SCENARIOS: What to expect from U.S. auto bailout debate

DETROIT (Reuters) - The leaders of General Motors Corp, Chrysler LLC and Ford Motor Co are testifying before the U.S. Congress this week in a bid to secure support for a sweeping government bailout that the struggling automakers and suppliers say they need to survive.

Without a bailout, GM and Chrysler have warned they risk running desperately short of cash in the coming months.

Analysts and the industry's political allies warn that a bankruptcy by one of the Detroit Three would touch off a cascade of failures that would cost tens of thousands of jobs and threaten retiree benefits for millions more.

The U.S.-based automakers employ 240,000 in the United States directly and indirectly support more than 4.5 million other workers including thousands of dealerships and parts suppliers. Up to 3 million jobs could be at stake in a bankruptcy.

Here's what to expect whether the bailout package passes, fails or is pushed back for reconsideration in January when President-elect Barack Obama takes office.

IF THE BAILOUT PASSES:

Senate Democrats have proposed $25 billion of loans using funds from the $700 billion banking bailout, a plan that has met a cool reception from Republican lawmakers.

The proposal, open to automakers or auto component suppliers, would require assurances of the long term viability of the companies. The government would take stock warrants or senior debt in the company's receiving help.

The loans would cover a 10-year term, with a 5 percent interest rate the first five years and 9 percent thereafter.

The loans would come with strings attached, including limits on executive compensation and on the so-called golden parachutes that provide compensation for departing executives.

Critics argue that while a cash infusion may avert an immediate disaster, it won't solve the longer-term competitive problems for the industry.

Those include the 14.6 percent drop in U.S. auto sales through October and a still-developing slowdown in other key markets, notably Western Europe and Asia.

Even with a bailout, GM and Ford still need to cut more production, trim bloated dealer networks and win back a new generation of American consumers with more fuel-efficient vehicles, analysts have said.

Chrysler Chief Executive Bob Nardelli has said the No. 3 automaker, widely seen as the most vulnerable now, needs an alliance with other automakers even if it gets a share of the U.S. bailout funding.

Chrysler owner Cerberus Capital Management has also offered to throw open the books on the company that has not reported results since it was taken private in 2007.

If a bailout passes, governments in Europe and Asia will almost certainly seek assurances that a bailout would not give U.S. carmakers an unfair trade advantage in the U.S. market, the world's largest.

The senior executives and unionized workers at the auto companies will also face new scrutiny.

In a landmark 2007 contract deal, the United Auto Workers, agreed to steep concessions on wages and benefits for new hires and the establishment of a trust for retiree health care.

Much of the opposition to the bailout has focused on labor costs, labor accounts for only 13 percent of the cost of a GM vehicle.

GM and the other Detroit automakers are already saving money based on the 2007 contract with the UAW. GM estimates it is already saving over $500 million per year because of concessions in the 2007 contract.

That will rise to $4 billion per year from 2010 once the healthcare trust shifts the liability for retiree healthcare costs from the company's balance sheet, said GM spokesman Tony Sapienza.

IF THE BAILOUT FAILS:

GM, Chrysler and Ford are widely perceived by analysts and investors to be on a collision course with a liquidity crisis with U.S. auto sales bumping along at 25-year lows.

The highly leveraged auto industry depends on sales growth to create cash for the business and the current recession has shut down new production while also forcing the automakers to burn cash with supplier payments and incentives to clear out an aging inventory on dealer lots.

On a combined basis, GM and Ford have posted total net losses of $30 billion through the first nine months of 2008.

GM has said its cash is approaching the minimum of $11 billion to $14 billion needed to operate its business absent some sort of intervention. Chrysler also could fall below minimum cash levels without immediate bridge support.

Ford, which borrowed $23 billion in 2006 to support its restructuring, burned through $7.7 billion of cash in the third quarter alone.

The Center for Automotive Research -- which has close links to the industry -- says that in the event any of the Big Three Detroit automakers fails, this would cause immediate, cascading failures among parts suppliers.

The center said, in a study released earlier in November, that a failure of one or more of the U.S.-based automakers could directly and indirectly wipe out 2.5 million jobs in the first year.

Others have suggested U.S. consumers would see stepped-up production by foreign automakers such as Toyota Motor Corp, Honda Motor Co Ltd and Hyundai Motor Co in North America and increased vehicle imports to offset the collapse of operations at U.S. automakers.

Experts are split as to whether consumers would continue to buy cars or trucks from a bankrupt automaker.

UAW President Ron Gettelfinger has warned that any bankruptcy by one of the U.S. automakers would turn quickly toward the liquidation of the company's assets because of the difficulty of an automaker restructuring under Chapter 11.

Some surveys suggest consumers would shun bankrupt brands out of concern about resale values of their vehicles, the availability of parts and service, and related issues for a purchase that represents the single biggest investment for most households after their homes.

A July study by CNW Research found that more than 80 percent of Americans who intend to buy a new car would abandon their plans if the automaker behind the brand filed for bankruptcy.

Some academics and other commentators have suggested that the U.S. government could provide debtor-in-possession financing for the automakers, ushering the companies through a bankruptcy process that could be used to rewrite contracts with management, workers and dealers.

(Reporting by David Bailey, editing by Richard Chang)