Detroit automaker CEOs, UAW head plead for help
WASHINGTON -- For the first time in their century of existence, Detroit's automakers and their union joined together to plead to Congress for help to survive an economic crisis. Congress made a request in return: Prove you're worth risking $25 billion in federal money.
"You're asking an awful lot, and I suspect …this $25 (billion) is not the end of it. I would like to tell you that this is going to happen in the next couple of days. I don't think it is," said Sen. Christopher Dodd, D-Conn., who chaired the Senate committee hearing on a bill to help the automakers.
The chiefs of General Motors gm, Ford Motor f, Chrysler and the UAW mounted their most public appeal for aid since the industry plunged into crisis just over a month ago. They emphasized the cuts they've made, plans for future models and the sacrifices great and small designed to keep their doors open.
"Our industry, which represents America's real economy, needs a bridge to span the financial chasm that has opened before us," said GM Chairman Rick Wagoner during the Senate committee hearing Tuesday.
Chrysler Chairman Robert Nardelli warned that his company is in danger of running short of cash before the end of the year, and that it had considered some forms of bankruptcy before deciding they were unworkable and the only option was government help.
"We are in a very fragile position," Nardelli said.
All four executives warned of grave damage to the entire U.S. economy and to one another should one of Detroit's titans tumble into bankruptcy. They said a court reorganization would shatter consumer confidence and cost the government more than $25 billion in lost taxes, while triggering a domino effect throughout the auto industry.
"If any of these companies would go into bankruptcy, I would bet it would take another one with them or possibly all three," said UAW President Ron Gettelfinger.
But as much as the automakers talked about their plans, lawmakers questioned their past mistakes and political stances, doubting the industry is ready to make enough tough cuts to keep the automakers from coming back for more help.
"Are we here in the Senate being asked to facilitate a stronger, more competitive auto manufacturing sector, or to perpetuate a market failure?" asked Sen. Richard Shelby, R-Ala.
The antipathy toward automakers came from both parties. Dodd said the automakers had been "famously devoid of vision," adding that the executives deserved no more sympathy than the bankers responsible for spawning the crisis in subprime home mortgages.
Sen. Charles Schumer, D-N.Y. and a supporter of the proposal, said it was critical that the auto executives detail their plan.
"We need them to reassure us they won't come back again in six months in the same sinking boat asking us for $50 billion to fix more holes," he said.
As worthy as the banks, though
Several senators said if the financial industry was too important to fail, so were U.S. automakers.
"If it makes sense to give one bank $25 billion, then we can certainly invest the same amount to save the entire domestic auto industry," said Sen. Sherrod Brown, D-Ohio.
The automakers have said they need "immediate" aid, with GM potentially running short of cash as soon as January without government help. The three contend a collapse could pull hundreds of suppliers and dealers into bankruptcy and jeopardize up to 3 million jobs.
In a Web video released Monday, GM said the industry faces "imminent collapse," noting the Detroit automakers have 239,000 U.S. employees, 775,000 retirees and spouses and 2 million people covered by company-sponsored health care.
Michigan Sen. Debbie Stabenow told the hearing that Detroit had been on track to meet fuel economy goals and make itself competitive with foreign makes before the credit crisis hit, and that Michigan had lost 400,000 jobs to automaker restructuring so far.
"We can debate previous decisions, but we can all agree the global financial crisis was not caused by the American auto industry," Stabenow said.
"We need this industry as a basic part of the fabric of our economy. Somebody has to make something in America."
The public pitch may have come too late, as senators had several doubts as to whether the industry could survive even with government backing.
"We've gone to 10 million sales a year in this country. We may not need three automakers," said Sen. Bob Corker, R-Tenn.
In making their case, the companies had to answer questions they had avoided so far. From the $25 billion in government loans, Wagoner said GM was expecting to ask for $10 billion to $12 billion. Ford Chief Executive Alan Mulally and Nardelli said Ford and Chrysler would seek $7 billion each. The amounts are based on the company's market shares.
Nardelli released new data about Chrysler's performance, saying it consumed $3 billion of its cash in the third quarter and had $6.1 billion left. He said the company was ready to pay back a government loan, and that Chrysler's private owners would forgo profits if government aid spurred its revival.
"We wouldn't be here today asking for this if we didn't have a high confidence level that we could weather this economic trough," Nardelli said.
Mulally said Ford was making tough decisions and had prepared for the future, noting the company would begin converting the Michigan Truck Plant in Wayne on Friday from full-size sport-utility vehicles to small cars.
"This is really an important industry. This is a pillar of the economy," he said.
The automakers and the UAW will get another chance to make their case to lawmakers Wednesday in front of a House committee, which has proposed a tougher rescue plan that would give the government veto power over the automakers' business decisions.
But if Tuesday's hearing was any guide, the uncertain future that drove executives to Washington will follow them back to Detroit.
