http://www.mlive.com/business/index.ssf/2008/11/automakers_should_expect_strin.htmlAutomakers should expect strings attached to any bailout
by Rick Haglund | Detroit Bureau
Wednesday November 12, 2008, 11:25 AM
Automakers and their workers likely will be forced to accept some onerous terms to get federal rescue money, former Michigan Gov. James Blanchard says.
Blanchard should know. As a member of Congress at the time, he was a key player in winning a $1.2 billion federal loan guarantee for the nearly bankrupt Chrysler Corp. in 1980.
Now a Washington lawyer, Blanchard told me by telephone he expects the federal government will impose conditions on the Detroit Three similar to those required of Chrysler nearly 30 years ago.
That's if the automakers can convince Washington the domestic auto industry is worth saving this time--to the tune of $50 billion.
"There was a huge requirement of sacrifice involved with Chrysler," said Blanchard, who is not part of the current bailout talks.
The United Auto Workers union, under the leadership of the late Doug Fraser, took $463 million in wage cuts. Chrysler's banks reluctantly agreed to renegotiate $2 billion in automaker debt.
Chrysler also had to win approval from a federal loan guarantee board for its five-year business plan and provide a reasonable assurance it could pay back its federally backed loans...One of the reasons Congress agreed to bail out Chrysler was the automaker hired the legendary Lee Iacocca to turn the company around before applying for federal aid.
"You had a brand new leader who was well known but couldn't be blamed for what had happened," Blanchard said.
It didn't hurt that Iacocca, known as the "father of the Mustang" during his days as Ford's president, was an American hero.
Nevertheless, Blanchard said, there was even more opposition to rescuing Chrysler than there is now to aiding the auto industry.
Congress initially was overwhelming against the bailout, and Democratic President Jimmy Carter was "extremely reluctant" to approve it, Blanchard said. Even some of Chrysler's own bankers opposed the deal.
But eventually Washington was convinced it was worth the $1.2 billion in loan guarantees to save hundreds of thousands of jobs and prevent the government from having to assume billions of dollars in Chrysler pension obligations.
Taxpayers got their money back andearned a $311 million profit on the deal.
The stakes are much larger today. Three million U.S. jobs and much of the nation's manufacturing sector are at risk if Detroit's automakers fail, according to the Center for Automotive Research in Ann Arbor.
"We're going to have to do this," Blanchard said about the need to rescue the automakers. "This is no time for ideology."