Wednesday, December 17, 2008
[IWS] CRS: U.S. MOTOR VEHICLE INDUSTRY: Federal Financial Assistance and Restructuring [3 December 2008]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring
December 3, 2008
Stephen Cooney (Coordinator), Specialist in Industrial Organization and Business Resources, Science, and Industry Division
http://opencrs.com/getfile.php?rid=65859
[full-text, 44 pages]
Summary
The three domestically owned U.S. manufacturers of cars and light trucks are
requesting federal financial assistance in the form of �bridge loans� to assure their
ability to continue in business. The companies, General Motors (GM), Ford and
Chrysler (collectively known as the �Detroit 3�), have directly appealed to Congress
for aid in a series of hearings that began in November 2008. The companies have
been affected by a long-term decline in U.S. market share, the impact of a general
decline in U.S. motor vehicle sales in 2008 that has impacted all producers, and the
effects of a severe constriction of credit, resulting from problems in U.S. and global
financial markets. The rise in gasoline prices to more than $4.00 a gallon in July
2008 caused a significant fall in vehicle use and miles driven, and a structural shift
in motor vehicle consumption patterns. The subsequent decline in gas prices in Fall
2008 has not led to increased consumer spending on autos and light trucks, in spite
of numerous incentives by American and foreign-owned motor vehicle companies.
A bill to provide up to $25 billion in direct loans to the companies was
introduced on November 17, 2008, by Senate Majority Leader Harry Reid (S. 3688).
This bill would make these loans available from $700 billion already set aside by
Congress in the Troubled Asset Relief Program (TARP) established under the
Emergency Economic Stabilization Act of 2008 (EESA, P.L. 110-343). Earlier,
Secretary of the Treasury Henry Paulson rejected requests to use his existing
authority to designate TARP funds for this purpose. The Bush Administration
instead proposed that bridge loans to the auto industry could be taken from the direct
loan program for advanced technology vehicle production set up under Section 136
of the Energy Independence and Security Act (EISA, P.L. 110-140). This bill had
become law in December 2007, and had been funded under P.L. 110-329, legislation
that included continuing appropriations for FY2009.
A number of other draft bills have been discussed in both houses, but none has
been introduced. Senator Reid and House Speaker Nancy Pelosi have said that
funding for bridge loans to the industry will be considered at a session of Congress
to be convened in early December 2008, after the Detroit 3 present detailed plans to
Congress as to how they would use the funds to assure their long-term financial
viability.
This report reviews the U.S. automotive industry at present, aspects of the
industry�s financial situation, and relief options. It includes an analysis of the
current situation in the U.S. automotive market, including efforts to address problems
of long-term competitiveness and the impact of the industry on the broader U.S.
economy. It focuses on financial issues, including credit questions, and legal and
financial aspects of government-offered loans or loan guarantees. This further
includes consideration of legacy issues, specifically pension and health care
responsibilities of the Detroit 3. It also reviews potential solutions to the financial
crisis, including options of government receivership and participation management,
and various forms of bankruptcy. Finally, the report reviews stipulations that
Congress might impose on auto manufacturers as conditions of providing assistance.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Are The Detroit 3 Facing an Economic Collapse? . . . . . . . . . . . . . . . . . . . . 1
Organization of This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Impact on the National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Issues in the Auto Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Credit Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Direct Bridge Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Domestic Motor Vehicle Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Loss of Detroit 3 Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Labor Negotiations in 2007 to Address Competitive Issues . . . . . . . . . . . . 13
The Energy Independence and Security Act of 2007 (EISA) . . . . . . . . . . . 13
Legislative Efforts to Assist Automakers . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Employment in the Automotive Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Solutions: Bridge Loan or Bankruptcy? . . . . . . . . . . . . . . . . . . . . . . . . 18
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Assistance from the Federal Government . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Government-Sponsored Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Pension and Health Care Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Pensions and Pension Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Pension Benefit Guaranty Corporation . . . . . . . . . . . . . . . . . . . . . 23
Funded Status of Auto Manufacturers Pension Plans . . . . . . . . . . . . . 24
Health Care Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Stipulations and Conditions on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Executive Pay and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fuel Economy and Advanced Vehicle Technologies . . . . . . . . . . . . . . . . . 35
Other Conditions in Oversight of Company Management . . . . . . . . . . . . . 36
List of Figures
Figure 1. U.S. Motor Vehicle Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 2. Total Estimated Incremental Costs in Model Year 2015 for
Selected Manufacturers Under the Proposed CAFE Rule . . . . . . . . . . . . . . 36
List of Tables
Table 1. Market Shares of U.S. Car and Truck Sales . . . . . . . . . . . . . . . . . . . . . 12
Table 2. U.S. Automotive Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 3. Funded Status of General Motors and Ford Pension Plans
for U.S. Employees, Year-end 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring
December 3, 2008
Stephen Cooney (Coordinator), Specialist in Industrial Organization and Business Resources, Science, and Industry Division
http://opencrs.com/getfile.php?rid=65859
[full-text, 44 pages]
Summary
The three domestically owned U.S. manufacturers of cars and light trucks are
requesting federal financial assistance in the form of �bridge loans� to assure their
ability to continue in business. The companies, General Motors (GM), Ford and
Chrysler (collectively known as the �Detroit 3�), have directly appealed to Congress
for aid in a series of hearings that began in November 2008. The companies have
been affected by a long-term decline in U.S. market share, the impact of a general
decline in U.S. motor vehicle sales in 2008 that has impacted all producers, and the
effects of a severe constriction of credit, resulting from problems in U.S. and global
financial markets. The rise in gasoline prices to more than $4.00 a gallon in July
2008 caused a significant fall in vehicle use and miles driven, and a structural shift
in motor vehicle consumption patterns. The subsequent decline in gas prices in Fall
2008 has not led to increased consumer spending on autos and light trucks, in spite
of numerous incentives by American and foreign-owned motor vehicle companies.
