Congress and Treasury Leave Auto Industry in Neutral
Based on conversations with sources on Capitol Hill and administration officials, it now seems somewhat less likely the Treasury Department will expand its Capital Purchase Program (CPP) to include the insurance industry. Some life insurers may have publicly overstated their discussions with Treasury, leading to press accounts and misperceptions that the issue had been resolved.
Likewise, sources say Treasury is unlikely to assist the auto industry with funds from the $700 billion financial rescue package unless Congress makes legislative changes.
However, there is one scenario under which two leading auto makers might be able to get some Treasury assistance. GMAC LLC, which is the lending arm of General Motors, is owned 51 percent by Cerberus Capital Management and 49 percent by GM. Cerberus could become a bank holding company in order to qualify for EESA assistance. According to the Wall Street Journal, the federal rules for this would require GM to transfer much of its GMAC holdings to Cerberus so that GM would own less than 24.9 percent of the voting shares and would have no controlling interest in GMAC. Transforming into a bank holding company would enable GMAC to participate in Treasury’s Capital Purchase Program. Additionally, since Cerberus owns 80.1 percent of Chrysler, which is in merger talks with GM, the companies may be able to structure a deal in which Cerberus would exchange Chrysler shares for GMAC shares.
Earlier in the week, auto industry leaders looked into solving their liquidity issues via a $25 billion loan program run by the US Department of Energy (DOE). However, sources are saying that money is targeted for retooling older factories and could not be used for credit purposes. Even if regulators could interpret the law in a way that would allow the funds to be used for the current crisis, DOE has said the money would not be available for 18 months.
Many members of Congress seem receptive to the industry’s argument that the nation’s credit market problems have frozen the critical financing necessary for people to purchase or lease cars and for auto dealers to acquire inventory. It is still an open question whether Congress might take up the cause of the auto industry in an economic stimulus package when it returns in mid-November.
