Congressional Panel Scrutinizes Use Of Auto Bailout Funds
Monday, July 27th, 2009By Learned Foote- Talk Radio News Service
Representatives from GM, Chryler, and the White House’s auto-task force defended the bailout of the two auto manufacturers and their subsequent use of TARP funds during a hearing Monday with Congressional Oversight Panel held in Detroit, Michigan.
Walter Borst, Treasurer of the General Motors Company, said that “we are grateful for our nation’s support,” and promised that the “new GM will repay our nation’s investment.” He noted that GM is a “new company with less debt, a stronger balance sheet, with the right size manufacturing, products, and dealer network to match today’s market realities.”
Borst emphasized that “both the Obama and Bush administration made it quite clear that they were reluctant investors. We were equally reluctant recipients.” Ron Bloom, the head of the Obama administration’s auto task-force, said that “every creditor will almost certainly receive more than they would have had the government not stepped in.”
Bloom illustrated the main principles by which the government is operating in its partial ownership of the auto companies. He said that the government “has no desire to own equity in companies any longer than necessary,” it will manage its “ownership stake in a hands-off, commercial manner” and “will only vote on core governance issues, including the selection of the company’s board of directors.”
Committee Chairman Elizabeth Warren, a bankruptcy expert who teaches at Harvard Law, questioned when the federal government will relinquish ownership of the auto companies, asking, “When can we expect to see some timelines?” Bloom responded that “the decision has been made to not articulate a specific timeline.” Bloom noted that presenting a timeline would “create an overhang in the market that would be deleterious to receiving the best price,” but the government will act “as soon as is practicable.”
Warren also asked why the leadership of financial institutions had not been altered as drastically as the leadership of the auto companies, but Bloom said his “sole focus…has been on the auto companies.” “I’ve had my hands full trying to wrestle with two very large troubled auto companies. That takes up 21 hours of the day,” he said.
Bloom stated that his tasks include three priorities, including financial and operational restructuring, as well as a “third leg…the cultural change,” which included establishing a new board of directors, which will be made up of “people of extraordinary accomplishment in the private sector, people who have had experience effectuating turn-around.”
Rep. Jeb Hensarling (R-Texas) adopted a critical tone towards the actions taken by the Obama administration. Hensarling argued that TARP was “ostensibly designed for financial firms, [and it] is clearly now being used to rescue auto manufacturers.” He added that the fund “now appears to be nothing more than a 700 billion dollar revolving bailout fund used to promote the administration’s political, social, and economic goals.” He also argued that senior bondholders were set aside and “junior creditors like the UAW [United Auto Workers]…were given far more preferential treatment.” He said that he worried that the Treasury Department would “politicize our economy and hinder our economic recovery.”
Hensarling asked whether it was “wise economic policy” to subsidize GM and Chrysler while Ford, who had reported financial trouble in 2008, functions without federal assistance. In response, Bloom said that Ford officials supported the bailout of the other two auto companies.
