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The Detroit automakers have been lumped together for decades as the Big Three, and for good reason; their goals have usually been aligned.
But this week, as the automakers take a second run at Congress, hoping to persuade lawmakers to give them $25 billion in federal aid, their agendas are diverging as they contemplate futures as drastically different car companies.
Those differences will become clear as they deliver more detailed plans for how they would use that money not just to survive, but also to turn themselves around to be competitive in the long term.
That should make for a sharp contrast to the hearings two weeks ago, when the executives presented a united front, saying in lockstep that it was the credit crisis and weak economy, not their strategies, that had put them in dire straits.
Although the Detroit automakers have been lumped together for decades as the Big Three, their agendas are diverging as they contemplate futures as drastically different car companies.
Democratic leaders are demanding blueprints from Chrysler LLC, Ford Motor Co. and General Motors Corp. before they will schedule votes on any new federal aid. The plans, due Tuesday, are to be scrutinized at a Senate hearing Wednesday and a House hearing Friday.
If lawmakers like what they see, Congress may reconvene the following week to consider an auto industry rescue.
The head of the United Auto Workers made a public plea Sunday for government help in the form of a loan – “not a bailout” – for the U.S. carmakers.
“We cannot afford to see these companies fail,” said Ron Gettelfinger, the UAW chief, calling on Congress to approve the aid.
GM and Ford have been losing billions of dollars, pushing their stock prices to dramatic lows. GM has warned it could run out of cash in early 2009 if prevailing market conditions continue. Chrysler, which is privately owned, has indicated it is in similarly dire straights.
In mid-November, Detroit’s three chief executives were rebuffed in their first attempt to win support for $25 billion in government loans. Both Republicans and Democrats say the CEOs have failed to adequately explain how they would use federal money to restructure their companies. They face a Tuesday deadline to submit proposals to Congress.
Another failure to secure backing for a bailout could leave GM and Chrysler in very difficult financial positions. Ford is in a stronger cash position, although it, too, could face a cash crunch if auto sales remain at their depressed levels.
UPDATE: December 2, 2008 11:10 pm
Their first attempt was a lemon, but the Big Three U.S. automakers get a second chance this week to convince Congress that it should give them a $25-billion bailout—or as they call it, a bridge loan to the future.
Setting the stage for what could be a crucial moment for the car companies and American industry, General Motors Corp., Ford Motor Co. and Chrysler were scheduled to provide lawmakers with detailed plans today on how they would use federal money to ensure their long-term survival and not just dodge an immediate collapse.
One thing is certain: All three now see the wisdom of appearing humble. They’ve forsworn the use of private jets—which became a symbol of corporate high-handedness in Round One—for the return trip to Washington.
So far, only a few details of the proposals have emerged, including eliminating or selling brands. GM has had its Hummer unit on the block since June, and it is now understood to be considering the sale of Saab or even Pontiac and Saturn.
Ford, meanwhile, sold Jaguar and Land Rover to Indian carmaker Tata Motors this year. And Mulally on Monday added another high-end line to the for-sale list: Volvo.
The United Auto Workers leadership appeared in Washington with the heads of Ford, GM and Chrysler last month, and industry experts say it’s likely that they will be asked to make further cost concessions.
Yet labor specialists wonder how much more the union can give. Last year, the UAW signed a landmark deal with the Big Three that will effectively allow the automakers to unload retiree healthcare costs starting in 2010.
U.S. automakers are struggling to stay afloat heading into 2009 under the weight of an economic meltdown, the worst auto sales in decades and a tight credit market. General Motors, Ford and Chrysler went through nearly $18 billion in cash reserves during the last quarter, and GM and Chrysler have said they could collapse in weeks.
All three companies are filing separate plans. Congressional hearings are planned for Thursday and Friday.
“I believe the industry will make a compelling case for bridge loans that will allow the companies to return to firm financial footing,” said Sen. Carl Levin, D-Mich.
Elizabeth Warren, the chairwoman of the oversight panel, said in an interview Monday that the government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan.
“You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.”
If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, “pouring money into banks isn’t going to fix that problem,” she said.
Here are five crucial issues experts say automakers must meet head-on in their plans if they are to win the PR war and get politicians and taxpayers to back loans to save the industry:
1: Overpaid workers
The United Auto Workers union is taking much of the public blame for the automakers’ woes. People see UAW members as overpaid and underworked compared with other U.S. workers.
The average hourly wage the Detroit 3 pay union workers is not a lot more than the $26 average for the non-union workers at Toyota’s U.S. plants and $24 at Honda’s, CAR says. But including benefits for the workers and retirees, the Detroit 3’s total hourly labor costs still average more than $70 vs. less than $45 at the foreign-owned plants. The new UAW contract signed in 2007 will bring those costs more in line — but not fully until 2011 and after payments by the companies to a benefit fund for which the union has agreed to be responsible.
2: Overpaid executives
Like Gettelfinger, members of Congress also have argued that the CEOs haven’t made enough personal sacrifice to justify the bailout they seek.
Ford Chairman Bill Ford told National Public Radio that the company is negotiating with CEO Alan Mulally on a cut in pay and perks. In two years, Ford has paid CEO Alan Mulally nearly $50 million and allowed $752,000 worth of personal and family use of company planes. “We’re talking to Alan about it,” said Ford, who’s taken no salary for four years. “We are very sensitive to public opinion.”
3: Green cars
Although U.S. automakers focused on more profitable SUVs and trucks at the expense of developing more cars and fuel-efficient technologies, they turned that around in recent years. But it’s clear lawmakers want more.
Financial troubles amid the auto sales collapse have led Chrysler and GM to even cut back some current hybrid programs.
4: Too many dealers
The Detroit 3 have too many stores for their market share and far more than foreign automakers. For example, Toyota has fewer than 2,000 U.S. dealers, while Ford has almost 4,000. Result: A typical Toyota dealer sold 1,628 vehicles in 2007, according to a study by Grant Thornton, while Ford stores averaged 236. The average for all new car dealers: 322.
However, Van Conway, a restructuring expert in Detroit, says it still would take too long and sees little alternative to buying dealers out: “I don’t see any easy way to do that, except for compensating them to go out of business.”
5: Bias in Congress
Many Detroit residents who watched the hearings on C-Span were angered by the grilling some politicians from Southern states heaped onto the Big 3 CEOs. One GM spokeswoman pulled together a list of tax incentives given to “transplant automakers” in the South, showing a total of $3.2 billion, and posted it on her personal Facebook page.
The home state of Sen. Richard Shelby, R-Ala., one of the U.S. automakers’ biggest critics, is home to Mercedes-Benz, Honda, Hyundai and Toyota plants.
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