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Republican Senators demand massive wage cuts, bond losses

by David Zatz on

Republican Senators, largely from the Southeast, have lined up behind Senator Corker’s proposal to allow a government insurance agency to be created to back 50% of $14 billion in loans to be made by private banks, provided they slash UAW salaries to those of nonunion factories, and that creditors agree to lose 70% of the amount they loaned to GM, Ford, and Chrysler. 

Direct labor costs appear to account for less than 10% of a vehicle’s costs, according to figures released by Chrysler. 

The original legislation would have lent $25 billion to domestic automakers at 5% interest, roughly 5 percentage points more than banks are currently paying. When this proposal appeared to be fruitless, the White House proposed a “compromise” where $25 billion already committed to automakers would be lent instead. When this was agreed to, the White House demanded instead a $15 billion “compromise” including a “car czar” who would be appointed by George W. Bush and who would have the power to put any automaker into bankruptcy if they were not happy with concessions by creditors and unions. The terms which would satisfy the czar have not been specified.

Bankruptcy has been dismissed as a viable option by GM and Chrysler, whose spokesmen said that customers would not buy from a bankrupt company for fear of having no warranty coverage or spare parts. 

Industry representatives have pointed out that their current crisis is due largely to the failure of the banking industry, which was due to lack of regulation and oversight by the Federal government. 

Republican Senate leader Mitch McConnell of Kentucky has signed onto Corker’s proposal. However, their changes may be unnecessary, as the White House appears to have endorsed the idea of requiring creditors and unions to take massive cuts or see GM and Chrysler pushed into bankruptcy, based on statements by Press Secretary Dana Perino.

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