United States: auto bailout leads to trial of strength

The State to the rescue. This amount would be taken – as loans spread on 7 years – from a $25 billion fund created in September to improve gas consumption standards in the automobile industry. Nancy Pelosi, House Speaker, long remained opposed to it, favoring appeal to the $700 billion bank-bailout funds voted in October. She had to give in when George W. Bush threatened to veto it. The debated text also plans to ban shareholders’ dividends and managers’ bonuses, and a prime rate equal to 20 per cent of the loans for the Federal State. Federal “car tsars” appointed by the president would administrate and supervise the loans, and enforce company restructurings and investments. However, the modalities of this new institutional role are still bitterly debated, notably concerning a clause which would give it veto power over any transaction of more than $100 billion, as requested by the White House. Besides, carmakers have until March 31 to present a long-term viability plan. At first, the three industrial groups demanded a $34 billion plan (almost €27 billion). And they simply argued that without this money, they wouldn’t meet the most urgent due dates. During his testimony to the Senate’s Committee on Banking, Robert Nardelli, CEO of Chrysler, asked for a loan of $7 billion, “in the name of the 1 million people whose jobs depend on Chrysler.” Rick Wagoner, GM CEO, said he needed a loan of $12 billion as well as a $6 billion line of credit. Only Alan Mulally, president of Ford – the safest of the three – asked for a $6 billion line of credit in case market conditions worsen. However, on Tuesday, December 9, the group said it would not seek a short-term loan.