Congressman David Price (D-NC) released the following message today to constituents who have contacted him regarding the proposal for federal assistance for U.S. automakers.

While I understand the devastating effects the failure of General Motors, Ford, or Chrysler could have on our entire economy, including in North Carolina, I do not believe it has yet been demonstrated how an infusion of federal funds could make these companies competitors and viable in the 21st Century.  I had hoped that when the top executives of the “Big Three” testified before the House Financial Services Committee on November 19, they would acknowledge their failures of planning and management and lay out a serious plan for course correction.  They notably failed to do so, leading many of their supporters in the Congress to conclude that funding could not be justified.  “Until they show us the plan…on how they go into the future,” said Speaker Nancy Pelosi, “we cannot show them the money.” 

I concur in this judgment, but I also believe the situation of the automakers – some of which is of their own making, while other aspects are tied to the collapse of credit and the broader economic slowdown – demands our careful attention.  Economists estimate that failure in this sector would result in the loss of no fewer than one million and perhaps as many as three million jobs; in North Carolina alone, more than 130,000 people are employed by the motor-vehicle sector. 

The main proposal under discussion in the Congress would make $25 billion in loans available to the industry, taken from the $700 billion rescue plan already approved.  Provisions for the Treasury to recoup the funds when the industry recovers would apply, just as the government ended up making money from the Chrysler bailout some years ago.  As an alternative, some Republicans have proposed temporarily diverting, for rescue purposes, the $25 billion fund that was created earlier to help the industry transition to more energy-efficient and environmentally sound technologies.  At the moment all of this is on hold, although the congressional leadership has left open the possibility of returning to Washington to address the situation in early December, provided the industry provides a serious proposal. 

One possibility that has been widely discussed is a so-called “prepackaged” or “structured” bankruptcy, with some aspects of the settlement specified legislatively or otherwise agreed upon in advance.  This would retain some of the supposed advantages of ordinary bankruptcy – requiring a far-reaching restructuring and equitably distributing concessions among management, workers, creditors, and other stakeholders.  At the same time, it might avoid some of the perils a car company would face under Chapter 11 bankruptcy, reassuring consumers who would be wary of purchasing vehicles with no future guarantee of honored warranties, resale values, parts, or service. 

In any event, I believe President-Elect Obama is correct in insisting that all involved constituencies must make concessions to make the auto industry sustainable.  I am not interested in pumping dollars into companies that are ultimately destined to fail.  Any provisions for the automakers to participate in the broader rescue plan should turn on a demonstration of 1) the positive and substantial impact of such participation on the broader economy; and 2) the potential of participation to prompt the restructuring and reorientation of these companies so that they may themselves recover and turn a profit in the foreseeable future. 

If Congress reconvenes to act on auto industry participation in the rescue plan, I will carefully consider the opinions expressed by my constituents on this issue.