26 November 2008

Big Three Pleads For Aid

WASHINGTON -- The chief executives of Detroit's Big Three auto makers appealed in dire language for U.S. taxpayers to help their industry, but couldn't dispel doubts in Congress that have clouded prospects for a government-led rescue.

In appearances Tuesday before the Senate Banking Committee, the leaders of General Motors Corp., Ford Motor Co. and Chrysler LLC, together with the head of the United Auto Workers union, argued the shaky U.S. economy couldn't withstand a collapse of any of the companies.

The chief executives of GM and Chrysler said they could run out of funds without the government's support. GM CEO Rick Wagoner said the package is needed to "save the U.S. economy from a catastrophic collapse."

That the companies were convening -- "hat in hand," as Sen. Christopher Dodd (D., Conn.) said -- before a congressional panel reinforced the depth of their difficulties and the possible diminishment of their political clout. Extending a helping hand to Detroit auto makers, long a central part of the nation's manufacturing base, doesn't appear to be a given.

One question is whether the auto makers can muddle through to January when a new Congress convenes with strengthened Democratic majorities and a Democrat in the White House. The complexity of a possible intervention -- and the political divisiveness it has wrought -- could be too great to overcome this week.

On Monday, Senate Democrats introduced legislation that would set aside $25 billion to help the industry, drawing from the $700 billion fund created to stabilize financial markets. The legislation would allow the auto companies and parts suppliers to receive "bridge loans" of at least ten years with favorable interest rates. But there is resistance among many senior Republicans and the White House. If no decision is made this week, the issue will be kicked over to the new 111th Congress.

In the late afternoon session, Republicans largely condemned the industry's request. Even some Democrats committed to helping the auto makers showed little enthusiasm for the task at hand.

While noting he backs aid, Senate Banking Chairman Mr. Dodd denounced the companies for failing to move more aggressively to reverse their sharp declines in market share. "They're seeking treatment for wounds that, I believe, are largely self-inflicted," Mr. Dodd said, adding the industry has failed to adapt and "we're all paying the price for it."

As the hearing stretched past its third hour, the top executives disclosed how much they might each apply for if Congress approved the $25 billion loan package: $10 billion to $12 billion for GM; $7 billion to $8 billion for Ford; and $7 billion for Chrysler.

The companies said they would use the money to pay employees, cover current operating costs and develop new products.

Both GM and Ford are on a pace to use up $2 billion each a month, based on their third-quarter earnings. Not getting funding immediately threatens GM most directly because the firm is operating close to its minimal funding requirements. The supply chain is shared among the Big Three, so a bankruptcy filing of one could spell problems for the other two.

Some analysts suggest GM, Ford and Chrysler can cut costs enough to survive until January. But if the U.S. auto market continues to sink, the companies' cash drain could outpace their ability to cut costs.

GM has said that without government aid, the company would run out of operating funds as early as early 2009.

Chrysler joined GM for the first time in linking its survival to a federal bailout. "Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations in the ordinary course," Robert Nardelli, the company's chairman and CEO, said. He added that the company was currently spending about a $1 billion a month more than they were taking in, leaving the auto maker with slightly more than $6 billion cash on hand.

Only Ford says that while the loan package is necessary for the betterment of the U.S.-based auto companies, it could withstand the downturn without government assistance.

The auto makers and the union sketched their companies' far-reaching impact. They also argued that Chrysler, Ford and GM are on the right track to compete with foreign-based auto makers, but that turmoil in the broader economy foiled their good planning. The companies together employ 239,000 people in the U.S.

Under pressure from senators over the issue of executive compensation, Chrysler's Mr. Nardelli said he would be willing to accept a salary of $1 a year as part of a federal bailout. Lee Iacocca made the same commitment when he ran Chrysler and secured federal loan guarantees in 1979. The chief executives of GM and Ford declined to make the same commitment.

The Banking Committee testimony is part of a broader lobbying campaign that includes parts suppliers and dealers. The executives will appear before the House Financial Services Committee Wednesday. All told, the companies are seeking $25 billion to weather the weakening economy, which has dampened demand for autos and restricted consumer access to loans.

