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

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

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
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www.crs.gov
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CRS Report for Congress
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repared 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 mid-
May 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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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.
2 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.
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 IHS Global Insight, U.S. Forecast and Analysis, April 23, 2009.
8 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 forward-
looking 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 government-
offered 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.
16 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.
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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 “non-
binding” 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.
24 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.
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.
37 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.
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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.
64GM 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

74GM 2009-14 Restructuring Plan (February 2009), pp. 20-22, 30 and Table 12
75 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).
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).
84 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.”
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11.1 million U.S. light motor vehicle sales market in 2009, rising to 13.7 million by the 2012-
2014 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 Chrysler87). The advantages of such a deal,
according to the Chrysler plan, were:
• “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).

86 Chrysler Viability Plan (February 2009), p.p. U15-U17.
87 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.
89 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).
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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 three-
part 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 non-
manufacturing 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.
101 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.
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 debtor-
in-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:
• 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

107 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, fuel-
efficient 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 nine-
member 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).
119 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).
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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 part-
time 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
Interest After Fiat
Interest After Federal
Owner Initial
Interest
Meets First Terms
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
Total 100.00
100.0
100.00
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).
123 Shareholder Agreement filed by Chrysler with U.S. Bankruptcy Court, May 2009, Sec. 2.4, “VEBA Voting
Restriction.”
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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).
131The 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.
135 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).
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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.
• 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

141 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 the United States in the first
year was estimated to be 2.95 million.150 That figure includes jobs lost at auto
manufacturers and parts suppliers, as well as in the rest of the economy, because
of the drop in consumer spending resulting from the direct job losses. In the
second year (2010), production at the foreign-owned firms would begin to pick
up and employment would recover somewhat with the number of jobs lost falling
to 2.46 million.
• The second CAR scenario assumes that although in the first year (2009) domestic
production of the Detroit 3 automakers drops to zero, auto production recovers to
50% of its former output in the second year and continues at that level. In this

147 University of Maryland. Inforum Economic Summary, Potential Job Losses from Restructuring the U.S. Auto
Industry, December 16, 2008.
148 Anderson Economic Group/BBK. Automaker Bankruptcy Would Cost Taxpayers Four Times More Than Amount of
Federal Bridge Loans, December 8, 2008.
149 David Cole, et al., CAR Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the
Detroit Three Automakers, Center for Automotive Research, November 4, 2008.
150 Jeffrey Werling in the Maryland Inforum study (p. 3) stated, regarding the CAR top number, “It seems implausible
that 100% of U.S. auto production would be idled. Yet the most widely cited total job loss figure, ‘up to 3 million,’ is
based on such an unrealistic assumption.” Toyota and Honda, for example, are already reportedly planning
modifications to their “just-in-time” supply chain models in order to ameliorate the effects of supplier bankruptcies;
see, Detroit News, “Toyota May Modify Supply Chain,” December 30, 2008. The figure of 3 million could be taken,
however, as an estimate of the total number of jobs that could be at risk.
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scenario, the estimated U.S. job loss in the first year would be 2.46 million,
falling to 1.50 million in the second year.
Impact Focused on “Auto Alley”
Any loss of output due to the difficulties with U.S. automakers will likely be felt nationwide, but
because of the geographic concentration of those firms it will be much greater in some regions
than in others. According to Klier and Rubenstein, Michigan accounts for the manufacture of one-
quarter of all auto parts.151 They also point out that there is a corridor between the Great Lakes
and the Gulf of Mexico that has become known as “auto alley.” In 2008, 43 of 50 auto assembly
plants were located in auto alley. Those geographic areas where automakers are concentrated
would experience the greatest economic difficulties resulting from any loss of U.S. auto output.
Klier and Rubenstein also estimate that three-quarters of all auto parts suppliers are located within
one day’s drive (truck delivery) of Detroit, including those located within the Canadian province
of Ontario.152
Howard Wial of the Brookings Institution, a Washington, DC-based think tank, has done an
analysis of how different U.S. metropolitan areas would be affected if the Detroit 3 companies
were to go out of business.153 Wial’s analysis suggests that 50 metropolitan areas rely heavily on
Detroit 3-related jobs, measured as the OEMs and suppliers accounting for 1% or more of the
area workforce. Though this may seem a small share of total employment, he cites studies to
claim that up to twice as many jobs in metro areas are supported by jobs directly in the auto and
auto parts industry. These metro areas are almost all clustered in the “auto alley” region noted
above, stretching as far south as Tuscaloosa, Alabama, and as far to the northeast as western New
York. The only affected metro area west of St. Louis is Ogden, Utah, and no cities are included on
either coast, or in the South, beyond Kentucky, Tennessee, and Alabama. Among the metro areas
with the most Detroit 3-related jobs, only the Detroit area itself has more than 100,000 jobs in
total that meet this description. The Chicago area is next with about 20,000 jobs. Some smaller
cities figure among the top 20 metro areas in Detroit 3-related employment, such as Kokomo,
Indiana, where 22% of all jobs are in autos and auto parts. But, Wial says,
There are also many auto and auto parts jobs in Los Angeles, Dallas, and Cincinnati, large
metropolitan areas where these industries account for a smaller share of employment.
Closures of Detroit 3-related plants in those areas would harm the workers who were laid off
but would have less effect on metropolitan area economies.154
Conversely, he found that, “In addition, there are 21 metropolitan areas, mainly in the South
where at least 1% of total employment is in autos and/or auto parts, but where little or none of
that employment is attributable to the Detroit 3 or their suppliers.” These metro areas are almost
all in the southern states north of Florida and east of the Mississippi River. However, Wial

151 Klier and Rubenstein, “Who Really Made Your Car?,” (October 2008 article). Also discussed more fully in their
book, Who Really Made Your Car? Restructuring and Geographic Change in the Auto Industry (Kalamazoo, MI:
Upjohn Institute, 2008).
152 Klier and Rubenstein, Who Really Made Your Car?, chapters 5-6. For a state-by-state analysis of automotive
manufacturing jobs, see CRS Report RL34297, Motor Vehicle Manufacturing Employment: National and State Trends
and Issues, by Michaela D. Platzer, especially Figure 5 and Table 1.
153 Howard Wial, “How a Metro Nation Would Feel the Loss of the Detroit Three Automakers,” Metropolitan Policy
Program at Brookings, December 12, 2008.
154 Wial, “Loss of Detroit Three,” p. 3.
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concludes, “If the Detroit 3 disappear then some of [these] metropolitan areas may gain jobs, but
they will not gain all of the jobs lost by the Detroit 3.”155
The Domestic Motor Vehicle Market156
Loss of Detroit 3 Market Share
Foreign brands, both imported and produced at U.S. plants, have been gaining market share for
decades. 157 As illustrated in Figure 1, the Detroit 3’s decline relative to the total U.S. market has
continued since 2000. From two-thirds of the total U.S. market for passenger cars and light trucks
in 2000, the Detroit 3 share declined gradually to 58.2% in 2005. Some of this decline
represented aggressive U.S. manufacturing and expansion plans by foreign-owned companies:
Toyota, Honda, Nissan, and Hyundai have all opened new assembly plants in the United States
since 2000, and more are on the way.
Figure 1. U.S. Motor Vehicle Sales
Passenger Cars and Light Trucks
20
15
its
n
f U
o
10
s
n
io
ill
M
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009*
U.S. Total
Detroit 3

Source: Automotive News Market Data Center (2008-09 data); Ward’s Automotive Yearbook (2001-2008).
Notes: 2009 is based on sales in the first four months of the year and IHS Global Insight forecasts of sales of 9.5
million units for the full year.

155 Wial, “Loss of Detroit Three,” p. 4.
156 This section was written by Bill Canis, Specialist in Industrial Organization and Business.
157 CRS Report RL32883, U.S. Automotive Industry: Recent History and Issues, by Stephen Cooney and Brent D.
Yacobucci, esp. Figure 9 and Table 3.
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Although, as noted below in this report, some planned foreign-owned plants may be delayed,
Toyota is still planning to open a new plant in Mississippi, Kia is building its first plant in
Georgia, and Volkswagen, which had closed a U.S. plant in the 1980s, has said that it will
continue to build an announced plant in Tennessee. Additionally, a number of the foreign-owned
plants have significantly expanded existing facilities.158
However, after losing eight points of market share in 2000-2005, the Detroit 3 saw their losses
accelerate by an additional 10 points between then and 2008, dropping to a 47.5% market share.
This loss of market share occurred at the same time as the total market was in decline. Although
the U.S. automotive market is cyclical, the decline in sales starting in mid-2008 has been
especially abrupt because of the crisis in global credit markets. Figure 1 indicates that the total
domestic light motor vehicle market stabilized at around 17 million sales per year through 2005
(passenger cars and light trucks, which include sport utility vehicles, minivans, and pickup
trucks). It dropped about a half-million units in 2006 to 16.5 million, another half-million to 16.2
million in 2007, then plunged to just 13.2 million in 2008.159 As mentioned previously in this
report, U.S. sales in 2009 are projected to be about 9.5 million units, according to IHS Global
Insight.160 Car and light truck unit sales by the Detroit 3 fell to just 6.2 million, compared to 11.5
million in 2000, and almost 10 million as late as 2005. More detailed data show that each of the
Detroit 3 saw sales decline by nearly one million vehicles or more just since 2005, and each
suffered significant market share losses. Automotive data is usually figured in “units,” which
means, for example, that an expensive Cadillac Escalade counts the same as an inexpensive Kia
Rio. But for the entire industry, average new vehicle transaction prices, after rising from 2004
through 2007, fell steadily in 2008, meaning less “top line” revenue per unit sold.161 Moreover,
Table 3 illustrates that part of the Detroit 3’s problems relate to the continued reliance on truck
sales, when light trucks are declining as an overall share of the market. Having become more
specialized in larger vehicles, the Detroit 3 have been especially adversely affected by the sharper
decline in the sales of such vehicles.
In 2001, “light truck” sales, which include smaller SUVs known as “crossover” utility vehicles
(CUVs), were higher than U.S. passenger car sales for the first time. Trucks’ lead over cars
continued to expand through 2005 – 9.3 million units to 7.7 million units in that year, for a net
margin of 1.6 million. But 2004-2005 saw Hurricanes Ivan, Katrina, and Rita, which temporarily
disrupted oil and gas production in the Gulf of Mexico and exacerbated a period of rising fuel
prices and volatility that continued through 2008.162 In 2008 U.S. car and truck sales both fell: car
sales by 843,000 versus a two million unit decline in light truck sales. Truck sales were also more
than three million units less than the all-time 2005 annual peak. While most foreign-owned
manufacturers had also expanded their truck offerings (including SUVs and minivans) in the U.S.
market, they have not been as reliant as the Detroit 3 on truck products. By 2008, each of the
Detroit 3 still counted on light trucks for a majority of sales (55% for GM, higher levels for Ford
and Chrysler), while no foreign-owned competitor did so. Only about a third of foreign-brand
companies’ sales overall were classified as light trucks.

158 Automotive News, “Transplant Expansions: Onward Ho!” December 1, 2008, p. 3.
159 For the third quarter, the annual rate of sales was even lower, and, owing to lower-than-average income and credit
ratings among their customers, Detroit 3 companies only commanded 42% of the domestic retail market; Detroit Free
Press, “Credit Crunch Hits Buyers of Detroit 3” (October 26, 2008).
160 IHS Global Insight, North American Light-Vehicle Industry Forecast Report, April 2009, pp. 12-13.
161 Detroit Free Press, “Vehicle Transaction Prices Continue Falling” (October 28, 2008).
162 On recent trends, see CRS Report RL34625, Gasoline and Oil Prices, by Robert Pirog.
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During the present decade, both market forces and federal regulation have begun to push fuel
economy levels upward, leading to a move away from larger, less fuel-efficient vehicles, a market
that the Detroit 3 have generally dominated. While the CAFE standard set by the Department of
Transportation’s National Highway Transportation Safety Administration (NHTSA) for cars has
held steady at 27.5 mpg throughout the decade, the actual average of model-year vehicles sold, as
measured on a different basis by the Environmental Protection Agency (EPA), has increased from
22.9 mpg to 24.1 mpg, with most of the gain coming in model year (MY) 2007-2008.163 While
the light truck standard held steady at 20.7 mpg through 2004, actual average truck mpg, as
measured by EPA, remained less than 17.0 mpg. Both the federal standard and the actual average
declined in 2005 for light trucks. The actual average mpg was 18.1 by MY2008.164
Falling Demand Affects All Automakers in the United States and
Abroad
While the first half of 2008 was characterized by a market shift to more fuel-efficient vehicles in
the U.S. market under the influence of high fuel prices, the latter half of the year saw almost all
OEMs suffer from declining sales, in the United States and globally. IHS Global Insight estimated
that global vehicle production fell by 16% in the fourth quarter of 2008. CSM, an automotive
consulting group, estimated that there is now enough worldwide capacity to build 90 million cars
a year, but only 66 million will be produced in 2009.165

163 EPA’s numbers, which are used on the window stickers of new cars and trucks, are downgraded from the CAFE test
to better reflect in-use fuel economy. For example, the CAFE test is limited to 55 miles per hour, and does not include
the use of air conditioning or other accessories.
164 For more details, see CRS Report RL34743, Federal Loans to the Auto Industry Under the Energy Independence
and Security Act, by Bill Canis and Brent D. Yacobucci.
165 Sources quoted in New York Times, “Car Slump Jolts Toyota, Halting 70 Years of Gain,” December 23, 2008, p. 1.
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Table 3. Market Shares of U.S. Car and Truck Sales
2001
2005
2008
Sales (millions of units)
Sales (millions of units)
Sales (millions of units)
Light
Market
Light
Market
Light
Market
Manufacturers
Cars
Trucks
Total
Share (%)
Cars
Trucks
Total
Share (%)
Cars
Trucks
Total
Share (%)
GM
2.3 2.6 4.9 28.3 1.8 2.7 4.5 26.3 1.3 1.6 2.9 22.0
Ford
1.5 2.4 3.9 22.9 1.0 2.1 3.1 18.3 0.7 1.3 2.0 15.2
Chrysler
0.6 1.7 2.3 13.3 0.5 1.8 2.3 13.6 0.5 1.0 1.5 11.4
Detroit 3
4.4 6.7 11.0 64.5 3.3 6.6 9.
9
58.2 2.5 3.8 6.3 47.7
(total)
Asian
Brands
3.3 1.9 5.2 30.4 3.6 2.6 6.2 36.6 3.8 2.2 6.0 45.5
German
0.8 0.1 0.9 5.0 0.7 0.1 0.8 5.0 0.7 0.2 0.9 6.8
Brands
Total U.S.
8.4 8.7 17.1
100.0 7.7 9.3 16.9
100.0 7.0 6.2 13.2
100.0
Salesa
Source: Automotive News Market Data Center (2008 data); Ward’s Automotive Yearbook (2001-2008).
a. U.S. total includes other specialty manufacturers.

