Tennessee Republican Senator Bob Corker, a skeptic from the
beginning of the debate regarding bailout programs for Detroit’s Big Three auto
manufacturers, proposed on Thursday an amendment to a provisional $14 billion
rescue plan that the White House and Senate Democrats had agreed on. Corker’s
formula, which would require reduction in the companies’ debt load
and in their worker benefits, has attracted support from other Republicans and
could derail the provisional bailout plan.
Following are (1) a summary, provided by the senator’s
office, of the terms of the amendment; and (2) a transcript of Corker’s remarks
on the Senate floor Thursday:
(1)
The draft “Corker plan”, which is still open to
enhancements, imposes specific conditions on the Detroit 3 automakers to ensure
these companies make the necessary changes that would allow them to be viable
and competitive for the long-term while protecting any taxpayer investment. A
responsible plan should have far more accountability and preserve strong
competitive jobs across our country.
It addresses required changes in the following areas:
1)Debt Load Reduction
2)Wage Cost and Work Rule Competitiveness
3) Changes to VEBA Payments
4)Elimination of Jobs Bank and Supplemental Unemployment Benefits
First, the legislation would require that participating
companies reduce their outstanding unsecured debt obligations by at least 2/3rds
by forcing bondholders to accept an equity swap or debt for debt and equity
swap. At current levels, the companies have unsustainable debt loads and cannot
have long-term viability without significant reductions. Government money
would be wasted if it were to come in on top of existing debt holders with no
reductions on outstanding debt.
Second, in an effort to make these companies more
competitive with foreign automakers that operate in the United States, the
legislation requires that the “all-in” labor costs and work rules of the Detroit
3 be immediately brought on par with companies like Nissan, Toyota and Honda as
certified by the Secretary of Labor.
Three, the legislation would require that changes in
payments to the UAW VEBA accounts occur to help the liquidity and cash-flow of
the automakers. Specifically, it would require that at least half of any
scheduled payment be made in stock.
Four, any compensation (outside of customary severance pay)
that occurs for workers who have been fired, laid off, furloughed, or idled is
immediately terminated. This will allow the companies to accurately size their
workforce and not continue to be saddled with the labor costs associated with
programs like the JOBs Bank and other arrangements that force continued pay–even
when no work is going on.
Funding will immediately go out to companies but they must
achieve a reduction in debt load by March 15, 2009 and then additional funding
for UAW agreements in place by no later than March 31, 2009.
Failure to adhere to any one of these conditions by any
such date will result in the requirement that the company file bankruptcy under
Chapter 11.
(2)
Floor Remarks
of U.S. Senator Bob Corker
Regarding the
Detroit Three’s Request for Federal Assistance
December 11,
2008
Mr. President, thank you. I rise today to talk about where
we are in this auto bailout. And in essence, it’s show time here. A bill came
over from the House last night. It’s the end of the year. There’s an impending
crisis that we’re dealing with here in the country, and so today we’ll be
debating that and hopefully in the next few days taking votes. You know, Mr.
President, I’ve spent a lot of time in the committee talking with the various
parties involved. I’ve spent a lot of the time outside of the committee doing
the same thing. No doubt we’re going through an economic time that is very, very
difficult to the auto industry. It’s also difficult for businesses all across
this country, just as it is for families as they try to make their budgets work.
I know there’s been a lot of negotiations that have taken
place between the White House and House Democrats. I really feel the product
that’s been developed is a very poor product, and I really don’t blame that on
my Democratic colleagues who negotiated, because I know the White House is
actually at a point where they’re looking for the next flight out of town on
January 20th and basically want to kick the can down the road and let some other
administration and some other Congress deal with this issue.
But all of us are going to be here next year, and I think
it’s our responsibility to deal with this issue in a professional, competent
manner and actually solve this problem. I want to say to all of my colleagues on
both the left and right, on the Democratic and Republican sides, we have a
historic opportunity to actually solve this problem, and I think the solution is
very, very simple. I’ve looked at this legislation that’s come over. It’s like
so many things we do around here, it’s like a three hump camel. You couldn’t
make it almost more ineffective and more complicated.
Mr. President, we put in place a czar. It seems like that
everything we do around here, we try to find a person who can save us, if you
will, from the crisis that’s happening. We did the same with the financial
rescue package not long ago. I’ve looked at the actual responsibilities of the
czar. I said yesterday that I had a banking staff person who actually could
fulfill those responsibilities. She read that in the paper this morning and came
in and said she wouldn’t. She’s overqualified. That in essence, you know, this
is not something she’d want to take on. Look, I think we can use some help
certainly from the outside, and there may be a role for somebody like this. But,
Mr. President, what we’re really looking at is a fairly simple transaction. A
lot of money, fairly simple transaction.
