Jobless Numbers May Work in Favor of Auto Bailout
The prospects for approval next week of a "lifeline" for the auto industry are greater today than they were a week ago. Two major factors contribute to that fact. First, the "Big 3" submitted restructuring plans that, while not met with universal approval, did pass a basic credibility test. Second, and more important, unemployment statistics released today create a greater impetus to preserve manufacturing jobs in the auto sector. According to the Bureau of Labor Statistics, the country lost 533,000 jobs last month and unemployment now stands at a 15 year high of 6.7 percent. Earlier this year, the average monthly job loss was 82,000. Not since 1974 has the United States lost so many jobs in one month.
Referring to the dismal employment news, House Financial Services Committee Chairman Barney Frank (D-MA) opened today’s hearing by saying, "Context is especially important this morning." As a supporter of assistance to the industry, Frank clearly sees today's news as strengthening the case for swift action. Top House leadership has also indicated an interest in advancing the legislation quickly if agreement can be reached between Capitol Hill and the Bush Administration.
Given recent Administration statements on this issue, it would appear the most likely common ground would be to make available the $25 billion "green vehicle" development loan program already funded at the Department of Energy. While the automakers have now upped their request to $34 billion, it appears unlikely they will get approval for that number in the immediate future. The Energy Department program, officially titled the "Advanced Technology Vehicle Manufacturing Loan Program," has some procedural requirements attached to it that may place procedural hurdles in the way of this new use for the program. However, Congress may well be able to steer around those.
The House and Senate return to Washington next week to debate the particulars. Members of Congress have repeatedly said Treasury Secretary Hank Paulson has the authority under the Emergency Economic Stabilization Act to extend the Troubled Asset Relief Program (TARP) to the auto industry. However, given Treasury’s reluctance thus far, it appears Congress will be forced to take the bull by the horns. Senate Banking Committee Chairman Chris Dodd (D-CT) indicated his staff is working on legislation, and Senate Majority Leader Harry Reid (D-NV) has promised floor time. Based on all the issues raised this week, we anticipate the auto bailout loans will come with very strong oversight—most likely an independent board—and mandatory structural reforms.
