Big Three vow to cut costs if they get bailout
Automakers implore Congress to extend billions in loans
WASHINGTON – General Motors, an icon of American manufacturing and the world’s largest automaker, Tuesday threw itself at the mercy of Congress, saying it needed $4 billion to avert a cash crisis by the end of the month and as much as $18 billion in federal loans over the next year.
GM and its U.S. rivals Chrysler and Ford pleaded for government loans, promising in return to use the opportunity to slash costs, jettison brands, restructure their finances and speed the introduction of fuel-efficient vehicles widely considered crucial to their future.
Together the three auto giants sought at least $28 billion and as much as $38 billion in government assistance, more than the $25 billion they requested just two weeks ago. Battered by the lowest car sales in a quarter century and tight credit conditions, the companies said they needed the money just to survive the next year.
“There is no plan B,” said Fritz Henderson, GM’s president and chief operating officer.
It was a humble moment for the three auto behemoths, which once were synonymous with American ingenuity and industrial might. Over the past three decades, they have lost ground to more agile foreign rivals that favored smaller cars built by non-unionized labor at lower wages.
This year the combination of high fuel prices and the paralysis in the credit markets has brought the U.S. companies to the brink. Chrysler Tuesday sought $7 billion by the end of the month. Ford, which is in stronger financial condition, asked Congress to set aside as much as $13 billion to help the company if the economic downturn deepens.
The companies presented their plans Tuesday, a deadline set by Congress, but there was no guarantee that wary lawmakers would agree to pump taxpayer money into firms that might not be financially viable.
House Speaker Nancy Pelosi, D-Calif., said Tuesday that Congress would not adopt a loan package for the automakers unless the ailing giants presented “a new business model, a new business plan” that was “worthy of the support that the taxpayers will invest in it.”
But she also said “bankruptcy is not an option” and predicted that either Congress or the Bush administration would intervene to prevent a collapse of the industry. Senate Majority Leader Harry Reid, D-Nev., told reporters he expects to call the Senate back into session early next week with the aim of passing a bill by next Friday.
The chief executives of the three companies all seemed mindful of the drubbing they took two weeks ago when they sought taxpayer assistance. Excoriated for traveling by corporate jets to testify in Washington, all said they would make the return 500-mile trip by car this week for the new round of hearings. Ford and GM even said they would part with the aircraft permanently.
Ford chief executive Alan Mulally and GM chief executive G. Richard Wagoner Jr. also offered to cut their salaries to $1 a year if the government provides aid. Chrysler already pays chief executive Robert Nardelli that sum in salary. GM said it would also roll back other executives’ pay.
The magnitude of the crisis, as portrayed by the companies, is daunting. Though the three Detroit car companies described a dire situation two weeks ago, the situation seems graver now. GM said it will need $12 billion by late March to keep operating. If the recession drags on, it might ultimately need up to $18 billion.
Though many critics say the companies should be allowed to go bankrupt, Ford, GM and Chrysler have argued that bankruptcy filings would hurt suppliers, cause massive job losses and drive customers to rival car companies.
GM said it would sell its Saab division and begin discussions with Saturn dealers to fold or sell the brand. It said it would concentrate on four of its brands – Chevrolet, Cadillac, GMC and Buick. Pontiac will become a niche brand. It also proposed an oversight board to protect taxpayers’ interests.
The restructuring plan would lead to widespread job losses. The company said it would reduce its network of dealers from 6,450 to about 4,700 by 2012. By 2012, it would also close nine manufacturing facilities and reduce the number of workers by at least 20,000.
Chrysler’s business plan, about half the size of its cross-town rivals, argued that bankruptcy would be even more costly. It said that $17 billion to $20 billion in financing that would be required to sustain Chrysler for one year in Chapter 11, the part of the bankruptcy code that allows firms to continue operations.
While GM and Chrysler emphasized their immediate cash needs, Ford said it was financially prepared to weather this economic storm. Barring a bankruptcy by one of its domestic competitors or a more severe downturn, Ford said, it does not anticipate a liquidity crisis in 2009.
Nevertheless, it too asked for federal money to be set aside just in case. Ford requested up to $9 billion in financing and said that could rise to $13 billion if economic conditions worsen. It hoped to return to financial stability, or even profitability, by 2011.
The company also said it would invest about $14 billion in the United States on advanced technologies to improve vehicle fuel efficiency over the next seven years.