Misery Index

• Firms must provide warrants for non-voting stock.
• Firms must accept limits on executive compensation and eliminate perks such as corporate jets. [The companies must show the White House they are “taking all reasonable steps” to sell aircraft or interest in aircraft.  And they must provide plans to control their expenses that would include details about spending on holiday parties, travel and new real estate.]
• 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 million).
• Firms must comply with applicable Federal fuel efficiency and emissions requirements.
• Firms must not issue new dividends while they owe government debt.

• Reduce debts by 2/3 via a debt for equity exchange. [The companies would need to provide the government with restructuring plans by Feb 17.  Those plans would need to show the companies and their subsidiaries have used their best efforts to reduce outstanding unsecured public debt, with the exception of pension and employment benefits obligations, by two-thirds.]
• Make one-half of VEBA payments in the form of stock.  [The White House has called for the automakers to make 1/2 of the approximate $21 billion owned to UAW retiree health-care trust in stock instead of cash.]
• Eliminate the jobs bank. [The bank provides nearly full pay to union workers on long-term layoff.  The workers receive normal unemployment benefits however, the jobs bank provides compensation that would make the workers benefits, while on layoff, equal to about 95% of their weekly income.]
• Work rules that are competitive with transplant auto manufactures by 12/31/09. [Meaning equal to that of Nissan, Toyota or Honda however, the U.S. Treasury has changed its stance, saying it had identified an error it wanted to correct to make terms of the package consistent with its intent.]
• 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 make the business case to achieve long-term viability in spite of the deviations.

Interest on the loans is currently set at 5% for three years.  In the event of a default, interest rates could rise to 800 basis points above either Libor or 2%, whichever is greater and is payable immediately.

The companies would need to provide the government with weekly status reports, beginning this week.  The reports would need to detail companies’ 13—week rolling cash forecasts.  The companies also are required to provide biweekly liquidity status reports after loan disbursements and monthly certifications of expense policy and compensation compliance.

WHO GETS WHAT, MAYBE

GM - $17.4 billion.  GM is set to draw $4 billion on Dec. 29, followed by another $5.4 billion on Jan. 16.  Should Congress release a second set of TARP funding, GM would get an additional $4 billion on Feb. 17.

Chrysler - $4 billion on Dec. 29.

Ford – Ford is not seeking any assistance.  “As we told Congress, Ford is in a different position.  We do not face a near-term liquidity issue, and we are not seeking short-term financial assistance from the government,” Ford President and CEO Alan Mulally said.  “But all of us at Ford appreciate the prudent step the administration has taken to address the near-term liquidity issues of GM and Chrysler.”

MEANWHILE THE UAW IS NOT HAPPY ABOUT PAY AND BENEFIT CONCESSION

If you remember, because the UAW would not make concession, that was the reason that the Republicans said no to the Detroit bailout.  Well, Bush added in that concession, and the UAW is not a happy camper.

House Financial Services Committee Chairman Barney Frank (D) is calling the wage stipulation “an unfair assault on working men and women” that could force them to accept “a disproportionately large reduction in what is currently legally owed to them.”  The provision, Frank said, “could give foreign auto companies in effect the ability to dictate wages for all American auto workers,” and “it’s outrageous to be giving foreign companies the right to set wages for American workers.”  He is already pushing for Obama to change that portion of the emergency loan package, something the U.S. Treasury said the incoming Administration will have the power to do. 

House speaker Nancy Pelosi (D) said the White House package “unfortunately singles out workers and clearly put them at a disadvantage before negotiations have even begun.”

“All stakeholders – management, directors, bondholders, suppliers, dealers, workers – will have to participate in shared sacrifices to help the industry move forward,” UAW President Ron Gettelfinger said, noting that the UAW members have already made more substantial sacrifices to help make the domestic auto companies more competitive.  [Those concessions were over a year ago, in an totally different economy.]

”We are disappointed that,” President Bush, “has added unfair conditions signaling out workers,” Gettlefinger said.  “We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed, as we join in the coming months with all stakeholders to create a viable future for the U.S. auto industry.”

“Because these provisions are unnecessary to achieve our goal and because they were unilaterally inserted by the President into what was otherwise a negotiated agreement, I believe that the incoming administration and the Congress should take whatever step are necessary to remove them,” he said. 

The UAW has criticized the idea of cutting employment compensation.  “While we appreciate that President Bush has taken the emergency action needed to help America’s auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers,” UAW President Ron Gellelfinger said in a statement.

What the UAW needs to remember, is that this money is a loan to GM and Chrysler, a bailout for the auto makers, the company itself, NOT to the workers.  Because if the company doesn’t exist, then the workers don’t have a job.  If the UAW needs money to continue giving their members the same lifestyle they are use to in pay and benefits, then they should solicit Congress for money and take a loan out themselves.

