U.S. May Give Car Czar Power to Force Bankruptcies

Washington DC December 16, 2008; John Hughes writing for Bloomberg reported that the U.S. Treasury may adopt a plan that would let a car czar or the Treasury secretary force General Motors Corp. and Chrysler LLC into bankruptcy if the automakers don’t show they can survive without government aid, a U.S. senator said.

GM and Chrysler would be required to submit viability plans by March 31 or lose any further U.S. support, Carl Levin, a Democrat from Michigan, told reporters in Detroit yesterday. The Treasury plan would resemble a measure passed by the U.S. House last week that was rejected by the Senate.

“I expect that the terms would be similar to the ones that were in the House bill,” Levin said. “The power rests in the hands of either the czar or the Secretary of the Treasury to force bankruptcy by March 31.”

The administration isn’t likely to reach a decision on aid until later this week, with tomorrow being the earliest, a government official said on condition of anonymity. GM and Chrysler are seeking $14 billion to keep operating through the first quarter. Without an infusion of cash, the largest U.S. automaker and No. 3 Chrysler may be only weeks from insolvency.

White House spokesman Tony Fratto declined to speculate on when a plan might be finished, though he said yesterday on Bloomberg Television that the administration wants to make sure taxpayers will get their money back.

‘Rigorous Oversight’

“Of course there will be conditions to any taxpayer financing,” Fratto said. “There will be rigorous oversight to make sure that these companies are doing what they promised to do, and we want to make sure that everyone is making the concessions that they’re going to have to commit to make.”

Levin said the Bush administration understands the urgency of the automakers’ situation. “It’s a matter of weeks before they absolutely must have the funds in hand,” he said.

Under the approach the administration is likely to use, Treasury Secretary Henry Paulson and his successor would “in effect” be the car czar because the Treasury Department would oversee the aid, Levin said.

Paulson said yesterday the Bush administration was moving with “deliberative speed” in considering possible financing for U.S. automakers.

“We’ve got some time,” Paulson said in an interview with Fox News and Fox Business Network, according to a transcript.

‘Very Critical’

“The terms would be very critical, and we would have to assure ourselves that this was a step on the path to long-term viability,” he said. It was too soon to speculate on what terms might be required of the companies or unions if the government provided aid, Paulson said.

The likeliest U.S. aid package will be loans and a so- called prepackaged bankruptcy to get the automakers through to 2009, Moody’s Investors Service said in a note today. There’s only a one-in-four probability the U.S. will bail out the automakers with no bankruptcy, analyst J. Bruce Clark said.

The Bush administration agreed Dec. 12 to consider options, including use of the Troubled Asset Relief Program, after Senate Republicans refused to take up the plan passed by the House on Dec. 10. Senate Republicans sought more specific automaker conditions, such as pay in line with foreign manufacturers’ operations in the U.S.

GM spokesman Greg Martin declined to comment on the possible terms of a bailout. “I will say that as other options for aid are considered, our commitment to an aggressive restructuring plan remains unchanged,” Martin said in an e- mailed statement.

Levin said he believes there is $15 billion left in the TARP program to aid automakers’ operations.

‘Tipping Point’

South Carolina Governor Mark Sanford, a Republican, asked Bush in a letter yesterday not to consider the bank bailout fund for automakers because it would open the “floodgates” for other troubled industries.

“We are at a tipping point in moving from a market-based economy to a politically based economy,” Sanford said.

House Speaker Nancy Pelosi, a California Democrat, said at a news conference yesterday she expects the White House to approve the money for automakers and that something will have to happen “imminently.”

“All the signals coming from the White House are that they know that bankruptcy is not an option, and that TARP funds are the only recourse that they have,” Pelosi said.

Global Plight

The automakers’ global plight was illustrated today when European car sales recorded the biggest monthly decline since 1999. GM’s deliveries on the continent fell 39 percent in November and Chrysler vehicle sales plunged 56 percent, the European Automobile Manufacturers’ Association said. Overall deliveries dropped 26 percent.

Ford Motor Co., which isn’t seeking short-term U.S. aid, said in a statement it “fully supports and appreciates” the administration effort to aid automakers.

“The U.S. auto industry is highly interdependent and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs,” Ford said.