Schumer Floats Idea for Automaker Rescue: Let Government Trustee Distribute Loans, But Only after Negotiating Restructuring Plans with Big Three

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SCHUMER FLOATS IDEA FOR AUTOMAKER RESCUE: LET GOVERNMENT TRUSTEE DISTRIBUTE LOANS, BUT ONLY AFTER NEGOTIATING RESTRUCTURING PLANS WITH BIG THREE

At Hearing, Senator Suggests Administration Official Be Tapped To Oversee Automaker Aid And Get Companies To Agree To Massive Restructuring; GAO Comptroller Endorses Idea

Process Could Emulate Bankruptcy Scenario By Bringing All Sides Together To Make Concessions, Including Executives, Workers, Bondholders and Dealers

As Debate Rages Over Whether to Tap Financial Rescue or Retooling Fund for Loan, Schumer Says Source of Aid Is Less Important Than Making Sure Major Concessions Come With Any Help

As the Big Three automakers descended on Washington Thursday to make renewed requests for federal assistance, U.S. Senator Charles E. Schumer (D-NY) suggested that Congress entrust the decision whether to award any loans to the industry to a federal government trustee who would first seek to negotiate major restructuring plans at each of the companies. Schumer said such a process could produce the type of reorganization typically only possible in bankruptcy court, but without subjecting the companies, their suppliers and consumers to the pains of a Chapter 11 filing.

"Bankruptcy is not an option because it would seal the death of the auto companies. We have to do something else. I care less about where the money comes from and more about where it is spent. But I don't trust the car companies' leadership. I worry that if they are left on their own, they will be back a short time later asking for more money. To hand money over with vague, unenforceable promises without a plan for viability isn't good enough," Schumer said at a hearing of the Senate Banking Committee.

"I would like the President to designate the Treasury Secretary or someone else to bring all the big parties together and work out concessions quickly so that then the money can flow," Schumer added.

The idea was supported by Gene Dodaro, the Comptroller General of the Government Accountability Office, who was appearing before the Senate panel.

Schumer floated the idea in hopes of breaking an impasse among lawmakers struggling to decide whether to answer the auto industry's pleas for bridge loans that would help them stay afloat. While lawmakers on both sides of the aisle have recognized the dire consequences that would come from one or more of the companies failing, controversy has arisen over the potential source of the funds. Democrats have pushed the White House to tap the $700 financial rescue fund for the loans, but Republicans have pressed for any assistance to come out of funds designated to help the industry retool to meet higher mileage standards. But Schumer said the source of the funds is less critical than gaining an assurance that any taxpayer assistance to the companies would be money well spent. That objective could be met, he suggested at a Senate Banking Committee hearing Thursday, by empowering an administration official to broker restructuring plans at the Big Three automakers as a condition of receiving any loans.

Congress could act to authorize the funds as soon as next week, Schumer said, but leave the awarding of them to the federal trustee. That role could be filled by the Treasury Secretary, or another government official of the administration's choosing.

The idea would follow the model of the government's intervention on behalf of Chrysler in 1979. Then, as with Schumer's suggestion, no assistance was provided upfront, without conditions. Instead, the funds were incorporated into a larger restructuring deal negotiated by a government board. The reorganization entailed concessions by the company's debtholders, executives and workers. Schumer said the historical example could prove workable again today for the Big Three.

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