This time, they left the corporate jets at home and drove for hours all the way from Detroit to the steps of the US Capitol in Washington, DC. General Motors’ Rick Wagoner brought the production Chevy Malibu hybrid and prototype Volt (and R&D chief Lawrence Burns), Chrysler CEO Bob Nardelli stepped out of a prototype electric Jeep and Ford’s Alan Mulally came in a hybrid Escape. Then, as the Senate Banking Committee hearing came to order, they ate humble pie and encountered scepticism. Halfway through the hearings, there’s still no guarantee Congress will agree to bail the Big Three out.
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“ I want you to know I heard your message loud and clear,” said Mulally, as proceedings opened, referring to the hearing two weeks ago when the three CEOS were chastised for turning up with corporate jets and without precise restructuring plans.
“We’re here today because we made mistakes, which we’re learning from, because some forces beyond our control have pushed us to the brink,” added Wagoner.
The senate committee’s top Republican member Rich Shelby nailed his colours to the mast, even before the CEOs were given a chance to speak.
“I intend to oppose bailing out the Big Three manufacturers,” he stated bluntly.
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By GlobalDataAnother senator accused Chrysler of asking for taxpayer dollars to restore the company just enough to sell it.
“I don’t wake up every morning thinking about how to sell the company,” retorted a clearly startled Nardelli. “We’re busting our guts and the people that are left there are busting their guts to make this thing work.”
The committee insisted any taxpayer-funded bailout would come with conditions including, perhaps, the appointment of a federal government auto industry ‘czar’ to oversee the restructuring with wide powers to force the automakers, unions and suppliers make changes. This would be reminiscent of the energy ‘czar’ appointed by the Nixon government during the first oil crisis in the early 1970s.
“Yes sir,” said Mulally. “Be glad to do it,” added Wagoner. “We know it can be done,” said Nardelli. The Chrysler and GM eyes said it all: Anything, anything at all, to get that loan and stave off the looming melt-down which could happen this month.
The committee also heard from Mark Zandi, chief economist of ratings agency Moody’s Economy.com, who made it clear the US$34bn in loans requested so far would be just the start – he estimated the automakers would require $75-125bn in total to recover. Asked what would happen if they were forced into bankruptcy, he said the effect on the US economy would be “cataclysmic”.
CBS News last night ran the numbers and concluded that the actual initial hit to the public purse would be north of $55bn. In addition to the $34bn discussed in the hearing, each company has also applied for federal funds from the Department of Energy – $8bn for GM, $8.5bn for Chrysler and $5bn for Ford and also want a slice of the $700bn bailout fund for the financial sector.
“Nothing concentrates the mind like a death sentence,” said committee chairman Chris Dodd. “And we’re looking at a death sentence here if we don’t respond intelligently and prudently”. He added: “We’re not going to leave town without trying” to assist, a reference to keep the outgoing Congress in Washington until something is agreed.
Showing the Volt to an ABC reporter outside, top GM R&D executive Burns was asked about the automaker’s future.
“If there is not action by the end of this month, there is a real risk our company will collapse, and the auto industry will collapse,” he said.
But the senators remained sceptical: “In all due respect, folks, I don’t think there’s faith that the next … three months will work out, given the past history,” said Charles Schumer, a Democrat from New York state.
“No thinking person thinks that all three companies can survive,” Republican Bob Corker of Tennessee opined.
“I don’t think we want to walk away without trying to get something done,” Dodd told a news agency after the hearing ended.
Still, there is no agreement yet between the Senate, House of Representatives and White House on what to do.
If Congress doesn’t pass the bail-out loan, automakers could plead directly to the Bush Administration, and hopefully get some of the $700bn already allocated to help the financial sector. But outgoing president George W Bush is in office until 20 January and GM and Chrysler both reiterated yesterday they will run out of liquidity by the end of this month.
Some lawmakers were reported to have said the financial institutions that have already benefited from the $700bn package should make government-guaranteed loans to the automakers.
And it seemed likely Dodd and other senators might look for a way to provide short-term loans to get GM and Chrysler through their present cash crisis and come up with a more detailed plan after a new Congress and president-elect Barack Obama take over next month.
The Big Three CEOs were joined by union, Government Accountability Office, component maker and dealer group officials. United Auto Workers president Ron Gettelfinger warned the committee GM and Chrysler were both at risk of failure by the end of the month.
Johnson Controls’ Keith Wandell spoke of the dire effects of automaker bankruptcy on his industry, which has already seen a number of Chapter 11 restructurings.
After the hearing Wagoner said he was optimistic Congress would reach some sort of agreement to get GM through its liquidity crunch, and noted committee chairman Dodd’s expression of interest in keeping lawmakers in Washington until a rescue plan could be agreed and passed.
The word ‘bankruptcy’ popped up again. Some lawmakers want the automakers to be subjected to so-called ‘prepackaged’ bankruptcy in which agreements are first reached with creditors, speeding up the subsequent Chapter 11 protection and reorganisation.
If that follows the pattern of recent component sector Chapter 11s, the companies would emerge significantly downsized, but they have argued such a move would destroy consumer confidence – buyers would shun cars from a bankrupt company – and cost far more than a bail-out.
Later today, the CEOs and officials make their cases all over again, this time in front of the House Financial Services Committee.
