[Congressional Record (Bound Edition), Volume 154 (2008), Part 18]
[Senate]
[Pages 24081-24083]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           AUTOMAKER BAILOUT

  Mr. KYL. Mr. President, I wish to address a matter that is supposedly 
before us, although to my knowledge there is not yet a bill on the 
floor that we can read and, therefore, debate. But I think the general 
concept of some kind of a so-called bailout for the auto companies is 
the reason why we have come back to Washington in this so-called 
lameduck session. I wish to address that and talk about the best way 
forward to assist the companies involved as opposed to what I 
understand the concept of this punitive legislation to be.
  Let me begin by saying that ordinarily in the Congress we have 
hearings. We develop legislation on big matters. We try to do it in a 
bipartisan way. We then mark up the bill in committee by discussing it, 
amending it, rewriting it. Then it comes to the floor of the Senate 
where we debate it and can amend it again and ultimately pass it to the 
other body.

[[Page 24082]]

  That is not what is happening today. We are told there is going to be 
legislation presented at some point to provide $25 billion to the three 
U.S. automakers. Beyond that, we know nothing. What I want to do is 
talk about the concept of it, and later we can talk about how the bill 
will actually get here, whether we can seek to amend it, and whatever 
else might be appropriate to try to conclude work on this matter.
  Obviously, everyone is hurting these days. The car companies aren't 
the only folks who are hurting. Every family is hurting, especially as 
we have leveraged our debts. We have home mortgage debt, credit card 
debt, perhaps car loan debt. All of us are tightening our belts, 
because we appreciate the fact we have to get that debt down. That is 
happening in the business sector as well. One of the reasons Congress 
passed the so-called TARP legislation, the stabilization package that 
was designed to assist financial institutions, was because in some 
respects the financial institutions are the blood that courses through 
the entire economy. They provide the cash; in many cases, the credit. 
Unfortunately, our country runs on credit. You don't buy anything these 
days without a credit card. You certainly don't buy anything big, such 
as a car or refrigerator, without a credit card. As a result, the 
question was whether banks were going to stop lending to consumers and 
businesses because the assets on their books were of such dubious value 
that they had to keep all the cash they could accumulate just to meet 
the law's requirements for their reserves.
  What the administration decided originally was that the $700 billion 
could be used to buy these troubled assets, get them off of the banks' 
balance sheets and, by giving them money to buy them, the banks would 
then have money to loan to a car dealer or the car dealer to loan to 
the car purchaser and the like. Ultimately, it was decided that the 
economy was in such a sorry state that we had to get the money infused 
directly into the banks and didn't have time to set up the rather 
complicated procedure of buying these assets. Instead, the loans 
currently being made are going directly to the banks and other 
financial institutions. Of course, the hope is that money will then be 
lent out to us and to businesses so that the blood which keeps the 
economy going, called cash, can continue to enable us to buy things.
  There is some indication that is beginning to happen, although the 
process takes a while. There are many folks in the economy who get hurt 
when people don't buy as much, whether it is from lack of credit or 
trying to tighten their belts. I think of one company that laid off 
10,000 people in one small town in Ohio. The company is called DHL. I 
think of Circuit City which went bankrupt recently. A lot of folks are 
worried about Christmas season and consumers not buying. There are all 
kinds of folks who are in trouble economically, businesses and 
families. The question is whether we should respond to those with the 
largest voice in Washington, DC. Certainly the three big automakers 
have a big voice here and a constituency that would like to make their 
case that they should be bailed out and that is where we should draw 
the line.
  I have a hard time with that. Not because I don't like the car 
companies. I readily buy cars from them. I think it is great that they 
build the kind of cars I like to buy. I am not faulting them for the 
decisions they have been making in what they manufacture. The fact is, 
they are in trouble pretty much for reasons that relate to their own 
decisions rather than a lot of consumers out there who have gotten 
caught up in this credit crunch, in effect through no fault of their 
own, except perhaps going into debt more than they should have. The car 
companies have made some contracts with the United Auto Workers labor 
union that are literally dragging them down. It is like asking somebody 
to swim with a 50-pound weight around their neck. It is no wonder they 
can't meet their obligations under the contracts and need taxpayer 
assistance. But the question is whether an average family or small 
business should be asked to cough up the money to transfer to an auto 
company that has made these deals with the union or whether the car 
company should find an alternative way of dealing with it.
  Here is the order of magnitude I am talking about. According to the 
Bureau of Labor Statistics, the average hourly wage cost for the big 
three auto manufacturers is $73 an hour. The average for the Japanese 
automakers building cars in the United States is between $45 and $48--
substantially less. For the average manufacturing company in the 
country or average company, it is about $28.48. So you can see that 
these legacy costs of the big auto companies are like the 50-pound 
weight dragging them under. It does no good for taxpayers to pour $25 
billion into the car companies and find a year later that money has 
been spent and yet nothing has changed to diminish their obligations. 
Where are they going to get the next $25 billion and then $25 billion 
after that?
  The reality is, they have to change the way they are doing business 
in order to warrant asking taxpayers for anything. This is where the 
alternatives come into play. There is already a law on the books that 
permits companies in financial straits such as this to reorganize their 
business, get rid of much of their debt obligation and start over 
again. You are required to slim down, to be sure, in order to be more 
competitive. It is called reorganization under chapter 11, sometimes 
chapter 11 protection. It falls under the Bankruptcy Code. When this is 
accomplished, the contracts that the car companies have made are 
renegotiated in such a way that the company can show it has the ability 
to emerge and make money, that the contracts are not going to continue 
to weigh them down. That would be the benefit of taking this 
reorganization.
  Some are more intent on preserving the status quo than being able to 
compete because they say things such as: Well, restructuring the 
business might mean there would be fewer employees. There might well 
be. It might be 10 percent or maybe even 20 percent fewer employees, if 
that is what it takes to compete successfully. There may be a number of 
dealerships cut. Maybe 10 or 15 percent of the dealerships will have to 
go away. If that is what it takes for them to compete with the Japanese 
automakers, then that is what should be done. We should not say those 
legacy costs or those built-in costs of operation should be retained 
and then ask the taxpayers to throw in $25 billion to maintain 
something that isn't working. It is true that these costs represent 
future obligations as well as current and so they are going to continue 
unless they are wiped out by the reorganization that is provided by 
chapter 11.
  Some people say: Well, what they need is better management, and we 
here in Washington know how to manage them better. That is the last 
thing we want, for Congress or folks in Washington to tell them how to 
do their business. Under reorganization, a committee of experts assists 
them in designing a business plan. They have 18 months to develop a 
plan to move forward. They have breathing room. Basically all of the 
obligations are stayed. They have the opportunity to fix what is wrong, 
plan for the future, and then implement that plan. We wouldn't have any 
of that if we simply gave them the $25 billion. They wouldn't be 
protected at all from any of the obligations that they have either on 
an ongoing basis or their future obligations.
  In all chapter 11 reorganizations, prefiling debts become 
unenforceable except to the extent that they are incorporated into the 
reorganization plan. GM has $40 billion in long-term debt; Ford about 
$136 billion. A reorganization plan, a business plan would be set forth 
that provides how each of those obligations is treated and, if they are 
too much to enable the company to go forward, then they are reduced 
accordingly.
  A taxpayer bailout would provide none of that protection. Protecting 
the workers would still require negotiation with the labor unions, but 
some of the amount of those legacy costs could be reduced in the 
process. I mentioned the fact that there might be fewer dealerships. 
They might decide to reduce the

