# U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring

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## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** May 29, 2009
- **Citation:** R40003

## Text

U.S. Motor Vehicle Industry: Federal Financial
Assistance and Restructuring
Bill Canis, Coordinator
Specialist in Industrial Organization and Business
James M. Bickley
Specialist in Public Finance
Hinda Chaikind
Specialist in Health Care Financing
Carol A. Pettit
Legislative Attorney
Patrick Purcell
Specialist in Income Security
Carol Rapaport
Analyst in Health Care Financing
Gary Shorter
Specialist in Financial Economics
May 29, 2009
Congressional Research Service
7-5700
www.crs.gov
R40003

CRS Report for Congress
Prepared for Members and Committees of Congress

U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring

Summary
In the past year, the U.S. auto industry has been severely buffeted by three adverse factors:
soaring gasoline prices caused motorists to focus more on fuel efficiency; economic recession and
growing unemployment reduced demand for new autos; and the near collapse of the commercial
credit markets made auto purchases more difficult. These economic currents led Chrysler to file
for bankruptcy at the end of April and prompted General Motors to suggest that it may follow suit
on June 1, 2009.
General Motors, Chrysler, and Ford—the Detroit 3—have seen an historic decline in sales; most
foreign manufacturers have seen a steady erosion as well. During the first four months of 2009,
year over year sales of North American-produced (i.e., domestic) vehicles by Chrysler, GM, and
Ford declined by 61%, 49%, and 35%, respectively, while Nissan, Toyota, and Honda sales of
domestic vehicles fell by 32%, 28%, and 26%, respectively. Toyota posted its first annual net loss
since 1950.
GM and Chrysler had the weakest financial base as the recession and credit crisis deepened,
leading them to seek federal assistance for restructuring plans. (Ford raised cash in the capital
markets in 2007 before the banks curbed lending and has had the wherewithal to finance its own
operations.) The Bush and Obama administrations, with support from Congress, have supported
GM and Chrysler with a range of financial assistance including direct loans, working capital,
financial aid for suppliers, and warranty support. The Obama administration’s Auto Task Force,
chaired by the Secretary of the Treasury, has worked closely during spring 2009 with GM and
Chrysler to develop restructuring plans and loan commitments in an attempt to avoid bankruptcy.
Over $56 billion in assistance had been provided to the two companies as of May 28, 2009. After
rejecting auto maker viability plans that it deemed insufficient, President Obama gave Chrysler
until April 30 and General Motors until June 1, 2009, to shape new cost-cutting plans.
Although most Chrysler stakeholders—U.S. and Canadian governments; labor unions; current
owners Cerberus Capital Management and Daimler and future partner, Fiat—agreed to terms for
a new, smaller Chrysler, a small group of bondholders withheld their support, resulting in
Chrysler filing for bankruptcy on April 30. In Federal bankruptcy court, Judge Arthur Gonzalez
approved a number of requests that indicate the company may emerge speedily by the end of June
with its most valuable assets comprising the new Chrysler-Fiat alliance. The less valuable
assets—such as closed plants—would remain with a court-administered “old” Chrysler and
would not encumber the new company, which will initially be owned by the UAW’s retirement
fund (68%), Fiat (20%) and the U.S. and Canadian governments (12% combined).
GM is seeking to avoid bankruptcy, but needs the support of its stakeholders to avoid that course.
As part of its streamlining, it has negotiated a new contract with the UAW and announced in midMay that it would eliminate 1,100 dealers by 2010. GM’s bondholders are a larger, more diverse
group than Chrysler’s and, to avoid bankruptcy court, 90% of them would have had to approve
the refinancing of $24 billion in GM debt. GM has been unable to reach that level of agreement
with the bondholders and it will most likely proceed to bankruptcy court to finalize its
restructuring plan.

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U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring

Contents
Introduction ................................................................................................................................1
The Detroit 3 in Crisis...........................................................................................................1
Organization of This Report ..................................................................................................3
Auto Industry Loan Developments: Late 2008-Early 2009 ..........................................................4
Auto Industry Restructuring Plans in December 2008............................................................4
Congressional Action in December 2008 ...............................................................................8
Federal Action to Aid the Auto Industry ................................................................................9
Impact on the National Economy .............................................................................................. 31
National Impact of Detroit 3 Failure.................................................................................... 31
Impact Focused on “Auto Alley”......................................................................................... 33
The Domestic Motor Vehicle Market......................................................................................... 34
Loss of Detroit 3 Market Share............................................................................................ 34
Falling Demand Affects All Automakers in the United States and Abroad............................ 36
Labor Negotiations in 2007 to Address Competitive Issues.................................................. 40
The Energy Independence and Security Act of 2007 (EISA) ................................................ 41
Legislative Efforts to Assist Automakers in November 2008................................................ 42
Assistance to Auto Industry in the 2009 Stimulus Package................................................... 43
Employment in the Automotive Sector ................................................................................ 44
Financial Issues in the Auto Industry ......................................................................................... 46
Credit Conditions ................................................................................................................ 46
Bush Administration’s Financial Plan to Assist Automakers................................................. 49
Financial Solutions: Bridge Loans and Restructuring................................................................. 52
Federal Bridge Loans .......................................................................................................... 53
Bankruptcy Procedures in Case Restructuring Fails ............................................................. 56
Pension and Health Care Issues ................................................................................................. 61
Pensions and Pension Insurance .......................................................................................... 61
Health Care Issues .............................................................................................................. 65
Stipulations and Conditions on TARP Loans to the Auto Industry.............................................. 67
Executive Privileges and Compensation .............................................................................. 68
Other Restructuring Plan Conditions ................................................................................... 75
Key CRS Policy Staff and Areas of Expertise ...................................................................... 79

Figures
Figure 1. U.S. Motor Vehicle Sales............................................................................................ 34

Tables
Table 1. Summary of Direct Federal Assistance For General Motors and Chrysler ..................... 20
Table 2. Reorganization of “New” Chrysler ............................................................................... 27
Table 3. Market Shares of U.S. Car and Truck Sales .................................................................. 37

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Table 4. U.S. Automotive Employment ..................................................................................... 45
Table 5. Funded Status of General Motors and Ford Pension Plans for U.S. Employees,
Year-end 2007........................................................................................................................ 62
Table 6.Contact Information for Key CRS Policy Staff .............................................................. 79

Contacts
Author Contact Information ...................................................................................................... 78

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U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring

Introduction1
On April 30, 2009, Chrysler LLC, unable to gather the support of a group of investment
companies who held about $1 billion in secured debt, filed for Chapter 11 reorganization in New
York. By May 9, 2009, those creditors had ended their opposition to the sale of some Chrysler
assets to Italian automaker Fiat (initially 20%), the United Auto Workers union (a 55% stake), and
the U.S. government (a 35% stake). With support from the Obama Administration, the Canadian
government, a large majority of creditors, and autoworkers’ unions in the United States and
Canada, bankruptcy reorganization could be completed within 60 days after its April 30 filing.
During this reorganization, Chrysler plants have been closed and auto suppliers and auto dealers
have felt significant economic effects.
General Motors, which has been working on a restructuring deal that might allow it to avoid a
Chapter 11 filing on June 1, also faces opposition from secured debt holders, but has reached
agreement with most of the other stakeholders. As of May 28, it appears that GM may not be able
to obtain support from all stakeholders and will also file for bankruptcy as a means to
successfully reorganize. It is likely to emerge from a restructuring as a much smaller company
that may be able to stabilize its market position and sales. 2
In the unfavorable economic circumstances of late 2008 and early 2009, the entire U.S. motor
vehicle sector (passenger cars and light trucks, and both domestic and foreign-owned companies)
faces difficult times. Almost every manufacturer reported declines in 2008 and early 2009.3
Moreover, the conditions in the industry worsened as Chrysler’s and GM’s initial restructuring
plans were deemed insufficient. The Obama Administration, in particular, is playing a large role
in the automakers’ rescue.

The Detroit 3 in Crisis 4
A decline of sales in motor vehicles, which had been evident since 2004, accelerated sharply in
late 2008 and during the first four months of 2009, despite falling gasoline prices though the end
of 2008.5 Overall auto sales fell to a 26-year low, despite the automakers’ aggressive sales
incentives. Rapidly declining gas prices failed to boost automotive sales, but, together with
incentives, may have caused the slight shift in consumer demand from cars back to light trucks
starting in December 2008.6 Sales in 2008 ran about 30-40% lower than in the same month in
1

This section was written by Bill Canis, Specialist in Industrial Organization and Business.
See The New York Times, Automotive News, and the Detroit Free Press for continuing coverage of the Chrysler and
GM restructuring processes.
3
Subaru (owned by Fuji Heavy Industries of Japan) was the only brand to gain sales in the U.S. market in 2008, about
500 vehicles (+0.3%) ahead of the previous year.
4
The “Detroit Three” comprise General Motors (GM), Ford Motor Company, and Chrysler LLC.
2

5
Gasoline prices, which averaged $1.95/gal. in February 2005, hit a peak of $4.11/gal. in July 2008. From July 2008,
gasoline prices fell from $4.11/gal. to $1.74/gal. in December 2008, a 58% decline in six months. Through the first four
months of 2009, gasoline prices rose to an average of $2.10/gal. Department of Energy (DOE), Energy Information
Administration (EIA), “U.S. All Grades All Formulations Retail Gasoline Prices (Cents per Gallon),” Petroleum
Navigator, http://tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usM.htm.
6
Detroit News, “Auto Sales Plummet to 26-Year Low” (December 3, 2008); Financial Times, “Incentives Rise as
Carmakers Fight To Get Buyers Behind the Wheel,” January 7, 2009.

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2007. Although year-over-year sales were 13.2 million units in 2008, forecasts for 2009 project
sales of only 9.5 million units.7
For 2008, sales were down to 13.2 million units, a decline of 18%, compared to more than 16
million units sold in 2007 (see section on domestic auto market later in this report for details).
That decline continued into 2009: during the first four months of 2009, year over year sales of
North American-produced (i.e., domestic) vehicles by Chrysler, GM, and Ford declined by 61%,
49%, and 35%, respectively, while Nissan, Toyota, and Honda sales of domestic vehicles fell by
32%, 28%, and 26%, respectively. Only Hyundai-Kia experienced a year-over-year sales increase
of domestically produced vehicles (6%). 8 According to the Bureau of Economic Analysis, motor
vehicle output reduced GDP by a seasonally adjusted annual rate of -2.01% in the fourth quarter
of 2008 and by -1.36% during the first quarter of 2009.9
Many argue that the current situation of the U.S. domestically owned auto industry primarily
reflects a structural shift in the Detroit 3’s competitive position, which has declined at an
accelerating rate during this decade.10 That decline has been compounded by the worst U.S.
economic conditions in several decades. The credit crunch that has dampened general consumer
demand for new vehicles has also reduced the ability of the Detroit 3’s “captive” credit
companies to make loans to many consumers and to dealers for their inventories, an issue that the
Treasury Department and the Federal Reserve Board have become actively engaged in. The
Detroit 3 have much higher pension and retiree health care costs (frequently called “legacy
costs”) than foreign automakers. The Detroit 3 may also be more adversely affected by stricter
federal corporate average fuel economy (CAFE) standards than foreign-owned producers,
because of the Detroit companies’ history of sales of less fuel-efficient product fleets.11
The cyclical decline in the market has also combined with a rapid shift in early 2008 by
consumers from trucks and SUVs back to cars, declining overall sales, and accelerating losses of
market shares for the “Detroit Three.”12 The combined shocks of these adverse factors have
placed the Detroit 3 business model, which includes a collective bargaining relationship between
management and labor, at risk. Congress is facing the possibility that one or more of the
unionized, domestically owned motor vehicle companies could go out of business if its
restructuring plans do not prove successful.

7
8

IHS Global Insight, U.S. Forecast and Analysis, April 23, 2009.
Automotive News. “U.S. Car Sales, April & YTD,” May 4, 2009.

9

U.S. Department of Commerce. Bureau of Economic Analysis (BEA), National Income and Product Account Table
1.2.2. Contributions to Percent Change in Real Gross Domestic Product by Major Type of Product (seasonally adjusted
at annual rates). http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=16&ViewSeries=NO&Java=no&
Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2008&LastYear=2009&3Place=N&Update=
Update&JavaBox=no#Mid
10
This is especially the theme of a critical book written about the U.S. auto industry by Micheline Maynard: The End of
Detroit: How the Big Three Lost Their Grip on the American Car Market, New York: Doubleday, 2003. The issue has
been examined by in its historical context in CRS Report RL32883, U.S. Automotive Industry: Recent History and
Issues, by Stephen Cooney and Brent D. Yacobucci.
11
On this point, see also CRS Report RL34743, Federal Loans to the Auto Industry Under the Energy Independence
and Security Act, by Bill Canis and Brent D. Yacobucci.
12
Although cars may have outsold trucks over the course of 2008, it is not yet clear whether the decline in fuel prices at
the end of the year will cause a longer term swing of consumer sentiment back from cars to SUVs and other truck-type
vehicles; Business Week, “The SUV Is Rising from the Dead,” December 8, 2008, p. 63.

