Contrary to usual form, I’m putting the latest update first, but Bloomberg claims that the Senate Republicans and Democrats have reached a compromise on the auto bailout bill. However, the Detroit Free Press, in a story posted at almost the same time, say the Democrats say there is a deal, while the Republicans beg to differ. And without the New York Times or Washington Post confirming a deal (the Bloomberg story has now been up nearly an hour) I wonder where the truth lies.
It remains an open question whether the House will go along even if there is a deal, given that Pelosi issued an ultimatum by saying she would not reconvene the House to consider another version of the bill.
Back to the original post:
The latest report (at Bloomberg) adds little new (beyond indicating more progress and saying that Republican Bob Corker, the moving force behind the new version, had spoke to GM President Fritz Henderson and United Auto Workers President Ron Gettelfinger.
Note the limited detail on the contents of the compromise. The Senate Republicans had reportedly wanted a bondholder cramdown, more power for the car czar, and pay comparable to foreign plants for UAW members. The bondholder cramdown may be problematic absent a bankruptcy filing, if that is indeed on the table, but that was not mentioned in the Reuters piece.
There is also the wee problem that the House would have to reconvene and sign off. Pelosi had earlier said the House would not return, but she would presumably climb down. From Reuters:
Prospects for an auto industry bailout revived in the U.S. Senate on Thursday as surprise negotiations on a compromise moved forward and a vote was possible later in the day.
Senate Majority Leader Harry Reid said on the Senate floor that the deal, if struck, “would overwhelmingly pass” the chamber that just hours ago seemed resigned to sending the automakers back to Detroit empty-handed…
The House has adjourned for the year but could be called back, which would be necessary if the Senate approves the compromise plan. A House Democratic aide said the chamber could not vote on a modified Senate version until next week at the earliest….
The Corker plan, which grew out of a combative exchange with U.S. auto chief executives at a hearing last week, would require a number of concessions before federal money is awarded. The companies would have to file Chapter 11 bankruptcy if conditions were not met by a fixed date.
The Democratic plan would extend aid until March 31 after which more help would depend on the quality of restructuring plans demonstrating the companies’ ability to survive and compete.
The Corker alternative would require the companies to immediately bring unionized wages in line with scales at foreign competitors, mainly Japanese companies, that operate assembly and other plants.
Japanese, Korean and German manufacturers have or are building 18 auto assembly plants in the United States. None is unionized and 11 are located in Southern states, including Tennessee.
Another provision would require a portion of contributions to a United Auto Workers retiree healthcare trust be in stock instead of cash, a move that would improve the industry’s liquidity crunch….
If Democrats fail to pass a bailout, they could try again on January 6 when the new Congress convenes with Democrats in expanded control of the Senate…
GM has warned its cash levels would dip below minimum levels by the end of this month absent help. Chrysler has said it could hold on into 2009 and Ford’s liquidity is stable for now. Ford is seeking a government line of credit as a hedge against worsening finances down the road
Update 8:30 PM The Bloomberg version of the story does say the bondholder haircut is part of the deal:
The Republican alternative, offered by Corker, would require automakers’ bondholders to take 30 cents on the dollar and would set wages similar to those paid by foreign companies such as Volkswagen AG.
What about wiping out stock holders? Since when do the bondholders take a cut without the stock holders being wiped out???
Likewise, I was wondering, if the bondholders take a 70% haircut, and GM eventually goes under anyways, is their position that much worse? What I mean is, could it be that they might perceive it as in their interest to force a bankruptcy?
Japanese, Korean and German manufacturers have or are building 18 auto assembly plants in the United States. None is unionized and 11 are located in Southern states, including Tennessee
No UAW representation: + $10 billion.
No Wall Street capital structure: + $100 billion.
No Ivy League schooled executives: Priceless.
WASHINGTON – A $14 billion emergency bailout for U.S. automakers collapsed in the Senate Thursday night after the United Auto Workers refused to accede to Republican demands for swift wage cuts.
Senate Majority Leader Harry Reid said he was “terribly disappointed” about the demise of an emerging bipartisan deal to rescue Detroit’s Big Three.
If the deal is dead, then next step for GM is to start shutting down, freeze some payments and head to bankruptcy court. There’s no way workers would go down without a fight since wage cuts at this stage would not do much to reverse the cash drain.
dow futures show -316 via bloomberg
“Reid called the bill’s collapse “a loss for the country,” adding “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”
GM and Tribune in the same week?
These failures seem to come in pairs