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Not just the Detroit 3 are affected by this slump. Toyota announced its first net operating loss
since 1950 and said that it lost $7.7 billion in the first quarter 2009, even more than the $5.9
billion that General Motors lost in the same period.166 Like other automakers, Toyota has seen an
erosion of its market. On March 3, 2009, the Associated Press reported that Toyota’s financial
subsidiary, Toyota Financial Services, had requested a $2 billion loan from the Japan Bank for
International Cooperation, a government-backed bank.167 Nissan CEO Carlos Ghosn in February
2009 revised earlier predictions of an annual profit to a projected $2.9 billion loss. He announced
plans to reduce production by 20% and to eliminate 20,000 jobs.168
Honda similarly projected negative results for the second half of its fiscal year (ending March
31st). Both Honda and Toyota cited strengthening of the yen against the U.S. dollar to the highest
level in 13 years as a major factor in their worsening results. According to the Financial Times,
“I would like the government and the Bank of Japan to move a bit more swiftly in ensuring
the stability of the exchange rate,” [said Honda CEO Takeo Fukui,] code for intervening in
the market to weaken the currency.169
Reaction among Japanese companies in the U.S. has included temporary production cutbacks at
their U.S. plants, and Toyota’s announced delay in completing its new plant in Mississippi, where
it will build the Prius hybrid model. Toyota also consolidated production of its full-size Tundra
pickup at the San Antonio plant, and temporarily closed one line there. Production cutback and
temporary production shutdown announcements were widespread among Asian OEMs in the
United States.170 Nissan has converted its truck and SUV line in Mississippi to produce a
commercial type of vehicle.171 Among German-owned manufacturers, Mercedes Benz has offered
buyouts to all 4,000 of its production workers in Alabama.172
Assistance to the auto industry by encouraging owners to trade in older, more polluting, vehicles
in favor of new or late-models is one option that has gained favor in Europe. Part of the German
government’s recently enacted $106 billion stimulus package is an allocation of about $2 billion
to subsidize those who scrap vehicles at least nine years old by giving them up to $4,000 to
purchase a new car that meets the newest and strictest European emission standard. Volkswagen,
Opel, and Fiat have seen significant sales increases in Germany since the measure was
introduced. With a budget to cover about 600,000 car purchases, official sources say they are
receiving 6,000 subsidy applications per day.173 A similar program in France provides more than

166 The New York Times, “Toyota Posts Annual Loss and Warns of Another” (May 8, 2009).
167 Reported by Detroit News, “Toyota Talking on Japan Government Loan” (March 3, 2009).
168 Automotive News, “Nissan Expects $2.9 Billion Loss; Will Cut Jobs, Output” (February 16, 2009).
169 Quoted by Jonathan Soble, “Honda Cuts Expenses Amid Further Downturn,” Financial Times, December 18, 2008;
see also Wall St. Journal, “Corporate News: Honda Slashes Outlook for Full-Year Sales, Profit,” December 18, 2008,
p. B3; While Japanese domestic auto sales fell to the lowest levels in 20 years in 2007-08, a cheap yen level of about
120 to the dollar and strong exports allowed Japanese production to reach an all-time high in early 2008. But the
dollar’s fall to less then 90 yen and a global growth slowdown has led to falling auto company profits, production and
exports; Business Week, “How the Strong Yen Has Weakened Japan,” January 19, 2009, pp. 50-51.
170 Automotive News, “Honda, Toyota, Others Whack N.A. Output,” December 15, 2008, p. 8.
171 Automotive News, “Nissan to Sell Small Commercial Vehicles in U.S.,” December 15, 2008, p. 24.
172 Tuscaloosa News, “Mercedes Offers Buyouts to Vance Plant Employees,” October 31, 2008.
173 The best English-language description of the program is in Canadian Press, “Germany Pays Consumers to Junk Old
Cars” (February 5, 2009); also, Deutsche Welle, “Berlin Rejects Expansion of Car Subsidy Scheme” (February 12,
2009); Financial Times, “Scrapping Old Cars Boosts German Sales” (March 3, 2009).
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$1,000 for those who trade in older vehicles for newer models, though the emission requirements
are not as strict as in Germany.174 Canada also has a national Vehicle Scrappage Program, but
instead of directly encouraging new car purchases, it offers incentives to use other forms of
transportation or $300 in cash.175
Similar to these efforts abroad, several bills have been introduced in Congress. Senator Dianne
Feinstein and Representative Steve Israel introduced similar bills, S. 247/H.R. 520, which would
pay up to $4,500 to those in the United States who trade in an older, less fuel-efficient model for a
new, high fuel economy vehicle. Representative Betty Sutton introduced H.R. 1550, which would
provide a voucher program to replace older vehicles with newer models, mainly those
automobiles manufactured in the United States, or in some cases, North America. Representative
Don Manzullo introduced H.R. 1606, which would establish a voucher program for the purchase
of new vehicles with no requirement for a trade-in. The House Energy and Commerce Committee
reported H.R. 2454 (American Clean Energy and Security Act) on May 21, 2009, which includes
a voucher system that
Provides vouchers if a consumer’s old vehicle gets less than 18 miles per gallon (mpg) and
the new car achieves at least 22 mpg. If the new vehicle mileage per gallon is at least 4 mpg
higher than the old vehicle, the voucher would be $3,500; if the new vehicle mileage is at
least 10 mpg higher than the old vehicle, the voucher would be $4,500. The legislation has
similar provisions for light duty and certain other trucks.176
More direct subsidies are also being considered by other governments. A French government plan
to loan about $7.6 billion to Renault and Peugeot ran into opposition from the European
Commission and other European Union member states, because it apparently would have
required these OEMs not to close any plants in France and to source from French-based suppliers.
After discussions with the European Commission, French authorities agreed “not to implement
measures that would breach the principles of the single market.”177 The European Union, through
the European Investment Bank (EIB), has also indicated that it would assist the industry, although
one commentator has said, “The European Union has talked about making a huge wedge of
money available for the industry – up to ... $50 billion – but this has remained hot air so far.”178
The British government has announced an Automotive Assistance Program, which will offer loan
and loan guarantees up to a total of ₤1.3 billion. Following a collapse in new vehicle sales there,
the Bank of England has also indicated that it would assist OEMs and dealers in consumer
lending.179

174 Government of France. Decree no. 2009-66 (January 19, 2009). See comments also by Neil Winton in Detroit News,
“Survival of the Fittest Trumps Everything at Geneva This Year” (February 27, 2009).
175 CBC News, “Clunker Removal Program Bound to Fail, Says Analyst” (February 2, 2009).
176 U.S. House of Representatives, Committee on Energy and Commerce, “Energy and Commerce Committee Passes
Comprehensive Clean Energy Legislation, May 21, 2009.
177 Financial Times, “Brussels and France Resolve Auto Dispute” (March 2, 2009).
178 Winton, “Survival of the Fittest.” The EIB has limited the total loan amounts available to the European auto industry
to €7 billion (less than $10 billion), “with most of the funds to develop clean cars.” See Financial Times, “Carmakers
Warned Nearing Loan Limits” (March 9, 2009), and “EU Lender’s Rebuff on Auto Loans Likely to Inflame Ailing
Carmakers” (March 10, 2009).
179 Detroit Free Press, “British Bank Nears Aid for Carmakers’ Finance Units” (February 25, 2009); Detroit News,
“General Motors Yet To Approach UK for Aid” (March 5, 2009).
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Labor Negotiations in 2007 to Address Competitive Issues
Many analysts have commented that, in competing with foreign-owned auto manufacturers, the
Detroit 3 are hampered by outdated labor contracts, negotiated with the UAW through decades of
collective bargaining.180 In 2007, each of the Detroit 3 negotiated new collective bargaining
agreements with their principal union, the UAW.181 These agreements provided for transfer of
retiree health care in 2010 from the companies to a separate trust, with some board members
appointed by the UAW. The trusts will be established with financial support initially from each of
the Detroit 3. The agreements also provided the companies with other flexibility in managing and
reducing labor costs, so that they could compete on a footing perceived to be more equal to
foreign-owned companies, which are generally non-union in the United States. This included
union acceptance of a second, and lower, tier of wages and benefits for new hires by the Detroit 3,
under specified circumstances.182
But with the auto market declining, there has been little new hiring at the lower wage rate.183
Even so, wage rate gaps between the Detroit 3 and the international companies may be
exaggerated. CAR data quoted in a Wall Street Journal article compare standard UAW hourly
assembly line worker pay of $26 per hour with $26 per hour at Toyota, $24 at Honda, and $21 at
Hyundai. Honda and Kia are starting production line workers at their new plants in Indiana and
Georgia, respectively, at a wage of just less than $15 per hour, but this compares with a similar
starting “Tier 2” wage for new UAW hires at Ford and GM.184
The principal gap remains in the legacy cost burden that the 2007 Detroit 3 contract agreements
with the UAW attempted to address. CAR is quoted as calculating that Toyota’s hourly total labor
cost, including all benefits, is $44 per hour versus $73 at GM.185 In its December 2008
restructuring plan presented to Congress, Ford attached a table showing that wages and wage-
related costs in 2008 were $43 per hour, versus an average of $35 per hour at foreign-owned U.S.
auto manufacturers. But Ford’s total hourly labor cost was $71, against $49 for the foreign-owned
companies. The principal difference was a “legacy cost” – principally projected health care costs
for retirees – of $16 per hour, versus comparable foreign companies’ costs of $3 per hour. The
new UAW contract, by transferring this cost off Ford’s books to the VEBA in 2010, would bring
the hourly cost burden down to $58 per hour. And, if Ford could replace 20% of its projected
workforce with new, entry-level employees, as allowed by contract, Ford asserts it would bring
the hourly cost level down to $53.186

180 This issue was reviewed in CRS Report RL32883, U.S. Automotive Industry: Recent History and Issues, by Stephen
Cooney and Brent D. Yacobucci, and CRS Report RL33169, Comparing Automotive and Steel Industry Legacy Cost
Issues, by Stephen Cooney.
181 This included Chrysler, which had become newly independent from German parent Daimler after Cerberus, a hedge
fund, bought an 80% share of the company.
182 These agreements are described in CRS Report RL34297, Motor Vehicle Manufacturing Employment: National and
State Trends and Issues, by Michaela D. Platzer.
183 Washington Post, “Bankruptcy Could Offer GM More Flexibility” (November 29, 2008), p. D1.
184 Wall St. Journal, “America’s Other Auto Industry,” December 1, 2008, p. A22; Automotive News, “Transplant
Wages Are a Moving Target,” December 15, 2008, p. 3.
185 Wall St. Journal, “America’s Other Auto Industry.”
186 Ford Business Plan, Appendix 2.
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Another issue addressed in the 2007 contracts and in congressional hearings was pay for laid-off
autoworkers and the “jobs bank.” Laid-off Detroit 3 production workers receive unemployment
compensation from state governments, plus supplementary compensation from company funds
that brings their pay close to the base level for one year.187 After that, if they are still unemployed,
they may be eligible to enter the jobs bank, where they may continue to receive almost their full
base salary, even if no jobs are available. The terms are now more restrictive under the new
contract, and two years is the maximum stay. The jobs bank was declared suspended by the UAW
as of December 2008, in an effort to assist the Detroit 3. Elimination of the jobs bank was made
an explicit target of the federal loans term sheets signed by GM and Chrysler in December 2008.
In January 2009, on the occasion of announcing its annual 2008 financial results, with a large
corporate loss, Ford indicated that it and the UAW had agreed to end the jobs bank program at
Ford.188
The Energy Independence and Security Act of 2007 (EISA)
The new collective bargaining agreements were negotiated and ratified by the time Congress
approved, and President Bush signed, a substantial increase in mandated fuel economy in EISA
(P.L. 110-140) in December 2007. Although the Detroit 3 were losing money, the new labor
agreements, combined with an EISA direct loan program for manufacturing advanced technology
vehicles and components, appeared to provide new resources for a transition that would aid the
Detroit 3 in achieving improved fuel economy.189
Representatives of the Detroit 3 reportedly attempted to increase the scale of loans available
during legislative consideration of appropriations to fund the EISA direct loan program, as well as
to reduce restriction of the EISA loans to production of advanced technology vehicles. But these
efforts were unavailing, as Congress maintained the same program rules, when it approved the
appropriations in September 2008.190
By the time Congress considered funding this program in September 2008, the economic climate
for the auto sector as a whole, and for the Detroit 3 in particular, had worsened markedly. The
downturn in the broader domestic economy reduced sales for virtually all manufacturers in the
middle of the year, as consumer confidence declined and credit became harder to obtain. While
neither Ford nor GM has been profitable since 2006, the operating losses turned much worse in
2008. GM lost a larger-than-expected $30.29 billion in 2008191 and $5.9 billion in the first quarter
of 2009 (compared with $3.3 billion in the year-ago same quarter).192 Ford reported a $14.6
billion loss for all of 2008, the worst annual result in the company’s 105-year history.193 It had a
narrower-than-expected loss of $1.4 billion for the first quarter 2009, compared with a slight
profit in the same year-ago quarter.194 “Cash burn” (net operating cash loss) for GM was less than

187 Communication to CRS from UAW, December 17, 2008.
188 Ford Motor Co. news release, January 29, 2009.
189 Details of the direct loan program are discussed in CRS Report RL34743, Federal Loans to the Auto Industry Under
the Energy Independence and Security Act, by Bill Canis and Brent D. Yacobucci.
190 See CRS Report RL34743, Federal Loans to the Auto Industry Under the Energy Independence and Security Act, by
Bill Canis and Brent D. Yacobucci.
191 Detroit Free Press, “As GM Losses Deepen, Bankruptcy Fears Grow” (February 27, 2009).
192 Bloomberg.com, “GM Loss Widens to $5.98 Billion as Bankruptcy Looms” (May 7, 2009).
193 New York Times, Business Section, “Ford Reports a Record $14.6 Billion Loss for 2008” (January 9, 2009).
194 CNN Money, “Ford loses $1.4 billion” (April 24, 2009).
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expected in the first quarter 2009, at $10.2 billion; Ford’s was $3.7 billion. Both companies see
the rate diminishing during the year.195 According to court filings, Chrysler lost $16.8 billion in
2008 and its monthly cash burn rate is $1.7 billion.196
Legislative Efforts to Assist Automakers in November 2008
Following the November 2008 elections, the Bush Administration was asked to consider making
funds available to the auto industry from the $700 billion appropriated for relief of the financial
sector in the Emergency Economic Stabilization Act (EESA, P.L. 110-343).197 Secretary of the
Treasury Henry Paulson and Senate Minority Leader Mitch McConnell instead urged Congress to
assist the automakers by diverting funds from the EISA loan program.198
On November 17, 2008, Senate Majority Leader Harry Reid introduced S. 3688, which, in Title
II, included a provision allowing $25 billion from the EESA funding to be used as loans to
automakers in the United States under certain conditions. On November 18-19, hearings were
held before the Senate Banking Committee and the House Financial Services Committee, in
which the chief executive officers of the Detroit 3, as well as UAW President Gettelfinger, made
the case for immediate assistance to the industry. They were supported by some Members of
Congress. Critics of such assistance were also heard.
The industry CEOs stated that they were asking for “bridge loans” to tide them over during a
market decline of unanticipated severity, which had affected all automakers, and an equally
unanticipated unavailability of credit from financial markets. The bridge loans would provide
time for cost-saving measures, including the transfer of retiree health care responsibilities, to
work. That, plus a hoped-for recovery of the domestic auto market by 2010, could allow the
Detroit 3 to return to financial stability. As GM’s then-CEO G. Richard Wagoner testified:
[We, in cooperation with the UAW] have taken actions designed to improve GM’s liquidity
by $20 billion by the end of 2009, and they obviously affect every employee, retiree, dealer,
supplier, and investor involved in our company ... I do not agree with those who say we are
not doing enough to position GM for success. What exposes us to failure now is not our
product lineup, is not our business plan, is not our employees and their willingness to work
hard, it is not our long-term strategy. What exposes us to failure now is the global financial
crisis, which has severely restricted credit availability and reduced industry sales to the
lowest per capita level since World War II.
Our industry, which represents America’s real economy, Main Street, needs a bridge to span
the financial chasm that has opened before us. We’ll use this bridge and we’ll use it
effectively to pay for essential operations, new vehicles and power trains, parts from our

195 Reuters, “Ford CFO says sees lower cash burn through year”, (April 24, 2009); Bloomberg.com, “Young Says GM
Cash Burn in 2009 to Be Slower Than 2008”, (February 26, 2009).
196 Bloomberg.com, “Chrysler Secured Lenders Will File Secrecy Request, Lawyer Says” (May 5, 2009).
197 Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid, Letter to Secretary of the Treasury
Henry M. Paulson (November 8, 2008).
198 Financial Times (FT.com), “Paulson Rejects TARP Aid for US Carmakers” (November 12, 2008); Bloomberg.com,
“Paulson Urges Congress to Approve Automaker Funding” (November 13, 2008); and “Democrats, Bush Deadlocked
over Expanding Aid to U.S. Carmakers” (November 19, 2008).
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suppliers, wages and benefits for our workers and suppliers, and taxes for state and local
governments that help deliver essential services to millions of Americans.199
In the hearings, the CEOs revealed how the $25 billion in loans would be divided among their
three companies. CEO Wagoner of GM stated that his company would need $10-12 billion to
bridge the present period of financial insecurity, while Robert Nardelli of Chrysler said that his
company would require $7 billion. Alan Mulally of Ford stated that Ford currently did not have
an operating capital shortfall, but would request that $7 billion to $8 billion be reserved in case of
eventual cash needs.200
Congressional critics of the industry’s requests included Senator Richard Shelby, Ranking
Member of the Banking Committee, and Representative Spencer Bachus, Ranking Member of the
House Financial Services Committee. They argued that to a large extent, the problems of the
Detroit 3 were due to the long-term consequences of poor management and labor decisions,
which would not be fixed with short-term financial assistance, and that the industry would soon
be requesting additional federal support. Moreover, assistance to the auto industry, it was stated,
would encourage other industries to also importune the federal government for aid during the
present economic downturn.201
No action was taken in the Senate on S. 3688 in November 2008. Further developments were
deferred until December 2008, after full reports had been presented by the Detroit 3 on their
financial condition and restructuring plans.
Assistance to Auto Industry in the 2009 Stimulus Package
After the Bush Administration provided loans to the auto industry in December 2008, Congress
also considered assistance as part of the 2009 stimulus package approved as H.R. 1 (ARRA, the
American Recovery and Reinvestment Act, P.L. 111-5, signed into law by President Obama on
February 17, 2009). Senator Barbara Mikulski had introduced a bill, S. 333, which would have
allowed purchasers of light motor vehicles to deduct interest payments and state and local excise
taxes on their 2009 federal income tax return. The measure was subject to a cap on the amount
paid for the vehicle, and the benefit was reduced for higher income earners. A companion bill,
H.R. 159, was introduced in the House by Representative William Pascrell. The chief provisions
of S. 333 were included as §§1008-1009 in the version of H.R. 1 approved on a 61-37 vote by the
Senate on February 10, 2009.
In the conference committee, the deduction for interest charges was deleted. Thus, §1008 in the
law as finally approved and signed, the deduction for motor vehicle purchases in the balance of
2009 is restricted to state and local sales or excise taxes on the vehicle. The same income and
sales price limitations are in effect, but the provision is expanded to include motorcycles and
motor homes.