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Legislation was introduced in the 110th Congress to implement a federal loan program to prevent
one or more of the Detroit 3 from falling into bankruptcy, but no bills were approved. Congress in
December 2008 left the decision whether and how to assist the Detroit 3 companies to the Bush
Administration. On December 19, 2008, President George W. Bush announced a plan to loan
$17.4 billion from the Troubled Assets Relief Program (TARP)13 to GM and Chrysler LLC to
prevent any near-term bankruptcy and to help them to restructure as more viable and competitive
companies over the longer term.
After accepting loans under the terms of these agreements, GM and Chrysler presented forwardlooking business plans, as required in the agreements, on February 17, 2009. The plans indicated
how they could become financially viable and pay back federal loans. Both companies indicated
that they would require additional federal financial support to achieve long-term viability.
The possibility that one or more of the Detroit automakers might fail increased when Chrysler
filed for Chapter 11 bankruptcy reorganization on April 30, 2009, turning its fate over to the
bankruptcy court. Chrysler and the Obama administration had obtained the approval for a
restructuring plan by nearly all stakeholders during April, including the UAW, the Canadian Auto
Workers (CAW) union, dealers, its current owner, Cerberus Capital Management L.P., its former
owner, Daimler and its potential merger partner, Fiat Automobiles SpA. In addition, the U.S. and
Canadian governments had agreed to new capital investments in the company. The largest
bondholders agreed as well, but some hedge funds and investment firms objected to the terms.
Their inability to reach agreement, combined with the deadline of April 30 set earlier by President
Obama, made it impossible to finalize an out-of-court restructuring agreement. Chrysler chose the
only alternative and filed for bankruptcy reorganization on April 30, 2009. Although executives
and administration officials forecast that the bankruptcy proceeding would take 30-60 days,
others questioned this fast pace and the ultimate success of the Chrysler-Fiat alliance that would
emerge at the end of the bankruptcy proceedings. 14

Organization of This Report
This report focuses on the current situation faced by the Detroit 3, key aspects of their current
crisis, including possible consequences of a failure of one or more companies, and some aspects
of legislative actions that have been considered to bridge their financial conditions to a more
stable situation. The subjects covered are:
•

The impact of the automotive industry on the broader U.S. economy and of
potential failure of the Detroit 3 companies;

•

Financial issues, including the present conditions affecting credit for automotive
consumers, suppliers and dealers, and legal and financial aspects of governmentoffered loans to the industry;

•

The current situation in the U.S. automotive market, including efforts in 2007 and
subsequently by the Detroit 3 and the United Auto Workers union (UAW) to
address problems of long-term competitiveness;

13

The Troubled Asset Relief Program (TARP) was established by the Emergency Economic Stabilization Act (EESA),
(P.L. 110-343). The basics of this legislation are discussed in CRS Report RS22963, Financial Market Intervention, by
Edward V. Murphy and Baird Webel.
14
The Wall Street Journal, “A Chrysler Bankruptcy Won’t be Quick” (May 1, 2009).

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•

Issues related to government assistance, and various forms of bankruptcy,
including Chrysler’s filing for bankruptcy on April 30;

•

Legacy issues, specifically pension and health care responsibilities of the
Detroit 3; and

•

Stipulations that have been imposed on auto manufacturers as conditions of
assisting in their restructuring.

Before reviewing these aspects of the situation and specific policy questions, the report will
summarize the developments since December 2008.

Auto Industry Loan Developments: Late 2008-Early
200915
Auto Industry Restructuring Plans in December 2008
Legislation to provide emergency “bridge loans” to the domestically owned Detroit 3 auto
manufacturers (“original equipment manufacturers,” OEMs) was introduced on November 17,
2008, by Senate Majority Leader Harry Reid (S. 3688). It would have provided loans to the
Detroit 3 by using funds available in the TARP. The industry’s need for these loans and their
current situation was discussed in a hearing before the Senate Banking Committee on November
18, 2008, with the chief executive officers of the Detroit 3 and UAW president Ronald W.
Gettelfinger. The next day, the same witnesses also appeared before the House Financial Services
Committee.
Use of TARP funds by the Detroit 3 was opposed by the Bush Administration, as well as by many
Members of Congress, including the Republican leadership. 16 The Administration suggested
instead using funds already appropriated for the auto industry under a direct loan program
operated by the Energy Department (DOE) under the Energy Independence and Security Act
(EISA, P.L. 110-140, funded under P.L. 110-329, §129, as discussed in a previous CRS report17).
A bipartisan group of senators, led by Senators George Voinovich of Ohio, Christopher Bond of
Missouri, and Carl Levin and Debbie Stabenow, both of Michigan, subsequently drafted a
compromise proposal, which would have permitted funding under EISA. But the House and
Senate leadership on November 21, 2008, demurred on this approach, and suggested that the auto
companies instead needed to provide more detailed plans, including how they would use bridge
loan funding from the federal government and how they would restructure themselves to insure
their long-term competitiveness and viability.
15

This section was written by Bill Canis, Specialist in Industrial Organization and Business.
Opposition was expressed on and off the floor of Congress by, among others, John Kyl (Senate Minority Whip),
Senate Banking Ranking Member Richard Shelby, Senator Lamar Alexander, House Majority Leader John Boehner,
House Financial Services Ranking Member Spencer Bachus, and Representative Jim Cooper; all quoted variously in
Detroit News, “Auto Aid Debate Heats Up,” and “Congress Starts Talks on Auto Loans,” November 17, 2008; “Blitz
Starts for Big 3 Aid as Reid Introduces Bill to Tap $700B Bailout;” and, “Political Titans Clash in Auto Loan War,”
November 18, 2008.
17
See CRS Report RL34743, Federal Loans to the Auto Industry Under the Energy Independence and Security Act, by
Bill Canis and Brent D. Yacobucci, for the analysis, history, and funding of this legislation.
16

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The companies presented their plans to Congress on December 2, 2008. Although each of the
Detroit 3 faces serious economic difficulties, financial conditions among the three differ
markedly. The following sections review the plans, as summarized in company documents and
discussed in Senate Banking and House Financial Services Committee hearings that resumed on
December 4-5, 2008.

GM December 2008 Restructuring Plan
GM’s leadership took the position that the company was already on the right track to achieve
long-term competitiveness and viability. Its plan included “a major transformation of its business
model,” while “accelerating its plans to produce more fuel-efficient vehicles.” However, that
transformation consumed a substantial amount of resources and accounted for a major portion of
GM’s debt – a total of $62 billion, according to data in the plan. Nevertheless, GM claimed, “the
company would not require Government assistance were it not for the dramatic collapse of the
U.S. economy, which has devastated the company’s current revenues and liquidity.”18
In its December 2008 congressional testimony, GM stated that the company was so close to
running low on operating capital that the company had to escalate its request for emergency
“bridge loan” lending and credit. Its request included an immediate $4 billion loan from the
government to ensure that the company would remain solvent through the end of 2008. It would
need a further $6 billion for the same purpose for the first quarter in 2009. Furthermore, assuming
a relatively pessimistic scenario of a U.S. light motor vehicle sales market of 12 million units for
2009, the company requested a total loan facility of $12 billion, plus a backup $6 billion line of
government credit, in case things were worse than expected. The total government commitment
requested by GM, through the end of 2009, was $18 billion.19
GM’s December 2008 restructuring plan included a substantial future downsizing of the labor
force, even in view of large numbers of buyouts that have already occurred. According to GM it
had already reduced its total U.S. workforce from 191,000 in 2000 to 96,500 in 2008, a loss of
95,000 jobs. As part of its restructuring plans, it indicated a further elimination of 20,000 to
30,000 more positions by 2012, to include both hourly and salaried employees.20 A total of nine
plants would be closed, from 47 down to 38 U.S. powertrain, stamping, and assembly plants by
2012. Most of these closures had already been announced. 21 GM’s plans also included sale or
downsizing of four out of their eight current brands, with Hummer, Saab, Saturn, and Pontiac not
being considered as “core” future brands.22

18
General Motors Corporation. Restructuring Plan for Long-Term Viability, December 2, 2008, p. 2; debt level based
on Table 4.
19
GM Restructuring Plan (December 2008), p. 2.
20
In subsequent announcements in February and April 2009, General Motors increased the number of jobs that would
be eliminated and the number of plants that would be closed. According to the Detroit News, April 28, 2009, “GM
plans to eliminate more than 7,000 additional jobs over what it announced February 17 and 42 percent of its dealerships
nationwide while shuttering an additional factory. That means GM plans to shutter 16 of its 47 U.S. manufacturing
plants by 2012. Thirteen of those plants will close by the end of 2010, including six this year.”
21
These data are from the December 2008 GM Restructuring Plan, Table 6, labeled “Manufacturing Improvements” –
indicating that the proportional difference between number of plant closures versus personnel reductions is to be
accounted for through technology and efficiency improvements.
22
General Motors subsequently announced that it would terminate its relationship with these brands and end the
manufacture of Pontiac vehicles. Saturn, Hummer, and Saab brands are for sale.

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Chrysler December 2008 Restructuring Plan
In its December 2008 restructuring plan, Chrysler requested that it receive $7 billion in a
“working capital bridge loan” by December 31, 2008. The Chrysler plan stated that its available
cash had shrunk from $9.4 billion after the first half of 2008 to an estimated year-end level of
$2.5 billion. The company would spend an estimated $11.6 billion in the first quarter of 2009,
principally because of $8.0 billion in payments to suppliers and $1.2 billion to “other vendors.”
Yet, “the first three months of the year are the months with the lowest sales volumes and, hence,
the lowest cash flows.”23 In testimony, CEO Robert Nardelli stated that Chrysler’s private-equity
majority holding company, Cerberus Capital Management LP, had contributed a fresh capital
injection of $2 billion in mid-2008, but that it had rejected further capital assistance later in the
year.24
Chrysler stressed that since acquisition of a majority share by Cerberus in mid-2007, it had taken
major steps to reduce costs, streamline operations, and reduce its reliance on truck-based vehicles
with low fuel economy ratings (Chrysler has been the most dependent of the Detroit 3 on light
truck sales – see Table 3 in a later section of this report). CEO Nardelli had been recruited from
outside the auto industry to inject a fresh approach into corporate management. “Four
unprofitable vehicle models were discontinued and over $1 billion in unprofitable assets were
identified for sale, with more than 70% of those assets disposed of ... [the company] eliminated
1.2 million units of capacity ... [and] separated over 32,000 employees ...”25 This, Chrysler said,
left the company with 55,000 employees worldwide in 2008, almost all in North America.
According to the company, virtually all of those jobs would be at risk if Chrysler were to go
bankrupt, and could not obtain “debtor-in-possession” financing, which the company did not
believe would be available.26
The Chrysler document and CEO Nardelli both insisted that Chrysler has a long-term plan for
viability as a stand-alone OEM. This included a proposal to introduce electric vehicles, supported
by an $8.5 billion request for loans from the DOE loan program established under EISA. It also
included some efforts to share manufacturing under joint ventures with such foreign-owned
companies as Volkswagen and Nissan-Renault.27 Many observers were skeptical of Chrysler’s
claim that it could continue to operate as an independent manufacturer, as exemplified by an
exchange between Senator Robert Corker and Nardelli at the Senate hearing on December 4,
2008.28 Subsequently, Chrysler and its parent, Cerberus Capital Management, signed a “nonbinding” agreement with Italian auto manufacturer Fiat to establish a “global strategic alliance.”
In exchange, Chrysler gave Fiat “an initial 35% equity interest in Chrysler.”29

23

Chrysler LLC. Chrysler’s Plan for Short-Term and Long-Term Viability, December 2, 2008, pp. 3-4.
U.S. Senate. Committee on Banking, Housing, and Urban Affairs. Hearing, December 4, 2008, The State of the
Domestic Automobile Industry: Part II. Testimony of Robert Nardelli. For press coverage, see Detroit Free Press,
“Help from Cerberus Unlikely,” December 6, 2008.
25
Chrysler’s Plan (December 2008), pp. 2-3.
24

26

Chrysler’s Plan (December 2008), pp. 11-12. On “debtor-in-possession” financing, see the section in this report that
explains bankruptcy rules.
27
Chrysler’s Plan (December 2008), pp. 6-7. A planned joint venture with China’s Chery auto manufacturing firm has
been cancelled, however.
28
Senate Banking Committee hearing, December 4, 2008.
29
Chrysler LLC, “Fiat Group, Chrysler LLC, and Cerberus Capital Management LP Announce Plans for a Global
Strategic Alliance,” news release, January 20, 2009. In Chrysler’s April 30, 2009 bankruptcy filing, Fiat will initially
(continued...)

