UPDATE: Obama Aide Defends US Auto Rescue Before Congress
10 Juni 2009 - 11:36PM
Dow Jones News
The Obama administration has acted strictly as an investor in
overseeing the bankruptcy reorganizations of General Motors Corp.
(GMGMQ) and Chrysler LLC and hasn't been directly involved in
decisions on employee cuts and dealership closings, a senior Obama
aide told Congress Wednesday.
"We have made an absolute determination that we're not going to
get into micromanaging their decisions," Ron Bloom, a senior member
of Obama's auto industry task force, told the Senate Banking
Committee.
It was the first time an Obama official testified in Congress on
the administration's auto industry rescue, and senators repeatedly
questioned Bloom about the decision for the government to take
ownership stakes in GM and Chrysler. The government is set to own
60% of the new GM and a smaller stake in the new Chrysler.
"The administration has embarked on a disturbing and I believe a
difficult road," said Sen. Richard Shelby of Alabama, the top
Republican on the Banking Committee. "The most difficult question,
of course, is how Treasury intends to get out of this."
Shelby added: "Could this be an economic Vietnam - in other
words, easy to get in, hard to get out?"
Bloom said the administration was "reluctant" in converting
taxpayer loans into equity stakes, but that it was intent on
cutting the auto makers' debt.
"Piling on irresponsible amounts of new debt on top of the new
GM would have simply repeated the mistakes of the past," Bloom
said. "Likewise, giving away the equity stake to which taxpayers
were rightly entitled would have been irresponsible."
Bloom said the administration had no timeline for selling the
stakes but that it envisioned the revamped GM to hold an initial
public offering of company stock in 2010, after the company spent
time as a privately held company.
He said the task force studied other countries' auto industries
as well as the evolution of Microsoft Corp. (MSFT) under Bill Gates
to determine the best track for returning GM to a publicly traded
company.
Bloom said the decision to sell the stakes would likely be
dictated by the auto-sales market and the health of the broader
economy, and that setting a timeline would create an "overhang" in
stock that would cause a market disruption. "I do not anticipate
there will be a detailed blueprint," he said.
Bloom defended the overall decision to bail out the auto makers,
saying the government's efforts saved hundreds of thousands of
jobs.
"The administration's decisions avoided a devastating
liquidation and put a stop to the long practice in the auto
industry of kicking hard problems down the road," he said.
Bloom also indicated the government will need to take more
action to spur lending to potential car buyers and auto
dealers.
"As with many lending markets in the current financial crisis,
some government support of the U.S. automotive financing
marketplace has been and will continue to be required to ensure
that U.S. dealers and consumers have access to the necessary
financing to buy cars," he said.
Bloom didn't specify what form that support would take.
The government has invested $7.5 billion in GMAC LLC, which
finances GM and Chrysler vehicles.
Bloom said officials were looking at modifying a program run
jointly by the Federal Reserve and Treasury Department designed to
increase auto lending. That program, the Term Asset-Backed
Securities Loan Facility, or TALF, has produced limited benefits
for auto dealers because of eligibility requirements, he said.
It was the second congressional hearing in a week on the
restructurings of GM and Chrysler, with a third scheduled for
Friday, as lawmakers question key aspects of the rescue, such as
the dealer closings.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com