Auto Industry Financing & Restructuring Act

Barney Frank, a congressman from Massachusetts as of January 2011, sponsored the Auto Industry Financing and Restructuring Act --- House Resolution 7321 --- in 2008. Near the end of 2008, the major United States auto manufacturers faced a serious financial crisis that resulted in bankruptcy in 2009. According to Barney Frank, the goal of this legislation was to prevent such a bankruptcy from occurring via short-term loans and restructuring overseen by the federal government.

History

Representative Frank introduced the Auto Industry Financing and Restructuring Act, or AIFRA, to the House Financial Services Committee on December 10, 2008. The legislation passed the U.S. House the same day with a vote of 237 in favor and 170 against. The next day, Republicans and Democrats in the Senate couldn't reach a consensus on the bill. According to CNN, Senate Democrats forced a filibuster proof vote, but the final tally added up to 52 in favor and 35 against, falling short of the 60 Senate votes needed for a filibuster proof majority to end debate and force a vote. Because the U.S. Congress went into recess for the 2008 year shortly thereafter, the legislation was tabled.

Financing

AIFRA provided for up to $14 billion in short-term loans to keep the major U.S. auto manufacturers solvent while they underwent corporate restructuring. This bill also provided federal loans for public transit in the event of a default of a major insurer such as American International Group, or AIG. H.R. 7321 contained $500 million in loan provisions to finance innovations in advanced fuel efficiency, carbon emission reduction and electric vehicles.

Compensation

According to Congresswoman Louise M. Slaughter, H.R. 7321 contained a provision to end golden parachutes, a euphemism referring to the lavish compensation of departing auto executives. Under AIFRA, the 25 highest-paid employees at Chrysler, Ford and General Motors were forbidden from receiving any bonuses throughout the duration of the government loans. In addition, these large auto manufacturers could not own any corporate jets and had to sell or lease existing aircraft. All parties involved in the automotive manufacturing process, including creditors, shareholders, labor unions, employees and suppliers, would have to accept cuts during restructuring efforts. Auto companies who received bailout funds couldn't issue dividends to shareholders during the restructuring period.

Oversight

The Auto Industry Financing and Restructuring Act provided for the appointment of a car czar who answered to the president. The car czar would implement restructuring plans for the auto companies and ensure that the auto companies paid back government loans. Under H.R. 7321, the czar could veto industry expenses over $100 million and would allocate all government loan funds. Both the Government Accountability Office, or GAO, and Special Inspector General, or SIG, of the United States would offer independent oversight of bailed-out auto manufacturers.

Effects

Despite the tabling of the bill, President Obama implemented many of the provisions in H.R. 7321 after the Chapter 11 bankruptcy of Chrysler on May 1, 2009, and General Motors on June 8, 2009. These provisions included government loans for GM in exchange for stock ownership in the company and government oversight in the form of the Presidential Task Force on the Auto Industry.

References

• Congresswoman Louise M. Slaughter: Congresswoman Slaughter's Statement on House Emergency Aid to U.S. Auto Industry
• House Resolution 7321: Auto Industry Financing and Restructuring Act
• CNN: Auto Bailout Dies in Senate
• Library of Congress: H.R. 7321 Status
• Office of the Press Secretary: Remarks by President Obama on the American Automotive Industry