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Ford’s Business Plan
Alone among the Detroit 3, Ford in late 2008 was not applying for immediate government
assistance. In part, this was because Ford had already raised $23.5 billion in equity from capital
markets in December 2006, through borrowing secured by virtually all of the company’s assets.
The company, as part of its restructuring and market-repositioning plan under new CEO and
former Boeing executive Alan Mulally, had also sold its Aston Martin, Jaguar, and Land Rover
brands and operations, all based in the United Kingdom. It had in late 2008 sold most of its
controlling interest in Mazda, an OEM based in Japan, and was considering the “strategic” future
of its Swedish subsidiary, Volvo. The focus of CEO Mulally’s strategy has been to integrate
disparate North American and overseas operations, enabling the company to more readily
manufacture for the U.S. market the types of higher fuel economy vehicles that it already designs,
produces, and sells overseas (called the “One Ford” strategy by the company).30 Ford also is
counting on $5 billion from the DOE loan program to support a $14 billion plan to reorient its
lineup toward more fuel-efficient vehicles. 31
Nevertheless, Ford was fully supportive of a program of federal assistance for the Detroit 3. Part
of the reason that Ford had gone to credit markets earlier was that, “at the time, Ford was viewed
as the Detroit automaker most likely to go under.”32 The company reports that it closed 17 plants
and “downsized by 12,000 salaried employees and 45,000 hourly employees in North America”
since 2005.33 Ford’s own plan stressed that its ability to survive a recession and return to
profitability were not only contingent on how well the total market performs, but also on the
short-term survival of its domestic competitors, because “Our industry is an interdependent one.
We have 80% overlap in supplier networks,” plus many dealers also have operations selling GM
or Chrysler products. Accordingly, Ford requested a “stand-by” line of credit of up to $9 billion as
“a back-stop to be used only if conditions worsen further and only to the extent needed.”34
On January 29, 2009, Ford announced its 2008 annual and fourth quarter financial results. The
company lost a total of $14.6 billion for the year. The net fourth quarter loss was $5.9 billion,
with a pre-tax operating loss of $3.6 billion. Although the company announced that it would draw
on an outstanding $10 billion line of credit to back up its cash holdings in the first quarter of
2009, Ford continued to state that, “it does not need a bridge loan from the U.S. government.” It
stated that it had achieved cost and inventory reduction targets, and had stopped the loss of
market shares in the United States and Europe. 35 In April, Ford’s confidence in the near-term
outlook increased when it announced its first quarter 2009 results, showing a loss of $1.4 billion,
which was smaller than expected. CEO Mulally said, “while the difficult market conditions had a

(...continued)
own a 20% share in the new Chrysler, with performance-related requirements that could increase its stake to 35%.
30
This approach is summarized in its Ford Motor Company Business Plan, December 2, 2008, pp. 7-8.
31
Ford Business Plan, p. 30.
32
Sholnn Freeman, “A Temporary Reprieve: Ford, Others Must Still Negotiate Rough Road,” Washington Post,
December 20, 2008, p. D3.
33
Ford Business Plan, p. 9.
34
Ford Business Plan, p. 2.
35
Ford Motor Co. News release, “Ford Reports 4th Quarter Net Loss of $5.9 Billion ... ,” January 29, 2009.

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significant impact on our first-quarter results, we made strong progress on our plan to transform
Ford.”36

Congressional Action in December 2008
Following the December appeals by the Detroit 3, Congress considered legislation to assist the
industry. Initially, such plans to assist the industry were reportedly blocked by differences
between the Bush Administration and many Members of Congress, including Speaker of the
House Nancy Pelosi, over whether funding for short-term loans to the Detroit 3 should come from
the TARP or from the EISA DOE loan program set up for production of advanced technology
vehicles. 37 But this gridlock was soon broken in view of the automakers’ urgent needs. The
Speaker and Senate Democratic leaders agreed effectively to reprogram the DOE loan money for
one or more short-term loans, with a plan to replenish the EISA loan funding after the 111th
Congress convened in January 2009. With the likelihood of default by the companies continuing
to rise, the amount of budget outlays for the EISA loans ($7.5 billion) was now estimated by the
Congressional Budget Office to support $15 billion in direct loans rather than the $25 billion
authorized under EISA. In any case, this was much less than the $34 billion requested in early
December by the Detroit 3 (including the $9 billion in standby credit requested by Ford). 38
Chairman Barney Frank of the House Financial Services Committee introduced a bill reflecting
this compromise on December 10, 2008 (H.R. 7321). The Bush Administration reportedly
supported the bill.39 The legislation passed the House 237-170 on the same day. It authorized a
total of $14 billion in direct loans, subject to a number of conditions, funded by $7 billion in
budgetary support from the EISA program. The measure also set up a presidential designee
(popularly known as a “car czar,” although the bill allowed for multiple designees) to oversee
compliance by borrowing companies with the terms of the program, including adequate
compliance with requirements for meeting commitments to achieve long-term viability and
competitiveness. The loans were limited to $14 billion, because $500 million of the original EISA
budgetary support was reserved for the original purpose of that program, support for advanced
vehicle technology production.
Despite the urging of the Bush Administration, H.R. 7321 faced opposition in the Senate.40 On
December 11, 2008, Minority Leader Mitch McConnell indicated to the Senate that the
Republican caucus had studied the House-passed bill, and that they were unable to support it.41
Efforts were made to craft a new compromise proposal, including conditions that would specify
concessions by unions on behalf of the hourly workforce and by bondholders, but they were
unsuccessful. Majority Leader Reid moved to close debate, for the purpose of achieving a final

36

The Detroit News, “Mulally: Ford’s Plan Working,” April 25, 2009.
Bloomberg.com, “Bush, Pelosi Deadlocked over Bailout for Automakers,” December 4, 2008.
38
Detroit Free Press, “Pelosi Drops Opposition to Tapping Plant Aid,” (December 6, 2008).
39
Detroit News, “Dems, White House Agree to $15B Auto Bailout, ” December 10, 2008.
40
See advocacy for the bill by Secretary of Commerce Carlos M. Gutierrez, “A Bridge Detroit Needs,” Washington
Post, December 11, 2008, p. A25; Republican opposition, particularly from Banking Committee Ranking Member
Richard Shelby is noted in the Washington Post of the same day, “Auto Bailout Clears House, but Faces Hurdles in
Senate,” p. A1.
41
Congressional Record (December 11, 2008), pp. S10895-96.
37

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vote on the House-passed bill. The vote in favor of cloture was 52-35, which was an insufficient
majority, and the Senate abandoned further action on the issue. 42

Federal Action to Aid the Auto Industry
Following the Senate cloture vote, the Bush Administration indicated that, after all, it would
consider making loans from the TARP in support of the auto industry. White House Press
Secretary Dana Perino stated:
Under normal economic conditions, we would prefer that markets determine the ultimate fate
of private firms. However, given the current weakened state of the U.S. economy, we will
consider other options if necessary, including use of the TARP program to prevent a collapse
of troubled automakers. A precipitous collapse of this industry would have a severe impact
on our economy, and it would be irresponsible to further weaken and destabilize our
economy at this time.43

Over the course of the following week, the Bush Administration determined how, and under what
conditions, it would provide industry assistance. On December 19, 2008, speaking from the
White House, President Bush announced his plan to assist the auto industry. He stated that, while
“government has a responsibility not to undermine the private enterprise system ... If we were to
allow the free market to take its course now, it would almost certainly lead to disorderly
bankruptcy and liquidation for the automakers.”44
The specific Bush Administration plan was contained in two “term sheets,” drawn up by the
Treasury Department for GM and Chrysler, the companies in need of immediate assistance. The
term sheets were identical, except for the appendices, which spelled out the specific loans
provided for each of the two companies.45 The automakers were provided with $13.4 billion in
loans in December 2008 and January 2009, divided as follows. GM and Chrysler received $4
billion each when the loans closed on December 29, 2008. On January 16, 2009, GM received an
additional $5.4 billion. These three loan installments used what remained of the $350 billion first
“tranche” of TARP under EESA. Beyond that, the Administration could make no more outlays
without seeking approval from Congress to open the second tranche of TARP funds. Thus, a third
projected loan of $4 billion to GM, planned by the Bush Administration for February 2009, was
made “contingent on Congressional action.”46 This contingency was met on January 15, 2009,
when the Senate voted 52-42 to release the second tranche without further conditions, and the
42

Floor action on the measure was summarized by the Majority Leader in Congressional Record, December 11, 2008,
pp. S10922-31. He credited Sens. Robert Corker and Christopher Dodd with leading the effort to produce a
compromise. The move to close debate was made on an unrelated legislative item, H.R. 7005. The Chairman and
Ranking Member of the Finance Committee, Sens. Max Baucus and Charles Grassley, respectively, announced their
joint opposition to H.R. 7321 because of inclusion of a provision unrelated to the auto industry, which would have
required the U.S. government to act as guarantor for “sale-in, lease-out” transactions engaged in by some public
transportation authorities; see ibid., pp. S10909-11.
43
White House. Press Briefing, December 12, 2008, p. 1.
44
White House. Office of the Press Secretary. “President Bush Discusses Administration’s Plan to Assist Automakers,”
December 19, 2008.
45
The term sheets are available on Treasury’s website: http://www.treas.gov/press/releases/hp1333.htm. For a general
discussion of TARP rules under EESA, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and
Treasury Implementation, by Baird Webel and Edward V. Murphy.
46
GM term sheet, Appendix A.

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GM loan went forward as planned. 47 The Chrysler term sheet further specified that Chrysler’s
parent holding company must guarantee the first $2 billion of the loan amount. The term sheets
for both companies also established a loan interest rate of 5%, with an additional 5% interest rate
penalty on any amount in default.48
The Treasury Department made the loans available to Chrysler and GM only under certain “terms
and conditions.” The overriding condition was that each firm must become “financially viable”;
that is, it must have a “positive net value, taking into account all current and future costs, and can
fully repay the government loan.” “Binding terms and conditions ... mirror those that were
supported by a majority of both Houses of Congress ...” They established oversight rules and
security to be obtained by the government in exchange for providing loans. “Additional targets ...
were the subject of Congressional negotiations,” but were never voted on. These included a
requirement that the companies reduce corporate debt by two-thirds; that they transfer to
corporate equity half of the cash contribution promised to an independent hourly employee retiree
health care fund; eliminate “jobs bank” rules; and that unions accept “competitive” wages and
work rules.49
With respect to Chrysler’s deal with Fiat, Chrysler CEO Robert Nardelli stated that, “The
potential ... alliance is consistent both with our strategic plan and with the long-term viability plan
required under the U.S. Treasury loan.” The agreement would be designed to gain for Chrysler
access to “all Fiat small-vehicle platforms,” as well as to Fiat’s international distribution network
(Chrysler at present has only limited sales outside of North America). Nardelli further stated that,
“It is important to note that no U.S. taxpayer funds would go to Fiat.” He also said that Chrysler
would continue to seek the remainder of the $7 billion in federal financial support that it had
requested.50
The companies were required to submit to a “President’s Designee” by March 31, 2009, a
detailed restructuring plan indicating the extent to which they have met both financial and
competitive labor restructuring targets. Subject to one 30-day extension allowed, the “Designee”51
was required to decide whether to certify that the plan met all standards set in the term sheet, and,
if not, could recall the outstanding loan balance. 52
These terms and conditions have been the focus of much discussion and debate since the
presidential announcement. Some argue that requirements, unilaterally set by the Bush
Administration, are actually weaker than the legislation proposed by it and the Democratic
majority, and approved in the House. Although H.R. 7321 did not mandate specific changes in
labor contracts, it did provide (Section 8) that if the parties did not reach agreement on a
restructuring plan by March 31, 2009, the presidential designee “shall call the loan ... within 30
47

Resolution of disapproval, S.J.Res. 5, introduced by Sen. David Vitter and nine cosponsors, defeated by 52-42
(January 15, 2009).
48
U.S. Department of the Treasury. Indicative Summary of Terms for Secured Term Loan Facility, December 19, 2008,
“Appendix A” in both GM and Chrysler term sheets.
49
White House. Office of the Press Secretary. Fact Sheet: Financing Assistance to Facilitate the Restructuring of Auto
Manufacturers to Attain Financial Viability, December 19, 2008. Emphases in original.
50
Letter of Chrysler CEO Robert Nardelli “to all Chrysler employees, dealers, suppliers, and other stakeholders,”
January 23, 2009.
51
The “President’s Designee” was later established by the Obama Administration as the Auto Task Force within the
U.S. Department of the Treasury.
52
Treasury, Summary of Terms, p. 7.