In another indication of the industry's problems, the world's three dominant credit insurers now consider the U.S. auto industry among the riskiest sectors for default.

Few lawmakers in either party doubt the economic challenges facing the Big Three. At issue is how -- and whether -- Congress should get involved.

Sen. Jim Bunning (R., Ky.) said a rescue proposal by Senate Democrats would give the industry "virtually a blank check," and doesn't require the companies to improve productivity and lower labor costs. "Major changes are needed, if federal dollars are to be made available," he said.

Sen. Richard Shelby (R., Ala.) said he has doubts about whether the money will be enough to meet the industry's needs: "Is this the end, or just the beginning?"

Industry supporters, such as Sen. Carl Levin (D., Mich.) want action this week. "The stakes are great and time is short," said Sen. Levin, who is scrambling to find the 60 votes needed to overcome objections in the Senate. Sen. Levin drafted the legislation that would set aside $25 billion to help the industry using bridge loans.

To qualify, companies would have to accept limits on executive compensation, allow the government to take stock in the firms, and submit a detailed plan showing how they intend to return to sound financial footing and improve their capacity to produce fuel-efficient vehicles.

It wasn't clear whether Congress would demand management changes as a condition to any bailout, although the topic was on the minds of some lawmakers. Sen. Bob Bennett (R., Utah) predicted the jobs of hourly workers and executives are on the line as the industry restructures itself. "Everybody's going to get hurt in the process," he said, adding that the idea "that we in the Congress can prevent that from happening is wishful thinking."

The proposed assistance would be on top of $25 billion in already-approved loans intended to help the industry retool to meet higher fuel-efficiency standards. The White House is pushing a rival plan to speed release of the previously approved loans, by removing certain restrictions.

In testimony before the House Financial Services Committee, Treasury Secretary Henry Paulson said Tuesday the collapse of one of the auto companies "would be something to be avoided." But he said giving the industry access to the $700 billion fund isn't the answer. "I don't see this as the purpose" of the bailout program, he said.

Some Democrats aren't showing enthusiasm. Sen. Dianne Feinstein (D., Calif.) said she has problems with helping the industry without first receiving "a new business plan" that shows how the companies will return to competitiveness.

Sen. Jon Tester (D., Mont.) said the idea of additional government intervention isn't popular with voters: "People in Montana are experiencing bailout fatigue."

21 November 2008

Bailout Turns on Auto Makers' "Viability"

Democrats in Congress pushed ahead with proposals to bail out Detroit's faltering auto makers, but the Bush administration signaled its reluctance to go along without significant restructuring to cure the companies' competitive ills.

House Financial Services Chairman Barney Frank (D., Mass.) said Wednesday that he plans to hold a hearing next Wednesday, during a lame-duck session of Congress, with the chief executives of the Big Three auto makers and the head of the United Auto Workers union. It is unclear whether the executives will be grilled on the industry's problems, or asked to just formally present their requests for money.

RickWagoner, left, CEO of GM, and Alan Mulally, CEO of Ford, are expected to testify in the House next week on an auto-industry rescue plan.

The Bush administration and Republicans in the Senate could present an obstacle to an auto-industry bailout. Republicans already are uncomfortable with the government's costly intervention in the financial sector and the effective nationalization of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.

Congressional Democrats and the Bush Administration have been at odds over the government's proper role as a stakeholder in the financial industry -- with Democrats demanding that the administration press banks taking public funds to lend more to consumers and renegotiate mortgage loans.

Taking a stake in a large auto maker, such as General Motors Corp., as part of an auto-industry rescue would bring the government's role in the economy to a new level. Among the conditions under discussion would be requirements that auto makers taking government capital commit to producing more fuel-efficient cars.

The debate over the wisdom of a government investment in Detroit's auto makers is focused on an argument over whether they can be "viable."