"Our responsibility as stewards is to decide whether the cost to the country would be greater if we did nothing," said Sen. Bob Bennett, R-Utah. "At the moment, everybody's guessing."
Despite the dire warnings of millions of job losses, partisan infighting made in appear unlikely Tuesday that Congress could move to help the automakers by the end of the week.
The sticking point is this: The White House and some congressional Republicans want to rewrite rules on $25 billion in already -authorized loans — intended to retool auto plants to make more fuel-efficient cars — to make the money available to the automakers to pay operational costs. Democrats, especially in the House, say the industry needs operational funds now, from the $700 billion bailout plan for the financial industry, on top of the $25 billion to make more fuel-efficient vehicles, which has yet to be disbursed.
Looked at another way, opponents want to keep the auto bailout to $25 billion, and they say the Wall Street rescue bill is no place to look for help for the carmakers.
Supporters, on the other hand, want to make a total of $50 billion available to the auto industry and see no reason why a sliver — 4% of the total — from the financial bailout shouldn't go to help a sector as vital to national security and employment as auto manufacturing.
"We're just going to draw the line at the $25 billion that's been authorized," rebutted White House spokeswoman Dana Perino.
The commitment to that $25 billion for retooling plants remains deep in the House. Democratic Majority Leader Steny Hoyer of Maryland said Tuesday in a speech at the National Press Club that he couldn't see the House reversing itself — even though when he takes office in late January, Democratic President Barack Obama would have an easy time getting a new Congress with more Democrats in both chambers. to fund both.
Hoyer mentioned the idea of a December session, saying he wasn't even sure the House would come in this week. It would depend, he said, on whether it could result in "anything productive."
The automakers say they can't wait until Obama's inauguration. By then, one or more of them could have collapsed under the weight of poor sales, frozen credit, dwindling cash reserves and high costs.
Should that happen, it could send a huge shock through the national economy.
Mayors join call for help
On Tuesday, a group of mayors from Michigan, Ohio and elsewhere pleaded for immediate help for the industry, which is said to directly or indirectly support 3 million jobs and affects thousands of retirees across the nation.
Even before the current crisis, the automakers were struggling with deep retrenching through plant closures and job cuts that have plagued Michigan's economy for years.
At a news conference in Washington, the mayors said they prefer both retaining the $25 billion in loans to retool plants — money authorized as part of Congress' decision last year to increase fuel efficiency standards to 35 miles per gallon by 2020 — and an additional $25 billion to help the industry immediately. But if it had to be one or the other, they said, they'd like a compromise.
"Right now," said Lansing Mayor Virg Bernero, one of those meeting with senators Tuesday, "it's a matter of survival."
Today, Detroit Mayor Ken Cockrel Jr. visits Washington to lobby for the bailout as well, as a House committee takes up its version of the auto bailout, which would take a $25 billion slice of the $700 billion bailout of Wall Street.
Clock running out
There may not be enough time to reach a compromise this week, anyways. The White House, Senate Republicans and some Democrats have plainly predicted that Senate Majority Leader Harry Reid of Nevada and Sen. Carl Levin of Michigan don't have the votes to pass the bill, which authorizes 10-year loans, with restrictions on executive compensation and dividends to shareholders for the life of the loans.
Sen. Max Baucus, D-Mont., said "there's too much opposition from the" (Bush) administration" to get the bill through."
Perino reaffirmed the Bush White House's commitment to automakers but said flatly that $25 billion in authorized funds is enough.
Today, the Senate is expected to take up the bailout bill — along with an unemployment benefits extension — on the floor, though Republicans likely will signal their desire to subject the legislation to extended debate. That would probably result in a test vote on Friday to determine if the Democrats have the 60 votes necessary to break a filibuster.
Wednesday in the House
Meanwhile, the House Financial Services Committee chaired by Rep. Barney Frank, D-Mass., was expected to take up the House version of the bill today with auto executives talking to that panel.
The House legislation is different, with 7-year loans, stricter oversight regulations and stock warrants worth at least 20% of the cost of the loans. That could mean the government could end up controlling a big portion of the automakers.
House members are in the nation's capital for organizational meetings this week, so it would be easy for House Speaker Nancy Pelosi to call them into session.
Tuesday, Senate Minority Leader Mitch McConnell, a Kentucky Republican who has auto plants in his state, said he had heard there was some Democratic support for using the retooling loans and that "hopefully Sen. Reid and I can discover a way forward."
Michigan's Democratic senators, too, said they were less concerned about where the money came from and more focused on getting aid before the end of the year. GM has said it needs immediate aid, and analysts estimate the company could run short of cash to pay its bills by January.
"If, in the short run, the only way we have is to take a portion of that (retooling loan), I would very reluctantly do that," said Sen. Debbie Stabenow, "but only because President-elect Obama will be focused on retooling and a manufacturing strategy next year."
Said Levin: "If we can't get it done next week, we'll get it done the week after{hellip}How we get there is not as important as getting there."