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days ...” In effect, unions, bondholders, and other interests had that window to negotiate a
restructuring plan, or, in effect, by statutory law the company would be forced into bankruptcy.
Since the Bush plan was established by executive order, it was subject to subsequent modification
by President Obama without further action by Congress.
The UAW believed that plan’s conditions for labor contract changes were too prescriptive. Union
president Ron Gettelfinger said that he was “pleased the Bush Administration acted to provide
urgently needed bridge loans” to the auto companies, and “to pursue a process for restructuring
outside of bankruptcy.” But he was “disappointed that [President Bush] has added unfair
conditions singling out workers ... We will work with the Obama Administration and the new
Congress to ensure these unfair conditions are removed,” he said.53 Senator Debbie Stabenow in a
press release said that
[T]he White House has been characterizing the bridge-loan package as simply having goals
for worker concessions ... [but] ... These provisions raise serious concerns regarding unfair,
punitive conditions being placed on the backs of workers.54

On January 21, 2009, the House addressed the auto loans specifically, in Title III of H.R. 384, a
bill to release the second tranche of TARP funds. This bill would have required that a
restructuring plan must be agreed by all stakeholders, without reference to specific targets and
requirements established in December 2008 term sheets for GM and Chrysler. The measure
passed 260-166. However, as the Senate had already defeated a resolution to withhold TARP
funds, the House action had no direct legal effect, without any further Senate action. 55
As GM and Chrysler rolled out their viability plans on February 17, 2009, and the Obama
Administration established a new interagency task force, negotiations continued under the same
essential framework established by the Bush Administration. However, according to a report in
the Detroit Free Press, the Obama Administration has “relaxed the rules” with respect to GM’s
turnaround plan, by not requiring deals with the UAW and bondholders to be finalized before
submission of the viability plan.56

GM and Chrysler Viability Plans of February 2009
GM’s Revised Restructuring Plan
On February 17, 2009, GM presented to the Treasury Department a revised restructuring plan.
The new plan revised estimates from the plan presented to Congress just two months earlier:
Forecasts of motor vehicle sales were revised downward, meaning that GM’s loan requirements
from Congress were revised upward.

53

International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW). Press
release, “UAW Applauds Auto Loans, But Says Workers Must Not Be Singled Out for Unfair Conditions,” December
19, 2008.
54
Office of Sen. Stabenow. Press release, “Stabenow Statement on Provisions in Auto Rescue Package,” Dec. 19,
2008.
55
See comments to the press by House Financial Services Committee Chairman Barney Frank, quoted in Washington
Post, “House Urges Tighter Rules for Bailout Beneficiaries,” January 22, 2009.
56
Detroit Free Press, “GM Allowed to Forgo Some Loan Terms Set by Bush Administration,” February 24, 2009.

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Furthermore, GM on February 26, 2009, reported that it lost $30.9 billion in 2008. This followed
an even higher reported loss for 2007, but that loss had been largely attributable to a one-time
write-down of future tax credits, a non-operating loss. While GM reported $3 billion in 2008
structural cost savings, revenue from worldwide automotive operations, responsible for almost all
the company’s total top-line revenue, fell by more than $30 billion, from $179 billion to $148
billion. At year-end 2008, GM cash and other liquid assets were reported as $14 billion, but this
included $9.4 billion in loans already received from the TARP. With a weak auto market in the
United States and worldwide, and given a further federal loan of $4 billion in February 2009, GM
may have had no operating cash balance in the first quarter net of federal transfers, and
continuing expenses would use up all the federal loans disbursed under the Bush Administration
loan agreement. 57
In filing its formal statement (10-K) on its annual results to the Securities and Exchange
Commission, GM and its auditors agreed “there is substantial doubt about GM’s ability to
continue as a going concern.”58 Commenting on the February 2009 viability plan, the company
stated that, “GM requires [federal] funding in 2009 to continue operations until global automotive
sales recover and its restructuring operations generate results.... ”59
The revised GM plan of February 2009 was a detailed and thorough examination of the
company’s prospects, including a range of contingencies, depending on overall auto market and
general economic developments:
•

The December report projected a “baseline” scenario of 12 million total U.S.
motor vehicle sales (cars and light trucks) in 2009, with a “downside” of 10.5
million units. By February, the old downside had become the new baseline, with
a new downside of only 9.5 million. The company’s forecast of U.S. 2009 gross
domestic product (GDP) performance worsened from an annual 1.0% fall to a
2.0% decline. 60

•

With this decline of GDP and motor vehicle sales prospects, GM raised its
estimates of required federal financial support from $18 billion in its December
report to at least $22.5 billion. This could rise, the company said, to as much as
$30 billion through 2011, if market trends followed the downside scenario.61

•

The February 2009 plan added information on foreign government assistance that
was not disclosed in the December plan. GM stated that it had requested up to $6
billion in loans from Canada, Britain, Germany, Sweden, and Thailand, plus

57

The calculation is as follows. GM reported a $14 billion cash balance as of December 31, 2008, presumably
including $9.4 billion in low-interest loans from the TARP. That left $4.6 billion in GM’s own internally generated
cash reserves. A further TARP loan of $4.0 billion was disbursed on February 17,2009, but the Center for Automotive
Research, an industry research group, estimated that GM’s “cash burn” for the first quarter of 2009 would be $3 billion
per month; see American Metal Market, “GM Struggling to Avoid Bankruptcy, $30.9B in Red” (February 27, 2009).
58
Reported in Detroit News, “GM’s Auditors Raise Doubts on Automaker’s Viability; Detroit Free Press, “GM
Auditors Raise the Specter of Chapter 11” (both March 5, 2009).
59
GM, “GM Reports Preliminary Fourth Quarter and Calendar Year 2008 Financial Results,” news release (February
26, 2009).
60
General Motors Corporation. 2009-2014 Restructuring Plan (February 17, 2009), Chart 2 on p. 8 and Table 1, p. 11.
61
GM 2009-14 Restructuring Plan (February 2009), p. 10.

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additional support to cover “legacy costs.” GM projected that its global operating
cash flow will stay negative through 2011.62
•

GM provided further details and confirmation on its plans to reduce brands and
models. As stated in its December plan, GM stated that it would reduce its U.S.
vehicle offerings to four “core” nameplates: Chevrolet, Cadillac, Buick and GMC
trucks. Pontiac was to be downsized to a “niche” product and sold through a
Buick-Pontiac-GMC dealer channel. 63 GM also stated that it would sell or
otherwise dispose of the Saturn, Saab, and Hummer brands. Whereas the
December plan called for reducing 48 current model “nameplates” to 40 by 2012,
with 12 new product “launches” in that year, the February 2009 viability plan
called for a reduction to 36 nameplates with five 2012 launches.64

•

In part as a consequence of this reduction in brands and nameplates, the GM
restructuring plan anticipates a continued decline in domestic market share. From
23.8% of the North American motor vehicle market in 2006, GM estimates that
its 2008 share fell to 21.5%, and will decline further to 19.1% by 2014. However,
its baseline market scenario is for a recovery in total vehicle sales to increase
from 13.5 million units in the United States (16.6 million in North America) to
about three million units more by 2014.65

•

With a smaller market share in markets that will only recover to the levels of the
early 2000s, GM will need fewer plants. From 47 U.S. manufacturing and
assembly plants operating in 2008, GM planned in December 2008 to cut back to
38 plants in 2012, but already reduced that projection to 33 plants in the February
2009 plan. Its U.S. assembly plant production capacity, which in December it had
planned to reduce from 2.8 million to 2.3 million units, would now be reduced to
2.0 million units in the United States. If the North American market reaches the
GM baseline number of 18.9 million units in 2012, and GM’s projected market
share is just under 20%, this means only slightly more than half of the vehicles
that it sells in North America will be assembled in the United States.66

•

GM projects in its restructuring plan a worldwide reduction of 47,000 employees
through the end of 2009, with the majority of those job cuts – 26,000 – taking
place outside the United States.67 The reduction in U.S. salaried employees will
be from 30,000 in 2008 to 26,000, and in hourly production employees from
62,000 to 46,000. After 2009, GM projects that its U.S. salaried and hourly
employment will roughly hold steady, or even increase slightly.68

•

GM continues to project a significant decline in numbers of U.S. dealers.
Already, between 2004 and 2008, GM reduced its total by more than 1,000
dealers, leaving 6,246 still operating in the United States. It projects a further

62

GM 2009-14 Restructuring Plan (February 2009), pp. 10, 28 and Table 11. See also the summary reported in Detroit
Free Press, “GM Survival Plan Seeks Up to $6 Billion from Other Governments” (February 20, 2009).
63
At a later date, GM announced that it would end manufacture of the Pontiac brand.
64
GM 2009-14 Restructuring Plan (February 2009), pp. 15-16
65
GM 2009-14 Restructuring Plan (February 2009), Table 9.
66
These projections are from GM 2009-14 Restructuring Plan (February 2009), Table 9 and Appendix H.
67
GM 2009-14 Restructuring Plan (February 2009), pp. 13-14.
68
GM 2009-14 Restructuring Plan (February 2009), Appendix H.

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25% reduction, to about 4,700 dealers, by 2012, and a continued decline to 4,100
by 2014. Dealer totals in metropolitan market areas will be pruned even more
severely, by almost half, while GM plans to reduce its number of rural market
outlets by about 25% through 2014.69
•

Under the GM viability plan, the possibilities for paying back its loans from
TARP vary widely depending on projected market scenarios. GM’s baseline
scenario for 2014 is 16.8 million units sold. If GM sees only a slight decline in
market share, as projected, it anticipates that it would reduce its outstanding
TARP loan balance to about $14 billion by that date. With an upside scenario of
18 million units, the TARP loans could be paid off by then. With a downside
scenario of 15.3 million units sold, the balance owed by 2014 would be higher
than in 2011, or close to $30 billion.70

•

GM was required under the term sheet drawn up by the Bush Administration to
project how the enterprise will achieve a positive net present value (NPV). An
independent analysis of GM’s prospects was drawn up for this restructuring plan
by Evercore LLC, an investment banking firm that specializes in providing
advisory services to multinational corporations. Evercore’s analysis indicated that
GM could achieve a positive NPV of $5 billion-$14 billion by 2014, if the
baseline scenario of a U.S. market of 16.8 million unit sales obtains. However,
the NPV would be negative if the U.S. motor vehicle market only achieves the
downside scenario of 15.3 million units. The analysis excludes estimated
payments required by GM to the VEBA71 established to take over retiree health
care expenses and a significant pension-funding shortfall in 2008.72

In its February 2009 viability plan, GM disclosed that its pension funds, which had been
“consistently overfunded” in 2005-2007, recorded a substantial decline in the latter half of 2008.
In its annual results, GM reported a pension fund deficit of $12.4 billion, or an underfunding of
about 13%. In its viability plan, GM notes that it could be required to make additional
contributions to the plan in 2013-2014.73 Pension, VEBA, and labor concession issues are
discussed later in this report. Also to be discussed later in the report is GM’s assessment of the
cost of an alternative approach to continued federal assistance, reorganization under the
protection of Chapter 11 of the federal bankruptcy code.
In calculating its future cash flow, GM also assumed a significant benefit in terms of low-interest
loans from the DOE direct loan program from advanced technology vehicle manufacturing,
described earlier. In 2008 it submitted two applications for a total of $8.4 billion from the
program, and also anticipates a third request in 2009. GM’s advanced technology vehicle

69

GM 2009-14 Restructuring Plan (February 2009), pp. 16-17 and Table 3. In mid-May 2009, Chrysler and GM
announced dealer reducations, with Chrysler cancelling 789 dealerships by June 6, 2009, and GM planning to cancel
1,100 by October 2010.
70
GM 2009-14 Restructuring Plan (February 2009), pp. 26, 32 and Table 14.
71
A VEBA is a Voluntary Employees’ Benefit Association which manages the portfolio assets of an hourly-employee
retirement program.
72
GM 2009-14 Restructuring Plan (February 2009), pp. 28-29 and Appendix J.
73
GM 2009-14 Restructuring Plan (February 2009), p. 31 and Table 13; see also GM CY2008 news release.

