After a second day in Washington DC to discuss Detroit’s possible bailout amid financial crisis, the political deadlock remains. That news sent new shock waves through the financial markets as they weighed the possibility that Detroit’s problems could worsen and pull the US economy down further in 2009.
And it was another uncomfortable day for the CEOs.
Top executives from GM, Ford and Chrysler did themselves no favours by going cap in hand to Washington for financial help – by arriving in private ‘planes.
It was a point quickly picked up by the Financial Services Committee during a four and a half hour bailout hearing which chastised the bosses for the symbolism of arriving in Washington aboard executive jets.
They suggest that the executives may have to tighten their own belts. News reports estimate that each executive’s flight $20,000 round-trip against about $900 for first-class tickets. CEO Rick Wagoner reportedly traveled on GM’s $36 million Gulfstream IV luxury jet
While the chief executives told the hearing they are open to conditions that the federal government might place on a $25 billion rescue package, suggestions on executive pay, more fuel-economy regulations and prohibiting the funds from being used on mergers did not sit especially well.
Only Chrysler LLC CEO Bob Nardelli is ready to accept a salary of $1 per year as a condition of the loans, the same as Lee lacocca took decades ago to help Chrysler secure a $1.5 billion loan rescue.
GM chief Rick Wagoner said he had had already taken a 50 percent salary cut and lost most of the value of thousands of shares of GM stock he has purchased over the years while Ford’s Alan Mulally said he was “OK where I am.” Bloomberg reports that his salary is pegged at his 2007 rate of $21 million.
The hearing was also concerned about possible mergers which could lead to job cuts. GM and Chrysler have recently been in talks about a merger and Wagoner argued that if cost savings from a merger made the players more competitive, it ought to be considered, while Nardelli said Chrysler needs to be open to all alliance opportunities to improve the products and operations of the company.
Meanwhile, Renault-Nissan boss Carlos Ghosn has said that his alliance does not seek a strategic addition in current circumstances, though he hasn’t ruled it out.
The House and Senate hearings this week have heard arguments on whether the Detroit 3 should get $25 billion in loans from the $700 billion bailout fund for banks. Among the conditions contained in the House and Senate bailout bills are government equity stakes in the carmakers, limits on executive bonuses, and prohibitions on paying shareholder dividends. The government would also take the top priority among lenders and get paid back before other creditors.