A day before General Motors (GM) was expected to report a nearly $4 billion loss for its latest quarter, top executives of GM, Ford (F), Chrysler, and the United Auto Workers union came to Washington to press their case for at least $25 billion in federal loans. Without the help, the car companies argued, they may not survive 2009.
General Motors has been trying to convince congressional leaders to include the auto companies in the parade of industries—including banking and insurance—being bailed out through the Treasury Dept.'s $700 billion Troubled Asset Relief Plan. Up to now, GM has been basing its argument for the cash in part on its acquiring the troubled Chrysler. But in the Washington meetings on Nov. 6, car-industry executives focused on simply getting the three companies through the next year with enough cash to stay in business.
To do that, industry sources say, the car companies want access to the Federal Reserve Board's discount lending window, as well as a second federal loan package of up to $25 billion. "The acquisition of Chrysler became a distraction to the pressing need to simply shore up the companies from reaching a potentially disastrous level early next year," said one high-ranking auto executive with knowledge of a meeting between auto executives and Speaker of the House Nancy Pelosi (D-Calif.).Bad Quarter Expected
Detroit's new thrust is the clearest sign yet of just how desperate its situation has become. In October, GM's sales fell a staggering 45% from the same month a year earlier. Ford's sales were down 30%, and Chrysler's fell 36%. Overall, the industry suffered its worst sales month since 1983 (BusinessWeek.com, 11/3/08).
On Friday, Nov. 7, analysts expect GM and Ford to report dismal earnings for the third quarter. GM is burning through cash and has said it plans to announce more cost cuts. It warned on Wednesday that the industry's prospects are dwindling fast due to the "near-collapse" in demand for cars, which the industry blames in part on the continuing global credit crunch. Ford shares closed Thursday down 5.3%, to 1.98, on the New York Stock Exchange. GM fell 13.7%, to 4.80.
Detroit executives stress that they're pushing forward with the alternative-fuel technologies that the U.S. Energy Dept. already is planning to fund with a $25 billion loan. But they maintain that plunging sales have changed the game and made new federal investment necessary.Concern About Government Liability
"We are absolutely committed to delivering safe, affordable, quality, fuel-efficient vehicles that Americans want and value," said Alan Mulally, Ford's CEO, in a prepared statement late Thursday. "Despite our progress, the economy and the credit crisis are significant challenges that are dramatically affecting consumer demand for automobiles. Speaker Pelosi and [Senate] Majority Leader [Harry] Reid are seeking ways to help the auto industry given these unprecedented economic challenges. We applaud their efforts and will work together with all of our nation's leaders to continue our transformation to greater fuel-efficiency and to help protect jobs."
Several members of Congress have expressed concern over having the federal government serve as an investment banker to help GM acquire Chrysler, thus triggering massive layoffs. That's why lobbying efforts are now focused on the argument of saving jobs, and potentially saving the government billions more down the road in the form of money it won't have to pay to bail out the auto companies' pension and health-care obligations.