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planning, a major component of its strategic corporate plans, as well as its global cash flow
analysis, assumes a net benefit through 2014 of $7.7 billion from the DOE program.74
The responses from other national governments to GM’s requests for financial aid in early 2009
were mixed or indeterminate. This response may be critical, because 64% of GM’s worldwide
sales in 2008 were outside of the United States, up from 59% in just one year. GM’s 2008 global
sales were down 11%, compared to an overall global market drop of 5%.75 In its viability plan,
GM calls for holding its global market share roughly constant, at around 12.5% over six years,
even while it accepts a possible loss of market share in the U.S. domestic market. And it is
counting on a strong overall global market recovery in the out years, to reach 82.5 million units
by 2014, from estimated sales of 67 million units in 2008, and not higher than 70 million annually
through 2011.76
The Swedish government refused to bail out GM’s wholly owned subsidiary, Saab, forcing that
company into bankruptcy reorganization, liquidation, or sale to a third party.77 In Germany, GM’s
subsidiary Opel has requested $4.2 billion to stay out of bankruptcy, but local labor leaders are
calling for the company to be spun off from the U.S. parent. Senior GM officials have said that if
GM, which directly employs 56,000 people in Germany and elsewhere in Europe, were to fail, it
would put as many as 300,000 persons out of work. The German government is reportedly
seeking talks with the U.S. Treasury, before making any financial commitments.78 In early May,
Fiat announced that it was in talks to purchase the Opel unit.79 GM and Chrysler together
requested initially $3.2 billion (C$4 billion), from Canada.80 The Canadian government
subsequently agreed to $2.4 billion in assistance for Chrysler in late April.81 Also, in a loan
request not reported by GM, its Korean affiliate, Daewoo, has reportedly requested about $700
million in assistance from a Korean state-owned bank, which is also a large minority shareholder
in the company.82

74

GM 2009-14 Restructuring Plan (February 2009), pp. 20-22, 30 and Table 12
Data from GM CY2008 news release.
76
GM 2009-14 Restructuring Plan (February 2009), Table 11.
77
Associated Press, “Saab Files for Bankruptcy Protection,” reported in Detroit News (February 20, 2009);
Bloomberg.com, “Saab Seeks Protection from Creditors as GM Pulls Out” (February 20, 2009); Washington Post, M’s
Saab Seeks Protection from Creditors in Sweden” (February 21, 2009).
78
Deutsche Welle (German overseas broadcasting service), “German Unions Push to Split Opel from General Motors”
(February 16, 2009); Detroit News, “”U.S.-German Working Group to Seek Help for GM’s Opel” (February 22, 2009);
Financial Times, “Opel’s Dreams of GM Split May prove Elusive” (March 1, 2009); Detroit Free Press, “Germany:
Opel Aid Request Will Take Time” (March 2, 2009). Estimates on employment impact of an Opel failure are in Detroit
Free Press, “GM Appeals to Europe for Government Aid,” and Bloomberg.com, “GM Says Opel Running Out of Cash
...” (both March 3, 2009).
79
Detroit News, “Fiat Seeks GM Europe Deal” (May 4, 2009).
75

80
Detroit News, “Canada Will Get 2 Firms’ Plans” (February 20, 2009). GM and its Canadian hourly workforce,
organized in the Canadian Auto Workers Union, in March 2009 announced a tentative agreement on changes to their
labor contract, including a pay freeze and acceptance of a worker co-payment on health care expenses; Washington
Post, “GM Reaches Tentative Deal with Canadian Auto Union;” Detroit Free Press, “GM and CAW Strike a Deal on
Concessions” (both March 9, 2009).
81
Detroit News, “Plan Includes Another $10.5 Billion Loan to Chrysler” (April 30, 2009).
82
Detroit News, “GM’s South Korean Arm Holds talks with State-Run Bank” (February 19, 2009).

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Chrysler’s Revised Restructuring Plan
Chrysler introduced itself in its February 2009 viability plan as the “quintessential American auto
company”—complete with a cover statement noting that (unlike GM) the vast majority of its
sales (73%), production (61%), employees (74%), as well as dealers and suppliers, are in the
United States. The cover also featured the stars and stripes, soldiers driving a Jeep down
Pennsylvania Avenue, the company’s pentastar symbol, and photos of U.S. auto pioneers Walter
P. Chrysler and the Dodge brothers.83
More substantively, the company reported for the first time that it lost $8 billion in 2008, and that
at year-end, it had a cash balance of $2.5 billion. As with GM, the company’s report appears to
confirm that it has a positive cash balance thanks only to federal loans already received. 84
Chrysler crystallized its situation by analyzing viability under three scenarios:
•

“Stand Alone.” With specified concessions, Chrysler stated that it could survive
on this basis, with $5 billion in short-term government assistance, beyond what it
has already received, plus $6 billion as applied for under the DOE advanced
vehicle technology loan program. This scenario assumed a minimum U.S. motor
vehicle market of 10.1 million units in 2009, failing which the company would
require additional assistance and concessions.

•

Strategic Partnership/Consolidation. “In all industry scenarios ... Chrysler will be
more viable, both operationally and financially, with a strategic partner.” The
plan noted the non-binding agreement signed with Fiat, which would enable
Chrysler to produce more fuel-efficient vehicles in a broader range of markets.
But it also noted that the Fiat deal was contingent on Chrysler receiving
requested federal assistance. Nor would Chrysler be viable, even with the Fiat
alliance, should U.S. sales fall as much as one million below the ten-million-unit
level in 2009, unless Chrysler received additional government support.

•

Orderly Wind Down. “If Chrysler is not able to restructure its balance sheet ... ,
negotiate targeted concessions from constituents, [and] receive an additional $5
billion capital infusion from the U.S. Government ... ,” then the company’s only
option would be to file a Chapter 11 bankruptcy petition. This would be “a first
step to achieving an orderly wind down.”85

The balance of this subsection will consider Chrysler’s description of its financing requirements
and conditions under the first two alternatives. Its presentation of the bankruptcy option will be
summarized, along with that of GM, in the subsequent section on reorganization and bankruptcy.
Later in this section, Chrysler’s decision to file for federal bankruptcy protection on April 30,
2009, will be discussed.
It should be noted that Chrysler based its long-term viability on a market outlook that is much
more conservative than the one presented by GM. Its December 2008 viability plan forecast an
83

Chrysler Restructuring Plan for Long-Term Viability (February 17, 2009).
Chrysler Viability Plan (February 2009), pp U49-U51.
85
These three alternatives are summarized in Chrysler Viability Plan (February 2009), p. U11. Chrysler emphasized
“Credit availability for customers/dealers is a prerequisite for [any] viability plan.”
84

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11.1 million U.S. light motor vehicle sales market in 2009, rising to 13.7 million by the 20122014 out years. The February 2009 plan reduced forecast 2009 sales to 10.1 million (with a
downside risk of 9.1 million), rising to 11.6 million in 2012, and 12.6 million in 2014 – about
four million fewer than GM’s baseline scenario, which GM says may be needed for it to reach a
positive NPV.
In its current debt structure, Chrysler listed a total of $23.8 billion in outstanding indebtedness.
Secured indebtedness to outside lenders stood at $6.9 billion. To that Chrysler added a total of $2
billion in secured debt received in 2008 from its parent, Cerberus, and its former owner and
minority partner, Daimler AG. It evaluated its government loan of December 2008 as $4.3 billion
on its books. The remainder, almost half the total at $10.6 billion, is unsecured indebtedness owed
to the UAW for retiree health care, including the VEBA scheduled to start in 2010.
Under the stand-alone plan, Chrysler stated that it has an agreement with the UAW to cut its
VEBA indebtedness in half, contingent on a satisfactory overall debt restructuring. Cerberus and
Daimler “expressed willingness” to relinquish existing equity in the company and to convert their
$2 billion in secondary indebtedness into equity. However, Chrysler will need an additional $5
billion from the U.S. Treasury’s TARP, plus it is counting on a $6 billion loan from the DOE loan
program. This would leave Chrysler, by its calculations, with $22.8 billion in indebtedness under
the stand-alone model, of which $15.6 billion would be owed to the U.S. government.86
The Chrysler plan identified significant advantages from the strategic partnership or consolidation
model, as against a “stand-alone” future. However, the proposed deal with Fiat brought no cash
into the equation, and the cash benefits were back-loaded into the out years, from 2012 to 2016.
Fiat has achieved a remarkable turnaround under Sergio Marchionne, its CEO since 2002, and has
re-emerged as a profitable, though relatively small, major player in the global auto business (2.5
million annual sales versus about 2.0 million for Chrysler 87). The advantages of such a deal,
according to the Chrysler plan, were:

86
87

•

“Among the top 10 selling brands in Europe, Fiat brand has the lowest level of
CO2 emissions,” and also is the most fuel-efficient European OEM across the full
range of its vehicles; 60% of its sales are “mini, small, and compact cars.” By
contrast “Chrysler’s portfolio is dominated by minivans, mid and large sport
utility vehicles, and trucks which represent over 50% of its sales.” While new
alliance platform and powertrain development costs would lead to a small net
drain on Chrysler finances in 2009-11, the total benefit of development synergies
would be $6.9 billion through 2016, with a potential positive bottom-line impact
calculated at $7.4 billion.

•

The Fiat alliance would benefit both companies’ geographical presence. Chrysler
sells more than 90% of its vehicles in North America, whereas Fiat sales are 65%
in Europe and 33% in South America. Together, the plan states, the two
companies would form the world’s sixth-largest motor vehicle producer, and also
establish a base to penetrate Asian markets, where their presence is currently
negligible (Chrysler has discontinued plans for a joint venture with the Chinese
auto OEM Chery).

Chrysler Viability Plan (February 2009), p.p. U15-U17.
See chart in Chrysler Viability Plan (February 2009), p. U93.

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•

No federal loan money would be used to pay for the deal. Fiat would receive a
35% equity position in Chrysler in return for the alliance. Fiat would have the
option to acquire an additional 20% of Chrysler’s equity, “based on achieving
performance metrics.”88

Despite its emphasis on the benefits of the Fiat alliance, it was not Chrysler’s first choice. Since
2007, it also explored partnerships with GM and Nissan-Renault. Chrysler management and an
independent analysis by the Center for Automotive Research found that a deal with GM was the
“best option for U.S. Auto Industry from financial and operational perspective but they [GM]
‘took it off the table.’”89
Cerberus Capital Management, Chrysler’s majority owner, and the New York Times engaged in a
spirited debate over whether more federal funds should be committed to Chrysler, without any
new cash infusion from Cerberus. In an editorial, the Times noted that, “Our argument for bailing
out Detroit has been based on the notion that the collapse of the American carmakers would
devastate an economy already reeling from huge job losses.” But, “The case for saving Chrysler
is certainly the weakest.” The newspaper stated that Chrysler’s viability plan offered little or no
additional capacity reductions “leaving it with capacity to make almost one million more vehicles
than it will sell this year.” So, the Times asked, “If Chrysler is really on track for a turnaround ...
why doesn’t Cerberus ... put up the money itself? Why should taxpayers have to take the risk?”90
Cerberus Chief Operating Officer and General Counsel Mark Neporent answered the editorial. He
stated that:
Cerberus’ investors are pension and retirement plans, charitable and educational endowments
and individual family savings. Our investment guidelines limit the amount of capital
committed to any single investment.