A bill to provide up to $25 billion in direct loans to the companies was
introduced on November 17, 2008, by Senate Majority Leader Harry Reid (S. 3688).
This bill would make these loans available from $700 billion already set aside by
Congress in the Troubled Asset Relief Program (TARP) established under the
Emergency Economic Stabilization Act of 2008 (EESA, P.L. 110-343). Earlier,
Secretary of the Treasury Henry Paulson rejected requests to use his existing
authority to designate TARP funds for this purpose. The Bush Administration
instead proposed that bridge loans to the auto industry could be taken from the direct
loan program for advanced technology vehicle production set up under Section 136
of the Energy Independence and Security Act (EISA, P.L. 110-140). This bill had
become law in December 2007, and had been funded under P.L. 110-329, legislation
that included continuing appropriations for FY2009.
A number of other draft bills have been discussed in both houses, but none has
been introduced. Senator Reid and House Speaker Nancy Pelosi have said that
funding for bridge loans to the industry will be considered at a session of Congress
to be convened in early December 2008, after the Detroit 3 present detailed plans to
Congress as to how they would use the funds to assure their long-term financial
viability.
This report reviews the U.S. automotive industry at present, aspects of the
industry�s financial situation, and relief options. It includes an analysis of the
current situation in the U.S. automotive market, including efforts to address problems
of long-term competitiveness and the impact of the industry on the broader U.S.
economy. It focuses on financial issues, including credit questions, and legal and
financial aspects of government-offered loans or loan guarantees. This further
includes consideration of legacy issues, specifically pension and health care
responsibilities of the Detroit 3. It also reviews potential solutions to the financial
crisis, including options of government receivership and participation management,
and various forms of bankruptcy. Finally, the report reviews stipulations that
Congress might impose on auto manufacturers as conditions of providing assistance.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Are The Detroit 3 Facing an Economic Collapse? . . . . . . . . . . . . . . . . . . . . 1
Organization of This Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Impact on the National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Issues in the Auto Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Credit Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Direct Bridge Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Domestic Motor Vehicle Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Loss of Detroit 3 Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Labor Negotiations in 2007 to Address Competitive Issues . . . . . . . . . . . . 13
The Energy Independence and Security Act of 2007 (EISA) . . . . . . . . . . . 13
Legislative Efforts to Assist Automakers . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Employment in the Automotive Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Solutions: Bridge Loan or Bankruptcy? . . . . . . . . . . . . . . . . . . . . . . . . 18
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Assistance from the Federal Government . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Government-Sponsored Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Pension and Health Care Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Pensions and Pension Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Pension Benefit Guaranty Corporation . . . . . . . . . . . . . . . . . . . . . 23
Funded Status of Auto Manufacturers Pension Plans . . . . . . . . . . . . . 24
Health Care Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Stipulations and Conditions on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Executive Pay and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fuel Economy and Advanced Vehicle Technologies . . . . . . . . . . . . . . . . . 35
Other Conditions in Oversight of Company Management . . . . . . . . . . . . . 36
List of Figures
Figure 1. U.S. Motor Vehicle Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 2. Total Estimated Incremental Costs in Model Year 2015 for
Selected Manufacturers Under the Proposed CAFE Rule . . . . . . . . . . . . . . 36
List of Tables
Table 1. Market Shares of U.S. Car and Truck Sales . . . . . . . . . . . . . . . . . . . . . 12
Table 2. U.S. Automotive Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 3. Funded Status of General Motors and Ford Pension Plans
for U.S. Employees, Year-end 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 8:20 AM
