Investor Ross sees automakers getting aid

DETROIT (Reuters) - Investor Wilbur Ross, known for reorganizations in the U.S. steel and auto parts industries, said on Friday he expects U.S. automakers to get short-term government aid and time to work out restructuring details.

Absent government aid, one of the Detroit-based automakers will fall into bankruptcy by the end of the year and trigger a cascade of failures within the supply base that would not easily be stopped, Ross told Reuters in a telephone interview.

"My guess is that the outcome will be that they will get some money now with some sort of conditions about what they have to do between now and some fairly near-term date, whether that is 90 or 120 days or whatever, to flesh out the details of their restructuring plans," Ross said.

Ross, who also has consolidated companies in the textile and coal industries, said automakers could accomplish little more in bankruptcy than through negotiations outside of court.

"I do get the feeling that they are gradually starting to understand ... that this idea that a bankruptcy is some sort of a panacea for this particular situation, that is not a sensible notion," Ross said.

The chief executives of General Motors Corp, Chrysler and Ford Motor Co appealed this week to U.S. lawmakers for $34 billion of aid to survive the global downturn in auto sales.

GM and Chrysler have sought immediate support to avert collapse, while Ford sought a $9 billion line of credit as insurance against the failure of one or both of its domestic rivals.

Key lawmakers were talking to the White House about a compromise plan that would extend some emergency funding to the industry.

Late on Friday, a senior congressional aide said that U.S. congressional Democrats and the White House had reached agreement on a deal to provide $15 billion to $17 billion of aid to U.S. automakers.

Ross said uncertainty over the stability of the U.S. automakers has hurt car sales while a bankruptcy of any one of the Detroit-based automakers would send sales down further.

"Every day this goes on, it's going to be a multiple number of days, not only before car sales pick up, but the economy picks up," he said. "These hearings are terrifying people."

Government support for an automaker bankruptcy would have to run far deeper than debtor-in-possession financing to encompass money owed to parts suppliers, present and future warranties and dealer floor plan financing, Ross said.

BILLIONS AND THEN BILLIONS MORE

Automaker payables to suppliers alone would total $50 billion for the industry, warranties tens of billions more and more billions in dealer floor plan financing, he said.

Ross, who built the International Automotive Components Group by combining business units of Lear Corp and the liquidated Collins & Aikman, said automaker production cutbacks already have had a severe impact on parts suppliers.

Those suppliers would be hard-pressed to withstand a constraint of cash in the event of an automaker bankruptcy, given that at any one time some 15 percent of annual revenue is at stake in payables from the automakers, Ross said.

An automaker bankruptcy would "inevitably start the cascade and once you start the cascade, it will be almost impossible to reverse," Ross said. "People will fail at the speed of light."

A lack of supplier payables would force interruptions of product lines that would spread to other suppliers, he said.

"There will probably be even more suppliers that fail even with a bailout because the production levels have been so low," Ross said. "There is a very big list of distressed suppliers, here and in Europe."

GM's former parts unit Delphi Corp, still its biggest parts supplier, would be hard-pressed to withstand a bankruptcy filing by GM, a main supporter of Delphi's bankruptcy reorganization plan, Ross said.

GM accounts for about 40 percent of revenue for Delphi, which filed for bankruptcy in 2005 and has yet to emerge.

"If GM were to file bankruptcy, I don't see how Delphi could survive," he said.

Ross said his IAC has picked up more than $200 million of new business in the last 80 days from various plastics companies that have failed.

He also said he was considering investing in another area of the auto parts sector, but it would likely not be an expansion of the existing company. Ross once again said he is not interested in acquiring a U.S. automaker.

A restructuring of the auto industry led by private capital would be preferable to government support, but the need for a rapid resolution rules that out, he said.

"It is not an effective theory when you have a matter of days," Ross said. "It is far too complex a structure."

(Reporting by David Bailey; Editing by Gary Hill and Carol Bishopric)