Noting the Times’ past criticism of “excessive risk-taking by money managers,” he questioned
why they should criticize the prudence of Cerberus and urge that it should be “‘more pliant’ and
break rules intended specifically to control risk.” He then defended the steps taken by Cerberus to
turn Chrysler around, and emphasized other financial measures the company was willing to take,
including subordination of $2 billion in “other interests” to government financing. He closed by
adding that Cerberus remained committed “to help create a sustainable future for Chrysler.”91

Presidential Task Force on the Auto Industry
The Bush Administration left office having devised a package of loans actually disbursed or to be
disbursed to two of the Detroit 3, GM and Chrysler. Supervision of the companies’ compliance
with the terms of the loans and plans to achieve future viability was left to an undefined
“President’s designee” in the loan term sheets. In the presidential transition period and the initial
88

The details and benefits of the Fiat alliance are presented in Chrysler Viability Plan (February 2009), pp. U81-U97.
Chrysler Viability Plan (February 2009), p. U13. See also pp. U157-U159 for information on synergistic gains from
a GM-Chrysler tie-up, as was considered.
90
New York Times, “Why Can’t Cerberus Foot the Bill?” (February 23, 2009). Support for the position that Chrysler’s
February 2009 plan adds little to previously announced company plans is reported in Detroit News, “Chrysler Cuts
Called Modest” (March 5, 2009).
91
Mark A. Neporent, “Cerberus’ Commitment to the Future of Chrysler,” letter to New York Times (March 2, 2009).
89

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weeks of the Obama Administration, there was speculation as to who might fill a role, popularly
known as the “car czar,” in managing the oversight of the loan program and the two companies’
fulfillment of the terms of the loan agreements. On February 20, 2009, the White House
announced that this role would not be filled by an individual but by a Presidential Task Force.
The Task Force has been led by the Secretary of the Treasury Timothy Geithner and the Director
of the National Economic Council in the Office of the President, Larry Summers. Other ex officio
designees named to the Task Force were the
•

Secretary of Transportation,

•

Secretary of Commerce,

•

Secretary of Labor,

•

Secretary of Energy,

•

Chair of the President’s Council of Economic Advisers,

•

Director of the Office of the Management and Budget,

•

Environmental Protection Agency Administrator,

•

Director of the White House Office of Energy and Climate Change.

In addition to these ex officio appointments, the White House statement named specific
individuals in current government positions who were designated as members of the Task Force:
•

Diana Farrell, Deputy Director, National Economic Council,

•

Gene Sperling, Counselor to the Secretary of the Treasury,

•

Jared Bernstein, Chief Economist to Vice President Biden,

•

Edward Montgomery, Senior Advisor, Department of Labor,92

•

Lisa Heinzerling, Senior Climate Counsel to the EPA Administrator,

•

Austan Goolsbee, Staff Director and Chief Economist of the Economic Recovery
Advisory Board,

•

Dan Utech, Senior Advisor to the Secretary of Energy,

•

Heather Zichal, Deputy Director, White House Office of Energy and Climate
Change,

•

Joan DeBoer, Chief of Staff, Department of Transportation,

•

Rick Wade, Senior Advisor, Department of Commerce.93

92
Mr. Montgomery heads “a new initiative to support and help revitalize American auto communities.” As a former
Deputy Secretary of Labor and a dean at the University of Maryland, Mr. Montgomery he would be the Director of
Recovery for Auto Communities and Workers, according to the President. His job within the Task Force is to help
coordinate federal, state, local, and private sector activities to assist communities impacted by industry downsizing,
including provision of assistance through the Trade Adjustment Assistance program, and other federal measures.
93
This list was taken from White House. Office of the Press Secretary, “Geithner, Summers Convene Official
Designees to Presidential Task Force on the Auto Industry” (February 20, 2009).

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In addition, the White House announcement also included, as a member of the Task Force, Ron
Bloom, formerly an investment banker and adviser to the head of the United Steelworkers union,
who was newly appointed as Senior Advisor on the Auto Industry at the Department of the
Treasury. On February 23, 2009, it was also announced that Steven Rattner, co-founder of the
private equity firm, Quadrangle Group, would also join the Treasury as Counselor to the
Secretary and would have a role as a leader of the Auto Industry Task Force.94 A third person
recruited from the private sector to assist the Task Force is Professor Alan B. Krueger, an
economist from Princeton University.
After its initial formation, the Task Force spent late February and early March intensively
interviewing auto industry leaders, including GM CEO Richard Wagoner, Chrysler CEO Robert
Nardelli, and their senior executives. Interviewees also included top executives from Ford, Fiat,
the UAW, bondholders, representatives of the supplier industry, and Governor Jennifer Granholm
of Michigan. The Task Force has been engaged in shaping the restructuring plans for both
automakers and in dealing with related issues concerning auto suppliers, dealers and automobile
warranties.95 Table 1 provides an overview of federal assistance made available since December
2008 to GM and Chrysler by the Task Force and the Bush Administration.
Table 1. Summary of Direct Federal Assistance For General Motors and Chrysler
(through May 28, 2009)
Type of Financial Support

Recipient and Amount

Subsidized loans under TARP

GM: $19.4 billion
Chrysler: $4 billion

Working capital (DIP financing)

Chrysler: $3.3 billion

Loan to new Chrysler after bankruptcy

$4.7 billion

Loans to auto financing companies

GMAC: $13.5 billion
Chrysler Financial: $1.5 billion

Auto supplier support program

GM: $3.5 billion
Chrysler: $1.5 billion

Auto warranty guarantee program

Up to $1.25 billion authorized

Total

$52.65 billion

Source: CRS

94

Wall St. Journal, “Rattner to Join Treasury as Auto-Industry Adviser”; Detroit News, “Treasury’s Auto Efforts To Be
Led by Private Equity Investor” (both February 23, 2009).
95
For two different perspectives on the steps taken by the Auto Task Force, see Christian Science Monitor,
“Government’s Role in the Economy Getting Too Big?” (May 3, 2009) and Detroit Free Press, “Obama’s Auto Team
Makes the Right Moves (May 4, 2009).

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Aid to Auto Industry Suppliers
In their viability plans, both GM and Chrysler highlighted the financial problems confronting
their supplier base. OEM production cuts, uncertainty of payments of supplier receivables should
an OEM enter bankruptcy, and the general freezing up of the credit system were all financially
imperiling the Detroit 3 supplier base (and, by implication, the supplier base of other auto OEMs
in the U.S. market, as well). GM listed the “supply chain” as the first “key risk” in its February
2009 viability plan. GM also noted its special commitment to Delphi, the successor to its former
parts-making division, which has been in bankruptcy since October, 2005. Cash-strapped as it is,
GM agreed in March 2009 to purchase Delphi’s steering business to protect its continued access
to parts, after Delphi’s plan to sell the unit fell through. 96 In its plan, Chrysler indicated that 22%
of its supply base, by value, is “financially troubled,” compared to just 10% in August 2008.97
The Motor & Equipment Manufacturers Association (MEMA), which represents suppliers to both
the OEMs and the “aftermarket,” proposed to the Treasury Department and to Congress a threepart program, which would use the TARP to backstop the auto supplier industry. The total
estimated cost of this program would be as much as $25.5 billion, distributed as follows:
•

Government guarantee of supplier receivables. A guarantee of receivables
payable to suppliers (to a value of 80%) from each of the Detroit 3 would enable
suppliers to borrow against receivables in capital markets. Maximum cost to the
Treasury, based on Detroit 3 production levels, would be about $10.5 billion.

•

“Quick pay” receivables program. This would provide additional liquidity to
suppliers to TARP-supported OEMs by reducing the typical 45-55 day payback
period for their suppliers to 10 days. Estimated cost of the program would be $7
billion, as a revolving credit fund would be set up to be used by GM and
Chrysler.

•

Government loan guarantees for suppliers. This would encourage commercial
banks to increase lending to suppliers by guaranteeing commercial loans or lines
of credit. The estimated guarantee level would be up to $8 billion.98

Both GM and Chrysler, in their viability plans, expressed support for federal support to suppliers.
GM, however, called for a more limited program of credit insurance to be established
immediately, which would guarantee receivables of selected suppliers at a cost of about $4.5
billion. GM emphasized that such a program would be needed as GM seeks to reduce costs by
establishing a more financially robust and smaller supplier base, within a more consolidated
supplier industry.99 Chrysler supported both the guarantee of accounts payable by the federal
government and the “quick pay” proposal. It also called for direct loans to suppliers from the

96

GM 2009-14 Restructuring Plan (February 2009), pp. 32-33; Bloomberg.com, “GM To Speed Payments to Delphi,
Buy Parts Factory” (March 3, 2009); Detroit News, “GM Buys Back Delphi Steering” (March 4, 2009).
97
Chrysler Viability Plan (February 2009), p. U153.
98

Letter from Robert McKenna, president and CEO of MEMA to Secretary of the Treasury Timothy F. Geithner
(February 13, 2009), including attached document Motor Vehicle Supplier Sector Emergency Financial Assistance
Request. See especially pp. 5-10 of the attached document.
99
GM 2009-14 Restructuring Plan (February 2009), pp. 32-33 and Appendix U.

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government “to relieve Chrysler from the cash burden of funding [debtor-in-possession] loans for
numerous suppliers.”100
In its first decision, the Presidential Task Force announced on March 19, 2009, a limited auto
supplier support program, with $5 billion of TARP funds. This program is similar to the model
requested by GM. It is limited to suppliers of domestic OEMs and “will be run through American
auto companies that agree to participate in the program:”
The program will provide suppliers [for a small fee] with access to government-backed
protection that money owed to them for the products that they ship will be paid no matter
what happens to the recipient car company. Participating suppliers will also be able to sell
their receivables into the program at a modest discount.101

Although the program was more modest than MEMA had requested, it supported the program as
an important step in stabilizing the supplier base.102 According to the Washington Post, support
would be limited to those suppliers designated by the OEMs receiving TARP funds, and
“suppliers ... besieged automakers with questions about who would receive support and who
wouldn’t.”103 The article also quoted a Chrysler letter to suppliers saying that the “government
loan associated with this program is not large enough to permit all of Chrysler’s U.S.-based
suppliers to participate.” Ford declined to participate, saying, “We remain viable and expect no
issue with continued payments to our suppliers.”104 At General Motors, its roughly 1,500 Tier 1
direct suppliers to its U.S. plants are eligible for the assistance. Its approximately 16,000 indirect
North American suppliers – who sell to the Tier 1105 manufacturers or provide GM with nonmanufacturing services, such as healthcare and information technology – are generally not
eligible. The GM supplier financing program is administered by Citibank.
The Treasury’s supplier assistance program protects only GM and Chrysler receivables106 but
MEMA believes that it will prove to be too limited a cushion considering the severity of the
decline in U.S. auto sales and the plans of Chrysler and General Motors to idle their plants for
most of the summer. According to the Original Equipment Suppliers Association (OESA),
suppliers who have been running at a low 52% of capacity in March face a potential drop below
40% in July, placing considerable strain on the financial outlook for many suppliers.

100

Chrysler Viability Plan (February 2009), p. U154.
U.S. Department of the Treasury. “Treasury Announces Auto Supplier Support Program,” press release, and fact
sheet, “Auto Supplier Support Program: Stabilizing the Auto Industry at a Time of Crisis” (March 19, 2009).
102
Motor & Equipment Manufacturers Association. “Parts Suppliers Praise Administration for Acting to Assist
Industry,” press release (March 19, 2009).
103
Washington Post, “Auto Parts Makers Get $5 Billion Lifeline” (March 20, 2009), p. D1.
104
Ibid.
101

105
Tier 1 suppliers are direct suppliers to the auto manufacturers; Tier 2 and 3 suppliers generally supply the Tier 1
companies.
106
Parts suppliers are also buffeted by the recession. On May 28, 2009, Visteon, a former Ford auto parts unit, filed for
Chapter 11 bankruptcy, saying that Ford has committed to ensure long-term continuity of supply and to support debtorin-possession (DIP) financing for the restructuring efforts. Reuters, “Visteon Files for Bankruptcy to Protect U.S.
Operations” (May 28, 2009)

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Aid to Chrysler and General Motors Auto Dealers
Faced with reduced production and product offerings, GM and Chrysler announced in early May
that they would reduce their dealer networks by 25% as part of their restructuring plans.
Chrysler’s dealer reduction would take place almost immediately, a step it can take since it is in
bankruptcy. GM’s reduction would be of a longer duration, since its dealer contracts do not expire
until October 2010.
These reductions and a severely diminished pool of lending capital for new vehicles have caused
concern among GM and Chrysler dealers. They have expressed concern about the ability of some
dealers to survive this transition period and question the need for reducing the GM and Chrysler
dealer networks, arguing that more dealers translates into more sales for the automakers. In the
case of Chrysler, terminated dealers have asked for a longer transition period than the three weeks
offered.
Regarding the lack of financing for new autos, several steps have been taken to supply dealers
with a more adequate financing:

107

•

As discussed in more detail under a later section, Financial Issues in the Auto Industry,
the Bush Administration provided the two financing arms – GMAC and Chrysler
Financial—with TARP loans of $6 billion and $1.5 billion, respectively. These loans were
made to provide more liquidity so that dealers could continue to purchase inventory from
the manufacturers and assist consumers with financing. An additional $7.5 billion is
expected to be loaned to GMAC in May 2009 to jumpstart auto lending, according to
Treasury Secretary Geithner.107 (Chrysler Financial’s assets are being transferred to
GMAC under the terms of the restructuring.)