Here’s what we have. We have three companies, okay. Two of
the companies are on the verge of bankruptcy. As a matter of fact, I would say
that two of the companies are in bankruptcy. I know that Chrysler today is
meeting with their supplier group. I know that if they don’t win concessions
today, they’re in great trouble. General Motors told us if they don’t receive
funding by the end of this year that they’re going to have to file bankruptcy.
And, by the way, I believe that. We have a lot of Republicans that would like to
see that happen, would like to see Chapter 11 occur and to see them go through
the laws that exist here in our country for reorganization in a way that’s clean
and allow them to move ahead in a financially stable way. As a matter of fact,
many Republicans would actually agree to something called debtor-in-possession
financing after that occurred so that these companies could evolve.
There are people on the other side of the aisle that have
decided that that’s a cost that’s too great to bear. I will tell you, Mr.
President, I started out along the path that I felt like the best way for us to
solve this problem was to actually cause these companies to go through
reorganization, and any role that we might play as the federal government would
be in the way of debtor-in-possession financing. After listening to the
testimony and after talking to people all across our country that are involved,
I do believe that the supply chain is in great stress. I think they’re
undercapitalized. I think that three companies have already been utilizing the
supplier chain for financing by paying late and carrying payments for lengths of
time and so I do think the supply chain is very fragile. What I tried to do is
figure out a way to create a piece of legislation that is elegant, is simple,
actually solves the problem and causes these companies to be in great shape and
for us to be able to move ahead and know that that has been done.
You know, there are a lot of times I’ve heard people say,
“we’re from the government and we’re here to help you.” And obviously when
people hear that, they usually run for the hills. I think this is a case where
if we will just take a moment, we can actually do something that is great for
these companies because we have a big stick. These companies cannot get
financing any place except from the federal government. And so we have an
opportunity to sort of thread the needle in a very simple way and cause these
companies to be successful.
Let me just say other than the economic issues, these
companies have three major issues. Each of them are different. We know that
basically we’re talking about General Motors here. We wouldn’t be having this
discussion if it weren’t for General Motors. Chrysler wouldn’t be here really
if it weren’t for that. They’re in serious trouble but wouldn’t have the clout
to be able to talk to us in this way. Ford has money today because of
refinancing that they did back in 2006, and they’re not even part of the
discussion today. They might be down the road, but today they are financially
viable, although burning cash at a rate that’s almost equal to that of General
Motors.
So we’re really talking — I just want to make this clear
to people. We’re talking about three entities that we need to talk to: General
Motors, Cerberus or Chrysler and the U.A.W. and there are three things that are
basically causing these companies difficulty. One is the capital structure. The
debt that these companies have is not sustainable. It doesn’t matter how much
money we were to put into General Motors with the $62 billion in debt that they
have today, there is no way that they can sustain their company. They cannot.
G.M. only has a market cap today of around $2 billion. $2 billion. Toyota has a
market cap of $130 billion. BMW has a market cap of $14 billion. This is a
company that has a huge amount of debt and very little value. Chrysler probably
has no value. They’re privately held. And so we have two companies that we need
to deal with in a very similar way, as it turns out. Let me lay something out.
Right now their capital structure in both places is too
high. Cerberus and Chrysler can’t withstand its debt. GM cannot withstand its
debt. Secondly, the labor cost is out of line. I know there’s a lot of talking
about the U.A.W. Candidly, I will just admit, I think in some cases they get a
bad rap. A lot of the people that are my friends won’t like me saying that.
But in some cases they actually get a bad rap as to the way the comparisons go.
The third issue is the dealership issue. I don’t think we can deal with that
today. There’s two issues that we can deal with in this loan and solve the
problem; okay? One is the capital structure. The other is the labor issue.
So here is what I propose. And we’re going to be putting
this forward, as Senator Reid mentioned. We have some alternative legislation. I
hope it’s something that both Democrats and Republicans can embrace. Very, very
simple. Let’s go ahead and fund the money. Let’s fund the money that’s been
requested. To Republicans, that’s like debtor in possession financing anyway,
because these companies are basically bankrupt anyway. To Democrats, the funding
is in place to cause these companies to be whole. So let’s go ahead and fund the
request that has taken place. And let’s have three covenants, only three
covenants. We can do this with a very short bill which we drafted. Three
covenants.
The first covenant is that by March 15, the outstanding
indebtedness at the two companies that are going to apply for this has to be
reduced by two-thirds, two-thirds, or the companies have to file for bankruptcy
on March 15th. That gives the companies, it gives the bondholders, which we’ve
talked to on the phone, plenty of incentive to make sure that the debt is
reduced by two-thirds so these companies have a capital structure that allows
them to go forward. This is the only way they’re going to be successful. We’ve
had plenty of people testify and say that if we put our money on top of the $62
billion in debt that G.M. has, there is no way they can be successful. Even if
we’re selling 20 million cars a year in our country, and today we know we’re
selling at a $10 million rate.
