December 2, 2008 / 1:05 AM / 10 years ago

Automakers desperate bailout plea gaining support

DETROIT/WASHINGTON (Reuters) - A top lawmaker predicted Washington would approve a bailout for U.S. automakers after they submitted survival plans and two of them, General Motors Corp and Chrysler LLC, said that without an immediate infusion of cash they could fail soon.

New trucks are displayed for sale at a Ford dealership in Encinitas, California in this November 11, 2008 file photo. REUTERS/Mike Blake

U.S. House Speaker Nancy Pelosi, a California Democrat, said Washington had little choice about helping automakers who say they account for one-in-10 American jobs. “I believe that an intervention will happen either legislatively or from the administration,” Pelosi said. “I think it’s pretty clear bankruptcy is not an option.”

The Big Three automakers asked for a combined $34 billion in loans and credit lines on a day when they reported that in November they suffered a further dramatic slump in sales.

General Motors asked for $18 billion in loans and credit lines from the federal government, saying it urgently needs $4 billion of the money by the end of December to pay its bills.

Ford Motor Co told Congress it needs a $9 billion taxpayer-funded line of credit and promised big changes ahead of the government review.

Chrysler LLC, the smallest and most financially fragile of the Detroit automakers, requested $7 billion by the end of this month, saying that without the aid its cash could fall below the minimum level needed to operate in the first quarter of next year. The company also said it was seeking partnerships, a strategic alliance or merger.

Democratic leaders demanded a deep range of commitments from the companies to cut costs and map a clear path to regain competitive footing.

Senate Majority Leader Harry Reid, a Nevada Democrat, said he planned to introduce legislation on the Senate floor by Monday aimed at helping the U.S. business icons.

“We’re looking to make sure we do everything we can to take care of the auto industry, if in fact it’s viable,” Reid told reporters at an energy event.

There’s plenty of political pressure in the Democratic-led Congress to help the auto industry. Lawmakers realize that if major carmakers shut down, the overall U.S. economy would likely get worse, driving up unemployment and further rattling an already distressed Wall Street and housing market.

This would make Barack Obama’s job even tougher when he takes over as U.S. president on January 20, one with an ambitious Democratic agenda which includes steps to expand health care, upgrade education and provide middle-class tax cuts.

The companies’ pleas for federal help were bolstered by new data showing U.S. auto sales fell for the 13th straight month in November. Sales at GM plunged 41 percent during the month.

A U.S. economic recession and credit freeze mean there is little chance of a swift sales rebound in the world’s largest vehicle market.

“We’re trying to preserve our way of life and preserve our jobs,” Chrysler President Jim Press said in Baltimore, where Chrysler exports 150,000 vehicles annually.

Many Democrats are angry that automakers have long resisted calls to increase fuel efficiency, but Democratic leaders feel a bailout is needed to save millions of jobs represented by Democratic-allied unions.

Republicans are cool to the bailout idea amid anger from conservative constituents who opposed the $700 billion Wall Street assistance plan. The Bush administration opposes spending new money on Detroit or expanding the Wall Street package, fearing other industries will also want a slice of the pie.

GM, Ford and Chrysler failed two weeks ago to obtain a $25 billion bailout from lawmakers unconvinced that taxpayer money would be well-spent.

Democratic leaders had asked them to return this week with retooled plans focusing on viability. Although some insiders believe the chances of aid have improved, no promises were made. The political calculus is uncertain, with Congress not even in session. Democrats hold a slim majority in the Senate and the Bush administration continued on Tuesday to back a plan not supported by many Democrats.

A key barometer will be hearings on Thursday and Friday at the Senate Banking and House Financial Services committees, respectively. Key members of those panels, especially Republicans, sharply criticized Ford, GM, and Chrysler chief executives last month.

This time, the industry will let their plans do most of the talking.

Ford pledged to cancel executive bonuses, eliminate dealers and pursue electric car technology, and it forecast that its North American auto business would break even on a pretax basis or turn a profit in 2011.

“The Ford news has given the market a lift,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. “People are ... expecting the stocks to continue their upward trend on hopes of a bailout plan.”

Chrysler’s Press said Chrysler would seek a bridge loan to survive for between a year and 18 months. The plan included cost-cutting and givebacks from all stakeholders, including suppliers and labor.

Indications are strong that controlling shareholder Cerberus Capital Management is preparing Chrysler for a break-up or sale, people close to the automaker have said. The company has taken steps that would make it easier to sell individual brands, such as Jeep.

While many leaders in Washington agree that Detroit needs help, they disagree on how to provide it. Lawmakers and the Bush administration staked out positions on Tuesday in a debate expected to flare at the hearings later this week.

U.S. Commerce Secretary Carlos Gutierrez told Reuters the administration backs a Senate bill that would redirect $25 billion to aid automakers from a program already approved to help Detroit make more fuel-efficient vehicles.

But that bill is opposed by many Democrats, who say the $700-billion bank bailout fund, or Troubled Asset Relief Program (TARP), could be used to help the auto industry.


Ford sales fell nearly 31 percent in November from a year earlier, while GM said it delivered 41 percent fewer vehicles and weakness was seen among non-U.S. companies as well.

The American Honda unit of Japan’s Honda Motor Co Ltd said November U.S. car and light truck sales fell 31.6 percent from a year earlier, while Germany’s Volkswagen AG posted a 19.2-percent decline.

Critics have charged that many of the Detroit Three’s problems are of their own making due to their insistence on building fuel-inefficient SUVs and trucks that Americans in growing numbers no longer want or can no longer afford.

The downturn in business and the call for aid will also affect labor and other stakeholders.

For its part, the UAW is likely to be asked to give up job security guarantees for workers at U.S. plants that close and asked to renegotiate how automakers make payments into a trust fund set to take over retiree health care from 2010.

In addition, GM is almost certain to ask its bondholders to swap some portion of its existing $44 billion debt for a deeply discounted payout and some equity interest in the restructured company, analysts say.

Analysts say Detroit is gambling that plans that show labor, management, creditors and investors sharing in sacrifices at a time of crisis will win the political support that has so far eluded the companies.

“Going in it was pretty clear that the powers that be in Washington were interested in seeing the automakers come back with plans with more concessions,” said Dennis Virag of the Ann Arbor, Michigan-based Automotive Consulting Group. “I think they will get the funding.”

The cash squeeze is most pressing at GM, which ended September with $16 billion after burning through $6.9 billion in the third quarter. The automaker has said it needs a minimum of $11 billion to operate and warned it could fall short of cash by early next year.

After being pilloried for flying private jets to attend November hearings, the three auto chief executives have made alternate travel plans this time, their companies said.

Slideshow (5 Images)

Ford Chief Executive Alan Mulally is driving a Ford hybrid vehicle from Detroit. GM CEO Rick Wagoner and Chrysler CEO Bob Nardelli will both fly commercial or make other arrangements.

Ford shares closed up 6 percent at $2.70 and GM shares gained 5.7 percent to $4.85. Both trade on the New York Stock Exchange.

Writing by Julie Vorman in Washington, Martin Howell in New York. Additional reporting by Jui Chakravorty and Bill Rigby in New York; Doris Frankel in Chicago; and Richard Cowan, Thomas Ferraro in Washington; Editing by Bernard Orr

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