199 U.S. Senate. Committee on Banking, Housing, and Urban Affairs. Hearing. Examining the State of the Domestic
Auto Industry (November 18, 2008), Testimony of G. Richard Wagoner.
200 Senate Banking Committee hearing, November 18. The total level of requests was raised to $34 billion in
subsequent business plans formally submitted by the three companies to Congress on December 2, 2008 (as
summarized in Washington Post, “Auto Giants Ratchet Up Pleas for Aid” (December 3, 2008), p. A1.
201 See their respective statements in the Senate Banking Committee hearing (December 4, 2008) and the House
Financial Services Committee hearing (December 5, 2008), on the domestic auto industry.
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Analysts generally agreed that the final measure would have a relatively minimal effect in
increasing auto sales. An analyst for the automotive data firm R.L. Polk & Co. estimated that the
average value to consumers would be $330 per vehicle. The impact on sales was estimated at less
than 100,000 vehicles, whereas, if the interest deduction had been maintained, the impact could
have been as high as 350,000 vehicle sales. In addition to this direct assistance to individual
private consumers, the legislation also contained a number of aid provisions for development of
advanced vehicle technologies, and to finance the purchase of such vehicles for the federal
vehicle fleet.202
Employment in the Automotive Sector
Employment in the automotive sector of the U.S. economy includes both manufacturing and
services activities, but the latter actually employ more than in manufacturing. As seen in Table 4,
at the end of 2008 the Current Employment Survey of the Department of Labor’s Bureau of
Labor Statistics estimated that there were about 790,000 persons employed altogether in motor
vehicle manufacturing (including heavy trucks, trailers and other vehicles), compared to more
than 3.5 million in various (automotive-related) service activities.
Since the era of Henry Ford, automotive employment has been a mainstay of U.S. manufacturing
employment. But its relative significance has declined in recent years, despite the opening or
expansion of foreign-owned assembly and parts facilities. Table 4 examines levels of and
changes in automotive employment by both manufacturing and services categories between 2000
and 2008.203 Motor vehicle manufacturing employment in 2008 was down about 127,000 jobs, a
drop of 43%. However, as pointed out by Thomas Klier and James Rubenstein, as well as in
earlier CRS analyses, by far more people are employed in parts manufacturing than in motor
vehicle assembly.204 In December 2008, total employment in all categories of automotive
manufacturing, as defined by the Labor Department, was half a million jobs less than at the end
of 2000, a decline of nearly 40%.
Service activities employment directly related to the automotive industry has also declined, but
not nearly as significantly as manufacturing employment in the sector. Wholesale distribution of
vehicles and parts fell by about 24,000 jobs since the end of 2000. Employment at dealers – the
largest single North American Industry Classification System category in the sector, with more
than one million jobs – fell by 124,000 jobs, or 10%. Employment in retail outlets for automotive
parts, accessories, and tires was close to steady, holding near 500,000 jobs. The decline in
gasoline station jobs was also 10%, and the decline in auto repair and maintenance was estimated
at about 7%. Altogether, 61% of the decline of more than 800,000 jobs in the automotive sector
since 2000 is accounted for by the decline in manufacturing jobs.

202 See analyses in Washington Post, “Analysts Rate Stimulus Bill as Lean on Automaker Aid” (February 19, 2009);
and Detroit Free Press, “Stimulus Light on Aiding Car Sales” (February 22, 2009).
203 The table uses the Bureau of Labor Statistics Current Employment Survey, in order to estimate the most recent data
available.
204 Thomas Klier and James Rubenstein, Who Really Made Your Car? (Kalamazoo, MI: W.E. Upjohn Institute, 2008).
A detailed CRS analysis of U.S. automotive manufacturing employment trends, nationally and by state, is in CRS
Report RL34297, Motor Vehicle Manufacturing Employment: National and State Trends and Issues, by Michaela D.
Platzer.
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Both Ford and GM are consolidating their dealer networks, so that their unit sales per dealer will
better approximate the levels recorded, for example, by Toyota and Honda. Each of the latter
companies has roughly 1,000 U.S. dealers, compared to 3,790 dealers for Ford as of 2008, and
6,450 for GM. Yet in terms of market share, GM in 2008 was just over 22%, Toyota just under
17%, Ford about 15%, and Honda nearly even with Chrysler at around 11%. The Detroit 3, then,
sell far fewer vehicles per dealer than Toyota or Honda. GM and Ford have already begun to
consolidate dealers and reduce their numbers. GM has eliminated more than 1,000 dealers since
2005, and their restructuring plan calls for eliminating 1,800 more, down to a total level of 4,700
by 2012. Ford has eliminated 600 dealers since 2005, but did not indicate a target number for the
future.205
Table 4. U.S. Automotive Employment
All Employees (’000s)
NAICS

Code
Dec. 2000
Dec. 2008
Change
Manufacturing:

Motor
Vehicle
Mfg.
3361 294.7 167.8 -126.9
Motor Vehicle Bodies and Trailers
3362
172.7
122.6
-50.1
Motor Vehicle Parts
3363
819.1
499.4
-319.7
Total Motor Vehicle Mfg.

1,286.5 789.8 -496.5
Services:

Wholesale Distribution
4231
351.2
326.8
-24.4
Auto Dealers
4411
1,222.0
1098.3
-123.7
Auto Pts., Accessories & Tires
4413
500.1
489.8
-10.3
Gasoline Stations
4470
929.8
834.4
-95.4
Auto Repair & Maintenance
8111
894.8
830.4
-64.4
Total Services

3,897.9 3,579.7 -318.2
Total Automotive Employment

5,184.4 4,369.6 -814.8
Source: Dept. of Labor. Bureau of Labor Statistics. Current Employment Survey (February 23-24 and unpublished
data).
Note: All data seasonally adjusted. Monthly survey data may differ from annual figures cited earlier.
“Services” total does not necessarily include all NAICS (North American Industry Classification System) auto-
related categories.

Paul Taylor, chief economist of the National Automobile Dealers Association, has forecast that,
because of economic conditions, there will be a total net loss of about 1,600 dealers in 2008-09.
About two-thirds of those closing have been Detroit 3 dealers, he estimated. If this forecast holds,
there will be fewer than 20,000 new car dealers in the United States at the end of 2009, compared
to 28,000 in 1980.206 Even if the Detroit 3 succeed in consolidating franchises into larger

205 GM Restructuring Plan (December 2008) pp. 18-19; Ford Business Plan, p. 11. Chrysler reported that it had 3,300
dealers in Chrysler Viability Plan (February 2009), p. U162.
206 Automotive News, “Economy Decimates Dealerships,” December 15, 2008, p. 1.
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operations, the implication is that the total number of dealership employees will decline, perhaps
dramatically.
Automotive manufacturing employment has also fallen as a share of total employment in
manufacturing. While total manufacturing employment has fallen by more than three million jobs
since September 2001, employment in motor vehicle manufacturing dropped at an even faster
rate, with its share of total manufacturing employment falling from 7.4% to 6.4%. During this
period, total automotive sector employment, including services, as shown in Table 4, fell from
5.2 million to 4.4 million, while total U.S. employment grew by six million. As a result,
automotive employment, including both manufacturing and services, as a share of total U.S.
employment, fell from 3.9% to 3.3%.
Financial Issues in the Auto Industry
Credit Conditions207
Credit is the lifeblood of the U.S. auto industry. Credit conditions govern the industry’s ability to
invest, the ability of its dealers to finance their inventory (“floorplan”), and the ability of dealers,
in turn, to sell to individual consumers. The systemic crisis in the U.S. and global financial
markets in 2008 has had a severely negative impact on all these aspects of automotive credit.
An auto dealer’s floorplan is the financing dealers must have to finance their inventory. A new
vehicle dealer will generally buy cars from the OEM, most often in the past on credit provided by
the OEM’s “captive” financial organization. The dealer will then sell vehicles to customers at a
negotiated transaction price. The dealer will be paid, alternatively:
• in cash by the customer;
• through a financial transaction by the OEM captive credit organization; or
• through a third party loan to a customer from a bank, credit union, or finance
company.
Each of the Detroit 3 has traditionally operated with a captive credit organization for both
floorplan financing and consumer credit: General Motors Acceptance Corporation (GMAC), Ford
Motor Credit and Chrysler Financial, respectively.208 Floorplan financing has generally been
provided for dealers by these credit organizations at favorable (better than prime) interest rates.209
Dealers have also been financially encouraged to refer customers to the captive finance
organizations. For much of the period since 2000, a very large share of each of these OEM’s
corporate profits has been accounted for by its captive financial organization.

207 This subsection was written by Bill Canis, Specialist in Industrial Organization and Business.
208 The U.S. government’s Auto Task Force determined that Chrysler Financial could not stand on its own. It
announced that GMAC would also serve Chrysler dealers and that Chrysler Financial would cooperate with GMAC in
transferring contracts and other business.
209 For example, “As recently as September 30, [2008,] GMAC provided dealer inventory financing for 80% of GM
vehicles worldwide.” Automotive News , “A GMAC Failure Could Doom Dealers,” December 15, 2008, p. 31.
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But the financial performance of the three credit organizations has progressively deteriorated. In
early November 2008, Automotive News noted:
Standard & Poor’s has assigned subinvestment-grade ratings to all three finance arms. Ford
Credit and GMAC are rated B- with a credit watch of negative. Chrysler Financial has an
S&P rating of CCC+ with a negative outlook ...210
This has meant that the financial arms have found it much more difficult to raise capital to lend to
dealers or customers. GMAC, in particular, had virtually ceased lending except to customers with
the highest credit scores, and stopped supporting domestic leasing altogether. All three companies
have had to raise interest rates on floorplan financing, in many cases forcing dealers or customers
to use third-party lending.211
Two of the three captive credit organizations were under the control of private equity hedge fund
Cerberus Capital Management. Cerberus acquired Chrysler’s credit arm as part of its acquisition
of a controlling share (80.1%) of the auto manufacturing operation in 2007. With Chrylser’s April
30, 2009 bankruptcy filing, however, Chrysler Financial, which had previously provided more
than 60% of dealer financing, almost entirely halted lending activities. U.S. Bankruptcy Court
Judge Arthur Gonzales approved Chrysler’s request that GMAC “step in and provide wholesale,
retail and other product-related financing for an initial four-tear-term.”212 Earlier, Cerberus had
bought a 51% stake in GMAC. GMAC has been particularly affected by the global credit squeeze
and subprime lending, as it had become a major player in mortgage lending through its
Residential Capital (ResCap) division. The latter has been primarily responsible for GMAC’s
multibillion-dollar losses in 2008.213 However, unlike the situation in subprime home mortgages,
Detroit 3 CEOs at the November 18, 2008, Senate Banking Committee hearing on the domestic
auto industry said that there had not been a major rise in delinquencies among their automotive
credit borrowers.214
Ford Motor Credit remains 100% owned by Ford Motor Company. It has sought to offset
negative reports on credit availability by widely advertising that Ford consumer credit is still
available. It has raised floorplan financing rates by 0.5% in view of higher borrowing costs, but
has also waived the increase for dealers that meet overall sales targets.215 CEO Alan Mulally
testified before the House Financial Services Committee on December 5, 2008, that Ford Motor
Credit still supported “77% of all wholesale financing.”216
The Japanese OEMs are also affected by the financial crisis. Traditionally weaker than the U.S.
companies’ financial arms and more reliant on third-party consumer lending by banks, they have
become much more competitive in recent years. Notably, in the fall of 2008, Toyota inaugurated
an aggressive “Saved by Zero” consumer lending campaign that features 0% loans for qualified

210 Automotive News, “Advantage, Ford: Mulally Likes Owning Ford Credit” (November 3, 2008) p. 8.
211 Automotive News, “The Scramble for Credit” (Oct 27, 2008); CRS interview with Patrick Calpin, National
Automobile Dealers Association (November 10, 2008).
212 Automotive News, “GMAC approved for financing Chrysler dealers” (May 12, 2009).
213 Financial Times, “GMAC Losses Add to GM Woes;” Detroit News, “GMAC Posts $2.52 Billion Quarterly Loss”
(both stories November 5, 2008).
214 Comments at the hearing from G. Richard Wagoner (GM) and Robert Nardelli (Chrysler).
215 Automotive News, “Advantage, Ford”.
216 U.S. House. Committee on Financial Services. Hearing, Auto Industry Stabilization Plans (December 5, 2008),
discussion between Alan Mulally and Rep. Paul Hodes.
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buyers on most models. Nissan followed suit.217 Even so, the Japan-based car companies saw
monthly sales declines in late 2008 of about 30% or more, compared to sales one year earlier.
Customers and dealers have alternatively sought to finance deals through banks, but the banks
have also reduced their consumer lending.218 Dealers have sought alternative inventory funding
sources from community banks, which generally have funds to loan, and which have not been as
severely affected by the subprime mortgage crisis as the money center banks. The local banks
may offer more attractive financing rates than the OEMs, but for many dealers, they do not have
the scale to cover a dealer’s floorplan.219 On the other hand, GM and Ford have told Congress that
they have explicitly planned to consolidate and reduce their numbers of dealers. Chrysler has also
stated, most recently in its bankruptcy filing, that it intends to reduce its network of auto dealers.
Credit has thus been more difficult for the Detroit 3, their dealers, and their customers. Former
U.S. Senator from Michigan and Bush Administration cabinet member Spencer Abraham has
written that an estimated $700 billion to $800 billion in auto loan exposure “is currently thrashing
around our financial system.” He has further stated that securities tied to auto loans account for
more than 25% of all asset-backed securities, with large holdings by insurance companies, mutual
funds, and pension funds, as well as banks.220
GMAC on November 20, 2008, applied to become a bank holding company, in order to make
itself eligible to obtain new capital from the EESA financial relief package described in a section
above.221 With some difficulty, GMAC achieved this transition on December 24, 2008.222 On
December 29, 2008, the Treasury Department announced that it was making a $5 billion
investment in GMAC, through a purchase of “senior preferred equity.” These funds also came
from the TARP program. In addition, the agency also loaned $1 billion to GM itself, with the
funds to be used to increase its stake in GMAC. These funds increased GMAC’s liquidity,
allowing it to continue to support dealer floorplans and to liberalize significantly its credit
requirements for consumers.223 On January 16, 2009, the Treasury announced that it had agreed to
make a $1.5 billion loan to Chrysler Financial.224
None of these infusions solved the problem of liquidity for dealers so in December 2008, the
Federal Reserve Board announced that auto dealers could participate in a new $200 billion “term

