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Obama aide: Auto rescue likely to pay off

June 10, 2009

Obama aide: Auto rescue likely to pay off

By Justin Hyde
Free Press Washington Staff

Updated at 5:42 p.m.

WASHINGTON – A top member of President Barack Obama’s auto task force said today the government had a "reasonable probability" of earning back its investments in General Motors Corp. and Chrysler LLC, adding that the rescues “saved hundreds of thousands of jobs."

Several members of the Senate Banking committee questioned Ron Bloom, a senior adviser to the U.S. Treasury, over the government’s role in GM and Chrysler’s bankruptcies, including closed factories, shuttered dealers and bans against product liability lawsuits.

But the panel also pressed Bloom to specify how and when the government would shed its stakes in the auto industry — a contradiction in priorities that Congress has only begun to wrestle with.

“On the one hand, we tell you we don’t want the government running these businesses,” said Sen. Sherrod Brown, D-Ohio. “On the other hand, we tell you to step in and make GM and Chrysler do this, this and this.”

Bloom said the rescues weren’t "heartless," as Sen. Mike Johanns, R-Neb., called them, but necessary and painful.

"Bankruptcies are about taking liabilities companies can no longer afford," Bloom said in response to a question about product liability lawsuits. "There are a lot of people General Motors made a promise to they can’t honor."

The hearing was part of a renewed interest on Capitol Hill in the details of the GM and Chrysler bankruptcies, especially the nearly 3,000 dealer cuts proposed by the two automakers. The administration has said it was the automakers’ decision to pursue the cuts, but Bloom defended them as necessary to “right size” their businesses.

That drew several questions from senators. Sen. Robert Bennett, R-Utah, said Chrysler was closing every dealer between Las Vegas and Provo, a move that he said appeared designed to clear the way for a new dealer to move in.

"We’ve never really heard the economic argument to close these dealerships," Brown said.

Sen. Herb Kohl, D-Wisc., said administration officials had defended Chrysler’s decision to close the Kenosha engine plant while leaving its sister plant in Mexico open.

"We put billions of dollars into this company and yet jobs go to Mexico," said Johanns.

Bloom said the Kenosha decision was exactly the kind of call that the task force vowed never to become involved in, adding that it would have no input on GM’s decision for restarting a plant to build small cars.

"The alternatives for both of these companies are nothing for anybody," Bloom said.

The government has set aside $30.1 billion for GM and Chrysler $8.1 billion to go through bankruptcy and emerge as new firms through sales of their assets. The administration essentially wrote off the $23 billion lent to GM and Chrysler from January through March to survive.

Bloom hailed the closure of Chrysler’s sale to a new partnership with Fiat SpA, predicted a similar successful sale by GM, and said government was continuing to monitor the health of auto parts suppliers.

Sen. Christopher Dodd, the Connecticut Democrat who leads the committee, praised the administration’s efforts and defended the plan against criticism that it favored workers over investors. But he also vowed to explore how the administration planned to unwind its investments in GM and Chrysler.

“Getting out of the auto industry yesterday by the federal government would not be soon enough for me,” Dodd said.

Sen. Richard Shelby, R-Ala., said the decision by the Obama administration to take a 8% stake in Chrysler and a 60% stake in GM “embarked on a disturbing and difficult road.”

“The most difficult question, of course, is how the Treasury intends to get out,” he said in a statement.

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