’s not surprising that this legislation included “green” requirements, you may find it surprising that the priority for green was placed above all other considerations, including financial viability. Well, you would have been surprised had this happened a couple of years ago before the nation started its rapid and determined race to nationalization of industries and socialism. Now it seems hard to find any sense of fiscal sanity with in any action coming from inside the Washington beltway.
The Auto Industry Financing and Restructuring Act is not an act to bring the auto industry back to health. Rather, it is an act that will create three industrial zombies. Like Zombies, they will be a shell of the real thing. They will be soul less and act in ways that are inexplicable except to their masters. Their masters will care nothing for the well being of the zombies and are only interested in them to accomplish the master’s goals.
It’s obvious to see why the automakers want the bailout; they see it as they only way to survive. I wonder if they would make the same choice if they understood that they are about to become the new stars in The Night of the Living Dead?
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