THE END OF THE ROAD

America’s carmakers

Near the end of the road

The Senate turns away America’s carmakers empty-handed

“I DREAD looking at Wall Street tomorrow. It’s not going to be a pleasant sight,” said Harry Reid, the Senate majority leader late on the night of Thursday December 11th after the collapse of an effort to keep General Motors and Chrysler on the road with an emergency package of loans worth around $14 billion. Ford, the third of the Big Three Detroit-based carmakers, is not looking for emergency loans, though it has asked for an emergency credit line. Ford says it can remain afloat though admits that its ability to do so is dependent on the continuing solvency of the other two firms. Their collapse could bring down the car-parts manufacturing industry on which Ford also depends.

Mr Reid’s words look likely to prove prophetic. Asian stockmarkets fell sharply on the news of the failure of the bill; European markets dropped too. Gloom about the Big Three feeds into more general gloom about the American economy, which in turn has worrying implications for every other economy in the world.

The defeat of the bail-out bill in the Senate was a consequence of the odd rules of that chamber: but there is a grain of hope for the carmakers, if they can only find a way to survive for another month without being forced into bankruptcy, perhaps by tapping funds meant for bailing out the financial industry. Any of the Senate’s 100 members can choose to filibuster, or talk out, a motion. A number of Republican senators were prepared to do just that, essentially because they believed that pouring more money into unrestructured car companies meant pouring it away. They feared that their hard-pressed constituents, few of whom work in the car business and whose own cash-strapped firms are not getting any form of bail-out, would strongly object.

The only way to break a filibuster is to pass a motion of “cloture”, which requires a super-majority of 60 votes. And this was the carmakers’ problem. The Democrats, who are backing the bail-out, control only 50 seats (Barack Obama has resigned his seat and his successor has not yet been appointed). In the event, ten Republican senators did support the package, which was easily approved by the House of Representatives on Wednesday. But a surprising number of Democrats abstained or voted against the bill (eight in total) leaving the number voting for cloture at 52, eight votes short. The scale of the defeat probably makes it pointless to try again this year, as Mr Reid admitted.

But the composition of the Senate is about to change. On January 6th, a new Congress will be sworn in, following the election on November 4th. In that election, the Democrats upped their representation to 58 seats—or even 59, if a disputed seat still being fought over in Minnesota, goes the Democrats’ way. This makes it entirely possible, if a couple of the Democratic abstainers can be worked on and the 10 Republicans who voted in favour of the bail-out stick to their guns, that the bill could be approved then. But George Bush will then still be president for another two weeks, and he might veto the bill, if there remains too much Republican unhappiness with it. In particular, the desire of Republicans to get the unions to agree to big pay cuts could still prove a deal-breaker. This measure would bring the cost of employing the Big Three’s car workers closer to that of foreign competitors based in America.

What all this means, though, is that by January 20th at the latest, Mr Obama could be in a position to sign a version of the bail-out bill into law. Will he want to, though? His statements on the issue have so far been rather gnomic. And the bail-out that has just been rejected was only meant as a stop-gap. It looks clear now that the first big decision the new Democratic president will have to make is over whether or not to save companies that many Americans believe are hopelessly over-controlled by unions and woefully managed. It is a decision that will set an early stamp on his presidency.

Advertisements
Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: