From the House Financial Services Committee:
House Auto Legislation Will Protect American Jobs While Demanding Long-Term Restructuring of Auto Industry for Viability and Energy Independence
Washington, D.C. — Led by House Financial Services Committee Chairman Barney Frank, House Democratic leaders today announced comprehensive legislation that will help the struggling U.S. auto industry in the short term, while protecting millions of American jobs and taxpayers. The $25 billion in bridge loans, issued under the recently enacted Troubled Asset Relief Program (TARP), are intended to help the struggling automakers survive while they prepare plans to restructure their companies to build more competitive, fuel-efficient, and technologically-advanced vehicles.
In addition, the legislation insists on taxpayer protections such as limits to executive compensation, including a ban on so-called “golden parachute” payments, a prohibition on dividend payments over the life of the loans, rigorous independent oversight, and provisions for the government taking warrants and allowing the taxpayer to profit in any upside of the restructuring.
One in 10 American jobs is linked to the auto industry. GM, Ford and Chrysler support about 5 million American jobs, including auto parts manufacturers and auto dealers, across all 50 states. An estimated 3 million jobs would be lost in the first year if the American automakers collapsed–nearly three times the jobs lost economy-wide this year. In addition, more than 1 million American workers and retirees are directly employed or supported by the major automakers, with 2 million Americans getting health care benefits through the auto industry.
“We have chosen the route of a carefully drafted bill because we think it essential that loans be linked to significant progress in the ability of the companies to eventually market energy efficient cars with broad public appeal,” said Chairman Frank. “We specifically reject the notion that removing environmental and efficiency requirements that accompany the section 136 loans because simply spending more money on existing practices cannot be justified.”
For U.S. automakers who wish to participate in this program, the House Democratic Leaders’ legislation insists on specific measures to qualify for emergency loans:
Short-term Operating Plan — The automaker must submit a short-term operating plan that describes the intended use of the loans, including the commitment of resources to develop a long-term restructuring plan and repayment of the loan to taxpayers with interest.
Long-Term Restructuring Plan — By March 31, 2009, loan recipients must submit to Treasury an acceptable restructuring plan for long-term viability and international competitiveness, including meeting enhanced fuel efficiency standards and for advanced technology vehicle manufacturing, and restructuring of existing debt.
Executive Compensation and Corporate Governance — All executive compensation restrictions from TARP apply to loan recipients for the duration of the loan plus the following additional restrictions:
” No bonuses to employees making more than $200,000 (which Treasury will adjust for inflation).
” No golden parachutes under any circumstances.
” No compensation plan that could encourage manipulation of reported earnings to enhance compensation.
Warrants — Treasury must obtain warrants from each loan recipient (or economic equivalent in the case of a privately held firm) equal to 20 percent of the loan or such greater percentage as may be determined by Treasury in consultation with the Oversight Board.
Dividends — Recipients may not pay any dividends for duration of the loan.
Acceleration of Repayment for Failure to Comply — If a company receiving a loan fails to prepare an acceptable restructuring plan, the Treasury can demand accelerated repayment of the loan.
Terms of Loans:
” Term: 7 years (or longer as may be determined by the Oversight Board).
” Interest Rate: 5% for first 5 years and 9% thereafter.
” Super Seniority: All other obligations and liabilities of a recipient will be subordinate to the loan–putting the taxpayer in the first position for repayment.
” No prepayment penalty.