December 15, 2008
Dear Friend,
As a Member of Congress, it is my responsibility to represent my constituents’ concerns and interests and to provide them the honorable and enthusiastic service they deserve. I truly value your thoughts and suggestions on issues before the House. In a representative government such as ours, it is essential that I know what your views are on these issues.
On December 11, I voted for, and the House passed by a vote of 237-170, the Auto Industry Financing and Restructuring Act (HR 7321). I supported this bill because it provided bridge loans until March 31, 2009, that would help to prevent the imminent collapse of the domestic auto industry -- while demanding strict accountability for taxpayer funds and industry restructuring to achieve viability, international competitiveness, fuel efficiency, and reduced emissions. The Senate, however, could not reach agreement on the bill passed by the House. Presently, there are discussions underway between the President, the Treasury Department, and the Congress about a potential stop-gap action to utilize existing funds approved with the Troubled Asset Relief Program (TARP). I support these actions, and I have written President Bush that this funding take place -- but with all the provisions for accountability and taxpayer protection that were included in the House-approved bill. —
Right now, in the midst of a severe recession, I am concerned that we can not lose this industry; the recession will be greatly accelerated if GM, for example, declares bankruptcy or goes out of business because Congress did not act promptly. The U.S. domestic industry accounts for about 4% of all GDP and 10% of U.S. Industrial production. One in 10 American manufacturing jobs is linked to the auto industry, and Ford, GM, and Chrysler support about 2-3 million American jobs, including auto parts manufacturers and auto dealers across all 50 states.
I know a number may disagree – and, perhaps, several years ago, I might have believed differently. But I believe that right now, at this economic moment, this was the right legislation because it is not about saving the present industry. Rather, it is about keeping our present economy from a much harsher recession and, while doing so, have this automobile legislation serve as a bridge to put in place the necessary building blocks for a transformed, lean, competitive industry that can be a strong source of jobs, the preservation of our advanced research and development and a restructured manufacturing capability necessary for our economic security, while avoiding the devastating near-term loss of confidence in our challenged economy, with the resultant loss of significant state and local revenues.
In November; 533,000 U.S. jobs were lost; over the last three months, this means that more than 1.2 million jobs have been lost, driving up the unemployment rate from 6.1% to 6.7%. And for the first 11 months of the year, car sales are down 16%: Chrysler declined 27%, GM 22%, and Ford 19%, respectively. Of note, Toyota is down, but only 13% and Nissan was down 9%.
It is, therefore, obvious that the domestic car industry did make wrong decisions in the past, failing to transform itself to compete globally with fuel efficient vehicles as non-U.S. auto companies did. The lack of a national energy policy also did not help drive demand for fuel efficient vehicles. While my support for such a financial assistance bill might have been different in normal market times, these are not normal times. The present shaken confidence in our economy cannot sustain the failure of this industry without a longer and more protracted recession occurring that would gravely harm jobs in my District, as well as up to 2.5 million jobs in our Nation. But my vote was not to ‘save’ this industry but, rather, to ensure there was the proper accountability to retool the domestic auto industry to compete globally with the foreign car makers. This accountability includes: a ‘car czar’ that can overrule the automobile companies’ decisions that do not achieve their competitive restructuring; an end to such loans if this retooling plan is not completed and approved by March, 2009; and an end to executive bonuses, ‘golden parachutes’, and shareholder dividends – as the auto companies pay back the loans that have been made to them. At the same time, this money is a loan at 5%, jumping up to 9% after a few years; and the U.S. Government gets “shares” in the car companies equal to 20% of the value of the loans so the U.S. government shares in the profit of a retooled automobile industry; meanwhile, the U.S. Government will “claw-back” through all files and take back any bonuses paid to executives for unmet financial benchmarks.
To prevent the loss of millions of American jobs while ensuring strict accountability and the restructuring of the industry, the Auto Industry Financing and Restructuring Act includes the following specific provisions:
Transparency and Accountability:
The President will designate individuals to hold the car companies accountable for developing and implementing viable long-term restructuring plans that ensure viability, international competitiveness, fuel efficiency, and reduced emissions while ensuring compliance on financing efforts. This so-called “Car Czar” will have unfiltered access to the company’s financial records, has veto power over industry expenditures in excess of $100 million, and is given authority to prioritize how the funds are spent.
