House Approves $14B Financial Assistance Package for Big Three Automakers; Prospect in Senate Uncertain

The House on Wednesday in a 237-170 vote approved a $14 billion financial assistance package for the Big Three automakers, but the prospect for the legislation remains uncertain in the Senate because of Republican opposition, the New York Times reports (Herszenhorn/Sanger, New York Times, 12/11). The package, which includes a number of conditions that the automakers would have to meet to receive financial assistance, would protect health care and other benefits for one million retirees and their dependents.

Last week, officials for the automakers presented to lawmakers individual proposals that included requests for as much as $34 billion in financial assistance, as well as revisions to their obligations to a fund that will provide health benefits to United Auto Workers retirees. Under contracts negotiated last year, the automakers agreed to contribute about $56.5 billion to a voluntary employees' beneficiary association, which UAW will manage. The VEBA, which will take effect in 2010 and remain operational for 80 years, will reduce retiree health benefit liabilities for the automakers by about $100 billion.

In addition, UAW last week agreed to allow the automakers to delay their contributions to the VEBA and make other concessions to help the companies obtain financial assistance from the federal government (Kaiser Daily Health Policy Report, 12/9).

Senate Minority Leader Mitch McConnell (R-Ky.) said that many Republican senators had expressed concerns, although he did not threaten a filibuster of the legislation (Miller/Rowland, Washington Times, 12/11). Sen. Bob Corker (R-Tenn.) and other Republicans said on Thursday they would introduce an alternative package with additional conditions. The package might include a provision that would require UAW to accept half of the contributions to the VEBA in stock and make other concessions (Hyde/Spangler, Detroit Free Press, 12/10).

Potential Effects of Failure To Pass Financial Assistance Package
The job losses that could result from the suspension of production by the automakers in 2009 would cost governments at all levels $50 billion next year and $108 billion over the next three years, with almost one-fourth of the cost attributed to health care, unemployment, welfare and other expenses, according to the Center for Automotive Research, the AP/Seattle Times reports. The center based the estimates on a scenario in which the automakers suspended production in 2009 and returned to 50% production levels in 2010 and 2011, moves that would result in the loss of an estimated 2.5 million jobs next year. Under a scenario in which the automakers ended production completely, the job losses would cost governments $156 billion over the next three years, according to the center.

However, the Heritage Foundation said those figures overestimate the effect. William Beach, a senior fellow in economics for the foundation, said it more likely than the automakers would declare bankruptcy but continue with reduced operations. In the meantime, foreign automakers in the U.S. would hire additional workers to handle increased sales due to less competition. The Heritage Foundation estimates that in 2009 453,000 jobs would be lost, and the federal government would pay just over $13 billion for unemployment insurance, food stamps and other expenditures. Beach said, "The impact is significant but not large," adding, "The government has well-developed programs to handle things like this" (Fram, AP/Seattle Times, 12/10).

Editorial
A "weakness" of the financial assistance package for the automakers is that "it does not spell out the actual concessions to be made," according to a Washington Post editorial. The editorial states, "We don't see how the companies can ensure their viability unless creditors convert much of their debt to equity -- and the UAW both takes equity in lieu of payments" to the VEBA and "surrenders its current wage and benefit advantage over nonunion foreign-owned factories." In addition, the editorial states, "This shortcoming should be addressed as the bill makes it way though a skeptical House and Senate" (Washington Post, 12/11).