217 Automotive News, “To Match Toyota, Nissan Offers 0% Loans” (November 3, 2008), p. 43.
218 Detroit News, “Big Banks Back Off Consumer Car Loans” (November 10, 2008).
219 “Scramble for Credit;” NADA interview.
220 Spencer Abraham, “A Cure for the Coming Crisis in Auto Finance,” Financial Times (November 3, 2008).
221 Detroit News, “GMAC Files with Fed for Bank Holding Status” (November 20, 2008).
222 Associated Press (Durham [NC] Herald-Sun), “Fed: GMAC OK to Seek Bailout Money,” December 25, 2008, p. 1.
223 U.S. Department of the Treasury. Press release, “Treasury Announces TARP Investment in GMAC,” December 29,
2008. See also attached term sheet and GM commitment letter. The easing of GMAC’s credit requirements for
consumers is discussed in Detroit Free Press, “GMAC To Offer More Loans in Wake of Aid,” December 30, 2008;
and Washington Post, “GM Aims To Drive Sales with Incentives,” December 31, 2008. According to press analysis,
because investors’ bonded indebtedness has been converted to equity, GM and Cerberus may lose financial control of
GMAC; see Detroit News, “Feds Invest $6B in GMAC;” Detroit Free Press, “$6B for GMAC; Aid Planned for Other
Auto Finance Companies;” and, Washington Post, “GMAC To Get $6 Billion Lifeline,” all December 30, 2008.
224 U.S. Department of the Treasury. Press release, “Treasury Announces TARP Investments in Chrysler Financial,”
January 16, 2009. As reported earlier in this report, the Auto Task Force subsequently prompted the transfer of
Chrysler Financial assets to GMAC.
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asset-backed securities loan facility” (TALF) to finance inventory.225 However, that plan has been
slow to get started. Its purpose, with respect to auto dealers, is to encourage traditional floorplan
lenders to stay in the market, as dealers require refinancing. A key issue has been a requirement
that securitized loans and floorplans must be rated AAA, the highest rating, a criterion that
dealers have generally not been able to meet. Dealer representatives have been in discussions
with the Federal Reserve bank and the Treasury to modify this requirement.226
While GMAC financing is central to reviving the sale of GM and Chrysler autos, GMAC itself
has been shown to be in precarious financial condition. In May 2009, the Treasury Department
completed its stress tests of major banks, including GMAC. It found that GMAC must raise $11.5
billion in new capital, equal to roughly half its current equity. Co-owners General Motors and
Cerberus Capital Management do not plan to invest in the financing company, so it may be left to
a third party or the U.S. government to make this new capital infusion. GMAC must present a
plan to the U.S. Treasury by June 8, 2009, explaining how it will raise the new capital.227
Aside from consumer and dealer credit, another issue has been the unavailability of capital for
major Detroit 3 investment projects. Delphi is GM’s former parts-making subsidiary, now an
independent company, but still linked to GM by a supplier relationship and labor contracts
through the UAW and other unions. It has been operating in bankruptcy since 2005, and was
unable to exit as planned in 2008 because a private investor group backed out of a deal to buy its
securities for $2.5 billion.228 GM’s plan to acquire Chrysler and merge the two companies, which
was widely reported in October 2008, was similarly withdrawn when the companies could not
find sufficient funds, including proposed federal financial support, for the deal.229
Bush Administration’s Financial Plan to Assist Automakers230
On December 19, 2008, President George W. Bush announced his plan to provide credit
assistance to U.S. automobile manufacturers. He stated that “In the midst of a financial crisis and
a recession, allowing the U.S. auto industry to collapse is not a responsible course of action.”231
His plan provided General Motors and Chrysler with loans for a three month window allowing
them time to develop plans to restructure into viable companies.232 President Bush stated that
“This restructuring will require meaningful concessions from all involved in the auto industry –
management, labor unions, creditors, bondholders, dealers, and suppliers.”233

225 National Automobile Dealers Association. Press release, “Federal Reserve Approves NADA-Backed Initiative
Aimed at Increasing Inventory Financing,” December 22, 2008.
226 CRS interview with David Regan, National Automobile Dealers Association (February 25, 2009). Wall St. Journal,
“Auto Industry Faces Squeeze from Fed Lending Program” (February 25, 2009). For more information on the TALF,
see CRS Report RL34427, Financial Turmoil: Federal Reserve Policy Responses, by Marc Labonte.
227 The New York Times, “GMAC, Among the Weakest, Seems in Line for a Bailout” (May 8, 2009).
228 Detroit Free Press, “Delphi’s Fate Still Tied to GM’s” (November 14, 2008).
229 Detroit Free Press, “GM’s Efforts to Merge with Chrysler Put on Hold for Now” (November 8, 2008).
230 This subsection was written by James Bickley of the Government and Finance Division. More detail on pensions,
health care, executive and labor compensation, and some other issues is provided in subsequent sections of the report.
231 “President Bush Discusses Administration’s Plan to Assist Automakers,” White House Press Release, Dec. 19,
2008, p. 1. Available at http://www.whitehouse.gov/news/release/2008/12/20081219.html, visited May 4, 2009.
232 Ibid.
233 Ibid.
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GM received $13.40 billion in subsidized loans: $4.0 billion on December 29, 2008, $5.4 billion
on January 16, 2009, and $4.0 billion on February 17, 2009.234 Chrysler received $4 billion on
December 29, 2008.235 The loans were issued by Treasury through authority provided for the
TARP under EESA.
By February 17, 2009, top executives at General Motors and Chrysler were required to submit
restructuring plans to achieve and sustain their long-term viability, international competitiveness
and energy efficiency of the companies and their subsidiaries.236 On or before March 31, 2009,
each company was required to submit a report detailing the progress it has made in implementing
its restructuring plan.237
Stakeholders’ Concessions
Each major stakeholder was required to make concessions in order for General Motors and
Chrysler to receive financial assistance.238
The Union
The Bush plan was similar to the plan in H.R. 7321, the Auto Industry Financing and
Restructuring Act, which was passed by the House.239 The primary difference was the
requirement that U.S. employees of General Motors and Chrysler accept reductions in their
compensation to an equivalent level of employees in foreign transplants in the United States. The
president of the UAW opposed these additional union concessions:240
• “Compensation Reductions”: The corporations’ restructuring plans will include a
reduction in compensation of their U.S. employees to an equivalent level paid by
foreign transplants in the United States by no later than December 31, 2009.
• “Severance Rationalization”: Payment to idled U.S. employees of the
corporations or their subsidies, other than customary severance pay, would be
eliminated.
• “Work Rule Modifications”: Work rules would be changed in a manner that is
competitive with foreign transplants in the United States.
• “VEBA Modifications”: Not less than one-half of companies contributions to a
new union-administrated healthcare fund would be paid in shares of the

234 U.S. Treasury, “Indicative Summary of Terms for Secured Term Loan Facility” [for General Motors], Dec. 19,
2008, p. 14 [Appendix A]. Available at http://www.ustreas.gov/press/releases/hp1333.htm, visited May 4, 2009.
235 U.S. Treasury, “Indicative Summary of Terms for Secured Term Loan Facility” [for Chrysler], Dec. 19, 2008, p. 14
[Appendix A]. Available at http://www.ustreas.gov/press/releases/hp1333.htm, visited May 4, 2009.
236 Ibid., p. 5.
237 Ibid., p. 6.
238 This section on concessions is based on “Indicative Summary of Terms for Secured Term Loan Facility” [for
General Motors and Chrysler]; and Daniel Dombey and Bernard Simon, “Bush Bails Out Detroit with $17 Billion
Package,” Financial Times, December 19, 2008, pp. 1-2.
239 “President Bush Discusses Administration’s Plan to Assist Automakers,” p. 2.
240 http://www.uaw.org, visited December 29, 2008.
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respective corporation. VEBA is an abbreviation for “voluntary employees
beneficiary association.”
Investors
• “Bond Exchange”: Outstanding unsecured public indebtedness (other than
pension and employee benefits obligations) was reduced by not less than two-
thirds through a debt-for-equity exchange.
• No dividends were permitted while government loans remained unpaid.
Management
• Benefits plans were modified or terminated (including golden parachute
agreements).
• Limits were imposed on the annual executive compensation of the CEO and the
four highest compensated officers (other than the CEO), which are deductible as
a business expense. These limits were one-half of the amount (or $500,000 per
year) stated in Section 162(m)(5) of the IRS Code.
• The 25 most highly compensated employees (the “Senior Employees”) could not
receive or accrue any bonus or executive compensation except as approved by
the President’s Designee.
• Management of Chrysler and General Motors were required to report “material
transactions” (any asset sale, investment, contract, or commitment) of more than
$100 million to the President’s Designee for review and approval.
• Private passenger aircraft would be divested.
• Chrysler and General Motors were required to maintain and implement a
comprehensive written policy on corporate expenses (“Expense Policy”). Any
material deviations for the expense policy would promptly be reported to the
President’s Designee.
Dealers/Suppliers
• Dealers/suppliers would negotiate new agreements to lower costs.
• Dealers/suppliers would negotiate new agreements to reduce capacity.
Treasury Stock Warrants
In return for providing loans to General Motors and Chrysler, the U.S. Treasury would receive
warrants to purchase common shares of each company. The exercise price per share would be the
15 day trailing average price determined as of December 2, 2008. The total number of warrants
would be equal to 20% of the maximum loan amount divided by the exercise price per share. A
“warrant limit” would be set, however, at 20% of the issued and outstanding common shares. The
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warrants would have a perpetual term and would be immediately exercisable, in whole or in part,
at 100% of their issue price plus all accrued and unpaid dividends.241
Financial Solutions: Bridge Loans and
Restructuring242
In late 2008, when the Detroit 3 executives requested federal financial assistance, they dismissed
the possibility of filing for reorganization under the Bankruptcy Code. They asserted that such a
filing would inevitably lead to liquidation rather than reorganization because consumers would
not purchase a car from a company in bankruptcy. A survey by CNW Marketing Research
reportedly indicated that 80% of consumers said that concerns about warranty coverage and
replacement parts would make them unlikely to buy a car from a company operating in
bankruptcy reorganization. However, two later surveys—including another by CNW—indicated
that this reluctance could be reduced or neutralized if the government were backing the
reorganization.243 Possible concerns about warranty coverage may have been mitigated by
President Obama’s announcement, on March 30, 2009, that the United States government would
stand behind the automakers’ warranties if the automakers were to fail.244
As of May 19, 2009, only one of the Detroit 3, Chrysler, has filed a bankruptcy petition.
However, some predict that GM will not be able to meet its May 31st deadline for restructuring
and will follow Chrysler’s path into Chapter 11 reorganization.245 Both GM and Chrysler each
received some immediate financial assistance from the federal government in December 2008.
GM received additional federal assistance in January and February 2009, and both Chrysler and
GM received additional funds after President Obama’s announcement that the viability plans each
had submitted were inadequate.
This section will look at some of the terms for the original federal bridge loans, including the
protections they may provide for the loan amounts as well as the requirements for a restructuring
plan. It will also outline basic options available under the Bankruptcy Code for companies that
are not able to successfully restructure outside of Chapter 11 reorganization.

241 U.S. Treasury, “Indicative Summary of Terms for Secured Term Loan Facility,” pp. 11-13.
242 This section was written by Carol A. Pettit of the American Law Division.
243 John D. Stoll, “Chapter 11 May Not Deter Some Car Buyers,” Wall Street Journal, December 17, 2008, p. B3. He
reports that a Merrill Lynch study indicated 90% of car buyers might buy a car from an automaker in bankruptcy, while
a CNW Marketing Research survey indicated 48% would consider it.
244 See Obama Administration’s New Warrantee Commitment Program at http://www.treas.gov/initiatives/eesa/AIFP/
WarranteeCommitmentProgram.pdf. However, some say that the program will not necessarily deliver the protection
that it appears to promise. See FOXNews.com, Obama Warranty Plan Leaves Many GM, Chrysler Owners Vulnerable,
at http://www.foxnews.com/politics/first100days/2009/03/31/details-obamas-auto-warranty-plan-emerges/.
245 Tom Krisher, Experts Say GM Bankruptcy Is Almost Inevitable, AP, May 11, 2009 at http://news.yahoo.com/s/ap/
20090510/ap_on_bi_ge/us_gm_inevitable_bankruptcy.
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Federal Bridge Loans
The loans discussed in this section are those provided to GM and Chrysler prior to March 2009.
Thus far, CRS has not found information regarding the terms of the loans extended to GM and
Chrysler after their viability plans were deemed inadequate by the Obama administration.
Collateral and Other Protections
On December 29, 2008, GM and Chrysler each received a loan of $4 billion. Under the terms of
the loans, the federal government receives collateral for the loans in the form of first-priority liens
on all unencumbered assets and junior liens on all encumbered assets. This provision appears to
provide greater protection for the taxpayer dollars that were loaned to the automakers than would
otherwise exist in the event of a bankruptcy filing. Additional protections include (1) Mandatory
prepayments of the net cash proceeds from certain transactions, such as sales of any collateral
outside the normal course of business;246 (2) Warrants to purchase common shares of the
automaker;247 (3) Additional guarantors and pledges of collateral from subsidiaries, etc.;248 and
(4) Conversion of the loan to debtor-in-possession (DIP) financing if the automaker is in
bankruptcy. In addition to restrictions on executive compensation discussed later in this report,
the terms of the loans also restrict expenses and “material transactions.”249
Although the terms of the loans are intended to provide protection for taxpayer funds, the
protection provided by these terms may not be sufficient to ensure repayment of the loan amount.
A lien provides protection only to the extent that the property that is subject to that lien has
sufficient value to cover the lien. Likewise, the mandatory prepayment requirement will result in
early repayments only when the collateral sold outside the ordinary course of business has
sufficient value to equal or exceed all liens against it. Warrants to purchase stock provide
protection only to the extent that there is either a market for the warrant or value to the stock that
exceeds the warrant price; however, if the automakers are able to successfully restructure, the
warrants may allow the government, and thus the taxpayers, to benefit financially from the loan
agreements.
The terms of the loan impose first-priority liens only against otherwise unencumbered assets. For
other assets, the terms grant the United States only a junior lien. A junior lien provides protection
only to the extent that the asset has sufficient value to cover the junior lien and all liens that are
senior to it. The extent to which either GM or Chrysler has any significant assets that are not
encumbered has been questioned.250 There is also some question about the value of any of the
collateral, encumbered or unencumbered, to anyone other than the automaker who currently owns

246 See Term Sheets, pp. 2-3.
247 See Term Sheets, pp. 11-12.
248 See Chrysler Term Sheet, App. A (requiring consent by majority of holders of Chrysler LLC first lien and second
lien indebtedness to pledge MOPAR Parts Inventory and some real estate collateral to the government as Lender); GM
Term Sheet, App. A (requiring consent by the common holders of Class A and Class C Membership Interests of
GMAC LLC to pledge Class B Membership Interests as well as Preferred Membership Interests to the government as
Lender).
249See Term Sheets, pp. 4-5.
250 See Adam Levitin, “More on the Auto Bailouts,” Credit Slips, December 20, 2008, at http://www.creditslips.org/
creditslips/2008/12/more-on-the-auto-bailouts.html; Adam Levitin, “Auto Bailout,” Credit Slips, December 19, 2008,
at http://www.creditslips.org/creditslips/2008/12/auto-bailout.html.
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it or to a party who wanted to buy the entire operation as a going concern. Thus, the liens may not
fully secure the money that has been loaned to GM and Chrysler.
The warrants to buy common stock may be exercised at a relatively low cost. The number of
warrants is determined by dividing 20% of the maximum loan value by the exercise price of the
warrants. However, the warrants exercised cannot be higher than 20% of the issued and
outstanding common equity interests before the warrants are exercised. The ability to either buy
common stock or sell warrants (as with Chrysler warrants in 1983) has value only if the
automakers remain in business and their stock value increases above the warrant price.
Each of the loans requires guarantors. For the Chrysler loan, CarCo Intermediate HoldCo I and all
direct and indirect domestic subsidiaries are guarantors of the loan on a joint and several basis,
meaning that any one of them may be responsible for the entire loan. Additionally, half of the
Chrysler loan amount must be guaranteed by FinCo Intermediate HoldCo LC and DaimlerChysler
Financial Services Americas LLC. GM’s domestic subsidiaries are guarantors of the GM loans,
again on a joint and several basis. Additionally, the terms specify that any successor entity of GM
would also be a guarantor of the loan, thus preventing sale of GM free and clear of the debt
obligation.
The loans also have conditions precedent that are specific to each automaker and involve pledges
of inventory, real estate, or membership interests to the U.S. government to provide another layer
of protection for the loans.251
One protective provision of the loans anticipates the possibility of an automaker’s bankruptcy. If a
bankruptcy petition is filed, the terms of the loan allow the government to convert the existing
loans to “DIP” financing. “DIP” financing provides the debtor-in-possession (or the trustee in a
Chapter 7 case) with sufficient funds to meet continuing expenses while the business is either
reorganized or liquidated. Generally, DIP financing is a post-petition obligation that enjoys a high
priority for being repaid from the bankruptcy estate or under the reorganization plan. In contrast,
the government loans are being made while the companies are still operating outside of
bankruptcy protection, and the loans are pre-petition debts.252 One of the purposes of bankruptcy
protection is to provide debtors relief from pre-petition debts. This provision in the terms of the
loans seems to go against that purpose as well as the purpose for DIP financing.
Accelerated Repayment Provisions
Although the expiration date for the loans is December 29, 2011, the loans made to GM and
Chrysler could become due early in the second quarter of 2009 or possibly even earlier. Under the
terms of the loans, the entire outstanding amount of the loans could become due upon an “event
of default,” as defined in the term sheets.253 Additionally, according to the term sheets, the loans
were to be automatically accelerated and amounts not “invested in or loaned to the Borrower’s
principal financial subsidiaries”254 would become due within 30 days if the restructuring plan

251 Term Sheets, App. A.
252 Whether a court would honor the pre-petition contract provision to convert the government loans to DIP financing
following a bankruptcy filing is beyond the scope of this report. If a court were to honor the provision, the debtor might
encounter more difficulty arranging additional DIP financing to carry it through its reorganization.
253 Term Sheets, p. 10.
254 Term Sheets, p. 7.
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report submitted by the automakers failed to meet the required standards and was not approved by
the President’s Designee; however, as yet there appears to have been no move to accelerate these
loans.
Restructuring Outside of Bankruptcy
As a condition of the financial assistance, GM and Chrysler were required to submit restructuring
plans designed to achieve certain goals and to “use their best efforts to achieve ... [restructuring]
targets.”255 The goals involve financial viability and vehicle production. The targets involve a
“Bond Exchange,”256 “Labor Modifications,”257 and “VEBA Modifications.”258 One of the
advantages of reorganizing under the Bankruptcy Code is the ability to modify creditors’ claims
without the agreement of all of the affected creditors.259 Outside of bankruptcy, the automakers
have not had this advantage as they attempted to design a restructuring plan and achieve
sufficient cooperation from creditors to allow the plan to succeed. Chrysler’s inability to modify
bondholders’ claims without agreement from all of them is blamed by many for its failure to
effectively restructure and merge with Fiat before its April 30 deadline. Similarly, it is reported
that lack of agreement by some of GM’s bondholders will lead to GM’s being unable to meet its
May 31 deadline.
An additional advantage to reorganization in Chapter 11 is the ability to reject most executory
contracts and leases. Without § 365 of the Bankruptcy Code, automakers may be unable to
terminate franchise arrangements with their dealerships without a significantly greater cost than
they would incur if reorganizing in Chapter 11.
Chapter 11 of the Bankruptcy Code includes two code sections that allow the Bankruptcy Court
to approve a debtor’s request to reject or modify collective bargaining agreements (CBAs) when
the debtor and union have been unable to reach a negotiated agreement and the Court finds that
the debtor’s proposals have been rejected without good cause.260 These provisions do not exist
outside of bankruptcy. However, the automakers may have no need to avail themselves of these
provisions since the UAW recently reached agreements with Ford261 and Chrysler262 and is
reported to be on the brink of an agreement with GM.263 The agreements include concessions in
the labor-related areas addressed in the restructuring targets: wages, work rules, and benefits
(including retiree health benefits).