TARP

Then there is the entire issue of the second part of the TARP funds.  Currently of the first $350 billion allocated to the Treasury, the department has committed:

    ■  $315 billion to inject capital into banks and AIG
    ■  $20 billion to unfreeze consumer credit markets
    ■  $13.4 billion for GM and Chrysler

This leaves the Treasury will less than $2 billion at its disposal.  Treasury Secretary Paulson said that Congress must release the second half of the $700 billion TARP, stating he would meet with lawmakers and Obama’s transition team to discuss when to ask for the rest of the rescue money. 

But some administration officials suggested that the final decision to request the funds might not come until after Obama takes office.  Treasury officials have grown increasing concerned in recent weeks that they could be left without enough cash to stem another financial crisis, such as the collapse of a bank or other major institution.  But on the other side of the coin, many in Congress have been critical of how the US Treasury has handled the first part of the $350 billion in funding.

In order for the Treasury to access the second half of TARP, the White House must send Congress a plan detailing how the money would be spent.  Congressional Democrats say they don’t expect a request to come before Jan. 4, when the new Congress is scheduled to convene.

Once that submission is made to Congress, they have a 15 day window on voting to pass a measure to block release of the money.  If Congress passes a bill to not release the money, then the White House could veto and overrule the congressional vote, but then Congress could also overturn that veto.

The reason Paulson is talking to the OBama team, is that the timeline for all of this, puts the passage into the first days of Obama’s presidency.  It is unlikely, and I would be very surprised, if Bush petitions Congress to release the money.

Congressional Democrats say they don’t expect a request to come before Jan. 6, when the new Congress is scheduled to convene.  Once a request is made from the White House, Congress has 15 days to pass a measure that would block release of the money.  Six plus fifteen equals 21, meaning Obama is in office.  Or if Congress passed immediately, Bush could veto the funds which would mean that Obama would have to make the request to Congress, thus adding additional responsibility on Obama’s Administration. 

OBAMA

”Today’s actions are a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers,” Obama said.  “With the short-term assistance provided by this package, the auto companies must bring all their stakeholders together including labor, dealers, creditors and suppliers to make the hard choices necessary to achieve long-term viability.”

Obama has also said that “the American people’s patience is running out.”  He says the automakers should “seize the opportunity” to come up with a plan to make their companies sustainable.

Obama also said a final restructuring package shouldn’t just include concessions from the workers.  He said they shouldn’t be the ones “taking all the hits”.  Obama says everyone involved with the auto industry has to be “part of the process.” 

Obama wouldn’t say if he had any specific changes to the plan laid out by Bush this morning because he had yet not examined the exact details.

Bush however, has handed off to Obama his probable first and major difficult decision when he becomes President regarding our economy.  Then his administration must politically and economically judge whether GM and Chrysler have become financially viable at the end of March.  If his new team concludes that the automakers have not become financially viable, it means bankruptcy for GM and Chrysler and widespread layoffs far beyond the automakers.  Meanwhile, Bush has insured that the automakers do not fall on his presidential watch, while it will be up to Obama and his administration to determine if GM and Chrysler are viable, and possibly fall.

CERBERUS

Cerberus owns 80 percent in Chrysler.  The White House package strips away the requirement that Cerebrus be held liable for any losses experienced by the taxpayers.  Lawmakers, both Democrat and Republican, have expressed outrage that Cerebrus, which is profitable, had refused to put up any more cash aid to Chrysler. 

In an emailed statement, Cerberus said that it will hand over equity in the company’s automotive operations to labor and creditors as part of the loan agreement.  “Concessions by all relevant constituencies” are needed to restructure Chrysler.  The fund agreed today to put up another $2 billion into Chrysler.  Administration officials said the investment effectively put Cerberus on the hook for far more than just the government loan, and that taxpayers were being protected through tough restrictions imposed in the loan agreements – including provisions that would give the government an equity stake in GM and Chrysler.

RANT ON

First of all, this is a bailout plan, plain and simple.  Sure, the White House will point to a long list of requirement in the deal’s terms as proof that this isn’t just another bailout.  But that’s bogus:  this is a politically-driven plan and none of the important concessions listed by the White House are binding or likely to happen.  That’s because, unlike in bankruptcy court, this bailout offers no accountability.  There is a zero chance that the government will require GM or Chrysler to pay back these loans if they are unable to right themselves by March. 

Second, the “deal” is non-binding.  Detroit could come back and simply say they haven’t obtained “viability” because no one is buying cars.  That’s their ticket out.

Third, it’s an end-run around our representative democracy.  Congress spent over one month debating whether and how to support the automakers and, in the end, decided to put no taxpayer money on the line.  The White House’s action today nullifies that congressional decision, violating the constitutional command that the legislative branch makes law and the executive branch enforces it.

Forth, it’s just a downpayment.  According to industry analysts and economists (e.g., Mark Zandi) future bailouts, or even bankruptcy, are inevitable.  How much will it cost?  Zandi says up to $150 billion.

Fifth, according to the terms, if the auto makers have “not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.”  What if they auto makers haven’t attained viability, and they don’t have any money to pay it back immediately?

