Today, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law held a hearing entitled “Ramifications of Auto Industry Bankruptcies; Part II.” Testifying before the committee was Ron Bloom, Senior Advisor, U.S. Department of Treasury.
Mr. Bloom reported on the role played by the Auto Task Force appointed by President Obama on February 15, 2009 in the restructurings of General Motors and Chrysler. Mr. Bloom explained that the Auto Task Force’s role was to act as a potential investor of taxpayer resources as opposed to becoming actively involved in the management of the auto companies. Given the emergence of the New GM and New Chrysler from bankruptcy, he stated that the Auto Task Force’s role has shifted to one of monitoring the loans to, and investments in, both companies. The Auto Task Force does not intend to become involved in the management of the companies.
Mr. Bloom addressed legislation recently approved by the House of Representatives that would reinstate more than 2,000 General Motors and Chrysler dealerships that have been slated for closure. Mr. Bloom pointed out that most of the dealerships would have failed had it not been for the Obama Administration’s intervention. “These companies would have been liquidated and all of their dealer franchise agreements would have been terminated,” he testified. He also warned that the legislation could undermine the recovery afforded by the bankruptcies, stating, “The decision to invest taxpayer dollars into these companies required all stakeholders to make difficult sacrifices, and at this point it would set a dangerous precedent, potentially raising enormous legal concerns, to say nothing of the substantial burden it would place on the companies, to intervene into a completed portion of a judicial bankruptcy proceeding on behalf of one particular group. Political intervention of this nature could also jeopardize taxpayer returns by making it far more difficult for the companies to access private capital markets if there is ongoing uncertainty about whether Congress will intervene to overturn judicially approved business decisions anytime that it disagrees with the judgments of the companies.”
Mr. Bloom outlined steps taken to stabilize the auto finance market. “Given the importance of the availability of financing, a total of $13.4 billion of TARP funding has been committed to GMAC, $7.5 billion of which has been funded under the oversight of the Auto Task Force. Also, $4 billion of this funding is being used by GMAC to support New Chrysler dealers and New Chrysler customers as Chrysler Financial will not longer fulfill that role.” He also reported that the expansion of TALF to support lending broadly and auto lending in particular “has helped automotive finance companies raise over $26.5 billion through July 2009 to support consumer purchases of vehicles.” Finally, he discussed the announcement by the U.S. Treasury on March 19, 2009 of a $5 billion Automotive Supplier Support Program to help address the credit access problems currently faced by auto parts suppliers. He stated that the Task Force is mindful of the problems facing auto parts suppliers and will continue to monitor the situation.