255 Term Sheets, p. 5.
256 Term Sheets p. 5.
257 Term Sheets, p. 6.
258 Term Sheets, p. 6.
259 11 U.S.C. § 1129(b)(1).
260 See 11 U.S.C. §§ 1113, 1114.
261 Nick Bunkley, U.A.W. Deal with Ford Cuts Hourly Rate to $55, N.Y. Times March 12, 2009 at B5.
262 Jeff Bennett, UAW Members Ratify Chrysler Cost-Cutting Accord, Dow Jones News Service, April 29, 2009 at
http://global.factiva.com/aa/default.aspx?pp=Print&hc=Publication.
263 John D. Stoll, GM Nears Crucial Deal with UAW, Wall Street Journal, May 15, 2009 at B1.
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Bankruptcy Procedures in Case Restructuring Fails
Most domestic corporations have two choices when filing bankruptcy: Chapter 7264 or Chapter
11.265 Chapter 7 involves liquidation, effectively ending the corporation’s existence. Chapter 11
involves reorganization, generally allowing the company to modify contract obligations and debts
so it can be financially viable and continue its operations long-term. However, some cases filed
under Chapter 11 result in liquidation.
Under the Bankruptcy Clause of the U.S. Constitution,266 Congress may create sections of the
Bankruptcy Code (shortened in this part of the report to simply “the Code”) to address issues of a
particular type of industry or entity so long as the laws are uniform rather than for a specific,
named debtor. In the past, during times of financial turmoil, Congress has modified the existing
bankruptcy law. Examples include Chapter 9: municipalities (11 U.S.C. § 901 et seq.);
Subchapter IV of Chapter 11: railroads (11 U.S.C. §§ 1161-1174), and Chapter 12: farmers and
fishermen (11 U.S.C. § 1201 et seq.). Congress has the power to modify the Code to customize
reorganization for the automotive industry.267 Therefore, the following discussion of Chapters 7
and 11 generally describes the characteristics of these two chapters of the existing Code, but
should not be interpreted as constraining Congress’s ability to enact laws that would modify the
provisions of these chapters as they apply to the automotive industry or to create an additional
chapter of the Code that is applicable to the automotive industry.
Chapter 7
In Chapter 7 of the Bankruptcy Code,268 a trustee is chosen to represent and administer the
bankruptcy estate.269 The trustee takes over the company’s assets, sells them, and distributes the
proceeds to the creditors who have presented valid claims. There is a hierarchy to the distribution
of the proceeds.270 Secured creditors generally will receive payment up to the amount of their
secured interest. Unsecured creditors include those with priority claims and those with non-
priority claims. Priority claims are paid in the order of priority so long as there are funds
available.271 When the funds are depleted, no more claims are paid even if they are priority
claims. After all priority claims are paid, remaining funds are distributed on a pro rata basis to the
remaining unsecured creditors.

264 11 U.S.C. § 701 et seq.
265 11 U.S.C. § 1101 et seq.
266 Art. I, sec. 8, cl.4.
267 Since the Bankruptcy Clause empowers Congress to enact “uniform laws,” modifications could be industry-specific,
but not company-specific.
268 The Bankruptcy Code is 11 U.S.C. § 101 et seq.
269 The “trustee” of the bankruptcy estate is different from the U.S. Trustee, who is a member of the U.S. Trustee
Program and appointed by the U.S. Attorney General. A private trustee, who represents a bankruptcy estate, is either
appointed by the U.S. Trustee or elected by the creditors. 11 U.S.C. §§ 701-703.
270 See 11 U.S.C. § 726.
271 See 11 U.S.C. § 507.
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Chapter 11
Chapter 11 of the Bankruptcy Code provides companies with a way to continue in business while
at the same time receiving protection from creditors. It also provides them with opportunities to
modify debts and contracts272 in a way that enhances the company’s possibilities of recovering
from financial troubles. It is generally believed that a business is worth more as a going concern
than as an assortment of assets that are sold separately. Survival of the company benefits
creditors, employees, and the community in which the business is located. In most cases, the
company retains its management. Generally, a trustee is appointed only when management is
removed “for cause.”273 However, even when a trustee is not appointed, the company may decide
to turn operation of the business over to a “turnaround specialist” who has experience in guiding
companies through Chapter 11 and into solvency.274
The Reorganization Plan
The reorganization plan is the key to a traditional Chapter 11 bankruptcy. The plan is a proposal,
generally by the debtor-in-possession (DIP), as to how the valid claims of each class of creditors
are going to be resolved.275 To be confirmed, the plan must be agreed to by at least one impaired
class of claims. Additionally, each holder of a claim in an impaired class must accept the plan
unless the amount received under the plan is no less than the amount that would have been
received under Chapter 7.276 In a standard Chapter 11 bankruptcy, the plan proposal and
negotiation with the creditors takes place after the company has filed for bankruptcy. In a
prepackaged Chapter 11, the company does not file for bankruptcy until negotiations with
creditors have resulted in a confirmable plan that is presented when filing the bankruptcy case.
This may have the effect of reducing uncertainty about the company’s future. Negotiating a
prepackaged Chapter 11 does take some time, so it is unclear to what extent a “prepack” would
benefit the automakers. In their requests for government financial assistance the automakers said
they were rapidly running out of operating capital. The assistance they received was less than
requested. It is possible that conditioning receipt of additional government assistance on a
prepackaged agreement among the creditors might encourage creditors to quickly reach
negotiated modifications with debtor companies. An additional benefit to a prepack is the
elimination, in some cases, of the need for arranging “DIP financing.”
DIP Financing
DIP financing involves agreements to provide funds to a debtor-in-possession to allow it to meet
expenses incurred during reorganization. If suppliers have refused to continue shipments without
prepayment, DIP financing can provide the means of making the prepayment. In some cases,

272 Most executory contracts can be accepted or rejected, with the court’s approval, under 11 U.S.C. § 365.
Modification of collective bargaining agreements (CBAs) is subject to greater limitation under 11 U.S.C. § 1113.
Similarly limited is modification of retiree health benefits under 11 U.S.C. § 1114.
273 “Cause” generally involves fraud, dishonesty, incompetence, or mismanagement. See 11 U.S.C. § 1104. Note,
however, that under the Railroad Reorganization Act, a trustee must be appointed. 11 U.S.C. § 1163.
274 An example of such a specialist in the automotive industry is Robert S. Miller, who has been leading parts-maker
Delphi through its bankruptcy since 2005. He earlier led Bethlehem Steel through its Chapter 11 bankruptcy and its
sale to the International Steel Group (eventually, the company was acquired by ArcelorMittal Steel).
275 See 11 U.S.C. § 1123 (Contents of Plan).
276 See 11 U.S.C. § 1129 (Confirmation of Plan).
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simply having the loan agreements is sufficient to restore suppliers’ confidence and willingness to
ship without prepayment. If one or more of the Detroit 3 filed under Chapter 11, it is possible that
government loans could provide the DIP financing. The DIP financing lender can enjoy the
highest protection available in a Chapter 11 bankruptcy. When used for current operating
expenses, the financing is an administrative expense under 11 U.S.C. § 503(b)(1) and would be a
priority claim under 11 U.S.C. § 507(a)(2).277
Sales of Assets
A reorganizing company may have a need to sell assets either in the ordinary course of business,
such as a retailer selling inventory, or other than in the ordinary course of business. A
reorganizing company generally is authorized to continue its business operations278 and may
continue to sell its property in the ordinary course of business without specific court approval.279
In contrast, sales outside of the ordinary course of business, require notice and hearing.280
Sales other than in the ordinary course of business may include selected assets or, in some cases,
all of the assets of the reorganizing company. This type of sale, sometimes called a “363 sale”
since the authority for such sales is in section 363 of the Bankruptcy Code, is the means proposed
to allow Chrysler to complete a “surgical bankruptcy” within 60 days.
The expectation is that Chrysler’s “good assets” will be sold and “New Chrysler” will emerge
from the sale. As discussed earlier in the subsection entitled “Chrysler Files for Bankruptcy,” the
UAW’s VEBA would own 55% of the new company. The remainder would be owned by Fiat
(20%), the U.S government (8%), and the Canadian government (2%).281
The use of section 363 as a means of selling the business as a going concern has both advocates282
and critics.283 Use of this procedure in Chrysler’s Chapter 11 case is supported by the Obama
administration, but has been criticized by others. The criticism has focused on the fact that the
UAW’s VEBA will own 55% of the new company and the senior secured creditors will not be
paid in full. One commentator referred to the proposed sale as a “sub rosa reorganization.”284
Another criticized it as violating the “absolute priority rule,” which holds that senior creditors
must be paid before junior creditors.285 Another commented that “the spectacle of creditors being

277 Greater protection may be available to DIP lenders if credit cannot be obtained without such protection. See 11
U.S.C. § 364(c), (d).
278 11 U.S.C. § 1108.
279 11 U.S.C. § 363(c).
280 11 U.S.C. § 363(b).
281 Fiat could increase its share to 35% by meeting certain criteria: 5% for a 40 mpg vehicle platform produced by
Chrysler in the United States, 5% for a fuel-efficient engine family produced in the United States and used in Chrysler
products, and 5% for helping export Chrysler products by providing access to Fiat’s worldwide distribution network.
Press Release, Chrysler, LLC, Chrysler LLC and Fiat Group Announce Global Strategic Alliance to Form a Vibrant
New Company (April 30, 2009) at http://www.chrysler.com/en/experience/news/articles/?guid=
2009_4_30_chrysler_media_services_announce.
282 See Douglas G. Baird, The New Face of Chapter 11, 12 AM. BANKR. INST. L. REV. 69 (2004).
283 See Lynn M. LoPucki & Joseph W. Doherty, Bankruptcy Fire Sales, 106 Mich. L. Rev. 1 (2007). The authors found
that, in their sample, recoveries from going concern sales are less than half the recoveries in reorganizations. Id. at 44.
284 Ann Woolner, Merger Proposal Illegal: Government’s Plan to Save Chrysler Ignores Property Rights, St. Paul
Pioneer Press, May 7, 2009, at B11.
285 Todd J. Zywicki, Chrysler and the Rule of Law, Wall Street Journal, May 13, 2009 at A19.
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stripped of their legal rights in favor of a labor union with which the president is politically
aligned does little to attract private capital at a time when the government and many companies
need these investors the most.”286 Countering the absolute priority rule criticism, one law
professor noted that the UAW VEBA would be paid by the new owner of Chrysler’s assets rather
than by Chrysler, the debtor, and that, therefore, there is no violation of the absolute priority
rule.287 Of course, although the debtor has flexibility in proposing a plan, the bankruptcy court
ultimately determines whether the plan conforms to the requirements of the law, including the
absolute priority rule.
Priority of Unsecured Claims
Section 507 priorities are important in a Chapter 11 bankruptcy and must be addressed in the
reorganization plan, but Chapter 11 provides greater flexibility in the payment of these claims
than does Chapter 7. The holders may agree either to modify their claims or to accept alternative
payment arrangements rather than receiving full payment before other unsecured claims are paid.
If there is no such agreement, the Code prescribes treatment for each priority claim that must be
met for the plan to be confirmed. However, some of the statutory treatments allow deferred
payments or installment payments of amounts due.288 This added flexibility for resolving priority
claims may increase the amounts available to pay other unsecured claims. It may also make it
possible for the company to meet its operations expenses both short-term and long-term.
Automaker Response to Bankruptcy as an Alternative289
Both GM and Chrysler addressed the option of some type of Chapter 11 reorganization in
bankruptcy, as part of their February 2009 viability plans. Both companies have said that they
have studied the bankruptcy option. They concluded that it would be more costly than the “out-
of-court” plans that they have proposed. If continued operation after reorganization is a desired
outcome, bankruptcy might also be more costly in terms of federal support, they calculated.
GM presented a comprehensive analysis of its bankruptcy options. In summary, it stated that
bankruptcy is unlikely to be quick or easy, noting that, in one-third of all cases involving
reorganization of companies with more than $1 billion in assets since 1995, bankruptcy
proceedings took two years or longer, while only in 3% of cases did companies exit the
proceedings in 90 days or less. And, as stressed frequently in testimony by CEO Wagoner, market
research has indicated that 80% of potential car buyers would not purchase a vehicle from a
company that had filed for bankruptcy. Hence, not only would the process be more expensive,
GM feared, but there was a strong possibility that the company would not exit the process as a
going concern.290

286 Editorial, Road Hazards Ahead: President Obama May Call Them ‘Speculators,’ but the Economy Needs Private
Investors, Wash. Post May 14, 2009 at A18.
287 Posting of Stephen Lubben to Credit Slips, http://www.creditslips.org/creditslips/2009/05/chrysler-363-sales-
again.html (May 14, 2009 at 08:45).
288 See 11 U.S.C. § 1129(a)(9).
289 This subsection was written by Stephen Cooney, Specialist in Industrial Organization and Business.
290 “Bankruptcy considerations” are summarized in GM 2009-14 Restructuring Plan (February 2009), pp. 36-37.
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GM discussed bankruptcy costs and considerations in more detail in a special appendix to its
viability plan. It listed three possible Chapter 11 options:
• “Pre-solicited or Pre-packaged Chapter 11.” This approach would require
bondholders to agree 100% to debt restructuring plan prior to filing, including
resolution of the VEBA liabilities. The assumption was that such a process could
be completed in about 60 days. However, there would be “a quite severe negative
revenue impact during the ... proceeding,” and continuing serious negative
impact even after exit from Chapter 11. GM calculated that this option would
cost $36 billion in government financial support, especially because of increased
support required for suppliers. This compared to a total of $27 billion for the
process GM proposed (roughly $23 billion for GM, under the baseline market
conditions, and $4 billion for suppliers). GM also estimated that its net present
value would be less than under its proposed non-bankruptcy plan.
• “Pre-negotiated Cram-Down Plan.” This option would take a minimum of 90
days, GM believed. It involved a more aggressive reduction of debt, including
greater or possibly complete “equitization” of its VEBA liability. However, GM
also believed that such a maneuver would be “vigorously contested” by the
UAW, possibly resulting in protracted negotiations and ending in a traditional
bankruptcy. GM calculated that the “cram-down” process would cost $46-55
billion in government support – including higher levels for GM and suppliers –
and would not leave the company with any positive NPV.
• “Traditional Chapter 11 Case.” This was the worst of the possible options in the
GM view. An 18-24 month process would require DIP financing from the
Treasury so that GM could continue to operate. Including increased financial
support of suppliers, the total Treasury cost was projected to be as high as $86
billion, with a total financial cost possibly in excess of $100 billion – and no
assurance that the company could successfully exit from the process.291
By comparison with the GM report, Chrysler offered a cursory “orderly wind down” scenario.
Failure to gain its incremental funding request from the U.S. government and concessions from
other stakeholders would lead to a Chapter 11 bankruptcy, the company stated. This would
require an estimated $24 billion in DIP financing. If such financing could not be secured, the
result would be liquidation over a 24-30 month period. That would mean a closure of 51 Chrysler
manufacturing and parts facilities and the loss of 40,000 jobs for people directly employed by
Chrysler. Chrysler also said that 3,300 dealers employing 140,000 people would also go out of
business, and it further calculated the other social and business costs in the U.S. economy.292
The companies emphasized the negative consequences and the high costs of bankruptcy filings,
as opposed to their preferred viability plans, which would involve continued federal support for
them and their suppliers. Both GM and Chrysler have repeatedly emphasized that a formal
bankruptcy filing could have a damaging effect on sales and it is clearly a course of action both
companies have wanted to avoid. But some commentators have urged that a formal proceeding
under Chapter 11 should be considered as an option, because such a course does provide a

