Big Three automakers beg for $25B as rescue plan stalls
WASHINGTON — Detroit’s Big Three automakers pleaded with a reluctant Congress Tuesday for a $25 billion lifeline to save the once-proud titans of U.S. industry, pointedly warning of a national economic catastrophe should they collapse.
Millions of layoffs would follow their demise, they said, as damaging effects rippled across an already-faltering economy.
But the new rescue plan appeared stalled on Capitol Hill, opposed by the Bush administration and Republicans in Congress who don’t want to dip into the Treasury Department’s $700 billion financial bailout program to come up with the $25 billion in loans.
Rank and file Republicans and Democrats from states heavily impacted by the auto industry worked behind the scenes trying to hammer out a compromise that could speed some aid to the automakers before year’s end. But it was an uphill fight.
“Our industry … needs a bridge to span the financial chasm that has opened up before us,” General Motors Corp. CEO Rick Wagoner told the Senate Banking Committee. He blamed the industry’s predicament not on management failures but on the deepening global financial crisis.
And Robert Nardelli, CEO of Chrysler LLC, told the panel the bailout would be “the least costly alternative” when compared with damage from bankruptcy.
Under questioning from skeptical senators, both said they’d be willing to consider slashing their salaries to $1 to show a willingness to sacrifice for federal help.
Sympathy for the industry was sparse, however, with bailout fatigue dominating Capitol Hill. Lawmakers bristled with pent-up criticism of the auto industry, and questioned whether a stopgap loan would really cure what ails the companies.
At the start of a more than four hour grilling before his committee, Sen. Christopher Dodd, D-Conn., told the leaders of GM, Chrysler and Ford Motor Co. that the industry was “seeking treatments for wounds that I believe to a large extent were self-inflicted.”
“You’re asking an awful lot,” Dodd, the panel chairman, said at the close of the session. “I’d like to tell that you in the next couple of days this is going to happen. I don’t think it is.”
Sen. Mike Enzi, R-Wyo., complained that the larger financial crisis “is not the only reason why the domestic auto industry is in trouble.”
He cited “inefficient production” and “costly labor agreements” that put the U.S. automakers at a disadvantage to foreign companies.
Ford CEO Alan Mulally told senators the auto industry was “a pillar of our economy.”
GM’s Wagoner refuted criticism that his company was not keeping pace with the times, saying it had been on the brink of a turnaround before the financial meltdown hit, reducing sales to the lowest per-capita level since World War II.
Failure of the auto industry “would be catastrophic,” he said, resulting in three million jobs lost within the first year and “economic devastation (that) would far exceed the government support that our industry needs to weather the current crisis.”
Chrysler’s Nardelli sought to respond to those who suggest the automakers seek Chapter 11 bankruptcy protection, as have some airlines that later emerged restructured and leaner.
“We just cannot be confident that we will be able to successfully emerge from bankruptcy,” Nardelli said.
Chrysler was bailed out by the federal government once before, in 1979, with $1.2 billion in loan guarantees. The company repaid the loan, plus interest, ahead of schedule. Back then, former Chrysler CEO Lee Iacocca reduced his salary to $1.
Under questioning from Sen. Jon Tester, D-Mont., Mulally didn’t join the other two executives in saying he’d do the same now.
“I sure respect the intent of it, but the most important thing is that we not degrade our ability to be competitive and deliver this plan,” Mulally said.
Joining the Big Three CEOs, Ron Gettelfinger, president of the United Auto Workers union, said the emergency loans were important for the survival of the industry and union jobs. He said the UAW recognized that “in order for these companies to be competitive, we had to make tough calls” in labor concessions.
“My sense is that nothing’s going to happen this week,” Sen. Bob Corker, R-Tenn., said at Tuesday’s hearing.
Democratic Sen. Max Baucus of Montana said he also smelled a flameout. “I sense that nothing is going to be passed,” the Finance Committee chairman said.
Earlier, House Majority Leader Steny Hoyer said Congress might have to return in December — rather than adjourning for the year this week, as expected — to consider an auto bailout.
“Dealing with the automobile crisis is a pressing need. We are talking about a lot of people … and a great consequence to our economy,” said Hoyer, D-Md.
The financial situation for the automakers grows more precarious by the day. Cash-strapped GM said it will delay reimbursing its dealers for rebates and other sales incentives and could run out of cash by year’s end without government aid.
In the Senate, Democrats discussed but rejected the option favored by the White House and GOP lawmakers to let the auto industry use a $25 billion loan program created by Congress in September — designed to help the companies develop more fuel-efficient vehicles — to tide them over financially until President-elect Barack Obama takes office.
“There is a way to do this,” said Sen. Mitch McConnell, R-Ky., the minority leader.
House Speaker Nancy Pelosi, D-Calif., and other senior Democrats, who count environmental groups among their strongest supporters, have vehemently opposed that approach because it would divert federal money that was supposed to go toward the development of vehicles that use less gasoline.
“I don’t think that’s going very far in our caucus,” said Senate Majority Leader Harry Reid, D-Nev.
Instead, they want to draw the $25 billion directly from the $700 billion Wall Street bailout — bringing the government’s total aid to the car companies to $50 billion.
A Senate vote on that plan, which would also extend jobless benefits, could come as early as Thursday, but it currently lacks the support to advance. Treasury Secretary Henry Paulson renewed the administration’s opposition on Tuesday.
Even the car companies’ strongest supporters conceded Tuesday that changing the terms of the fuel-efficiency loan program might be the only way to secure funding for them with Congress set to depart for the year and the firms in tough financial shape.
“If in the short run the only way we have to be able to get some immediate help is to take a portion of that, I would very reluctantly do that — but only because I believe President-elect Obama is going to be focused on retooling and on a manufacturing strategy next year,” said Sen. Debbie Stabenow, D-Mich.
The White House said the government shouldn’t send any more money to the struggling auto industry on top of the already-approved loans.
“We don’t think that taxpayers should be asked to throw money at a company that can’t prove that it has a long-term path for success,” said White House Press Secretary Dana Perino.