The bosses of the three biggest US carmakers, Ford, GM and Chrysler, have asked Congress for a USD25bn loan bailout.
They told a Senate hearing that without the rescue package, their firms risked collapse, and warned of broader risks to the US economy.
The gloomy take on the health of the US domestic automobile industry became even gloomier as Chrysler LLC Chief Executive Robert Nardelli disclosed that his company burned through USD3 billion in the third quarter and is in danger of running out of money.
Nardelli told the hearing: “Without immediate bridge financing support, Chrysler’s liquidity could fall below the level necessary to sustain operations in the ordinary course.”
“We are in a very fragile position,” Nardelli said.
GM chief executive Rick Wagoner said the firm needed a loan to span the “financial chasm” that had opened up.
“We’re in probably the worst economic situation that the industry has ever been in,” said Ford CEO Alan Mulally before the hearing.
“A collapse of one of our competitors here would have a ripple effect across all auto makers, suppliers and dealers,” Mulally said in prepared testimony, saying millions of jobs could be lost.
Mulally said that while his company is not in as much danger as GM, a collapse of its rival would be felt by Ford’s operations “within days, if not hours.” He said the auto industry is unique in that competing manufacturers are served by the same parts suppliers.
However, Republicans and the White House do not want to use the $700bn bank rescue to help car firms. Observers said that it was clear from the hearing that no blank cheques will be made available for ailing automakers, though the seriousness of the situation is now sinking in.
Some questioned the ability of the Detroit 3 to be able to repay any loans.
The USD25bn loan being pushed by Democrats would be for ten years, starting at an interest rate of 5%, and would be provided under the government’s USD700 billion financial rescue plan.
Another possible option is that the status of the separate and already approved USD25bn in loans for retooling could be changed to get funds to automakers quickly.
The hearing will continue later today.