291 The three bankruptcy scenarios are presented in GM 2009-14 Restructuring Plan (February 2009), Appendix L (pp.
103-108).
292 Chrysler Viability Plan (February 2009), pp. U162-163.
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framework in which all participants may be forced to accept concessions to provide firms with a
reasonable chance to restructure and continue as a going enterprise. Douglas Foley, an
experienced practitioner of bankruptcy law in private practice has said, in describing these
companies’ cost estimates, “The restructuring plans appear to overstate the costs and understate
the benefits of the Chapter 11 reorganization process.”293
Pension and Health Care Issues
Pensions and Pension Insurance294
The Pension Benefit Guaranty Corporation
Pension benefits provided under qualified defined benefit plans are insured up to certain limits by
the Pension Benefit Guaranty Corporation (PBGC), a government corporation established by the
Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406). In 2008, the PBGC
insured the pensions of approximately 44 million workers and retirees in more than 29,000
private-sector defined benefit pension plans. The PBGC does not insure pension benefits
provided by state and local governments or benefits under defined contribution plans, such as
401(k) plans. The maximum pension benefit guaranteed by the PBGC is set by law and adjusted
annually. For plans that terminate in 2009, workers who retire at age 65 can receive up to $4,500
a month ($54,000 a year). The guarantee is lower for those who retire early or when there is a
benefit for a survivor. The guarantee is higher for those who retire after age 65.
The PBGC receives no funds from general tax revenues. The PBGC collects insurance premiums
from employers that sponsor insured pension plans, earns money from investments, and receives
funds from pension plans it takes over. When the PBGC takes over a pension plan, it assumes
responsibility for future benefit payments to the plan’s participants, up to the limits set in law. In
general, the PBGC takes over only plans that are underfunded and that the employer is not
expected to be able to fully fund because it has filed for bankruptcy or is experiencing serious
financial difficulties that put its ability to fund its pension obligations at risk. Consequently, in
most cases in which the PBGC takes over a pension plan, it assumes pension liabilities that are
greater than the assets held by the pension plan it has taken over. In recent years, the PBGC has
taken over several large pension plans that were significantly underfunded. As a result, the
PBGC’s liabilities exceed its assets.
According to the most recent annual report of the PBGC, its insurance program for single-
employer plans had assets of $61.6 billion against liabilities of $72.3 billion on September 30,
2008. If the current economic downturn were to result in the termination of several large defined
benefit plans with significant underfunding, the PBGC’s deficit could grow rapidly. Although
ERISA does not provide for supplementing the PBGC’s income with general tax revenues, it is
likely that if the PBGC were unable to meet its financial obligations to the participants whose
pensions it has taken over, there would be considerable political pressure on Congress to provide

293 Comment to CRS by Douglas M. Foley, Chairman, Restructuring and Insolvency Department, McGuireWoods LLP
(March 4, 2009).
294 This subsection was written by Patrick Purcell of the Domestic Social Policy Division.
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the PBGC with the financial resources necessary for it to continue to pay benefits to retirees and
their surviving dependents.
In order to qualify for the tax exemptions and deferrals that Congress has authorized for
employer-sponsored retirement plans, defined benefit plans must meet certain requirements
established under ERISA and the Internal Revenue Code (IRC). One requirement is that the plans
must be “fully funded,” i.e., the plan’s assets must equal or exceed its liabilities. In most cases,
the sponsor of a plan that is underfunded is required to make additional contributions to the plan
that would amortize the underfunding in seven years or less.295 In addition to meeting the funding
requirements of ERISA and the IRC, companies that sponsor defined benefit plans must report
certain information about the plans annually to the Internal Revenue Service. This information is
available to the public, but the financial data is often out of date by the time it is released to the
public. Publicly traded companies must report information about their pension plans to the
Securities and Exchange Commission (SEC). These reports are generally available to the public
immediately.
Funded Status of Auto Manufacturers Pension Plans
GM, Ford, and Chrysler each maintain one or more defined benefit pension plans for workers
employed in the United States.296 The companies have separate plans for union members and
nonunion workers. According to the information filed by GM and Ford with the SEC in February
2008, both companies’ plans for U.S. employees had assets in excess of plan liabilities at year-
end 2007. GM reported a pension surplus of $18.8 billion and Ford reported a pension surplus of
$1.3 billion (see Table 5).
Table 5. Funded Status of General Motors and Ford Pension Plans for
U.S. Employees, Year-end 2007
(amounts in millions of dollars)

General Motors
Ford Motor Co.
Benefit obligation (plan liabilities)
$85,277
$44,493
Fair value of plan assets
104,070
45,759
Surplus or (Deficit)
18,793
1,266
Surplus (Deficit) as a percentage of liabilities
22.0%
2.8%
Estimated allocation of plan assets

Equity securities
26%
51%
Debt securities
52%
46%
Real estate, private equity, and other assets
22%
3%
Source: Company filings of Form 10-K with the Securities and Exchange Commission, Feb. 2008.

295 For a more detailed description of the funding requirements for defined benefit plans, see CRS Report RL34443,
Summary of the Employee Retirement Income Security Act (ERISA), by Patrick Purcell and Jennifer Staman.
296 ERISA governs only pensions provided to workers employed in the United States.
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GM’s pension surplus was equal to about 22% of its pension plan liabilities, while Ford’s surplus
was much smaller, amounting to 2.8% of its pension liabilities. As a privately-held company,
Chrysler is not subject to the same SEC reporting requirements as are GM and Ford. Current
information about Chrysler’s pension plans was not available at the time this CRS report was
written.297
Several factors have affected the funding status of the automakers’ pension plans going forward.
Among the most important of these factors are:
• Stock prices fell sharply in 2008, depressing the value of pension fund assets.
This would tend to reduce pension surpluses and increase pension deficits.
• Long-term interest rates rose during 2008, reducing pension plan liabilities. This
would tend to increase pension surpluses and reduce pension deficits.
• Plan participants have accrued an additional year of pension benefits.
• Plan sponsors have, in some cases, made contributions to their pension plans.
• Certain one-time events may have occurred including plan amendments to raise
or lower future benefit accruals, the sale or acquisition of businesses with
pension liabilities, and the expiration or initiation of collective bargaining
agreements.
GM Pension Fund
In its most recent quarterly filing with the SEC, GM noted several factors that reduced its pension
surplus, including
• investment losses of $6.3 billion in its pension plan asset portfolio;
• recording a $2.7 billion liability related to a settlement agreement with the United
Auto Workers (UAW) related to retiree medical care;
• recording a $2.7 billion liability due to the increase in the monthly pension
benefit paid to salaried employees as compensation for the elimination of post-65
healthcare benefits;
• the transfer of $2.1 billion of Delphi Corporation pension liabilities to GM; and
• recording a $2.0 billion cost due to special workforce attrition programs for
union members.
GM reported in November 2008 that its plan for hourly workers was underfunded by $500
million as of September 30 and that its plan for salaried employees was overfunded as of June 30.
The plans were overfunded on a combined basis. GM stated that it did not expect to have to make
any contributions to its defined benefit plans for 2008.298

297 According to information filed by Chrysler on the IRS Form 5500 for 2005, its pension liabilities at that time totaled
approximately $15.8 billion and its assets were valued at about $15.0 billion.
298 “General Motors Corp. does not expect to have to make any pension contributions to meet minimum funding
requirements in the next three to four years, even though its funded status declined in the first nine months of 2008
because of negative investment returns and recent employee-related cutbacks, according to its third-quarter financial
report Friday, November 7.” “GM Doesn’t Foresee Required Pension Contributions,” Workforce Management,
(continued...)
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Ford Pension Fund
The two most significant factors affecting the funding status of Ford’s pension plans since year-
end 2007 are the decline in the stock market and in the increase in long-term interest rates. Based
on the estimated percentage of Ford’s pension plan assets invested in stocks, if its pension fund
assets performed as the major market indices did in 2008, Ford’s pension assets invested in
equities would have lost $8.2 billion to $9.4 billion in value through the first eleven months of
2008. This would represent 18% to 20% of the value of assets held by Ford’s U.S. pension plans
at year-end 2007. The effect of the decline in asset prices was offset to some extent by the rise in
long-term interest rates in 2008.299 Rising interest rates reduce the present value of pension
liabilities. In its most recent 10-K filing with the SEC, Ford estimated that an increase of 0.25%
in interest rates would reduce its pension liabilities by 2.3%. Ford estimated that with an increase
in the discount rate of 1.0% in 2008, its pension liabilities would have fallen by $4.1 billion. This
would represent a 9.2% decline in Ford’s year-end 2007 pension liabilities.
In its SEC filing for the third quarter of 2008, Ford stated that during the first nine months of
2008, it “contributed $1.9 billion to our worldwide pension plans,” and that the company
expected to contribute an additional $300 million in 2008. Although the statement did not specify
how much of this contribution was made to its U.S. plans, less than 10% of Ford’s pension
contributions in 2007 and less than 15% of its contributions in 2006 were made to its U.S. defined
benefit plans.
PBGC Actions in Late 2008 and Early 2009
In a November 2008 interview with The Wall Street Journal, PBGC Director Charles Millard
reportedly characterized the funding of the automakers’ plans as “OK,” but said that the agency
was concerned that the cost of funding early retirement incentives could cause financial
difficulties for their pension plans in future years.300 During the week of November 24, the PBGC
sent letters to General Motors, Ford, and Chrysler stating the agency’s concern that early
retirement incentives offered to employees could adversely affect the funding of their pension
plans, and asking the companies to inform the PBGC of the costs of their buyout and early
retirement programs.301 The PBGC is concerned that buyout and early retirement programs were
not fully accounted for when the automakers estimated their pension liabilities, and that these
programs could “undermine the state of the plans.”302
PBGC Director Millard added, in a separate November 2008 statement, that if an automaker were
to initiate a termination of a pension plan while in bankruptcy, the agency would oppose the

(...continued)
November 11, 2008.
299 Watson Wyatt reported that as of September 30, discount rates had increased by about 1 percentage point since year-
end 2007, and that yields on AA rated corporate bonds had risen by almost 80 basis points from the end of September
to mid-November.
300 Early retirement programs could result in pensions being paid earlier than was originally forecast, creating an
unfunded liability for the plans.
301 Detroit Free Press, “Agency Concerned about Detroit 3 Buyout Costs” (November 29, 2008).
302 Wall St. Journal, “Pension Agency Sounds Alarm on Big Three” (November 28, 2008).
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termination.303 According to Mr. Millard’s public statements, the PBGC would argue in federal
court that the companies should maintain their defined benefit pension plans.304
In January 2009, the PBGC clarified and somewhat altered the tenor of its earlier comments on
the pension plans of GM, Ford, and Chrysler. While they are “well funded” according to the
accounting procedures of the Securities and Exchange Commission, their pensions were
collectively underfunded by as much as $41 billion according to the accounting rules followed by
the PBGC when a plan terminates.305 The PBGC estimates that if all three automakers were to
declare bankruptcy and terminate their pension plans, the agency would pay out $13 billion of the
$41 billion shortfall to plan participants and beneficiaries. The remainder represents benefits that
PBGC could not pay because of legal limits on the benefits that are insured by the PBGC.
The PBGC has estimated that GM’s plans are underfunded by $20 billion (20%) on a termination
basis. Chrysler’s plans would be $9.3 billion (34%) underfunded if they were terminated. Ford’s
plans are estimated to have an $11.7 billion (27%) deficit under the termination accounting rules.
Outgoing PBGC Director Millard noted that if the companies were financially healthy and were
able to meet all of their future funding obligations, the current underfunded status of their pension
plans would not necessarily pose a risk to the PBGC. However, said Millard, the possibility that
one or more of the companies will file for bankruptcy protection and terminate their pension
plans poses a financial risk for the PBGC. Millard stated that as of January 2009, the risk to the
PBGC “is significantly greater than it was six or seven months ago.”306
In effect, GM’s February 2009 report confirmed this PBGC concern. The company determined
that the pension fund value had declined by $20 billion in the latter half of 2008, leaving it
undervalued by 13%, and possibly requiring future net cash contributions.307 An analysis by the
Detroit Free Press indicated that only $11.3 billion of the loss in 2008 was owing to asset
devaluation. The remaining $8.7 billion had been taken out of the pension fund, which at the time
had been considered overfunded, to pay for employee buyouts and to make contributions to the
VEBA. Olivia Mitchell, a pension law expert at the University of Pennsylvania’s Wharton School
was quoted in the article as questioning whether the GM move, while legal, was consistent with
the “promise” of pension obligations.308
Health Care Issues309
If an automaker files for bankruptcy, health care coverage for both active and retired workers and
their families could be at risk. The risk differs depending on whether the bankruptcy is a
liquidation under Chapter 7 or a bankruptcy reorganization under Chapter 11, whether individuals
are still working or retired, and whether they are covered by a collective bargaining agreement.

303 “Federal Pension Agency Asks Automakers for Details on Buyouts,” Bloomberg News, November 28, 2008.
304 New York Times, “GM’s Pension Fund Stays Afloat, Against the Odds” (November 25, 2008).
305This is known as the “termination liability,” for which the PBGC may ultimately become responsible. “Agency
Raises Concerns About Car Makers’ Pensions,” Wall St. Journal, January 9, 2009.
306Detroit News, “Big 3 Pension Gap Grows” (January 10, 2009).
307 GM 2009-14 Restructuring Plan (February 2009), p. 31 and Table 13.
308 Detroit Free Press, “Questions Arise from GM’s Use of Pension for Buyouts, VEBA Trust” (March 1, 2009).
309 This subsection was written by Carol Rapaport, Janemarie Mulvey, and Hinda Chaikind of the Domestic Social
Policy Division.
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Individuals’ options for obtaining alternative coverage, either private or public, also differ; factors
such as age or Medicare eligibility, income, and family circumstances could be important. The
111th Congress might consider broad health care reforms that could provide further options at
some point in the future.
The future funding status for retiree health insurance for workers covered by the UAW’s
collective bargaining agreement is uncertain. During the 2007 contract negotiations, each of the
three firms reached separate agreements with the UAW to contribute a percentage of their
projected retiree health liabilities to a Voluntary Employees’ Beneficiary Association (VEBA). In
total, the Detroit 3 contributions are projected to fund 64% of their future retiree health
obligations.310 Beginning on January 1, 2010, the VEBA will be managed by an independent
board of trustees appointed by the UAW and the court. The automakers will have no funding
responsibilities after this point.311 The VEBA reduces the automakers future retire health
liabilities and essentially transfers these liabilities to a trust fund administered on behalf of the
union.
However, the size of future contribution to the VEBA could depend on the financial conditions of
the Detroit 3. Following their initial VEBA contributions in 2007, the firms agreed to make
additional contributions to the VEBA trust beginning in 2008. However, GM did not contribute
the agreed upon amount during 2008. Furthermore, Ford and UAW agreed that some of the
automaker’s future VEBA payments would be in the form of company stock. Most recently,
Chrysler has filed for Chapter 11 bankruptcy protection and there is an increased likelihood that
GM may also do so in the near future. Under Chapter 11, the automaker and the UAW may
renegotiate health insurance benefits during the reorganization process. In addition, increasing the
share of funding of the VEBA from stock could affect the value of its funds.
In addition to adversely affecting retirees, bankruptcy filing could also threaten health plans for
union workers and nonunion workers and retirees.312 Under a liquidation, there would presumably
be no health plans remaining for any former workers or retirees. In the event of a bankruptcy
reorganization under Chapter 11, if a firm continues to provide health benefits to its workers,
certain individuals would be entitled to purchase health benefits through COBRA (Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985, P.L. 99-272).
Under COBRA, employers who offer health insurance must offer the option of continued health
insurance coverage at group rates to qualified employees and their families who are faced with
loss of coverage due termination of employment, a reduction in hours, or certain other events.
Employers are permitted to charge the covered beneficiary 100% of the premium (both the
portion paid by the employee and the portion paid by the employer, if any), plus an additional 2%
administrative fee. The continued coverage for the employee and the employee’s spouse and
dependent children must continue for 18 months.