•

In December, the Federal Reserve announced that auto dealers could participate in a new
$200 billion “term asset-backed securities loan facility” (TALF) to finance inventory
purchases.

•

The Obama Administration announced a new “warrantee commitment program,”
to assure potential vehicle purchasers that new car warranties would be backed
by the federal government during the period in which the two companies were
being restructured. Whatever the status of the companies, even if it included a
period in bankruptcy, any vehicle warranty offered by the companies would be
“back-stopped” with federal support.108

•

The Small Business Administration’s 7(a) loan program has been expanded,
enabling dealers and other small businesses to get access to working capital.
According to the National Automobile Dealers Association, this change will
“encourage lenders to assist thousands of additional dealers with the liquidity
they need to keep their doors open, make payroll and prevent further
layoffs…”109

Automotive News, “GMAC Could Get $7.5 billion More from U.S., Report Says” (May 11, 2009).

108

The program is described in Department of the Treasury. “Obama Administration’s New Warrantee Commitment
Program” (March 30, 2009).
109
National Automobile Dealers Association press release, “NADA Praises SBA Action to Expand Loan Eligibility”
(May 1, 2009).

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•

President Obama has expressed support for a new federal program to remove older cars
from the road, as a means to spur automobile sales. This technique has been successful in
other countries – notably in Germany,110 where auto sales increased by 21% in February
and by a smaller amount in March – and in a number of states, such as Texas and
California. Several bills have been introduced that would authorize such scrappage
programs, including H.R. 520/S. 247, the Accelerated Retirement of Inefficient Vehicles
Act, introduced respectively by Representative Israel and Senator Feinstein; H.R. 1550,
the Consumer Assistance to Recycle and Save Act (CARS), introduce by Representative
Sutton; and H.R. 1606, the New Automobile Voucher Act, introduced by Representative
Manzullo.

Presidential Decision on Loan Requests – New Conditions for Support
On March 30, 2009, President Obama announced that the Auto Task Force had completed its
evaluation of the GM and Chrysler viability plans in light of their requests for additional federal
assistance. In the case of GM, he stated, “the plan they put forward is ... not strong enough.” With
respect to Chrysler, “with deep reluctance” the Administration concluded that it could not survive
on a stand-alone basis and “needs a partner to remain viable.”111 The Administration therefore
accorded the two companies a short period of time to revise their plans and undertake additional
actions, before making a final decision on the amount and framework of longer-term support.
In a “key finding” on auto industry restructuring, the Administration emphasized that, while GM
and Chrysler present different issues and problems, in both cases, “their best chance of success
may well require utilizing the bankruptcy code in a quick and surgical way.” This would not be a
liquidation or a “traditional,” long, drawn-out bankruptcy in the Administration’s vision, but a
“structured” bankruptcy as a tool to “make it easier for General Motors and Chrysler to clear
away old liabilities.... ”112

Administration Calls for “More Aggressive” GM Viability Plan
For GM, the Administration offered “adequate working capital over the next 60 days,” while the
company revised its viability plan. As an “initial step,” the resignation of CEO Wagoner was
requested and accepted, because, in the President’s words, of a recognition of a need for “new
vision and new direction to create the GM of the future.”113
In its analysis, the Task Force found that not only had GM failed to complete the steps necessary
to achieve agreement between the company, the bondholders, and the UAW on necessary
concessions to succeed as a viable enterprise, but the plan itself was seriously flawed. GM’s plan
did not adequately deal with the issues of too many brands and dealers, nor did it significantly
shift its product strategy away from a reliance for profits on high-margin trucks and SUVs. The
Task Force concluded it did not explain how GM was going to come close to maintaining its
110
For a longer discussion of how some foreign governments are prompting sales of older cars through voucher
programs (or “cash for clunkers”), see later in this report, “Falling Demand Affects All Automakers in the United
States and Abroad.”
111
White House. Briefing Room, “GM & Chrysler” (March 30, 2009).
112
Treasury, “Obama Administration New Path.”
113
White House, “GM & Chrysler.”

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market share going forward while shedding half of its current product brands, and the plan
assumed “improvement in net price realization despite a seriously distressed market, lingering
consumer quality perceptions, and an increase in smaller vehicles (where the Company has
previously struggled to maintain pricing power).”
In addition, the Task Force found that the plug-in hybrid Chevrolet Volt, currently in
development, held “promise ... [but] will likely be too expensive to be commercially successful in
the short term.” It found that cash needs associated with legacy liabilities would continue to grow
through 2013-2014, reaching a level of $6 billion per year. The Task Force analysis did conclude,
however, that, given “improvements that have been made to date, ... there could be a viable
business within GM if the Company and its stakeholders engage in a substantially more
aggressive restructuring plan.”114
In support of this conclusion, the Administration announced that it would insure that GM had
“working capital” for 60 more days “to develop a more aggressive restructuring plan and a
credible strategy to implement such a plan.”115 Leadership of the company as CEO during this
period devolved to the president and chief operating officer under Wagoner, Frederick Henderson.

Administration: Chrysler Needs Deal with Fiat
By contrast, the Task Force did not believe that Chrysler could continue as a stand-alone
company. The company was considered to lack the scale necessary to transform its product
mix toward smaller-size vehicles. It was not geographically diversified, with its sales
concentration too heavily focused on North America. And, unlike GM, Chrysler had failed in
recent years to make significant gains in quality improvements when measured against
competitors. As a result, the [Task Force] found that Chrysler’s plan is not viable as
currently structured. However, a partnership with another company, such as Fiat or another
prospective partner ... could lead to a path for viability for Chrysler.116

Following up on this conclusion (and the Task Force had reportedly met with Fiat CEO Sergio
Marchionne), the Obama Administration offered Chrysler support for 30 more days while it
sought to reach a definitive partnership agreement with Fiat. If such a deal could be reached, the
Administration would consider lending up to $6 billion more to the partnership, providing some
additional conditions were met. These included “extinguishing the vast majority of Chrysler’s
secured debt.” There would also have to be a labor agreement with the UAW “that entails greater
concessions than those outlined in the existing loan agreements.” The new restructuring plan
would have to assume no more than $6 billion in ongoing U.S. government support, provide for a
positive company cash flow, and an “adequately capitalized mechanism” for financing vehicle
purchases by both customers and dealers.117

114
This analysis and criticisms are detailed in Department of the Treasury. GM February 17 Plan: Viability
Detrmination (March 30, 2009).
115
Department of the Treasury. “Obama Administration New Path to Viability for GM & Chrysler” (March 30, 2009).
116

Details and conclusion in Department of the Treasury. Chrysler February 17 Plan: Viability Determination (March
30, 2009).
117
Treasury, “Obama Administration New Path.”

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Chrysler Files For Bankruptcy
At the end of March, the administration gave Chrysler 30 days to obtain support for its
restructuring plan from all the stakeholders, including unions, bondholders, potential partner Fiat,
previous partner Daimler (which still owned 19.9%), and its current owner, Cerberus Capital
Management.
Chrysler and the Auto Task Force used the month of April to assemble support from each of these
constituencies so that the company could avoid bankruptcy court and, instead, emerge as a leaner
company in partnership with Fiat. One by one, most of the stakeholders agreed to the terms of an
out-of-court settlement. 118 Among the investors holding $6.9 billion in Chrysler debt, a group
representing 30% of the company’s debt did not reach agreement with the U.S. Treasury and
Chrysler by the April 30th deadline. Lacking out-of-court agreement with these investment firms
and hedge funds, Chrysler filed for federal bankruptcy protection as a mechanism to reach a final
restructuring agreement.

Terms of the Chrysler-Fiat Alliance Agreement
President Obama announced the terms of the incomplete Chrysler-Fiat Alliance on April 30. It is
expected to create the sixth-largest global auto manufacturer and produce a range of new, fuelefficient automobiles. Fiat chairman Sergio Marchionne has indicated he’d be interested in
running the new company as chief executive officer. 119 This alliance, which includes a new ninemember board of directors, has a new set of owners as shown in Table 2, as well as new
corporate leadership,120 and the following components:121
•

Cerberus Capital Management will waive its share of Chrysler’s $2 billion second lien
debt and forfeit its entire equity stake. It agreed to transfer its ownership of Chrysler
headquarters to the new alliance.

•

Daimler, Chrysler’s former owner and a current minority shareholder, has waived its
share of Chrysler’s $2 billion of second lien debt and gave up its 19% equity stake. It
agreed to pay $600 million to Chrysler’s pension funds.

•

Fiat agreed to contribute a free license to use all of its intellectual property on automobile
technology in exchange for 20% of the new company’s equity. Fiat will select three
Chrysler directors once the company is reorganized and its equity stake could grow from
20% to 35% and then to 51% if it meets performance benchmarks. These requirements
for a larger equity holding will require Fiat to introduce a vehicle built in a U.S. plant that
achieves 40 mpg; provide Chrysler with a new overseas distribution network and make
new, cleaner engines at a U.S. Chrysler facility.

118

The Detroit News, “Daimler Gives Up Stake in Chrysler” (April 28, 2009).
Bloomberg.com, “Obama Pushes Chrysler-Fiat Deal at Bankruptcy Looms” (April 30, 2009).
120
CEO Robert Nardelli will leave Chrysler and take a position at Cerberus; Vice Chairman and President Tom
LaSorda has retired. C. Robert Kidder, former chairman of Borden Chemical and Duracell International, will become
Chrysler chairman when the new company emerges from bankruptcy.
121
Cited from U.S. Department of the Treasury press release, “Obama Administration Auto Restructuring Initiative and
Chrysler-Fiat Alliance” (April 30, 2009).
119

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•

The United Auto Workers (and its counterpart in Canada, the Canadian Auto Workers)
agreed by unanimous vote122 to significant concessions on wages, benefits, and retiree
health, including agreements on overtime, holiday and cost of living pay, hiring of parttime employees and entry level workers and suspension of major portions of its Job
Security Program.

•

The new Chrysler will establish a Voluntary Employee Beneficiary Association (VEBA)
that will, after 2010, provide health care benefits to Chrysler retirees. The VEBA will
own 67.69% of Chrysler initially and select one independent director, but otherwise have
no governance rights. In the Shareholder Plan filed with the bankruptcy court, the VEBA
director agrees to “vote its membership interests in accordance with the recommendations
of the independent directors of the company in proportion to such recommendations.”123

•

The U.S. Treasury will receive an initial 9.85% equity stake, with the right to appoint
four directors, but otherwise will not play a role in the new Chrysler’s governance.

•

The governments of Canada and Ontario will together receive 2.46% of the new equity,
based on their financial contribution to restructure Chrysler and they will have the right to
appoint one independent director.

•

Chrysler will enter into an agreement with GMAC that will provide dealer and customer
financing after bankruptcy, in lieu of Chrysler Financial, which agreed to cooperate in the
transition of its current dealer agreements to GMAC.

•

Chrysler will continue to honor warranties, backed by the U.S. Treasury’s Warranty
Support Program.

•

The dealer network will be reduced by 25%; existing dealers will reduce their dealer and
service contact margins and suppliers have agreed to price reductions on the inputs they
supply the company.
Table 2. Reorganization of “New” Chrysler
Percentage Ownership of Stakeholders

Owner

Initial Interest

Interest After Fiat
Meets First Terms

Interest After Federal
Loan is Terminated

Fiat

20.00

35.0

51.00

U.S. Department of the Treasury

9.85

8.0

6.03

UAW Retiree Medical Benefits Trust

67.69

55.0

41.46

Canadian Government

2.46

2.0

1.51

100.00

100.0

100.00

Total

Source: Form of Amended and Restated Limited Liability Company Operating Agreement for New Chrysler, filed
with U.S. Bankruptcy Court, see page 84.
122

The Detroit News, “Daimler Gives Up Stake in Chrysler” (April 28, 2009).
Shareholder Agreement filed by Chrysler with U.S. Bankruptcy Court, May 2009, Sec. 2.4, “VEBA Voting
Restriction.”

