Auto Industry Financing and Restructuring Act
On December 10, 2008, the House passed HR 7321, the Auto Industry Financing and Restructuring Act. One in 10 American jobs is linked to the domestic auto industry, and it is a key pillar in an American manufacturing sector critical to our national security and economic competitiveness for decades to come.
Read a detailed summary from the Financial Services Committee>>
The legislation provides up to $14 billion in short-term bridge loans based on four key principles:
STRICT ACCOUNTABILITY TO THE AMERICAN PEOPLE
CAR CZAR – The President designates one or more individuals to hold the car companies accountable for developing and implementing viable long-term restructuring plans and ensure compliance on financing efforts. This so-called Car Czar gets full information access, has veto power over industry expenditures in excess of $100 million, and allocates the funds on a priority basis to protect the economy.
TAXPAYER PROTECTIONS –The government will get warrants for stock to allow taxpayers to profit from the companies’ recovery. ‘Super seniority’ for the federal bridge loans puts taxpayers ahead of all other lenders for repayment. In many cases, these tough protections extend to Cerberus, the private equity firm that owns Chrysler.
NO DIVIDENDS PAID – Over the life of the loans, shareholders will not earn dividends.
BANS ON CORPORATE EXCESS – The legislation requires:
- no ‘golden parachutes,’
- no bonuses for the 25 most highly paid employees at each company, and
- no corporate aircrafts, with requirements to sell or end leases on any existing aircraft.
STRONG INDEPENDENT OVERSIGHT – The Government Accountability Office and the Special Inspector General overseeing the TARP financial rescue funds will both have oversight powers.
SHARED SACRIFICE
Auto executives, employees, labor unions, dealers, suppliers, creditors, and shareholders should all participate in the restructuring efforts.
RESTRUCTURE OR REPAY
To ensure the companies restructure to achieve viability, international competitiveness, fuel efficiency, and reduced emissions:
- The Car Czar can require immediate repayment of the loan if the company has not made adequate progress by February 15th to develop a long-term restructuring plan,
- The company will get no more federal assistance if it fails to submit an acceptable final restructuring plan by March 31st.
A COMMITMENT TO INNOVATION AND EFFICIENCY
REPLENISHING INNOVATION/FUEL EFFICIENCY FUNDS – The legislation calls for maintaining $500 million of the innovation funding set aside to help the industry retool to build advanced technology vehicles that greatly improve efficiency and reduce carbon emissions – and replenishing the remainder of the innovation funds within weeks.
CONVERTING TO BUS AND RAIL CAR PRODUCTION – The companies must analyze the potential for converting unused production facilities – especially former sport utility vehicle lines – to the production of buses and rail cars for public transit agencies.
PROTECTING PUBLIC TRANSIT – To ease the devastating effects of the credit crisis on public transit, the Car Czar will protect the agencies from technical defaults due to problems at AIG and other institutions.