310 GM and Ford Investor Presentations, UAW. Chrysler Report, 2007.
311 For more information see CRS Report R40420, Health Insurance Premium Assistance for the Unemployed: The
American Recovery and Reinvestment Act of 2009, coordinated by Janemarie Mulvey.
312 One option for subsidizing the purchase of health insurance, that could be available although is unlikely at this time
for the Detroit 3 workers, is the Health Coverage Tax Credit (HCTC) for certain categories of affected workers. The
HCTC covers 65% of the premium for qualified health insurance purchased by an eligible taxpayer. For further
information on the HCTC see CRS Report RL32620, Health Coverage Tax Credit, by Bernadette Fernandez.
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P.L. 111-5 includes COBRA premium subsidies of 65% to help the unemployed afford health
insurance coverage from their former employer. The subsidy is available for up to 9 months to
those individuals who meet the income test and who are involuntarily terminated on or after
September 1, 2008, and before January 1, 2010. There will also be a special extended enrollment
period for two groups of unemployed who were involuntarily terminated from their employment
on or after September 1, 2008: (1) individuals who did not elect COBRA coverage at the time,
and (2) individuals who had chosen COBRA coverage after September 1, 2008, but dropped their
coverage because they could not afford the premiums. Persons in these two groups are to be
notified by their former employer within 60 days of enactment, and will have an additional 60
days after being notified to elect COBRA and receive the subsidy.
A retiree may have access to COBRA coverage in the event that a former employer terminates the
retiree health plan as a result of a bankruptcy reorganization under Chapter 11.313 This option
would only be available to those retirees who are receiving retiree health insurance. In this case,
the COBRA coverage can continue until the death of the retiree. The retiree’s spouse and
dependent children may purchase COBRA coverage from the former employer for 36 months
after the retiree’s death. However, beginning on January 1, 2009, GM followed the lead of Ford
and Chrysler, and stopped providing non-union retirees with health benefits once they become
eligible for Medicare at age 65. Instead, retirees will receive additional funds which they may
choose to use to purchase Medicare supplemental policies. Similarly, beginning January 1, 2010,
GM will no longer provide health benefits for 2 groups of non-union retirees under 65: (1) those
eligible for Medicare, and (2) those hired since 1993. Individuals who are not receiving health
insurance could not qualify for COBRA.
The 111th Congress may consider broad health care reforms that could help some autoworkers,
either active or retired, and their family members to obtain and pay for health care coverage.
While it is unclear when specific broad health care reform proposals will be developed, let alone
whether they will be adopted, the possibility of reforms might be taken into account as policy
makers consider the financial future of the auto industry and its workers.
Stipulations and Conditions on TARP Loans to the
Auto Industry
Most supporters and advocates of assistance to the Detroit 3 through a program of federal direct
loans have acknowledged that such assistance may be accompanied by conditions placed by
Congress on the Detroit 3 and their management. In the 110th Congress, S. 3688 and H.R. 7321
both would have addressed this issue, and in similar ways. In the 111th Congress, the House
addressed these conditions in H.R. 384: in §409 specifically for the auto industry, and in §102 for
all recipients of TARP funds more generally. None of these measures has been enacted into law.
The present report has already included an outline of the Bush Administration’s conditions and
stipulations placed on the loans planned for GM and Chrysler, especially relating to loan

313 If the retiree coverage is eliminated and it differs from coverage offered to active employees, “presumably the
obligation can be satisfied if the affected retirees are offered coverage similar to that provided to active employees,”
according to the American Bar association, Joint Committee of Employee Benefits (Employee Benefits in Bankruptcy:
COBRA Health Continuation Coverage Rules. Teleconference/Live Audio Webcast, May 12, 2004).
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repayment and financial oversight. The following section concludes the report by reviewing in
more detail:
• Restrictions on executive privileges and compensation;
• Requirements in company restructuring plans;
• Restructuring targets required of the companies, including competitive pay and
benefits for the hourly workforce.
Executive Privileges and Compensation314
Until the facility is repaid in full and the U.S. Treasury no longer owns any of their equity
securities, restrictions on executive privileges and compensation will apply to GM and Chrysler.
Such standards minimally apply to the treatment of the chief executive officer, chief financial
officer, and the next three most highly compensated executive officers, the senior executive
officers (SEO) and others officials as expressed in the American Recovery and Reinvestment Act
of 2009 (ARRA, (P.L. 111-5), otherwise known as the 2009 stimulus bill. The law was signed on
February 17, 2009. ARRA’s section on executive privileges and compensation for recipients of
TARP assistance amends and replaces Section 111(b) of EESA (the Emergency Economic
Stabilization Act of 2008) and subsequent Treasury Department interpretive guidelines. ARRA
also appears to incorporate several original supplemental compensation strictures that the auto
firms were subjected to in addition to Section 111(b) of EESA. As of May 27, 2009, the Treasury
Department has not adopted implementing guidelines for the provisions under ARRA.
Below, the report describes the executive pay restrictions that the companies were originally
subject to under Section 111(b) of EESA and the supplemental provisions. It then discusses
applicable provisions under ARRA.
Required Compliance with the Overall Executive Compensation Requirements
in Section 111(b) of the EESA
Both companies are subject to the overarching executive compensation and corporate governance
requirements established in Section 111(b) of the EESA and the Treasury Department guidelines
for companies involved in the TARP’s Systematically Significant Failing Institutions’ (SSFI)
program.315 Briefly, the section in the EESA requires participating institutions to ensure that their
five most senior executive officers, including the CEO: (1) do not take unnecessary and excessive
risks that threaten the value of the company; (2) are subject to provisions that allow for the
company’s recovery or the clawback of any bonus or incentive compensation paid to them that is
based on financial statements of such things such as earnings that are later proven to be materially
inaccurate; and (3) are not allowed to receive golden parachute payment from the company
during the time in which the Secretary of the Treasury holds an equity stake in the company.

314 This subsection was written by Gary Shorter, Government and Finance Division.
315 U.S. Department of the Treasury Notice 2008-PSSFI.
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Strictures on the Provision of Golden Parachutes
Both companies are required to modify or change the benefit plans, arrangements and
agreements, including golden parachute agreements for all senior officials to the extent necessary
to be in compliance with the aforementioned Section 111(b) of the EESA and applicable
guidelines.
Golden parachutes are defined in the relevant Treasury Department interpretation as payments of
more than three times an executive’s average base compensation from a firm over the five most
recent years in the event of the official’s involuntary termination, or bankruptcy or receivership of
a financial institution. It is the definition of a golden parachute that the department has used for
tax purposes for many years, and it is the applicable definition for the financial firms that are
participating in the EESA’s TARP Capital Purchase Program.316 Explaining the rationale for the
proscription in the EESA, a Treasury Department official observed that “ ... our key focus is that
we do not want to reward poor performance ... ”317
However, there are some concerns that the provision sets too high a level of reward to have much
impact. Some executive compensation consultants stress that it is uncommon for executive
severance payments to reach the size that would trigger the provision’s parameters. They note that
such relatively large payments do not normally occur unless an executive is released without
cause immediately after a “change in control” situation, usually involving a corporate takeover.318
Echoing that view, in a letter of October 29, 2008, to Treasury Secretary Henry Paulson, Senate
Majority Leader Harry Reid and House Speaker Nancy Pelosi said “... [G]iven the level of public
outrage over these compensation schemes.... We would urge you, in particular, to consider the
possibility of further restrictions on the use of ‘golden parachutes’ at such [participating]
institutions ... ”319
Under the compensation strictures outlined in Treasury guidelines for participants in the EESA’s
SSFI program, GM and Chrysler are subject to more restrictive criteria on golden parachute
payments: any compensation that is paid by reason of an involuntary termination from
employment or in connection with bankruptcy, insolvency, or receivership is subject to golden
parachute treatment even if the total amount of such compensation is less than three times an
executive’s average taxable compensation during the five most recent years.
Required Compliance with Executive Compensation Corporate Limits on Tax
Deduction
Both companies must comply with the limits on annual executive compensation tax deductions
imposed by Section 162(m)(5) of the Internal Revenue Code of 1986.

316 This definition is much broader than the popular definition of a golden parachute, which is severance payment to an
executive in the event that a company undergoes a change in control.
317 Chris Isidore, “Golden Parachutes Here to Stay,” CNNMoney.com, (September 29, 2008).
318 Theo Francis, “Bank Rescue: Making Wall Street Pay?,” Business Week, October 15, 2008.
319 Letter from Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi to Treasury Secretary Henry
Paulson (October 29, 2008). Released on website, Democrats.senate.gov, (October 29, 2008), under “Reid, Pelosi Call
On Paulson To Strengthen Golden Parachute Restrictions on Financial Institutions Receiving Taxpayer Funds.”
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In 1993, in response to outrage at executive pay levels, P.L. 103-66 added section 162(m), titled
“Certain Excessive Employee Remuneration,” to the Internal Revenue Code. It imposes a $1
million cap on the corporate tax deductibility of compensation that applies to the CEO and the
four next highest-paid officers of publicly-traded firms. (Pay itself is not capped, only the
deduction of pay from corporate income.) Key compensation categories excluded by the law from
the $1 million deduction limit include (1) commission-based remuneration; (2) performance-
based compensation that meet outside director and majority shareholder approval; (3) payments
to tax-qualified retirement plans (including salary reduction contributions); and (4) amounts
excludable from the employee’s gross income.
The EESA amended Section 162(m) to provide for Section 162(m)(5), which generally requires
firms participating in the EESA’s Capital Purchase Program (CPP) to agree to senior executive
pay deduction limitations of $500,000, a halving of Section 162(m)’s $1 million deduction limit.
Unlike Section 162(m), it also applies to firms that are not publicly traded. Under the terms of the
loan agreements, GM and Chrysler would also be subject to such terms.
Limitations on the Executive Pay Arrangements That Would Encourage the
Taking of Unnecessary and Excessive Risks
This provision elaborates on the overarching proscription on both companies making
compensation arrangements for their senior executives that would encourage them “to take
unnecessary and excessive risks” found in Section 111 (b) of the EESA. To comply, the principal
executive officer of GM and Chrysler are required to certify in writing, under penalty of perjury,
to the Treasury Department’s Chief Compliance Officer that their compensation committees have
consulted with their senior risk officials and determined that such senior executive pay schemes
would not encourage the taking of unnecessary and excessive risks that would pose a threat to
their companies’ values.
An argument could be made that the provision’s operative phrase, “... take unnecessary and
excessive risks.... ” is quite vague, potentially resulting in considerable interpretative leeway.
There is a widely held view that one of the contributing causes of the financial crisis that led to
the enactment of the EESA was the managerial compensation structure at Wall Street firms: many
think that Wall Street pay packages overly emphasized short-term incentives such as bonuses,
helping to encourage often reckless and harmful behavior driven by the pursuit of short term
corporate profits.320 Concerns over the relationship between managerial incentive compensation
and exceptional risk taking appears, however, to be largely confined to specific parts of the
financial sector such as the investment banking sector and hedge funds. In addition, a number of
compensation consultants have observed that while the use of uncapped annual incentive pay has
been a significant feature of many financial service firms, the practice is said to be generally
atypical outside of the sector.321
To the extent that legitimate concerns over excessive risk taking do exist, there is a vigorous
debate over the extent to which members of corporate boards are able to act independently of
senior management’s influence.322 Similar concerns could be raised about the ability of senior risk

320 For example, see Robert Samuelson, “Wall Street Ignored Risk to Gain Short-Term Riches, Washington Post,
September 18, 2008.
321 “Bank Rescue: Making Wall Street Pay?,” Business Week, October 16, 2008.
322USA Today, “GM Pushes the Pedal on Hydrogen Fuel-Cell Power” (November 5, 2007).
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managers to maintain their detachment from top management as they also help to arbitrate on top
executive pay arrangements under the terms of the agreements. Such concerns might be
especially germane to Chrysler, which is owned by a private equity firm. Some research on the
quality of corporate board governance at private equity firms found that such boards tend to be
heavily influenced by and at times controlled by the principal investors of the equity firm.323
Within the motor vehicle industry, the provision also raises a fundamental policy question: to
what extent would the discouragement of risk-taking behavior also result in the discouragement
of potentially beneficial, innovative, and entrepreneurial behavior? For example, in late 2007,
General Motors announced that it hoped to start selling cars powered by hydrogen fuel-cells by
2011.324 If an automaker began embarking on the development of such technology, under the
“excessive risk” provision should such undertakings be seen as excessive risk taking or
potentially beneficial and innovative entrepreneurship?
A Ban on the Provision of Incentive Compensation to the 25 Highest Paid
Officials
Neither company can provide bonuses or incentive compensation packages to the 25 most highly
compensated employees (including the senior executive officers) except as authorized by the
President’s Designee.
Studies on corporate compensation describe executive bonuses as a popular type of variable
incentive pay normally given as a once-a-year payment tied to some short-term performance
goals. These can range from judgments on executive performance by a corporate board, to levels
of company profits or company sectoral market share. After the EESA’s enactment, there was
concern expressed both in and out of Congress over reports that executives at financial firms
participating in the EESA were receiving what many perceived to be excessively large bonuses,
an issue not specifically addressed in the law’s restrictions on executive pay. A central concern
was that participating companies were using EESA funding to pay for bonuses, a charge that firm
executives denied.
A Ban on Compensation Plans That Would Encourage Earnings Manipulation
Neither company can adopt or maintain compensation plans that would encourage manipulation
of their reported earnings to enhance the compensation of any of their employees.
This provision is not part of Section 111 (b) of the EESA. Earnings manipulation, often referred
to as earnings management, is an umbrella term that is used to encompass everything from
earnings “smoothing” to outright accounting fraud. Investors, analysts, and auditors disapprove of
such actions, because it makes reported corporate earnings less reliable as a measure of firm
performance. A perceived epidemic of earnings management was a significant impetus behind the
enactment of the Sarbanes-Oxley Act of 2002 (SOX, P.L. 107-204), which contained a broad
range of corporate governance and accounting reforms.

323 John England, Vickie Williams, “Private Equity: Redrawing the Rules of Executive Compensation,” Towers Perrin
online, (July 7, 2008).
324 USA Today, “GM Pushes the Pedal on Hydrogen Fuel-Cell Power.”
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Publicly traded companies have a long history of using stock options as a major component of
executive compensation; the strategy’s central objective is aligning an executives’ personal
interests with those of shareholders. In 2007, Ford reported that its stock option awards to its top
five senior executives ranged between $2.49 million and $7.51 million. General Motors reported
that its option awards to its top five executives ranged from $534,000 to $3.77 million.
There is a growing body of research that has found that executive stock options can have negative
consequences with respect to encouraging a greater tendency toward earnings manipulation. For
example, one empirical study found statistical evidence that earnings manipulation is more likely
where stock options play a larger role in CEO compensation.325 Another study concluded that
CEOs were more apt to manipulate firm earnings when they had more out-of-the-money stock
options326 and lower holdings of conventional company stock.327 Jack Dolmat-Connell, president
of Dolmat-Connell & Partners, an executive-compensation consulting firm, reportedly observed,
“While I think that options are an extremely good driver of performance, there’s no downside to
them from the executive’s standpoint... [Y]ou have to have someone with unethical standards who
gets lots of stock options for misrepresentation and fraud to occur. If you give someone with
strong ethical standards lots of options, nothing is likely to happen.”328
Thus, it could be argued that to faithfully implement the provision’s “prohibition on any
compensation plan that could encourage manipulation of the reported earnings” of a recipient
firm, companies would have to ensure that executive stock option packages were tailored
properly to balance their positive incentive attributes with their potential for encouraging
inappropriate behavior. This may assume that the process is conducted with a minimum of
executive influence and bias, which, as noted earlier, could be questioned.
A Prohibition on Altering Previously Imposed Restrictions on Executive
Benefit Plans
Both companies must not alter the suspensions and the restrictions on company contributions to
senior executive benefit plans that were either in place by, or that had been initiated by, the
closing date of the agreement.
Clawbacks of Executive Bonuses, Etc.
The Treasury Department reserves the right at any time during the period of the loans to require
either company to clawback any bonuses or other compensation, including golden parachutes,
paid to any of their senior executives that are in violation of any of the aforementioned
requirements.