Treasury Secretary Henry Paulson on Wednesday called the auto makers critical to the U.S. economy. But he said any financial aid for GM, Ford Motor Co. and Chrysler LLC must be used for an aggressive restructuring of the money-losing, unionized manufacturers. "Any solution has got to be leading to long-term viability" for those companies, he said.

Mr. Paulson ruled out using money from the $700 billion Wall Street rescue fund to help the auto makers, saying the intent of that measure, known as the Troubled Asset Relief Program, or TARP, is to deal with financial institutions.

Mr. Paulson said the government already has set up a $25 billion low-cost loan program to subsidize auto manufacturers as they retool to build more efficient cars. But the legislation creating the program required companies taking those loans to be viable.

"One option would be to amend that bill to make money available," Mr. Paulson said.

The White House is reluctant to pour taxpayer money into auto companies that face the prospect of long-term insolvency. "We think the Congress was very wise in setting some limits on these loans," White House spokeswoman Dana Perino said Wednesday. "We would look to Congress and ask them if they are willing to amend that legislation or figure out some way to accelerate those funds."

So far, Bush administration officials aren't threatening to veto any bill. But they are showing a strong reluctance to move forward.

Reporters John Stoll and Matt Dolan discuss the future of General Motors and the likelihood of a government bailout. (Nov. 11)

In the Senate, Democrats don't have the votes to overcome a Republican filibuster. Democratic Senate leaders are considering pairing the auto measure with a stripped-down economic-stimulus package focused on extended jobless benefits and investments in things like roads and bridges. The bill would be substantially smaller than the $61 billion stimulus package that failed in the Senate in September.

A spokesman for Senate Minority Leader Mitch McConnell (R., Ky.) suggested Wednesday that action may be needed to "expedite" already-approved taxpayer loans to the auto industry. But a Senate Republican leadership aide said separately that Republicans are likely to approach giving more money to auto makers "with a large amount of skepticism."

For Republicans, the auto issue exposes emotions still raw from the just-concluded campaign, in which the financial-market rescue dominated debate in battleground Senate contests. The campaign arm of Senate Democrats aired ads that used the bailout against some incumbent Republicans, among them Sens. Norm Coleman of Minnesota and Saxby Chambliss of Georgia. Those races are still undecided, with Sen. Coleman's fate hanging on a recount and Sen. Chambliss in a runoff election.

A key factor in winning support for an auto bailout will be the conditions demanded of the manufacturers that take the money. Tennessee Rep. James Cooper, a fiscally conservative Democrat, said Congress must take a "tough love" approach and criticized "management and boards of companies that have shown arrogance since the 1950s that they never needed to change in a fundamental way."
[Bailout Turns on Auto Makers' 'Viability']

In a conference call earlier this week, Sen. Sherrod Brown (D., Ohio) said he is "hearing talk" in Congress about possible strings tied to any auto-maker assistance. These include freezing salaries of auto executives, ensuring taxpayer money isn't used to pay dividends to shareholders, and "very possibly" a requirement that new management be brought in.

Three big financial institutions that got federal bailouts -- including AIG and home-lenders Fannie Mae and Freddie Mac -- had to replace their top executives as part of the terms worked out with Mr. Paulson.

GM Chairman and Chief Executive Rick Wagoner has rejected the idea that he might have to step down as part of a federal rescue. He told Automotive News earlier this week that "it's not clear to me what purpose would be served" by stepping down.

Tony Cervone, a GM spokesman, said Wednesday that "it doesn't do anybody any good to speculate" on conditions the government might tie to financial help. "We have been careful not to be prescriptive with respect to terms of any loan program, but we do believe in the restructuring GM has undergone and don't believe it would be constructive to make a management change," Mr. Cervone said.

GM Wednesday reached out to its dealers, urging them to call members of Congress to support a new round of federal help. "GM's priority is on seeking support from various U.S. government agencies and congressional leaders," Mark LaNeve, GM's vice president for North American sales, service and marketing, told dealers in a letter.
—John Stoll and Alex Kellogg contributed to this article.