[Congressional Record (Bound Edition), Volume 154 (2008), Part 18]
[Senate]
[Pages 24744-24747]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        AUTOMOBILE INDUSTRY LOAN

  Mr. CARPER. Mr. President, what I want to do is take the next 8 or 9 
minutes to talk about the issue we are waiting for, waiting to address 
here hopefully later this evening, and the issue is whether we are 
going to provide--not a grant, not a gift, not a bailout to two auto 
companies, GM and Chrysler, but whether we are going to provide them a 
loan.
  Some of you recall 28 years ago when Chrysler was in difficult 
straits and their CEO, Lee Iacocca, called on the Federal Government to 
provide a loan. We did not do that; we provided a loan guarantee. 
Chrysler made a lot of changes within the company to reduce their 
costs, to make them a low-cost provider of vehicles, and they came back 
to health. The loan was repaid. Federal taxpayers actually made money, 
about $300 million on the deal, because we had taken--in return for 
taking on the risk of making that loan, we got warrants, and we 
converted those warrants into stock, which Treasury sold and made about 
$300 million.
  Today, I think the thing that has been dragging this process down is 
the question of, as we think about providing a loan to Chrysler and a 
loan to General Motors, what can we do to make sure that within that 
company--labor, management, bondholders, lenders, dealers--how do we 
best ensure that they are going to make the further sacrifices, shared 
sacrifices, to

[[Page 24745]]

make GM and Chrysler a lower-cost competitor, so that when they emerge 
from this process and begin operating with these loans, how can we make 
sure they will be successful, not just for a couple of months but how 
are we going to be encouraged that they will be successful for years--
actually, for decades, as Chrysler was subsequent to our 1980 
involvement.
  The two positions that we are looking at--one is a negotiated deal by 
the White House and by Chairman Dodd and others here in the Senate that 
says we want to put in place a car czar--sort of like a trustee, if you 
will, almost like a bankruptcy trustee--whose job it would be to work 
with the relevant stakeholders, folks I already mentioned--labor, 
management, lenders, bondholders, dealers and others--to ensure that 
they make the kinds of sacrifices and reductions that will lead to 
making GM and Chrysler more vibrant, more competitive when the economy 
recovers and people start buying cars, trucks, and vans again. So on 
the one hand, that is what the administration has proposed and what 
Senator Dodd and others have negotiated with them.
  On the other hand, we have some of our friends on the Republican side 
here in the Senate who believe it is appropriate for the Senate almost 
to sort of stipulate the conditions of this shared sacrifice, almost 
for the Senate to serve not exactly but kind of like the bankruptcy 
judge or almost to be the car czar itself and to put those changes in 
legislative language.
  So those are sort of the two positions where we are, and we have been 
sort of in a logjam for much of the day. I am encouraged that there is 
still good will on both sides, and a lot of folks have been involved in 
these negotiations. Hopefully, we are finally coming closer to some 
consensus, and not one where we actually have the Congress playing the 
role of bankruptcy judge but we do take some steps to better ensure 
that the additional cost savings that are needed are realized so that 
these companies will be successful for a long period of time.
  I rode down on the train today. Before I got on the train, I ran into 
somebody. Like our Presiding Officer, I like to work out almost every 
day. I stopped off at the central YMCA in Wilmington. While I was 
there, this one fellow who had just bought a Chevrolet came up to me.
  He said: Tell me that if you all are going to do something, I will 
still have a dealer to take my car to to have it serviced and for the 
warranty to be good.
  I said: There is nothing I can promise you for sure, but we don't 
want to just walk away from the industry and see these folks go down.
  But I am convinced there are a lot of people who, frankly, would like 
to drive a car, truck, or van, and they might want to buy a product 
from Ford, Chrysler, or GM. Before they do that, they want to make sure 
the dealer and the company will be around for a while, for however long 
they will own their vehicle, so if they do have a problem and it needs 
warranty work they will get that; if they have a problem in the years 
ahead and they need parts, they can get them; if they need service, 
they will be able to get that as well. That uncertainty is keeping 
people from buying vehicles.
  The other factor is the captive financing arms of the car companies--
GMAC, Chrysler Financial, and Ford Financial. They not only help 
provide people who want to buy cars with loans to enable them to buy 
their vehicles, they also help finance dealer inventory. If a dealer 
wants to finance inventory, they have to get the money from someplace. 
Sometimes they can get it from the local banks, sometimes they can't. 
Sometimes they get that financing from the captive finance vehicle of 
each of the auto companies.
  The captive financing arm also will make loans and then they will 
take those loans and bundle them and securitize them and sell them 
around the country and around the world to provide more money to be 
used to either finance auto loans or, in some cases, finance the 
inventory for dealers to put on their parking lots and showrooms. As we 
go through this, one of the things we have to do is not only hopefully 
work out this deal so we figure out who is going to play the role of 
the Federal bankruptcy judge with respect to these two companies, 
without going into bankruptcy, so we can make sure these companies will 
be around and provide warranty work and parts and service, but how do 
we make sure the captive financing arms start working again as they are 
supposed to.
  We have a lot of banks that haven't been providing the kind of loans 
to families, small businesses for working capital, for kids to go to 
college and people to buy homes and cars. We have been working on that 
for a couple months. Liquidity is freeing up a little bit. But as we 
deal with that and with the more immediate issue of the near-term 
survival of Ford and Chrysler and GM, it is important that we also keep 
in mind the captive finance arms and how we can make sure they are in a 
position, like banks being able to lend money, the financial arms of 
the car companies are able to lend money as well. That may be a battle 
for another day but not very far down the line.
  I am encouraged that some progress is being made. I wanted to express 
my thanks for the people of Delaware. We have a Chrysler plant in my 
State that has been there for about 60 years. We make the SUVs for 
Chrysler. We build the Dodge Durangos and the Chrysler Aspens. They 
were selected as the best SUVs in terms of quality by JD Powers. That 
plant will be closed in 20 days, a plant that I have worked to keep 
open for 28 years. It is painful for me and for the people who have 
worked there, who still work there. But it is going to happen. We have 
a GM plant not far from there in Wilmington where we make all the 
Saturn Skys. We not only sell those in this country, we sell them 
around the world. We export them to South Korea. We sell the Saturn Sky 
in about 15 or so countries in Europe. It is a very good vehicle. We 
are proud of the work they do. I have believed over the years in making 
sure these plants stay alive and make a good product. They do a great 
job on quality, productivity, and labor-management relations. We are 
very proud of both plants and their workforce, management and labor 
people, and the record they have achieved.
  We want to make sure our Chrysler plant, as they are shut down and a 
lot of people are going to be losing jobs, we want to make sure the 
folks who work there, the people who build the Durangos and Aspens, we 
think those are hands that can also build windmill turbines for the 
windmill farm we will put off the coast of Rehobeth Beach starting a 
year or two from now. Those are hands that can build solar energy 
panels and can build homes with geothermal heating and cooling, can 
build a new nuclear powerplant on the other side of the Delaware River. 
There is plenty they can do in terms of providing clean energy, in 
terms of providing us with a reduction in fossil fuels, and to enable 
us to build products that we can sell around the world to reduce our 
trade deficit. I think it is important, as we face a very sad closure 
of our Chrysler plant in Newark, that we have in place not just in 
Newark but in all kinds of plants around the country training programs 
that will help people who have a good work record. They want to be 
gainfully employed. They have good skills. Let's make sure they have 
the opportunity to find jobs where they can make a real contribution.
  I see we are joined by the Senator from Utah who may or may not want 
to speak. He is approaching the Presiding Officer. It is always good to 
work with him. His presence always augers well for us doing something 
constructive. Keep up the good work.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. SESSIONS. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SESSIONS. Mr. President, earlier in the week I pointed out that I 
believe the best way for the big three

[[Page 24746]]

automakers to reorganize, come out lean and aggressive and competitive, 
was through the reorganization procedures in chapter 11 of the U.S. 
Bankruptcy Code. So many companies have taken advantage of it over the 
years. It is the regular order, as we say in the Senate. It is what 
happens when companies are not able to meet all of their debt 
obligations and payments. When this happens they seek protection under 
chapter 11.
  The bankruptcy court has a desire that those companies be successful; 
that they continue to operate; that people are not laid off; and that 
the business is not liquidated as it would be if it had filed under 
chapter 7 of bankruptcy code. In chapter 11, every effort is made to 
help the company to survive; to eliminate the burdens and legacy costs 
or other problems they have that are pulling them down, making them 
noncompetitive.
  This week, on December 9, 2008, the Heritage Foundation published a 
document called ``Bankruptcy Is Best: Responding to Automakers' 
Arguments Against Chapter 11 Restructuring.'' Mr. Andrew Grossman, a 
senior legal policy analyst at the Heritage Foundation, writes:

       Though a bailout--

  That is the Federal Government just giving money to the 
corporations--

     may be better for the automakers' current executives and 
     shareholders, restructuring in bankruptcy remains the best 
     choice for the automakers' continued viability and future 
     success.

  In other words, a bankruptcy restructuring and reorganization will be 
in the best interest for American workers, employees and people who 
want to buy American automobiles.
  We have two cars in my home in Mobile, both of them are pushing 
100,000 miles, and both of them are American big three automobiles. I 
am very happy with them. A lot of people want these automobiles. But 
the best way to keep the company going, experts say, is through this 
established legal procedure of bankruptcy, not some special bailout. We 
have heard this argument: Bankruptcy would lead to failure and millions 
of jobs lost. The Heritage Foundation responds: ``Bankruptcy protection 
actually prevents failure.''
  Mr. Grossman notes that when a person files bankruptcy, ``it does not 
mean that the business and its assets will `fail'--that is, cease 
operations. Many companies, including the bulk of the airline industry 
following 9/11, have entered bankruptcy, reorganized under its 
protection, and then emerged as stronger, sustainable businesses.''
  That is so true and it is so important to say. Grossman and the 
Heritage Foundation went on to note:

       Once a company has filed for bankruptcy, it receives an 
     automatic stay and may suspend payment of all debts, giving 
     it breathing room to take stock of its assets and situation.

  Once you file bankruptcy, everybody knows about bankruptcy. I am not 
an expert, but I have been involved with it off and on. I helped write 
the 2005 bankruptcy reform bill. But in bankruptcy, every lawsuit, 
every claim against your money is stayed. You don't have to pay them 
off. The judge takes over and makes sure that payments are done in a 
way that is fair to everyone concerned.
  The next argument: Automobile makers are too complex for bankruptcy. 
The Heritage Foundation report says:

       Fact: The bankruptcy process is designed to confront and 
     resolve complex problems and has successfully done so many 
     times in the past.

  By chance, one of Alabama's best bankruptcy lawyers was in my office 
just yesterday. I have known him and respected him. He is totally 
independent of the circumstance.
  I asked him: What do you think?
  He said: Chapter 11 is perfect for these companies. It is exactly 
what is needed. It is set up to handle these kind of circumstances. 
People keep confusing reorganization under chapter 11, like Delta 
Airlines went through, with liquidation under chapter 7 bankruptcy 
where there is no hope of saving the company. They are saying: If you 
go into bankruptcy, it means the company is doomed. That is not so.
  As to the complexity of the matter, the Heritage Foundation report 
says: ``It is a universal feature of bankruptcy law that creditors and 
other stakeholders''--that is, creditors, people who are claiming money 
from GM, Ford, or Chrysler--that they can ``be forced to accept 
concessions that are necessary to maximize the common pool. Thus some 
debtors may see their claims transformed into equities stakes''--that 
is, stock in the company--``so that a business, free of debt, can 
operate profitably and sustainably. Others may receive pennies on the 
dollar. Collective bargaining agreements may, as described further 
below, be modified to put costs in line with industry norms, and other 
contracts may be rejected. In contrast, a bailout''--that is what we 
are talking about, giving the automakers money--``fails entirely to 
address the complexity of the automakers' problems. Unlike the finely 
honed tools of bankruptcy reorganization, a bailout fails to provide 
any mechanism (other than money) to restructure debt, repudiate 
contracts, or renegotiate labor agreements. In short, bankruptcy is a 
solution to the complexity.''
  The report goes on to say:

       And these features are most valuable in large and complex 
     cases that would be impossible otherwise.

  The Heritage report goes on to note that chapter 11 organizations 
have included energy and finance giant Conseco; Delta Airlines; the 
parent corporation of United Airlines; telecom giant WorldCom, now MCI; 
Texaco; Adelphia Communications; and Global Crossing. All those have 
been in bankruptcy and have come out reorganized.
  The report continues:

       Despite this enormous complexity, all of these businesses 
     were able to reorganize under the protection of the 
     bankruptcy process and emerge as viable, competitive 
     businesses.

  And these companies did all of this without, let me add, a penny of 
Government money being put into them.
  What about the argument that you could not renegotiate labor 
agreements in bankruptcy? The Heritage Foundation and Mr. Grossman 
found this:

       Chapter 11 provides a straightforward mechanism, 
     unavailable outside of bankruptcy, to modify collective 
     bargaining agreements to adapt to economic realities.

  The report sets forth some of the additional protections that labor 
has and additional proofs that have to be made to modify a labor 
contract, but the evidence is taken, and labor contracts can be 
modified to help make the business viable. But do not miss the fact 
that the law provides workers a very fair chance to defend their 
legitimate interests.
  The report concludes on this question:

       Thus, the bankruptcy judge has significant discretion and 
     power to push the parties toward an agreement that is 
     mutually acceptable, conforms to economic realities, and 
     ensures that the business is able to return to profitability.

