Is The House Of Cards Falling? 100 Auto Suppliers Now Want Access To $700B Bailout

[AVANTI R5]

For Video
http://online.wsj.com/article/SB1226...leTabs%3Dvideo

WASHINGTON -- Auto-parts makers are requesting access to the government's $700 billion financial-industry rescue fund, and Democratic lawmakers are planning tough conditions -- including a government oversight board -- on a proposed aid package for Detroit's troubled auto companies.


Democratic lawmakers Monday plan to unveil a bill that would give the Big Three auto makers access to the $700 billion Troubled Asset Relief Program set up in October to help ailing banks and other financial firms. As written, the legislation wouldn't include auto-parts makers.


Parts makers are seeking to change that in a letter signed by nearly 100 companies and being sent to the House and Senate on Monday. In the letter, the Motor and Equipment Manufacturers Association, a trade group, will ask that its members get equal access to TARP funding sought by the car makers.


General Motors Corp., Ford Motor Co. and Chrysler LLC are seeking $25 billion of new loans, on top of $25 billion already approved for loans. The latter were intended to help the car makers retool their fleets and make more energy-efficient vehicles.


Lawmakers and congressional aides said the bill to assist the auto industry will include more-stringent limits on pay for auto executives than have been imposed on executives of finance firms using the TARP funds. TARP rules bar firms from giving "golden parachute" exit payments to certain executives and restrict compensation above $500,000 from being tax-deductible.


The legislation would require the auto makers and their unions to draw up plans on how the companies would return to financial health in the longer term.
The bill would "provide immediate, targeted assistance" in return for industry commitments to meet "new fuel-efficiency standards" and develop technologies that would allow the industry to compete in the global marketplace, House Speaker Nancy Pelosi (D., Calif.) said Saturday.


House Financial Services Chairman Barney Frank (D., Mass.) said on CBS's "Face the Nation" on Sunday that the legislation would bar the companies from paying dividends or issuing bonuses to executives making more than $200,000 a year, for as long as the companies are receiving government support.


The legislation also calls for the establishment of a government oversight board that "could veto ventures," Rep. Frank said. The board's members would include executive-branch officials with jurisdiction over the industry, he said. Congressional staff declined to elaborate on how the board would work.


Democrats hope to force action on the bill this week, but the Bush White House and many Republican lawmakers are reluctant to give the industry access to the rescue fund. Instead, they want Congress to speed release of the $25 billion that has already been approved.


On Sunday, Alabama Sen. Richard Shelby, the senior Republican on the Senate Banking Committee, suggested bankruptcy court would be a better option to help the industry restructure and argued that government aid isn't going to halt the industry's long-term decline.


"Should we intervene to slow it down, knowing it's going to happen?" Sen. Shelby said on NBC's "Meet the Press." "I say no."


Auto-parts suppliers -- which employ 600,000 people concentrated in seven states, nearly triple the number working for Detroit's Big Three auto makers -- said the car companies' woes are already being felt downstream. Their request for equal access to any new loans made to the car companies shows the challenges Congress faces in drawing the line on which sectors to assist.


In its letter to Congress, the parts makers' group argues that aiding auto makers won't address the difficulties facing suppliers. Even if auto makers get government aid, the group says, their factories won't necessarily be running at full capacity as long as consumer demand remains low.


Parts makers supply auto makers beyond the Big Three, including foreign-owned manufacturers with operations in the U.S.


Led by GM, the auto industry has launched a broad lobbying campaign to persuade the White House and lawmakers to extend aid to the auto makers. On Sunday, Chrysler said it would send a team of 33 dealers from 25 states to visit lawmakers and administration officials on Tuesday and Wednesday to press for federal loans for domestic automakers.


Dealers and suppliers contacting the White House and lawmakers are armed with statistics compiled by a research group close to the auto industry, to support the argument that the failure of U.S. auto makers would have systemic consequences.


The study, produced by the Center for Automotive Research, predicted a collapse of the Big Three would result in the loss of three million jobs within a year.


