Mounting auto industry losses prompt push for federal bailout
DETROIT -- The press for a federal bailout of the auto industry increased over the weekend.
House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., said in a letter to Treasury Secretary Henry Paulson that the Bush administration should consider expanding the $700 billion financial rescue to include car companies.
"A healthy automobile manufacturing sector is essential to the restoration of financial market stability," they wrote.
The administration did not directly comment on the request to tap the TARP (Trouble Asset Relief Program). But Treasury spokeswoman Jennifer Zuccarelli says, "We continue to work on a strategy that most effectively deploys the remaining funds to strengthen the financial system and get lending going again."
Automakers already want an additional $50 billion in federal loans, and top auto company and union executives met with congressional leaders Thursday.
The letter came a day after GM gm painted a grim picture of its finances — one that suggests a federal bailout is its only option to stay solvent.
Ford Motor also reported earnings and, while its situation appears less dire, it also is making a case for government help.
GM said it will nearly exhaust its cash cushion by year's end, leaving barely enough for day-to-day operations through the first half of 2009. It said it has ended merger talks with Chrysler, delayed future product plans and cut benefits. But it said those measures may not be enough.
"Even with its planned actions, the company's estimated liquidity will fall significantly short of (needed cash minimums) unless economic and automotive industry conditions significantly improve," GM said at the end of its third-quarter earnings report.
President-elect Barack Obama, standing on stage with Michigan Gov. Jennifer Granholm, said at an event Friday that he favors helping the automakers, naming it his second economic priority.
GM reported a $2.5 billion loss for the third quarter, and so far this year has lost $21.3 billion. More ominously, the automaker burned through $4.8 billion in the third quarter, and has about $16.2 billion in gross cash. It needs a minimum of $11 billion to $14 billion on hand to operate.
GM CEO Rick Wagoner said bankruptcy is not an option. GM fears sales would freeze up immediately if it filed.
Bruce Josten, executive vice president of government affairs at the U.S. Chamber of Commerce, predicts that if the automakers run out of money, it would be Chapter 7 — liquidation. The impact of that scenario would be felt across the country, he says. "There are few industries with the footprint and reach."
The government has approved $25 billion in loans to help automakers develop cars and parts that improve fuel efficiency. But the loans are limited to certain types of projects.
Gimme Credit analyst Shelly Lombard says Department of Energy loans aren't enough. "That's like bringing a Band-Aid to a train wreck. GM needs a major government bailout."
Ford f said it lost $129 million in the third quarter, helped by a $2 billion one-time gain. It's cash supply declined rapidly, burning $7.7 billion in the quarter, and it announced job cuts and other liquidity measures. Ford has a greater cash cushion, however, because it borrowed billions in 2007 by mortgaging its factories.
Contributing: Barbara Hagenbaugh in Washington