123

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The only constituency that did not reach agreement on the restructuring plan before April 30 was
the bondholder group which holds $6.9 billion in debt. Within this investor group, the largest
banks – J.P. Morgan, Citibank, Morgan Stanley and Goldman Sachs – agreed to accept $2
billion124 in cash for this debt, but a group of investment firms and hedge funds balked. They
argued that, as senior creditors, U.S. law required that they be considered first and before junior
creditors. They said that the UAW and Fiat were granted seats on the board, but that bondholders
were offered no representation. Oppenheimer Funds, one of the firms that did not agree to terms,
said in a statement:
Our holdings in secured Chrysler debt are entitled to priority in long-established U.S.
bankruptcy law, and we are obligated to our fund shareholders to support agreements that
respect these laws.125

According to news reports,
Many dissidents paid from 50 cents to 70 cents on the dollar for their Chrysler loans, so
they’re sitting on losses, according to people familiar with the matter. Ronald E. Kolka,
Chrysler’s chief financial officer, said in a court filing that the first-lien debt is trading at
about 15 cents on the dollar in the secondary market.126

After a week in bankruptcy court, the dissident bondholders group was dissolved when several of
the investment firms withdrew, removing significant obstacles to a quick bankruptcy proceeding.
The administration and many in Congress were deeply concerned about the delays caused by the
investors group. They viewed them as unnecessarily hamstringing an important agreement that
had national economic significance. In announcing the alliance agreement on April 30, 2009,
President Obama singled out the dissident investors, referring to them as “a small group of
speculators” who “decided to hold out for the prospect of an unjustified taxpayer-funded bailout.”
Representative John Dingell said of them:
The rogue hedge funds that refused to agree to a fair offer to exchange debt for cash from the
U.S. Treasury – firms I label as the ‘vultures’ – will now be dealt with accordingly in
court.127

Bankruptcy Court Issues for Chrysler
In light of the impasse over repaying the investors, Chrysler filed for bankruptcy in the New York
Bankruptcy Court on April 30, 2009. To finance the bankruptcy, the U.S. Treasury gave Chrysler
$500 million in working capital and arranged $4.5 billion in debtor-in-possession, or DIP,

124

The U.S. Treasury raised its offer to $2.25 billion but withdrew it after some investors rejected it, according to a
May 1, 2009 article in the Detroit News, “Obama Confident Bankruptcy Will Save Chrysler.”
125
Bloomberg.com, “Chrysler Lenders Tested Obama, Lost Game of Chicken” (May 1, 2009).
126
Ibid.
127
Ibid.

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financing. 128 It promised up to $6 billion in senior secured financing to support the new company
after the sale to Fiat.129
A Treasury filing made to the bankruptcy court lays out the choice for the court:
Irrespective of how Chrysler came to this point, it, along with its employees, vendors,
dealers, customers and the communities built around Chrysler’s operations, now face two
sharply divergent possibilities: Chrysler can liquidate, wind down its operations and end its
long history of building American cars; or Chrysler can consummate a sale within the next
60 days to an appropriate industry partner. Hard choices and painful consequences may well
result even from the sale of Chrysler to an appropriate partner within the next 60 days.
However, the alternative is far worse.130

Federal judge Arthur Gonzalez was assigned to the case; he has previously managed other major
U.S. bankruptcies, including Enron and WorldCom. 131 In his first rulings on the case, Judge
Gonzalez approved a Chrysler request to keep the company open during bankruptcy, so it can pay
such costs as lawyers and the electric bill at Chrysler headquarters (Chrysler’s plants will be shut
until the conclusion of the bankruptcy proceeding). Chrysler’s attorneys will seek to convince the
judge that “sales of Chrysler assets to a new Chrysler-Fiat partnership is the only way to avoid a
collapse of the entire company.”132
A recent analysis of the pending bankruptcy proceeding in Automotive News is instructive:
The fastest way out of Chapter 11 is through a prepackaged bankruptcy filing, in which all
creditors agree to a reorganization plan before the filing. In that case, it is possible for the
troubled company to present the plan to the bankruptcy judge, get it approved, and be out of
bankruptcy—sometimes within days.
But the odds of a giant automaker, with assets around the globe, getting all of its thousands
of creditors to agree in advance to a reorganization plan are slim to none, bankruptcy experts
say. That increases the value of Section 363 sales as a way to speed the process. Section 363
could come into play as Fiat picks and chooses from Chrysler’s assets to form an alliance,
discarding the parts it doesn't want.133

In a 363 sale, Chrysler’s most attractive assets, such as the plants it wants to operate in the future,
would be spun off into a new Chrysler, under the Fiat alliance. The rest of the assets, such as
closed plants, would remain with the old Chrysler and be sold off. Chrysler has filed a motion for
the judge to approve a Section 363 sale. It must adhere to a strict U.S. Treasury timetable or face
default on U.S. government loans.

128

See a further discussion of DIP loans in this report under the section “Financial Solutions: Bridge Loans and
Restructuring.”
129
Detroit Free Press, “Chrysler to Shed 8 Plants in Case” (April 30, 2009).
130
U.S. Treasury filing in U.S. Bankruptcy Court in New York (April 30, 2009).
131
The Wall Street Journal, “The Chrysler Bankruptcy Plan: Chrysler Bankruptcy Judge Handled Enron, WorldCom”
(May 1, 2009).
132
Detroit Free Press, “Trying to Keep the Doors Open” (May 1, 2009).
133
Automotive News, “Section 363 Sales Could Speed Chrysler’s Exit from Chapter 11” (April 30, 2009).

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General Motors Faces New Challenges
With continuing tight credit, the U.S. economy mired in recession, and unemployment rising, 134
General Motors has found an out-of-court turnaround more and more difficult to put together. It is
facing a June 1 deadline to develop a restructuring plan that its stakeholders, including the U.S.
government, must accept if bankruptcy reorganization is to be avoided. 135
Economic factors are potentially more serious for GM than Chrysler because of the possibility
that many consumers could stay away from GM showrooms over bankruptcy concern, thus
worsening GM’s financial position. GM built only 1.33 million vehicles globally in the first
quarter 2009. That is 903,000 fewer than in the same period a year ago and was reflected in the
$5.9 billion GM loss in the first quarter. Revenue dropped by 47% compared with the same
period a year ago. GM has announced that it will end its Pontiac division and is planning
extended shutdowns this summer at all of its North American plants.136 Ray Young, GM’s chief
financial officer said,
Once you start losing revenues, you get yourself into a vicious cycle from which you cannot
recover. We prefer to restructure outside of bankruptcy, but if we have to go in, we need to
go in and out quickly.137

General Motors, working with the Obama administration’s auto task force, is attempting to meet
the government’s requirements for future assistance. Along these lines, it renegotiated its
agreement with the United Auto Workers about pay, work rules, and the funding of its retiree
health care obligations. It offered 10% equity to individual bondholders who hold $27 billion in
debt. GM said that it needs to cut the debt by at least $24 billion, so it would need the approval of
90% of its bondholders.138 On May 27, GM announced that it did not see the possibility of
reaching an agreement with the bondholder group.139
Unlike Chrysler, GM is not seeking a partner, but it is in discussion with a number of foreign
automakers and domestic investors who have expressed an interest in parts of GM’s operations.
The most publicized of these discussions are with Fiat and Magna which are both interested in
purchasing GM’s European operations, especially its Opel unit. In addition, Fiat has an interest in
GM’s profitable Latin American operations. GM is also selling Saturn, Saab, and Hummer and
various entities have expressed interest in each of them.
Recent reports indicate that the Auto Task Force is pressing GM to make plans for bankruptcy.140
Under this scenario, GM would be split into a “new General Motors,” along with its strongest
assets, and an “old GM” comprised of operations it did not want to operate in the future. This is
similar to the approach Chrysler is taking. This approach is intended to allow GM to emerge from
bankruptcy as a leaner and more competitive organization.

134

The U.S. April unemployment rate hit 8.9%, up from 8.5% in March.
Automotive News, “GM to notify dealers of cuts this week; bankruptcy ‘more probable’” (May 11, 2009).
136
The Detroit Free Press, “GM Details Its Summer Shutdowns” (April 24, 2009).
137
The New York Times, “GM, Leaking Cash, Faces Bigger Chance of Bankruptcy” (May 8, 2009).
138
Ibid.
139
The Washington Post, “Rescue Plan Would Give U.S. Most of GM’s Stock” (May 27, 2009).
140
The Washington Post, “GM Posts Loss of $6 Billion” (May 8, 2009).
135

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Impact on the National Economy141
The question of rescuing one or more of the Detroit 3 automakers comes up at a time of
considerable weakness in the overall economy. In the fourth quarter of 2008, real gross domestic
product (GDP) fell by 6.3% (well beyond the Commerce Department advance estimate that it
would decline by 3.8%)142 and by 6.1% in the first quarter 2009. Most economists are not very
sanguine about short run prospects either. The International Monetary Fund forecasts that the
world economy will shrink this year for the first time in decades and the U.S. economy will
contract by 2.8%, the largest decline since 1946.143 U.S. unemployment is projected to peak at
about 10%.144 Many believe that the consequences of a Detroit 3 company’s failure for the
national economy would add to the adverse economic climate.

National Impact of Detroit 3 Failure
The White House Fact Sheet on the loan program for GM and Chrysler estimated that “the direct
costs of American automakers failing and laying off their workers in the near term would result in
a more than 1% reduction in real GDP growth and about 1.1 million workers losing their jobs,
including workers for auto suppliers and dealers.” Economists generally assess that economic
growth of at least 2% is required to accommodate a growing labor force and keep the rate of
unemployment from rising.
In the third and fourth quarters of 2008 and the first quarter 2009, the annual-rate value of motor
vehicle output was $333.5 billion, $257.2 billion, and $211.3 billion, respectively, out of a total
annual-rate gross domestic product (GDP) of $14.4 trillion, $14.2 trillion, and $14.1 trillion for
the same time periods.145 Motor vehicle production thus represented 2.3% of total output during
the third quarter of 2008, but only 1.8% and 1.5%, respectively, of total output during the fourth
quarter 2008 and first quarter 2009. The total number of workers employed in the manufacture of
U.S. autos in 2007, measured on an annual basis, was 859,000. Of those, 186,000 worked in light
vehicle assembly, and 673,000 were employed in the manufacture of parts.146
Estimates vary of job loss resulting from a failure of one or more Detroit 3 companies and their
production. The estimates depend on different models and assumptions. But in every case, the
impact on employment is serious.
•

141

The Inforum model at the University of Maryland produced estimates of “peak
year” (2011) job loss ranging from 826,000 jobs in event of “retirement” of 20%
of Detroit 3 production (a shutdown of Chrysler, for example) to more than 2.2

This section was written by Bill Canis, Specialist in Industrial Organization and Business.

142

U.S. Department of Commerce. Bureau of Economic Analysis. News release on “Gross Domestic product,” January
30, 2009
143
Congress Daily, April 22, 2009
144
IHS Global Insight, U.S. Economy Forecast Flash, April 2, 2009
145
Department of Commerce, Bureau of Economic Analysis. National Income and Product Accounts Table 1.2.5.
Gross Domestic Product by Major Type of Product, in billions of dollars, seasonally adjusted at annual rates.
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=19&Freq=Qtr&FirstYear=2007&LastYear=2009
146
Thomas H. Klier and James M. Rubenstein, “Who Really Made Your Car?,” Chicago Fed Letter, Federal Reserve
Bank of Chicago, October 2008. See also Table 4 in this report.

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million peak-year job losses in the event of a 60% Detroit 3 shutdown. However,
the study also notes that the higher shutdown level is unlikely over the long term
and that the practical worst-case scenario would be a restructuring and
downsizing, with a 40% production loss. This would be estimated to result in 1.5
million jobs lost in the peak year, and a net average loss of just under one million
jobs per year through 2014, against what employment would otherwise be.147
•

Anderson Economic Group/BBK, an international business advisory firm with
customers in the automotive industry, produced a separate set of estimates with a
different methodology. AEG/BBK’s worst-case scenario was bankruptcy and
eventual liquidation of two of the Detroit 3. In this case, they estimated that more
than 1.2 million jobs would be lost in the first year, and nearly 600,000 in the
second year. Netting out a small number of persons gaining alternative
employment, the AEG/BBK estimate was 1.8 million jobs lost over two years
among the OEMs, their suppliers and dealers, and others “indirectly” linked to
the industry.148

•

The Center for Automotive Research (CAR), a research organization with some
support from industry, did an economic simulation of a failure of domestic
automakers based on two separate sets of assumptions.149 In the first case it was
assumed that the problems of the Detroit 3 automakers led to a permanent 100%
decline in the production of domestic automakers in the first year (2009). It was
also assumed that the effect of that shock would result in such a large drop in the
demand for parts that suppliers would be forced to either liquidate or restructure.
It was assumed that the disruption to the parts suppliers would cause domestic
production of foreign-owned auto manufacturers to also drop to zero in the first
year. In this scenario, the total number of jobs lost in t

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR40003. Public record. Not legal advice.