WASHINGTON—Chief executives of the three U.S. automakers tried to persuade key members of the Senate that they deserve at least $25 billion in government loans to help the industry survive the current economic recession, and that the taxpayers can expect to be repaid in the future. From the response they got, it will be a tough sell.
For two weeks, since General Motors (GM) revealed that it lost $4.2 billion in the third quarter and might not have enough cash to last the year (BusinessWeek.com, 11/7/08), Republicans have voiced opposition to helping Detroit. Democrats, meanwhile, have been angling to help either by using a portion of the $700 billion Wall Street bailout approved by Congress in October or a new $25 billion attached to an economic stimulus package.
All of that ramped up the anticipation for the Nov. 18 appearance of the Big Three CEOs—GM's Rick Wagoner, Ford's (F) Alan Mulally, and Chrysler's Robert Nardelli—before the Senate Banking Committee. The auto executives will continue their lobbying campaign Nov. 19 at the House of Representatives.See You Next Year
But Capitol Hill staffers and key leaders said the chances of passing new legislation to help the automakers during the lame-duck congressional session were scant. "I don't think we can get the votes," said Senator Chris Dodd (D-Conn.), chairman of the banking committee. Senator Bob Corker (R-Tenn.) told the CEOs, "Nothing will get done this week, and I suspect you'll be back in January."
Still, the company CEOs and United Auto Workers President Ron Gettelfinger used the hearing to try to knock down some extremely negative perceptions about how they got to this point. And they took pains to make clear that they consider the situation dire.
GM and Chrysler indicated that without loans from the government, they will be below minimum cash requirements by end of the first quarter of 2009. GM's Wagoner said his company will have about $15 billion in cash at the end of the year. Nardelli said Chrysler has $6.1 billion now. "That is getting very close to our minimum needs of liquidity to operate," Nardelli told the Senate committee.
Ford said it can last into 2010, unless the market gets appreciably worse. But it worries that a GM or Chrysler failure will trigger the failure of hundreds of auto suppliers, freezing Ford's production and thus driving all three companies and an array of suppliers into Chapter 11 reorganization. GM is asking for $10 billion to $12 billion in loans. Chrysler has asked for $7 billion, and Ford, $7 billion to $8 billion.
Still, all three companies say their outlook beyond the immediate financial crisis is much brighter than generally understood. The auto execs say that dozens of plant closures and deals with unions should cut costs enough to make them profitable when the economy and auto sales turn up again. Many analysts expect sales to rebound by mid-2010.Is Detroit to Blame?
But it was clear from the statements and questions posed by Senators to Wagoner, Mulally, and Nardelli that many think Detroit's problems are self-inflicted, and that the companies lack the innovation to climb out of their hole.
Dodd pulled no punches: "They have derided hybrid vehicles as making 'no economic sense.'…They have dismissed the threat of global warming…their boardrooms and executive suites have been famously devoid of vision." Even so, Dodd said, "I support efforts to assist the industry."
Republican Senators Richard Shelby of Alabama and Elizabeth Dole of North Carolina were among the vocal critics of the car companies. Both Alabama and North Carolina have benefited from investment from European and Asian automakers and their suppliers.Congress Is Partly to Blame
Senators closer to Detroit's home turf, such as Sherrod Brown (D-Ohio) and Debbie Stabenow (D-Mich.), came to the automakers' defense. Not helping the industry, said Brown, "is the surest way to turn our recession into a depression." He said the Congress should take some blame for not passing tougher fuel-economy legislation that would have better prepared the companies for $4-per-gallon gasoline that decimated sales of sport-utility vehicles that Detroit has relied on for profits: "We are on shaky ground when we shake our finger at the industry."
Though all three CEOs were present, much of the focus was on GM Chairman and CEO Wagoner because the company is the largest of the three, and is closest to having to file for bankruptcy if government loans don't come through. Last week, GM told members of Congress that its chances were "50-50" to have enough money to operate beyond the New Year.