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Desperate auto chiefs plead anew

Humbled Big 3 leaders say they'll accept U.S. oversight and take the $34-billion bailout in installments.

December 05, 2008|Jim Puzzanghera | Puzzanghera is a Times staff writer.

WASHINGTON — Humbled and increasingly desperate as car sales plummet, the heads of the country's Big Three automakers told Congress on Thursday that they were willing to accept oversight of their spending in return for $34 billion in government loans to keep them afloat.

The chief executives also said they would be amenable to taking the money in stages, which would allow the government to put the brakes on additional funding if the companies were not making solid progress reinventing themselves as leaner, profitable enterprises.

But skepticism remained high on Capitol Hill during a hearing of the Senate Banking Committee, with lawmakers questioning Detroit's commitment to becoming more competitive and worrying that the taxpayers' money would quickly be frittered away.

As a result, General Motors Corp., Ford Motor Co. and Chrysler still face tough odds in getting government help this year.

"In just two short weeks the price tag has jumped from . . . $25 billion to $34 billion," said Sen. Richard C. Shelby of Alabama, the Banking Committee's top Republican. "I'm interested in hearing what changed and why we should believe things will get better."

Democrats are generally more sympathetic to the automakers' plight, saying thousands of jobs would be lost -- and the nation's industrial might jeopardized -- if any of the automakers is allowed to collapse.

"None of us relishes this task that we are asked to consider, yet who among us believes we should risk the consequences of the collapse of . . . one or more domestic automobile manufacturers?" Banking Committee Chairman Christopher J. Dodd (D-Conn.) said at the start of a nearly six-hour hearing. "Make no mistake about it -- those consequences would be severe and sweeping."

The auto executives face another grilling today, when they appear before the House Financial Services Committee, which gave them an even rougher mauling than the Senate panel last month.

The idea of paying out government funds in installments rather than all at once appeared to gain traction among members of Congress, though nothing approaching a final deal was at hand.

As described to the auto executives, about half the money would be disbursed quickly to keep the companies afloat through March 31. The rest would be held back until a government board of trustees was convinced that the companies were making progress toward becoming more competitive and retooling their lineups to offer more fuel-efficient cars.

Sen. Charles E. Schumer (D-N.Y.) pushed the idea of a single trustee designated by the president to control disbursement of additional money after March 31 and force changes on the companies and the United Auto Workers union, which has been criticized for protecting the compensation packages of its members.

"I think that there's a general view that we want to see the conditions before we give you the money. And you folks sort of want the money and then say, 'Let the conditions work out,' " Schumer said. "I don't trust the car companies' leadership. . . . I worry that if they're left on their own, they'll be back a short time later asking for more, and we won't be better off."

The auto executives said they welcomed the prospect of government oversight.

"It would be very helpful for us, whether it's a board or an individual, to have someone to work with on this, to submit our proposals, and then for that person to say, 'OK, don't agree with that. You've got to change this,' " said GM Chief Executive Rick Wagoner.

Another idea floated at the hearing was to require banks that received bailout money to lend to the automakers, with government guarantees on the loans. That would require federal officials to renegotiate the terms of the capital injections.

Some also suggested that Chrysler and GM be required to merge.

A continuing concern among many lawmakers is that the $34 billion would be just the beginning.

Mark Zandi, chief economist at Moody's Economy.com, testified to the committee that the companies would most likely need $75 billion to $125 billion in government loans to avoid bankruptcy over the next two years.

Even so, Zandi said he favored a bailout, saying the economic cost of the auto industry's failure would be "cataclysmic."

GM said it needed $4 billion this month to avert bankruptcy, another $8 billion next year and a $6-billion line of credit if economic conditions worsened. Chrysler said it needed $7 billion in loans or it could run out of cash early next year.

A new attitude

Ford, which is more financially stable, requested only a "stand-by line of credit" of up to $9 billion. But Ford said that a failure by either competitor could threaten it as well because the automakers depend on many of the same suppliers.

The portion to keep the companies afloat until March 31 drops to $14 billion -- $10 billion for GM and $4 billion for Chrysler.

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