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The Big 3 Automakers Hoping For Federal Rescue To The Tune Of $25 Billion
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.
