Congressman Lamar Smith, Twenty First Congressional
District of Texas
(WASHINGTON) - Congressman Lamar Smith today voted against H.R. 7321, the $14 billion taxpayer-funded auto bailout proposed by House Democratic leaders, which passed by a vote of 237 to 170. He issued the following statement:
“This is an expensive way to put off a real solution. The proposal does not provide enough money to overcome the fatal flaws of Detroit’s business model and yet it makes matters worse by delaying the very restructuring needed for the industry to become profitable and competitive.
“No one wants the auto makers to go out of business and they won’t. We just want them to have a good business, be profitable, and make cars for years to come.
“The Democrat’s proposal will put the American taxpayer on the line for billions of dollars with no guarantee that the restructuring will occur.
“The Republican alternative would urge the automakers to accomplish their needed restructuring through a pre-packaged bankruptcy or other mechanism that brings all the stakeholders to the table. This will put the companies on equal footing with the foreign manufacturers, which employ thousands of people here in America by making cars profitably.
“The larger question is when do the bailouts stop? When we start down the path of specific industries, where do we draw the line? There are thousands of businesses large and small that could benefit from a government bailout.
“This legislation is not the answer. Any funds for government spending must first be taken out of the economy in the form of taxes or borrowing. The American people should not be forced to make an unsecured loan that may never be repaid.”
House Republicans are proposing the following alternative: The American Automotive Reorganization and Recovery Plan.
On December 2, the Detroit automakers presented to Congress their plans for restructuring. While the plans included laudable goals, too few details were provided as to how the companies will achieve the restructuring and the savings they have promised. In some instances, new agreements to achieve the savings would not be entered into for months or years.
The automakers must lock in the promised restructuring in a matter of weeks, not months or years. Congress should instead establish firm benchmarks and a tight timeline for restructuring. Such benchmarks will include the requirement that by March 31, 2009 each company should reach an agreement whereby:
The companies’ creditors agree to a framework to reduce each company’s indebtedness by at least 1/3.
The UAW holds to concessions already made and further:
o Concedes the elimination of supplemental unemployment benefits.
o Concedes elimination of the jobs bank program.
o Agrees to either reduce company retiree health care obligations or otherwise convert a portion of such obligations into equity.
o Agrees to reduce wages and benefits to the levels paid by non-Big Three manufacturers.
Because of the many legal and contractual hurdles to restructuring, the companies are urged to accomplish their restructuring through the use of a pre-packaged bankruptcy or another mechanism to bring all stakeholders to the table for an agreed-upon determination of their future. It is important that these stakeholders reach reasonable compromises with each other. Creating a government bureaucracy or a “car czar” to arbitrarily pass judgment on the thousands of details involved with a restructuring is the equivalent to nationalizing the auto companies.
The Big Three may need some form of interim financing as they finalize their restructuring. In better economic conditions, if their restructuring plan was considered viable, such financing should be available in the private sector. However, because of the current credit crisis, limited assistance may be appropriate in the form of insurance, rather than a taxpayer-funded government bailout that replaces private investment.
House Republicans propose that the government provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50 percent of the losses of new investment in the case of default, helping to unlock immediate private investment (not unlike debtor in possession financing). Such insurance would expire on March 31, 2009. This proposal ensures that taxpayers are protected and provides a powerful incentive for the auto makers to quickly implement their restructuring plans, saving thousands of jobs.