[[Page 24083]]

number of brands. They would be doing so under the protection of 
chapter 11 rather than the current situation. A taxpayer bailout 
wouldn't give them any protection from State franchising laws that make 
it very costly to reduce the number of brands and dealerships. I have 
some information that when GM eliminated the Oldsmobile brand, it 
reportedly cost $1 billion, and there are still litigation proceedings 
about whether they can do that with their dealerships.
  Some are concerned about whether they could receive financing if they 
took chapter 11, the so-called debtor in possession financing. This is 
an area where the Federal Government might provide some assistance. The 
administration, as a matter of fact, has been talking about such 
assistance. But a pure taxpayer bailout wouldn't guarantee any 
structural reforms or provide the possibility of debtor-in-protection 
kind of financing. It would, in fact, through the reorganization, at 
least provide taxpayers with the assurance that they could get repaid 
if they did provide some of this money as opposed to the current 
proposed bailout which has absolutely no guarantee that taxpayers would 
receive any of their money back.
  A final two quick points I wish to make. There is an argument by the 
car companies of who would buy a car from a company that is in chapter 
11 protection. The answer is, probably the same people who are buying 
cars today. If I drive down Camelback Road in Phoenix, where we have a 
lot of car dealerships, 6 months from now and some of those companies 
have asked for chapter 11 protection, I guarantee you, I will not know 
which ones. They will all have the same bright lights, the same eager 
salesmen ready to sell me something. With reorganization, you don't go 
out of business.
  One of the myths is that this would put you out of business. If you 
take bankruptcy under chapter 7, you do go out of business. That is not 
what chapter 11 protection is at all. In fact, you are able to 
reorganize, and that is precisely why people would continue to buy the 
cars.
  Not everybody is going to lose their job through reorganization. I 
doubt that it would be more than a fraction of the people who would 
lose their jobs. Doug Baird, a bankruptcy professor at the University 
of Chicago, recently said, in response to the number 3 million which 
people have been bandying about:

       This three million figure is laughable . . . modern 
     bankruptcy law is designed to protect against that.

  The bottom line is, there is a law that provides protection, 
breathing room, and an ability to get rid of the kind of debts 
burdening these companies. If all we do instead is throw $25 billion at 
the problem, none of this protection comes into play. None of the 
ability to renegotiate what is dragging them down now would occur. It 
would simply literally be throwing good money after bad without a 
justification of why these companies, as opposed to many other 
companies in the country, were to receive that help.
  The money has to come from somewhere. It has to come from people who 
are working hard to make a go of it themselves. So we have to ask the 
kind of hard questions like this before we ask our fellow citizens to 
cough up the money for this kind of a bailout. I hope we will be able 
to do that during the debate on this legislation, which I hope we will 
see soon, assuming we are going to be deciding whether to vote on it 
this week.
  Thank you, Mr. President.
  The PRESIDING OFFICER. The Senator from Colorado is recognized.

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