Sixth, there nothing in the loan terms to keep Detroit from continuing layoffs and sending jobs to Mexico.

Seventh, is another small problem:  this bailout is ILLEGAL.  The administration does not have the legal authority to use funds from the bank bailout in this way.  Congress earmarked that money for “financial institutions,” which the UAW automakers clearly are not.  The funds were to be used to restore liquidity and stability in the overall financial system, not to help nonfinancial corporate companies in distress because of  the UAW.

And finally, the fact is that this bailout probably isn’t going to work.  Put simply, if the goal is turning the automakers around to achieve long-term profitability, this bailout is clearly inferior to a straightforward reorganization under Chapter 11 of the bankruptcy code, which so many large corporations have relied upon to escape dire financial straights and return to profitability.  A bailout actually makes achieving this goal less likely.

And then there is the fact that auto sales have been SLASHED at record lows.  Detroit can continue to make cars however, who is going to be buying them? 

And where is the “car czar” in all of this?  Oh yea, its the U.S. Treasury secretary, and we all know how good he’s been with that, right?

SIDE RANT

Why aren’t the same type of restrictions or concessions given to the “too big to fail” banks, who are still laying off workers, paying stockholders, paying bonuses, buying other banks, increasing interest rates on current balances on credit cards, and not making any credit available to consumers and businesses?

And do I feel sorry for current employees and retirees who benefits may end up being cut 60% in the end?  Nope.  Why should they be any different from any other American who is suffering right now?  Join the recession with the rest of the country where you must choose between housing, food and health care.  And if you say the UAW has acquired rights to those items, then why doesn’t the rest of the country have the same?

As for those who paid into the pension fund, and may not get those funds?  Well, what about all the millions of people who have paid into FICA, and come to find out, those funds are probably going to be gone and thus then what?   I paid in enough funds within a 10 year period to acquire enough points to be eligible to retire and eligible for disability.  Why do I have to wait at least 32 years AFTER that to be eligible for 70% of my retirement benefits, and wait a total of 37 years AFTER I’ve paid in enough to be eligible for 100% of my measly $1000 a month.  Can I have interest on all that money over the years?  Nope.

There is the option of the 401(k) however, the Democrats in Congress want to seize those funds.

And why do average US workers, making $10 to $15 a hour, if not less, have to pay taxes to support the UAW for workers who make two or three times those hourly wages, not including all their benefits?

The UAW has blood on their hands while we, the US taxpayers have dirt in our faces.

MEANWHILE

A bailout for Wall Street was done in days in Congress.  A bailout for the auto makers was done in a few weeks.  Why is it taking MONTHS to do a bailout for US taxpayers?  In the meantime, the US taxpayer, who is suffering from record high foreclosures and unemployment get to move into their new digs while the UAW wants to make sure that their workers have everything they have had in the past.  A box under an interstate, or bridge. Are you going to choose a refrigerator box or build one from wooden skids?

If Unions are so good for the economy, then why are automakers in trouble?  If the auto workers are so good, then why are the US made cars mostly sub-standard compared to foreign autos?  And if UAW made cars are so good, then why isn’t the import car industry in trouble?  Why aren’t the import companies screaming for bailouts?  Why is Detroit in so much trouble, but the import auto companies not?  What is their difference?  The UAW.

Let the auto workers know what it’s like to have to sleep in one of their own cars in the middle of winter as a home or they can take pay cuts and come back to Earth with the rest of the United States and suffer along with everyone else.   Settle with something, and not nothing.  The UAW’s greed will be the downfall of at least GM.  Greed and Vanity are two of my favorite sins.

FINAL NOTE

I never thought I would say this, but Bush is a smart man.  If you don’t understand that statement on the “loans”, then you are obviously not getting the ‘whole picture” and /or are an Obama supporter.

SOURCES:

• “White House consulted with Obama team on auto rescue plans”, CNN Politics, 19DEC08
• “Text of Bush’s statement on auto industry”, AP via Yahoo, 19DEC08
• “3rd UPDATE:  Treasury Details Auto Bailout Terms, Executive Comp Restrictions”, CNN Money, 19DEC08
• “UAW to ask Obama to remove ‘unfair’ labor rules”, Detroit Free Press, 19DEC08
• “Bush Gives Emergency Loans to Automakers”, New York Times, 19DEC08
• “GM and Chrysler Will Get $13.4 Billion in U.S. Loans (Update 9)”, Bloomberg, 19DEC08
• Text of Bush’s Auto Bailout Announcement, via CBS
• White House Released Auto Bailout Plan, via CBS
• GM’s Final Terms for their loan, via CBS [PDF]
• Chrysler’s Final Terms for their loan, via CBS [PDF]
• “Bailout Brings Automakers In From The Cold”, CBS, 19DEC08
• “Paulson Says Congress Should Release Rest of Wall St. Bailout Money”, Washington Post, 19DEC08