Last night, the U.S. House of Representatives approved, by a 237-170 margin, a short-term loan and restructuring bill for General Motors Corporation, Chrysler LLC, and Ford Motor Company. Voting was largely along party lines. The bill is the result of days of tense negotiations between Democratic leaders and the White House on the best way to aid the automakers in the short term while protecting taxpayers and contributing to the long-term viability of the three companies. While the bill passed the House on the day of its introduction, its passage in the Senate is far from certain.
The bill would provide General Motors and Chrysler with up to $14 billion in short-term aid. Ford has said it does not need short-term aid unless economic conditions deteriorate substantially. The aid would be approved and disbursed quickly by the president’s designee (the so-called “Car Czar”), with the possibility of further aid for restructuring purposes. Money for aid to automakers was taken from the U.S. Department of Energy’s $25-billion Advanced Technology Vehicles Manufacturing Loan Program (Program) to encourage auto manufacturers and suppliers to produce advanced, fuel-efficient, and lower-emissions vehicles and parts. The aid bill authorizes that fund to be replenished, but Congress will have to act separately to appropriate more funds for the Program.
In exchange for the quick infusion of loan money, the automakers must comply with a host of restructuring and oversight provisions. By March 31, 2009, each company must submit a restructuring plan to the president’s designee that outlines how it will:
- Achieve long-term viability, international competitiveness, and energy efficiency
- Achieve positive net-present value
- Restructure its debt
Failure to submit a satisfactory plan on time could result in the president’s designee submitting his own plan and/or the immediate recall of the short-term loans, effectively resulting in a forced bankruptcy. All stakeholders are to be included in the restructuring plans, including suppliers. Additionally, loan recipients are subject to executive compensation limitations, inspection of their financial and other records by a special inspector general and the U.S. Government Accountability Office (GAO), and a ban on dividends or distributions for the life of the loan. Finally, the government will hold warrants for non-voting stock (or its economic equivalent) equal to 20 percent of the value of the loan.
Despite the fact that the House bill represented a compromise with the White House, very few Republican senators are falling in line behind the bill. Several senators have vowed to oppose the bill, and efforts by the White House to win converts to the bill at a closed-door luncheon on Wednesday, December 10, 2009, were largely unsuccessful. Sens. John E. Ensign (R-Nev.) and Richard C. Shelby (R-Ala.) have vowed to use procedural maneuvers — including a filibuster — to thwart the bill. Sen. Bob Corker (R-Tenn.) will introduce competing legislation that would aim to make bankruptcy more palatable to the automakers by providing that the government would guarantee warranties on the companies’ vehicles. Even Sen. Susan M. Collins (R-Maine), a moderate who oftentimes votes with Democrats, said she is not certain to vote in favor of the bill. Senate Majority Leader Harry M. Reid (D-Nev.) has said he will keep lawmakers in Washington over the weekend and into next week, if necessary, to reach an agreement.
It is likely that if the Senate passes legislation to aid automakers, it will differ markedly from what the House passed, which means the House would have to come back into session to vote on the Senate’s legislation.
Legal News Alert is part of our ongoing commitment to providing up-to-minute information about pressing concerns or industry issues affecting our automotive clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:
Steven H. Hilfinger
Detroit, Michigan
John R. Trentacosta
Detroit, Michigan
313.234.7124
[email protected]
Philip G. Kiko
Washington, D.C.