325 Gary K. Meek, Ramesh P. Rao, and Christopher J. Skousen, “Evidence on Factors Affecting the Relationship
Between CEO Stock Option Compensation and Earnings Management,” Review of Accounting & Finance, Vol. 6,
Issue 3, 2007, p. 304.
326 This is a stock option that would be worthless if it expired today due to the fallen current market price of the
underlying stock.
327 Xiaomeng Zhang, Kathryn M. Bartol, Ken G. Smith, Michael D, Pfarrer, and Dmitry M. Khanin, “CEOS on the
Edge: Earnings Manipulation and Stock-Based Incentive Misalignment,” Academy of Management Journal, April
2008, p. 241.
328 David Shadovitz, “The Risks of Stock Options,” Human Resource Executive Online (July 25, 2007).
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The provision appears to be an expansion of the executive clawback provision in Section 111(b)
of the EESA. That provision approaches the recoupment of executive bonuses and incentives in a
somewhat different fashion than does an earlier provision in SOX. SOX and its clawback
provision were collective responses to the widespread corporate misstatements of corporate
earnings that were widely observed in the preceding years. SOX’s clawback provision only
applies to the CEO and the chief financial officer (CFO) of publicly traded companies. The
clawback provision in the GM and Chrysler agreements would also apply to privately held firms
(like Chrysler) and the top five senior officers, including the CEO and the CFO. And unlike the
provision in SOX, it would not limit the recovery period and covers not only material
inaccuracies related to financial reporting, but also material inaccuracies related to other
performance metrics used to award bonuses and incentive compensation. Reports indicate that the
Securities and Exchange Commission has rarely prosecuted violations of Sarbanes-Oxley’s
clawback provision. Possibly, this is because executives often settle financial misstatement cases
without admitting wrongdoing, thus avoiding the triggering the provision, and because of how the
pivotal concept of “misconduct” is interpreted.329
The expanded clawback provisions in the GM and Chrysler agreements also appear to provide for
the broad-based punitive threat of Department of Treasury-initiated clawbacks of top executive
bonuses or other forms of compensation in the event that there are violations of any of the
agreements’ aforementioned requirements on executive pay.
The American Recovery and Reinvestment Act of 2009
Among other things, the American Recovery and Reinvestment Act of 2009 (ARRA) limits
executive compensation for financial institutions receiving assistance under Section 111(b) of the
EESA by amending and essentially replacing that section in EESA and related interim Treasury
Department releases.
To date, the Treasury Department had not issued the new executive compensation rules under
ARRA. In its April 2009 report to Congress, the Office of the Special Inspector General for the
Troubled Asset Program observed that the Treasury Department “... should address the confusion
and uncertainty on executive compensation by immediately issuing the required regulations....
”330
ARRA’s executive compensation strictures will generally be retroactively applied to all TARP
recipients regardless of the level of assistance received. Among other things, the rules will
provide for the following:
• Limitations on Incentives that Encouraging Risk. TARP recipients will have to
limit compensation arrangements that provide incentives for SEOs331 of the
TARP recipient to take unnecessary and excessive risks that threaten the value of
the TARP recipient.

329 Peter Galuszka, “What Are Compensation ‘Clawbacks’?,” BNET Briefing, October 3, 2008. http://www.bnet.com/
2403-13056_23-239138.html?tag=content;col1
330 “Troubled Asset Relief Program, Quarterly Report to Congress,” Office of the Special Inspector General for the
Troubled Asset Relief Program, Apr. 21, 2009, p. 144.
331 SEOs, or senior executive officers, generally include the three most highly-compensated executives, such as chief
executive officer, chief operating officer and chief financial officer.
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• Bonus Clawbacks. TARP recipients will be required to have a provision to claw
back bonuses or other incentive compensation payments from their SEOs and the
next twenty highly compensated employees in the event that statements of
earnings, revenues, gains, or other such criteria on which the payments are based
subsequently determined to be materially inaccurate.
• Limitations on Incentive Compensation. TARP recipients will be prohibited from
paying certain executives bonus, retention, or incentive compensation pay other
than long-term restricted stock that does not vest during the period in which the
financial assistance remains outstanding. The restricted stock cannot be greater
than one-third of the executive’s annual compensation. Depending on the amount
of financial assistance that a TARP recipient has received, the limitation would
apply to a different number of executives: for both GM and Chrysler, the
prohibition would apply to the five senior executives officers and the twenty next
most highly compensated employees. The prohibition would not, however, apply
to bonus payments that are required to be made based on employment contracts
that were executed either on or before February 11, 2009.
• Golden Parachutes and Severance Payments. TARP recipients will be prohibited
from paying “golden parachutes” to SEOs and to the next five most highly
compensated employees. Golden parachutes will be defined as any payment for a
departure from a company for any reason, except for payments for services
performed or benefits accrued.
• Plans that Encourage Earning Manipulation. TARP recipients will be prohibited
from having compensation plans that would encourage manipulation of the
reported earnings to enhance compensation for any of their employees.
• “Say on Pay” Requirement. TARP recipients will be required to permit a
separate nonbinding shareholder vote to approve the compensation of the
executives, which are required to be disclosed under the Securities and Exchange
Commission’s compensation disclosure rules.
• Luxury Expenditures. TARP recipients’ boards of directors will be required to
adopt policies regarding excessive or luxury expenditures. In conjunction with
this, the Treasury Secretary would be authorized to identify such luxury
expenditures, which may include excessive payments on aviation or other
transportation services, entertainment, events, office and facilities renovations,
and other activities that are “not reasonable expenditures.” The specific nature of
a board’s policy regarding such excessive or luxury expenditures is not specified.
Chrysler’s Bankruptcy
With respect to Chrysler, under the Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 (BAPCA), bankruptcy courts are not to authorize payments to bankrupt entity “insiders”
for the purpose of inducing the insider to remain in the debtor’s employ, unless the court
determines that (1) the payment is essential to the retention of the person because he or she has a
bona fide job offer from another business at the same or a greater rate of compensation, (2) the
services provided by the individual are essential to the survival of the business, and (3) certain
limitations are applied to the amount of the compensation. With respect to these limits, the
amount of the retention payment to an insider must not be greater than 10 times the amount of the
average compensation of a similar kind given to non-management employees during the calendar
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year; or if there were no such payments during the calendar year, the payment can be no greater
than 25% of the amount of any similar transfer to the insider during the calendar year before the
year in which the compensation was paid.
With respect to Chrysler’s prospective acquisition by Fiat, EESA specifies that if a TARP
recipient is acquired by an unrelated third party, the acquirer would not become subject to EESA’s
restrictions merely by reason of the transaction. In the event of such a transaction, senior
executives of the target will remain subject to the prohibition on golden parachute payments for
one year following the acquisition.
Other Restructuring Plan Conditions332
Restructuring Plan Requirements
The term sheets for GM and Chrysler required them to submit by February 17, 2009, a plan to
“achieve and sustain ... long-term viability, international competitiveness and energy efficiency
...” This must include “specific actions to ensure:
• Federal loan repayment under applicable terms and conditions;
• Ability of the company both to meet all applicable federal fuel economy and
emission requirements, and to begin manufacturing advanced technology
vehicles, as specified in the EISA direct loan program;333
• Achievement by the companies of a positive net value;
• Rationalization of “costs, capitalization, and capacity” with respect to workforce,
suppliers, and dealer networks; and
• Competitive “product mix and cost structure.”
The companies will be required to produce monthly and annual statements on meeting these
restructuring requirements. In addition, the term sheets required the companies to use their best
efforts to achieve the following three “targets:”
Restructuring Plan Targets
“Bond Exchange”
Reduction of unsecured debt by two-thirds (excluding pension and employee benefit obligations)
by conversion of debt into equity or by other means.

332 This subsection was written by Bill Canis, Specialist in Industrial Organization and Business.
333 Requirements for eligibility under this program are described in CRS Report RL34743, Federal Loans to the Auto
Industry Under the Energy Independence and Security Act, by Bill Canis and Brent D. Yacobucci.
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“Labor Modifications”
• “Compensation Reduction.” Reduce total compensation, including wages and
benefits, by the end of 2009 to an average equivalent to those of Toyota, Honda,
and Nissan in the United States, as certified by the Secretary of Labor.
• “Severance Rationalization.” Eliminate payment of any compensation or benefits
to fired, furloughed, laid off, or idled employees, beyond “customary” severance
pay;
• “Work Rule Modification.” By the end of 2009 apply work rules “in a manner
competitive” with the three Japanese-owned companies in the United States
named above.
With respect to labor contract modifications and other provisions under collective bargaining
agreements covering the hourly workforce, “if any labor union or collective bargaining unit shall
engage in a strike or other work stoppage,” it has been defined as an “event of default” in the
“loan and security agreements” signed by the recipient companies as a condition of receiving the
loans from the Treasury Department.334
“VEBA Modification”
Convert one-half of the value of each future corporate contribution to the planned VEBA for
retiree health care, due by January 1, 2010, to company stock holdings.
Each company was required by February 17, 2009, to submit term sheets signed by
representatives of the company and, respectively, bondholders, unions, and VEBA
representatives. That is to be followed up by full approval of the terms by the respective groups,
and certification by the President’s designee, with such variation as may be allowed. Failing
completion of this process, the designee could require full loan repayment in 30 days.335
Modifications in UAW Contract with Ford
While Ford did not participate in the program of federal assistance, it is affected by the same
competitive issues in the UAW contract with U.S. hourly workers as the other Detroit 3 OEMs. In
February 2009 Ford and the UAW announced agreement on modification of operating provisions
in Ford’s national labor agreement and to how Ford will pay its contributions to the VEBA retiree
health care trust. While Ford is not tapping into the TARP for government loans, under the
principle of “pattern bargaining,” it can be expected that the Ford labor agreement modifications
provide the basis for the UAW position in negotiations under the loan agreements with GM and
Chrysler.336

334 U.S. Securities and Exchange Commission. Form 8-K filed by General Motors Corporation, December 31, 2008, p.
60. A similar provision is reportedly in the loan agreement signed by Chrysler LLC, a privately held company. This
provision was first noted by the press: Wall St. Journal, “Bailout Pact of GM, U.S. Would Block a UAW Strike;”
Detroit News, “Strikes Would Imperil Bailout Funding;” Detroit Free Press, “UAW Strike Would Kill Auto Loans,”
all January 9, 2009. Commentators quoted in the stories noted that strikes were in any case highly unlikely in view of
the financial conditions of the automakers.
335 These conditions are summarized from Treasury, GM and Chrysler Term Sheets, pp. 5-7.
336 Ford Motor Co., “UAW and Ford Reach Tentative Agreement on Future Funding of the Health Care Trust;” and,
(continued...)
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The Ford deal with the UAW modified the previous agreements of 2007 in two general ways:
• Reduction in labor costs. The UAW agreed to the elimination of Christmas and
performance bonuses for 2009-10. These bonuses had totaled about $1,100 per
employee per year. The union also agreed to surrender its cost-of-living escalator
that had been negotiated through 2011, and gave up one paid holiday, Easter
Monday. The Jobs Bank program was replaced with a more financially limited
plan of supplementary unemployment benefits and “transition assistance” for
laid-off workers. The modified agreement also included a new one-time buyout
offer of $20,000-$50,000, depending on seniority, plus a voucher for a new Ford
vehicle, that could be converted into $20,000 in cash.
• VEBA contributions with Ford Equity. The UAW agreed to accept Ford stock in
part payment for the company’s VEBA contributions. In each scheduled
contribution period, the company can now contribute up to half the value of the
amount owed in company stock, instead of cash. The VEBA is allowed to convert
the equity contributions immediately into cash on the open market. The amount
of stock contributed must be equal in value to half of the cash contribution owed,
except that the first three contributions, at the end of 2009, and in mid-2010 and
mid-2011, respectively, were agreed to be valued at $2.00 per share. This means
that the VEBA would assume the risk that Ford stock would be less than that
value, which it was as of early March 2009.337
The agreement between Ford and the UAW Ford Department was unanimously approved by the
UAW Board and was ratified by the active UAW membership on March 9, 2009.338
In May 2009, however, Ford asked the UAW to reopen discussions about this contract, in light of
the concessions that the UAW made to Chrysler prior to its filing for bankruptcy on April 30.339

(...continued)
UAW, “UAW and Ford Reach Tentative Understanding on Modifications to VEBA, Contract” (both news releases on
February 23, 2009). On significance for GM and Chrysler, see, Wall St. Journal, “Ford Gets UAW Concessions Ahead
of Rivals;” Detroit News, “Ford’s Health Deal May Set Trend”, and Daniel Howes, “Commentary: UAW Deal with
Ford Pressures Rivals;” Washington Post, “UAW, Ford Cut Deal on Health Benefits” (all February 24, 2009).
337 The agreement is spelled out in full detail by UAW Ford, Modifications to 2007 Agreement and Addendum to VEBA
Agreement (February 2009).
338 Detroit Free Press “Ford UAW Workers OK Cuts in Benefits;” Associated Press, “Ford Workers Approve UAW
Contract Changes” (both March 9, 2009).
339 The Detroit Free Press, “Ford Wants More Concessions by UAW” (May 6, 2009).
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Author Contact Information
Bill Canis, Coordinator
Patrick Purcell
Specialist in Industrial Organization and Business
Specialist in Income Security
bcanis@crs.loc.gov, 7-1568
ppurcell@crs.loc.gov, 7-7571
James M. Bickley
Carol Rapaport
Specialist in Public Finance
Analyst in Health Care Financing
jbickley@crs.loc.gov, 7-7794
crapaport@crs.loc.gov, 7-7329
Hinda Chaikind
Gary Shorter
Specialist in Health Care Financing
Specialist in Financial Economics
hchaikind@crs.loc.gov, 7-7569
gshorter@crs.loc.gov, 7-7772
Carol A. Pettit

Legislative Attorney
cpettit@crs.loc.gov, 7-9496

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

Key CRS Policy Staff and Areas of Expertise
This report was originally coordinated by Stephen Cooney, Specialist in Industrial Organization and
Business. General inquiries may be directed to Bill Canis, Specialist in Industrial Organization and
Business. The table below provides a quick reference for congressional staff seeking to identify experts to
contact regarding specific issues or aspects of the U.S. motor vehicle industry.
Table 6.Contact Information for Key CRS Policy Staff
Legislative Issue
Name/Title
Phone
Industry Issues

Finances: current and prospective
Bill Canis
Specialist in Industrial Organization and

Business
7-1568
Capacity, sales, and state of the economy
Bill Canis

Specialist in Industrial Organization and
Business
7-1568
Environmental and Efficiency Issues

Fuel economy
Brent D. Yacobucci

Specialist in Energy and Environmental Policy
7-9662
Emissions standards and clean air issues
Brent D. Yacobucci

Specialist in Energy and Environmental Policy
7-9662
Advanced vehicle technologies
John F. Sargent, Jr.

Specialist in Science and Technology Policy
7-9147
Employee Compensation

Levels of employment, wages
Michaela Platzer
Specialist in Industrial Organization and

Business
7-5037
Pensions
Patrick Purcell

Specialist in Income Security
7-7571
Health care coverage
Janemarie Mulvey

Specialist in Aging Policy
7-6928
Carol Rapaport

Analyst in Health Care Financing
7-7329
Executive compensation
Gary Shorter

Specialist in Financial Economics
7-7772
Restructuring and Retooling

Financing Options

Loans and loan guarantees
James Bickley

Specialist in Public Financing
7-7794
Bankruptcy and reorganization
Carol A. Pettit

Legislative Attorney
7-9496
Emergency Economic Stabilization Act
Baird J. Webel

Troubled Assets Relief Program
Analyst in Financial Economics
7-0652

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Legislative Issue
Name/Title
Phone
Edward V. Murphy
7-6201
Specialist in Financial Economics
Employment Impacts

Union contracts
Bill Canis
Specialist in Industrial Organization and
Business
7-1568
Gerald E. Mayer
7-7815
Analyst in Labor Policy
Unemployment and layoffs
Linda Levine

Specialist in Labor Economics
7-7756
Unemployment benefits
Julie M. Whittaker

Specialist in Income Security
7-2587
Job training
Ann Lordeman

Specialist in Social Policy
7-2323
Auto Parts Suppliers
Bill Canis

Specialist in Industrial Organization and
Business
7-1568
Foreign-Owned Motor Vehicle
Bill Canis
Manufacturers

Specialist in Industrial Organization and
7-1568
Business
Macroeconomic Impacts
Darryl M. Getter
Specialist in Financial Economics
7-2834
Bill Canis
7-1568
Specialist in Industrial Organization and

Business
Automotive Data

Production and sales data
John Williamson

Knowledge Services Group
7-7725

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