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:
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.
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.