So that’s number one. Give them the money. If by March
15th, they haven’t reduced their capital structure in that regard — and by the
way, we’ve talked to people on all sides who believe this can happen. But it can
only happen with the stick of government, meaning that we’re going to force them
into bankruptcy if they don’t do this. That’s the first covenant. The second
covenant is – and I listened to Mr. Gettelfinger’s testimony and talked to him
on the phone this morning– he says the only way the U.A.W. can make concessions
is if they see the bondholders have done so first. This legislation makes that
happen by March 15th. So, secondly, after the U.A.W. has seen that the
bondholders have — quote – “taken a haircut” – a word that’s used around here a
lot — they have to do two things.
Number one, they have to convert half of the VEBA
obligations–Voluntary Employee Benefit Association obligations– they have to
convert half of those to equity. If a company goes bankrupt, these future
payments are never going to happen anyway. And that again, that reduces the debt
at G.M. by another $10.5 billion, and it gives the U.A.W. equity in a company
that actually has value now, because the debt by the bondholders has been
reduced too. That’s the second covenant. Very, very simple. And then the third
thing they have to do is at that same public meeting where they take a vote,
they have to agree to have a contract in place that puts them on parity — on
parity – with companies like Toyota and Nissan and Volkswagen and other
companies here in our country.
Now before everybody goes crazy over that, that is
certified by the Secretary of Labor. That’s not something we prescribed. I
realize there are subtleties in that. There are comparisons that have to be
made. By the way, just to my friends on the left, that would be a Secretary of
Labor by the Obama administration, okay, that has the ability to look at the
various differences and nuances to actually certify that.
Now, listen, I talked to Ron Gettlefinger this morning.
Because of the debates we had recently, I’m probably not on his Christmas card
list this year, I realize. But he actually is talking, ok? He’s talking with his
leaders about this. I have talked to the COO at General Motors last night and
this morning. He was a former chief financial officer, and he agrees that this
will work. This gives the stick to the government to make them have to do the
things that they need to do to actually cram down their bondholders.
I’ve heard a lot about Main Street and Wall Street. And for
those people who want to take an ounce or a pound of flesh, if you will, from
Wall Street, those are mostly the people, by the way, that own these bonds that
are going to be taking this huge haircut, if you will. Two-thirds. In G.M.’s
case, it’s about $20 billion. It would be converted to equity and taken away.
Let me just say this, I plan to be here all day today. I’d
like to take 30 minutes off from 12:30 to 1:00 to give a talk someplace. But I
would ask any Democrat, any Republican to please come down here to the floor.
Call me, e-mail me. Tell me why we couldn’t put these three covenants in place,
which are very reasonable. They are the only things that can happen in real time
to make these companies successful. And let’s pass a bill that causes these
companies to be strong, gives them the money to breathe.
And, by the way, we had somebody testify the other day in
banking that said that if we give money to these companies in the form that
they’re in today, we’re going to end up giving $75 to $125 billion. Okay? I
talked again to the president of G.M. this morning. He says if we can make this
happen — of course the bondholders say we can, he says we can — that they will
be limited in their request to only what they’ve asked for. They do not believe
any more US dollars will be required.
So I would just ask of my colleagues: why would we not take
a simple piece of legislation, put it in place? It acts like debtor in
possession financing. It does the things we need to do to make sure that the
bondholders and the U.A.W. themselves do the things they need to do to make the
company whole. Management is already hamstrung by the bill. It lays out the
things that management must forego for these loans to be in place. And let’s
leave here having done something that actually causes these companies to be
healthy, vibrant, able to go into the future in a strong way for the first time
in 30 years. We can do something great today if we will just sit down and do it.
I would ask my colleagues to do one other thing, and I’ll
sit down. I think my 25 minutes is probably close to up. I would say to my
colleagues, we’ve tried to make this so complicated. There are three groups that
each of you can call to see if this work. Call Chrysler. Call General Motors.
Call the U.A.W. and ask them if this will work, if there’s a sentence we need to
change, a comma we need to put in place, let’s do it. But it’s really very
simple. We’ve drafted a bill as if we’re saving the world. We’re talking about
three companies alone — actually, two companies today alone and three covenants
can solve this problem, put them on a solid foundation, move them ahead. We will
have done the right thing for the American taxpayers. We will have done the
right thing for these companies, and we would have acted responsibly together in
concert doing something that, again, is great for our country, Mr. President. I
thank you for the great length of time. I hope that my colleagues on both sides
of the aisle will come down and tell me why this won’t work. Thank you very
much. I yield the floor.
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