Following last week’s hearings on providing emergency assistance to the Big Three auto manufacturers, congressional leadership has been working continuously over the weekend to produce auto industry relief legislation. This afternoon, House and Senate Democratic leadership put forward to the White House for President Bush’s review a draft proposal of the auto industry relief legislation. Though the current proposed legislative bill appears similar to the legislative bills previously introduced by Democratic leadership of both congressional chambers a few weeks ago, it is still in negotiation between the President and congressional Democratic leadership and therefore has little public substantiation.

The following key features, which have been widely reported, are included in the proposed legislation:

  • Only the Big Three automakers, who submitted their restructuring plans to Congress on December 2, 2008, will be eligible to receive $15 billion in financial assistance from the government in the form of bridge loans or commitments for lines of credit.
  • The funds utilized to finance the bridge loans made to the automakers will originate from funds previously appropriated for Section 136 of the Energy Independence and Security Act of 2007, though $500 million of the funds will be reserved for the original purposes of Section 136 funding.
  • The President will designate at least one executive branch officer, widely termed a “car czar,” with appropriate expertise to oversee the disbursement of funds to the automakers and the negotiation, implementation and assessment of the restructuring plans of the Big Three.
  • The car czar must develop, no later than January 10, 2009, appropriate measures to assess the progress of the auto manufacturers in converting their restructuring plans into long-term plans, and evaluate the auto manufacturers based on these measures.
  • The automakers must submit long-term restructuring plans, agreed upon by representatives of the auto manufacturers’ employees and retirees, unions, creditors, suppliers, auto dealers and shareholders, to the car czar by March 31, 2009, unless such period has been extended by the car czar, which include the following elements: repayment of government financing; compliance with fuel efficiency requirements; achievement of positive net present value; rationalization of costs, capitalization and capacity; and restructuring of existing debt.
  • Loans made would have a term of seven years, with no prepayment penalty, though maturity of any loan may be accelerated to an earlier date if the automaker fails to make sufficient progress towards the assessment measures instituted by the car czar, fails to submit an acceptable long-term restructuring plan or fails to make sufficient progress towards the implementation of its long-term restructuring plan. Loans would bear interest at 5% for the first five years, and 9% thereafter.
  • In exchange for providing financial assistance to the automakers, the car czar must receive warrants to purchase either non-voting common stock or preferred stock, having a value equal to 20 percent of loan amount, unless a greater amount is determined by the car czar. All other obligations of the auto manufacturers will remain subordinate to the loans made by the government.
  • Automakers would be prohibited from paying any dividends for the duration of the loan and would be required to comply with the executive compensation limitations that generally apply under EESA, and other more stringent limitations, including prohibiting outright against payment of any bonus to the 25 most highly-compensated employees, making any golden parachute payments, prohibiting a compensation plan that encourages manipulation of reported earnings to enhance compensation and the divestiture of all passenger aircraft owned or leased. Notably, while several congressional leaders had called for the resignation of the senior executives of the Big Three as part of a bailout package, this proposed draft lacks such language.
  • For the duration of the loan, the car czar will have the power to review and prohibit any asset sale, investment, contract commitment or other transaction in excess of $25 million.
  • Automakers will be prohibited indefinitely from participating in any lawsuit that challenges state greenhouse gas emission standards laws.
  • The existing Government Accountability Office and Special Inspector General provisions of the Troubled Asset Relief Program will apply to the activities and performance of the car czar.