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House trio pushing support for auto industry in future relief bill

Industry got no special treatment in earlier relief packages so far. A rerun of 'Cash for Clunkers' may be brewing

The 2009 'Cash for Clunkers" program may be a model for auto industry support. But there are downsides, analysts say.
The 2009 'Cash for Clunkers" program may be a model for auto industry support. But there are downsides, analysts say. (Ethan Miller/Getty Images)

A bipartisan trio of lawmakers from two auto manufacturing states is floating the idea of including aid for the industry in future coronavirus spending bills.

A draft letter asking House Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif., to support that goal is being circulated on Capitol Hill by Reps. Fred Upton, R-Mich., Debbie Dingell, D-Mich., and Marcy Kaptur, D-Ohio.

The lawmakers — who hope to send the letter Friday — argue the industry, which they say employs roughly 10 million American workers and drives more than $953 billion into the economy, needs federal help if the overall U.S. economy is to recover.

[McConnell nixes infrastructure in next economic recovery bill]

“The projected economic fallout for the industry is grave,” they wrote, saying sales are projected to drop as much as 30 percent for the year, from more than 17 million cars sold in 2019.

The roughly $2 trillion spending bill passed in March included $61 billion for the airline industry, $10 billion for airports, $25 billion for transit and $1 billion for Amtrak. That support was designed to help industries in which ridership had dropped off a cliff in the wake of the pandemic and shelter-in-place advisories. 

Left out

But it included no specific carveout for automakers, which have closed plants because of safety concerns and seen diminished sales. Ford, General Motors and Fiat-Chrysler all suspended operations in March. GM and Fiat-Chrysler have announced plans to resume production later this month and Ford is expected to do so as well.

Auto analyst Inc. projects demand for autos will drop 30 percent from last year. Of the three Detroit automakers, GM fared the best, seeing its first quarter sales drop 7 percent compared to a year ago. Ford saw a 12.5 percent sales decline and Fiat-Chrysler saw a 10 percent drop from the same quarter last year.

But federal help may come with drawbacks.

The auto industry’s most immediate concern is simply to sell cars. But wary consumers could hold off on purchasing a car if they think that the federal government might offer further incentives to get them to buy, such as the $2.85 billion “Cash for Clunkers,” program, which, as part of 2009 economic recovery, gave customers as much as $4,500 to trade in older, less fuel-efficient vehicles for new cars.

And some analysts say the industry may be wary about the optics of asking the government for more aid roughly a decade after the federal government spent some $80 billion to help a struggling GM and Chrysler in 2008. Ford did not receive part of that pot but received other financial assistance. In exchange for the federal assistance, GM, and Chrysler, now Chrysler-Fiat, as well as the United Autoworkers, were forced to restructure and accept a series of concessions. 

While the automakers were in the spotlight during the 2008 crisis, airlines have been the most obviously hurt during the pandemic. 

Rental sales

Still, automakers are struggling. Rental car company Hertz this week made a deal with lenders that gives it until May 22 to develop a financing plan after it missed debt payments on vehicles it had already purchased. That company as well as Enterprise and Avis have reportedly had to cancel fleet orders with U.S. automakers because of a steep decline in rental car business.  

“April auto sales took the biggest hit we’ve seen in decades,” said Jessica Caldwell, Edmunds’ executive director of insights, who said rental car business “has dried up.”

John Bozzella, president and CEO at the Alliance For Automotive Innovation, the leading U.S. auto industry group, said the industry’s immediate concern is protecting its employees’ health and the health of the supply chain and then making sure there’s adequate liquidity for automakers and the supply chain.

The $2 trillion stimulus legislation, he said, was extraordinarily helpful for the latter – even if the liquidity created in that legislation was not specifically earmarked for the auto industry.

“To be able to work with Congress and the administration to develop those types of credit facilities was very important,” he said.

Auto makers, he said, have helped lessen the blow by offering zero-interest loans, rebates and other incentives for buyers, but it remains “a very uncertain environment.”

Sales are roughly half what they were at this time last year, he said, and “we haven’t seen production levels this low since World War II.”

The big question will be what the economy looks like after the stay at home orders loosen, he suggested. While the industry’s immediate focus has been to help the economy recover, “you can’t rule anything out. There’s too much uncertainty.”

In their draft letter, the lawmakers argue that the challenges the industry faces from the pandemic may, in some respects, exceed the 2008 challenges, with automakers that suspended production needing both to restart it and to ensure worker safety.

“Rental car companies struggle on the brink of closing forever,” they wrote. “Many businesses in the industry face a cash crunch even as they prepare to ramp back up. “

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