Douglas G. Baird, a professor at the University of Chicago Law School who specializes in bankruptcy law, disagreed. "This three million figure is laughable...modern bankruptcy law is designed to protect against that," he said.
Kristin Dziczek, a senior project manager at the center, said that while a portion of the nonprofit group's research is paid for by auto makers, that wasn't the case with this research.

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[KNS Brakes]

Please keep posting

[KNS Brakes]

smacks of greed - this could be the biggest heist of all time

well - except for the one AIG just pulled off

[White out]

When companies are not getting paid by GM for the work they have done. It makes perfect sense for them to go after payment. If the companies file bankruptcy, they get nothing.

Nick

[registering]

The bankruptcy laws are what need changing. You don't fix broken bankruptcy laws by handing out my cash to heartless business people*. Not that fixing anything is the goal here.


* "stupid" is debatable: how stupid is a CEO/CFO/etc who're raking in millions while their company goes to ****, especially when they hop from company to company anyway and past performance doesn't seem to matter in the executive world anyway; greed in and of itself I don't have a big problem with; not giving a damn about the people/country/economy you're partly responsible for is a problem.

[design1stcode2nd]

Can i get paid too? I just built an addition so can the gov gimme money to cover it. Or just give me a brand new C6 convertible.

[SubaruImpreza_power]

^ was about to say the same too.. when do I get back this money that they seem to be handing out to every single damn company who asks?

[monovich]

this is out of control. time to bite the bullet and let it all explode. better now than later.

[Indocti Discant]

guys the problem with bankruptcy now is that you wont get DIP loans. Therefore you need the govt to provide DIP financing, i.e. cash from the TARP.

if you dont get DIP loans then you go chapter 7 and not 11.

[KNS Brakes]

can you elaborate please?

[Indocti Discant]

Originally Posted by WRXBrakes

can you elaborate please?

two types of bankruptcy. chapter 7 and chapter 11.

chapter 7 = liquidation, chapter 11 = re-organization.

Ongoing entities file chapter 11. To do this they need a source of financing to support their operating cash flow needs since their existing source (revolving line of credit) will become invalid.

Firms have the option go have a pre-packaged (pre-pack) bankruptcy, whereby they get a re-org plan ready to go once they file. They usually have a Debtor in Possession (DIP) loan ready to go to provide the financing needed to get them through the re-org process.

DIP loans are short term 3-36 months. They are usually provided by banks and hedge funds at higher than average interests. DIP loans are the most senior of all debt.

The issue that now occurs is that there is NO DIP loan provider left as a result of the credit crisis.

Therefore the domestic 3 cannot go ch. 11 since they will not be able to get a DIP.

So before we even go into all the other fun crap that comes with a re-org we need to get over this step of "wtf do we get money from to re-org".

And that is where the govt needs to step in and provide the necessary "bridge loan" to help the domestic 3 re-org.

[KNS Brakes]

ok - so the DIP debt is the first paid back - if any

Can they not go CH 11 and have TARP be the DIP?

I am somewhat unconcerned for the current people there - they made their bed - go lie in it

But I DO think we need strong auto-makers in our country and a re-orged GM or Ford gets a huge leg up on any all new entity. Transportation and Energy are 2 core industries that are going to make someone a lot of MONEY in the future - WE (the US) need to possess that.

[Indocti Discant]

Originally Posted by WRXBrakes

Can they not go CH 11 and have TARP be the DIP?

.

Thats basically what they are looking for, except it cant be called ch 11 since the very title of bankruptcy (hugely negative sale implications as consumers will not buy a car from a bankrupt company) will ensure that the firm is no longer a ongoing entity.

So just to be clear this bailout is another form of them going bankrupt, and money provided to them will have serious strings attached and will require them to re-org.

That is what Pelosi asked them to do today. Comeback better prepared with a proper re-org plan.

[KNS Brakes]

ok - sorta

I surely to some extent want to see them fail - which is more a 'you get what you deserve' and 'I told you so you mfer's' and 'hah union - how you like it now etc.. (I was a white collar contract engineer - I saw things.. )

Immature - but ....


Hopefully they fly coach this time....:wink: