[Congressional Record (Bound Edition), Volume 155 (2009), Part 9]
[Senate]
[Pages 11652-11654]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          AUTOMOBILE INDUSTRY

  Mr. GREGG. Mr. President, I rise to speak about the continuing effort 
to address the issue of our automobile manufacturers--specifically, 
Chrysler and General Motors, and especially where the taxpayer ends up 
in this effort, whether the taxpayer ends up as a winner or a loser.
  On the Chrysler bailout proposal, it is pretty clear that if the 
administration's initiative is followed through, some very significant 
events will occur that will adversely affect the taxpayer. In fact, 
instead of getting a brandnew car, the taxpayer is going to let a 
lemon.
  What is being proposed by the administration--or what was proposed 
prior to the bankruptcy being filed and which is now being pushed by 
the administration into bankruptcy, as I understand it--is that the 
three different

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classes of basic players, relative to the reorganization of Chrysler, 
would get significantly different treatment. For example, the taxpayer, 
who has already put $4 billion into Chrysler--the American taxpayer--
would have to forgive all of that; all $4 billion would be lost, 100 
percent lost under the administration's proposal, and then they would 
be asked to put another $8 billion into the pot as Chrysler comes out 
of bankruptcy. In exchange for forgiving the first $4 billion, the 
taxpayer would get 8 percent of the new Chrysler, the Chrysler that 
came out of bankruptcy. This was the proposal. I don't think that 
sounds like a great deal for the taxpayer, to have put $4 billion in 
and get none of it back--and remember, we just put the $4 billion in--
and then to be asked to put another $8 billion in and get an 8-percent 
stake. It especially doesn't make a lot of sense when you look at what 
is proposed--well, let's go to the bondholders next, though.
  The bondholders would be asked to essentially take an even more 
significant reduction in their position, which may be legitimate. They 
would be asked to forgive, I believe--well, I am not absolutely sure of 
the number they would be asked to forgive, but I think it would be in 
the multiple-billion-dollar range, and they would be asked to forgive 
it, even though they may be secured bondholders. So they would be 
basically wiped out in this process or their interests would be reduced 
dramatically.
  The practical implications of that are that the bondholders had 
invested poorly, obviously, and specifically, they would have to 
forgive, I believe, $4 billion of their $6.8 billion of debt, and they 
would get $2 billion back. But that would be a big haircut, and that is 
probably reasonable. They made a bad investment. But interestingly 
enough, even though they are secured creditors, in many instances, or 
have a higher priority of bond debt than, for example, the UAW debt or 
maybe even the taxpayer debt, their position would be treated more 
detrimentally than the taxpayer or the UAW. That doesn't bother me all 
that much, from the standpoint of the taxpayer. Obviously, we should be 
treated better than anybody else in this process.
  It does bother me a little bit from the standpoint of how you 
prioritize debt. If we look at what is happening with the UAW in the 
deal, as proposed by the administration, they would have to forgive, I 
believe, approximately $6 billion of their outstanding responsibility--
outstanding debt--which is about 57 percent of the obligation of 
Chrysler to the UAW. But in exchange for forgiving that $6 billion, 
they would get a 55-percent stake in the new company.
  So to review this situation, the UAW would forgive 57 percent of 
their debt owed them by the company--or $6 billion--and they would get 
55 percent of the new company. The taxpayer would have to forgive 100 
percent of what was just put into Chrysler and would get 8 percent of 
the new company. The senior bondholders would have to forgive all of 
their debt, and in exchange they would get $2 billion back. That 
doesn't make a lot of sense.
  Basically, what is happening is, the UAW, the union, is being put in 
a far superior position than the bondholders, who are secure, or the 
American taxpayer, who basically was asked to put up $4 billion, and 
then has that wiped out in exchange for 8 percent of the new company, 
and then is being asked to put in another $8 billion.
  This has two fairly significant implications. First, the taxpayer is 
buying a lemon, getting a bad deal. We, the taxpayers, are getting a 
bad deal. Second, the unions are getting a great deal. They are getting 
a higher status as secured debtors. They are getting a significantly 
higher return--which is 55 percent versus 8 percent of the new 
company--than the taxpayer. The process is basically turning on its 
head the traditional legal order under which people are repaid out of a 
bankruptcy estate. The taxpayer usually comes first out of a bankruptcy 
estate. Usually, it is the IRS in that case, then comes senior debt, 
then comes the issue of debt owed to pension funds, obligations which 
the unions have, and then comes the common equity. In this structure, 
it is just the opposite. Well, that change sends a very serious signal 
to the marketplace that is not good because if people don't know the 
prioritization of debt, then they don't know how to lend money and what 
the cost of the money they lend should be.
  That is going to affect interest rates and create uncertainty and 
basically undermine what is an established rule of law that we have in 
this Nation relative to the prioritization of how people get paid off 
when somebody goes into bankruptcy. It is a very important issue, one 
of the things that makes our commercial system different than, say, a 
place like Russia, where you have no idea what is going to happen when 
you go into a court system because it is totally arbitrary. In ours, we 
have a structured proposal, an orderly way of approaching things. 
Everybody knows what is going to happen if an investment should go 
south. Everybody knows what their order of priority is in being paid 
out. In a bankruptcy situation, it is pretty clear.
  Yet now comes the administration, and for what appears to be purely 
political reasons, not economic reasons, because the economic issue is 
how you basically take a company such as Chrysler and make it 
competitive again so it can produce cars that people want to buy at a 
price people can afford--that is the economic issue--and keep it viable 
to the extent that it is viable. No, this is a political decision to 
reorder who the winners and losers are in a structure--what amounts to 
an attempt to structure a bankruptcy before it occurs. That was the 
administration's initiative.
  This is a serious issue. When we start putting politics in place of 
the law in any area in our Nation, but obviously in the area of 
commercial activity--when we start picking winners and losers based on 
the political party's implied interest or interest in seeing a certain 
segment of the society be the winner versus another segment they see as 
being less deserving, then we undermine the essence of our commercial 
activity in this Nation, which is to have knowable, identifiable, 
ascertainable results, as a result of having a legal system that 
defines people's property rights.
  Yet this administration, in a very cavalier way, has suggested that 
the UAW should be a huge winner compared to the taxpayers and the 
bondholders in a manner which has no relationship to what has been the 
historical priority of status relative to distributing and reorganizing 
a company--distributing a bankruptcy estate and reorganizing a company.
  Why would it occur that this administration would, in a very 
arbitrary way, try to set aside the rules of priority of ownership and 
property rights to benefit one group over another group outside of what 
has been the historical and legal way things have been structured? It 
is obvious. It doesn't take much to recognize that. The UAW has a huge 
political influence in this administration and in this Congress. They 
used that political influence to make sure this deal was structured in 
a way that most significantly benefitted them. But who is the loser? 
The loser is the real stakeholders and people to whom we are supposed 
to have primary responsibility as a government, and that is the 
taxpayers. The taxpayers are the losers on the face of it, when we only 
get 8 percent and the unions get 55 percent of the new company, and we 
are paying $4 billion and they are paying $6 billion, and then we are 
putting in another $8 billion on top of our $4 billion. So it ends up 
being $12 billion, and we only get 8 percent. The unions will put in $6 
billion to get 55 percent.
  That is not right. It is not appropriate, and it is not fair to the 
taxpayers of America. But that was the proposal and what is trying to 
be strong-armed through this system. It is not fair to the taxpayers. 
It also sets a dangerous precedent of trying to reorganize the stated 
priority of status relative to the right to recover under a bankruptcy 
situation or pursuant to secure property issues in a way that could be 
translated into, significantly, other parts of the economy.
  People will now question the status of their debt and inevitably have 
to

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charge more in order to try to ensure over the unpredictable 
consequences of the Government coming in and reordering the priority of 
the debt. That is dangerous in a commercial society that depends on law 
in order to set an established order of property rights.
  This is a big issue. It hasn't been discussed much. Obviously, the 
bankruptcy courts have now stepped in because some of the secured 
parties have said they wouldn't accept the deal. But still the 
administration pushes this concept of having the taxpayer take a vastly 
significant, reduced position compared to the UAW, while putting in 
much more money than the UAW and, at the same time, reordering the 
priority of property rights.
  I hope people will begin to focus on this issue, and I hope our 
bankruptcy courts will stick with what is the order of the law and not 
the order of politics.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Bennet). The clerk will call the roll.
  The assistant bill clerk (Adam Gottlieb) proceeded to call the roll.
  Mr. DODD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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