Tax Payer Protections
Bans on Corporate Excess
Strong Independent Oversight
Provisions similar to GAO and Special IG oversight provisions of TARP apply, plus explicit grant to GAO of access to Auto Manufacturers’ records (including records of any subsidiary, affiliate, or majority stakeholder in case of Chrysler/Cerberus). Extensive reporting requirements from GAO, Special IG, and President’s Designee to Congress.
Restructure or Repay
If an Automobile Manufacturer fails to submit a restructuring plan that can be approved by the President’s Designee within the time provided by the Act, the loan will be called in 30 days, unless a restructuring plan is approved within that period.
Re-tooling for Innovation and Efficiency
Energy Efficient Advanced Technology Vehicles
Reserves $500 million in credit subsidy equal to $1.5 billion for manufacturing energy efficient advanced technology vehicles, and authorizes additional appropriations to replenish these funds.
Fuel Efficiency and Emissions Requirements
Restructuring plan will not be approved unless the President’s Designee determines that the plan will result in the ability of the Automobile Manufacturer to comply with applicable fuel efficiency and emissions requirements. In addition, the President’s Designee may accelerate repayment of a loan or cancel other financial assistance if the Automobile Manufacturer fails to comply with applicable fuel efficiency and emissions requirements after 3/31/09.
Transit
Each Automobile Manufacturer will analyze the potential use of excess production capacity to manufacture vehicles (including buses and rail cars) for sale to public transit agencies. Also includes provisions to guarantee leases of qualified public transit agencies.
My vote for the Auto Industry Financing and Restructuring Act is another example of my ongoing efforts to restore federal transparency in the midst of this economic crisis. In November, while involved in Congressional hearings examining the root causes and effects of the turmoil in our economy, I wrote to Secretary Paulson noting that the “restoration of public confidence in our governmental and financial institutions can not begin until the American taxpayers see consistent enforcement of the oversight provisions – and behavior from the financial institutions acknowledging that many of them share the responsibility for the economic crisis that has engulfed our country and the rest of the global economy.” Therefore, it is most incumbent upon Congress to ensure full transparency through accountable oversight of the actions taken by the Federal Government – correcting the absence of these which led to the market’s failure.
Also in November, I wrote to Speaker Nancy Pelosi to ask her to join me in demanding Secretary Paulson follow the accountability measures specified in the Stabilization bill and calling on the Democratic leadership to accelerate the assignments of positions on the Congressional Oversight Panel so that is could meet its requirements for supervising use of taxpayer funds. The final appointments were announced on Thursday 21 November, more than 6 weeks after the bill was originally passed by the House and Senate.
I also sent a letter to United States Attorney General Michael Mukasey requesting him to “conduct an appropriate and thorough investigation into any and all financial institutions, corporations, and individuals that are suspect of criminal action relating to our current economic crisis.”
In conclusion, I believed that this interim financial support for the Detroit Three auto producers was the right legislation because it recognized the economic need for a re-created automotive industry, and it built on the lessons for accountability and transparency learned from Treasury’s poor implementation of the TARP program. These include three key objectives.
My vote was not about saving the present industry. Rather, it was to get the time to put in place the necessary building blocks for a transformed, lean, determined industry that can be a strong source of good jobs, the preservation of our advanced research and development and manufacturing capability necessary for our national security, to avoid the devastating near-term loss of confidence, and state and local revenues. Looking forward, to ensure that this is successful, we also need a comprehensive and consistent national energy policy to encourage purchase of these fuel efficient vehicles.
The House acted to address one more part of the overall economic crisis facing this Nation’s jobs and national security. I was disappointed that the Senate did not approve the bill, and I have written the President urging that the interim funding be provided from the existing TARP – but with all the accountability and tax payer protections included in H.R. 7321. While I believe more is required, further action must wait until the new Administration takes office.
Thank you again for your letter. If I can be of any additional assistance, please do not hesitate to contact me. I look forward to our future correspondence.
Sincerely,
Joe Sestak
Member of Congress
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