  They go on and note about the bailout, however:

       A bailout, in contrast, would likely provide no new legal 
     authority to achieve this result.

  Now, there is an argument being made that restructuring in bankruptcy 
would not work because sufficient debtor-in-possession financing is not 
available for an automaker in the current economic climate. Let me 
explain how debtor-in-possession financing works. If a company were to 
file for chapter 11 protection, then a judge takes control, has 
hearings and listens to testimony, keep in mind there is a stay in 
place that holds off the debtors making claims for money, that judge 
then may find that for the company to survive, it may need to borrow 
more money. The court can induce a private lender to loan the 
corporation money, that is, financing a debtor who remains in 
possession. That lender then gets a priority over every other claim to 
the company because it is the money that keeps the company surviving.
  I would say that were this scenario to play out, as I just described, 
I would be quite willing to consider legitimate assistance from the 
Federal Government in a way that would provide maximum protection to 
the taxpayer and would also provide a maximum opportunity for the 
company to be successful. That is the way the law provides for. That is

[[Page 24747]]

the way every corporation I know of that gets in trouble has to be 
handled. I do not see the advantage of providing one special industry 
billions and billions of dollars bailout when we know this $14 billion 
is just the first installment. One economist has predicted it would be 
$75 billion to $125 billion before we are through. So this minimal, 
legitimate government assistance as a provider of debtor-in-possession 
financing would be a better way to do it.
  Proponents of chapter 11 for automobile companies include Luigi 
Zingales of the University of Chicago and Edward Altman of New York 
University's Stern School of Business. They explain how this government 
supported debtor-in-possession mechanism operates. They note that:

       This option would be superior to a nonbankruptcy bailout 
     because it would provide greater protection (bankruptcy's 
     ``super-priority'')--

  To the person who puts in the money at the end to make the company 
viable--

     to taxpayers, would do more to force the automakers to reform 
     their operations while providing them greater flexibility to 
     do so, and would be more likely to succeed.

  I know some ideas have been floated recently; that our distinguished 
colleague, Senator Corker from Tennessee, has proposed that we may well 
be able to accomplish most of these things without going into 
bankruptcy. We are studying that. But his proposal has the hammer that 
if agreements are reached to modify and protect the companies from 
claimants, then they would be required to go into bankruptcy.
  One of the problems of Congress trying to fix the problem and the 
automakers not going into bankruptcy is a constitutional problem. 
Bankruptcy courts modify in part and sometimes invalidate in part, and 
entirely, portions of contracts. That is a great power and the 
Constitution provides for this use of bankruptcy.
  I am not sure we in Congress can pass a law that could invalidate 
contracts. I have argued we should go in that direction always, I hope 
my colleagues understand, under the belief that this is the regular 
order; this is the proper legal way for a company to reorganize itself 
and survive if it is in financial difficulties.
  We need to quit giving special privileges where they are not needed. 
Such behavior ought to be kept to the most narrow, special benefits 
outside of the traditional free market principles that have made this 
country great. If we have to go around them or violate them or bend a 
bit because of the size and the number of people who might be involved, 
well, let's do so within our heritage as much as possible, within the 
rule of law as much as possible. I think that is the best way to do it.
  So I wished to share my thoughts with my colleagues. I would urge 
them, if they are interested in the details, to look into the Web site 
of the Heritage Foundation to examine what this bankruptcy report study 
shows and why, according to their report: ``Bankruptcy Is Best.'' I 
believe it is.
  I thank the Chair and also express my appreciation for what I 
understand to be some progress toward reaching a proposal we could vote 
on in this body that would be much better than the one that has 
originally been put forward by the Democratic leader and the White 
House. I do not think the President or the Democratic leader has it 
right. I think a lot of other Members of this body do not feel like 
they have it right. What we need to do is to do what we can to assist 
these companies through a very difficult period of time, to give them 
an opportunity to eliminate some of the excessive burden they have been 
carrying so that when they enter into the race to the competitive 
marketplace, they will be leaner and more efficient and more capable of 
being successful, more able to be competitive, and can restore their 
vigor and vitality.
  We have to do that, and they have to get out from under some of these 
burdens. I personally think the best way to do that is through 
bankruptcy. It may be that some of the work Senator Corker and others 
have worked on can get us there in a slightly different way. I am open 
to that thought and certainly am desirous of a conclusion that could 
gain bipartisan support.
  I thank the Chair and yield the floor.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Sanders). The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________