WASHINGTON — When Congress and the White House stepped in to save Chrysler during a turbulent economic period nearly three decades ago, they created a Loan Oversight Board to oversee $1.2 billion in loan guarantees. Today, they're weighing appointment of a "car czar" with similar responsibilities but potentially far greater power over American automakers.
As part of the legislation being drafted to provide $15 billion in bridge loans to General Motors, Chrysler and potentially Ford, lawmakers and the Bush administration both agree in principal on the need for a so-called car czar.
Democrats want to empower this person, or persons, with ensuring that the carmakers live up to their promises in exchange for getting a taxpayer bailout. If Detroit's Big Three fail to keep their word, the car czar would go back to lawmakers, who could demand immediate repayment of the loan.
If the White House gets its way, this official would have not only have oversight responsibilities but could order a carmaker to file for bankruptcy protection. The car czar could tap the powers of an autocrat — ordering specific restructuring decisions, such as to shut down a production line, for example — when determining that a carmaker is failing to live up to loan terms.
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Sen. Carl Levin, D-Mich., whose home state could be greatly affected by a car czar's decisions, explained why lawmakers want such terms in an interview with Fox News:
"There will be an administrator who's selected during the next 60 to 90 days, I believe, who will make sure that the promises that are made in these plans are kept, that the conditions of the money are met, that there'll be real oversight going on, that there'll be a leaner and a greener industry that comes out of this."
Some business advocates find it heretical that a government bureaucrat or bureaucrats could determine what is or isn't in the best interest of a private company's long-term viability.
"Let's be honest, the Congress of the United States, or seven or 13 people . . . are going to be about as capable of restructuring any one of the Big Three as you and I are," said R. Bruce Josten, vice president of government affairs for the U.S. Chamber of Commerce. "They're not from their industry, they've got no experience, no depth of understanding."
Congress, however, is in no mood to give a blank check to the automakers, unlike in October, when it gave the Treasury Department authority to spend $700 billion on a Wall Street rescue with few strings attached. The Treasury later abandoned the main premise of the bailout, purchasing distressed mortgages.
Now Congress weighs a much smaller sum of $15 billion — about a month and half's worth of war spending in Iraq — but is attaching many more strings.
Some experts believe that the aggressive oversight provisions pushed by the White House under the guise of taxpayer protection may be harmful.
"I think there is a tremendous risk in it. Politics takes charge, and decisions are made politically, not economically when that happens," said Harry Veryser, the head of graduate economic studies at the University of Detroit.
"I would be very nervous about that. I don't have a lot of faith frankly in their capacity to make good decisions. I think that the White House is a making a terrible mistake pushing that."
The 1979-80 bailout of Chrysler produced no car czar, Veryser said, adding that "they lent the money and Chrysler ran with it."
Well, sort of.
In "Iacocca: An Autobiography," former Chrysler Chairman Lee Iacocca complained bitterly about the Loan Oversight Board, which was charged with distributing the loan guarantees in three installments.
"When it came to actually borrowing that money, the Loan Guarantee Board had put a number of roadblocks in our way," he wrote in 1984, a year after the loan guarantees were repaid ahead of schedule.
Iacocca said the oversight process ensured that seeking another installment led to negative publicity and hurt the company's recovery efforts.
"For each drawdown, we had to face up to bad headlines. It was terrible," he wrote, adding that each time installments were paid, "our sales dropped."
Iacocca, who achieved fame in part by working for $1 during Chrysler's recovery, issued a statement Tuesday in support of an auto-sector bailout.
Former Democratic Michigan Gov. James Blanchard told McClatchy that the original Chrysler bailout worked, in part, because there wasn't too much regulatory interference. He was a member of Congress at the time and helped push the loan guarantee through the House of Representatives.
The White House maintains that taxpayers must be protected.
"It's not for us to say what specific decisions must be made — that's for the (car czar) to decide. What's important is that he has the authority at the end of the bridge period to compel action if auto companies aren't doing what they need to do," said a White House official, requesting anonymity in order to speak freely about a fine point of the bailout negotiations.
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