Taken from Yahoo News today.
WASHINGTON – Detroit's automakers may soon be answering to a powerful "car czar," who would dole out short-term emergency loans like a kid's allowance, put them on a restructuring diet and hold veto power over any transaction of more than $25 million.
Just how much power this super CEO on the government's payroll will have to wring concessions from auto company executives, the auto workers union, suppliers, bondholders and other creditors was among the last major bones of contention among Democrats, many Republicans and the White House.
"If they don't meet the conditions of restructuring, there is not going to be an endless flow of money to this industry," warned House Speaker Nancy Pelosi, D-Calif.
Indeed, for the large manufacturers — General Motors Corp.'s annual capital budget is about $4 billion — the amount of oversight would be dramatic. According to drafts of the bill, any asset sales, investments, contracts and commitments of more than $25 million would need to be reviewed by the czar, leading to fears of micromanagement from some auto industry insiders.
"Twenty-five million dollars is a pittance in an automobile capital budget," said Gerald Meyers, a former chairman of American Motors Corp., which was bought out by Chrysler in 1987. Meyers, who now teaches leadership at the University of Michigan, predicted that the companies would propose "a hailstorm of $24 million proposals" to get around the requirements.
"That's the price of going to Washington with a tin cup in your hand," Meyers said.
The companies lobbied against the $25 million threshold and privately have called it unworkable.
But they've acceded to the car czar, reflecting their tenuous position. GM says it needs $4 billion by the end of the month to survive and another $4 billion in January while Chrysler has sought $7 billion by year's end to avoid a cash shortage in 2009. Ford Motor Co. has said it would not seek the short-term assistance because it does not have an emergency cash-flow problem but wants a $9 billion standby line of credit in case a competitor fails. Ford spokesman Mike Moran said under the draft legislation they would need to work with the czar to be eligible for the line of credit.
Referred to as the "president's designee" in the bill, the car czar would have vast powers. President George W. Bush would appoint the czar during the final days of his administration to oversee the restructuring of the companies.
The czar could authorize loans to GM and Chrysler LLC almost immediately after the bill is signed, or as early as next week. The seven-year loans carry an interest rate of 5 percent the first five years and 9 percent the final two years. The czar has the power to set repayment terms.
The designee would have the power to "examine any books, papers, records or other data" of the companies and those of any subsidiary holding more than 50 percent of the automaker. Private equity firm Cerberus Capital Management LP owns an 80.1 percent stake of Chrysler.
By Jan. 1, the czar would determine "appropriate measures for assessing the progress" of each company in turning the plans they submitted to Congress last week "into a long-term restructuring plan."
He would then begin functioning as a broker to facilitate concessions by unions, creditors, other debt holders, dealers, shareholders and suppliers as part of a long-term restructuring. He would have the power to convene meetings among various stakeholders. He would have to report to Congress twice a month, beginning Jan. 1.
If the overseer concludes that the companies have not moved aggressively enough to restructure themselves by Feb. 15, he would have the authority to recall the loans on behalf of the government, a move that could force GM or Chrysler into bankruptcy at that time.
By the end of March, the companies would have to submit more detailed restructuring plans for achieving and sustaining their "long-term viability and international competitiveness."
Those plans would have to specify how they are going to repay the government loans, how their vehicles will comply with fuel-efficiency regulations, plans for new vehicles, efforts to streamline costs and capacity and proposals to restructure the companies' debt, including converting debt to equity.
If the Big Three failed to come up with viable restructuring plans by the end of March, the czar would have to submit his or her own blueprint to Congress for a government-mandated overhaul.
Pelosi said she had no candidates for the job, but called Paul Volcker, a former Federal Reserve chairman and now an economic adviser to President-elect Barack Obama, a good choice.
Many consumer and environmental groups say the oversight is essential because automakers have a history of trying to postpone tougher safety and fuel-efficiency standards.
"It is not prudent to give them the money based on what they have said thus far," said Peter Morici, a University of Maryland economist. He predicted that GM and Chrysler would be "back year after year looking for money."