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US Big 3: 'There is no Plan B'

2008-12-03 06:00

Kevin Krolicki and John Crawley

Detroit/Washington - A top lawmaker predicted Washington would approve a bailout for US automakers after they submitted survival plans, and General Motors Corp and Chrysler LLC said they needed an immediate infusion of cash to avoid failures.

US House Speaker Nancy Pelosi, a California Democrat, said Washington had little choice about helping the automakers, who say they support one in 10 American jobs.

"I believe that an intervention will happen either legislatively or from the administration," Pelosi said. "I think it's pretty clear bankruptcy is not an option."

Chrysler, GM need money by end of December

The Detroit automakers on Tuesday urged Congress to authorise $34 billion in loans and credit lines, far more than the $25 billion they failed to secure in November when lawmakers demanded the companies offer plans showing they could be made "viable."

The development came on the same day that GM, Chrysler and Ford Motor Co posted a drop in combined US sales of nearly 40% for November and warned that the world's largest vehicle market showed signs of tumbling further in 2009.

GM asked for $18 billion in loans and credit lines from the federal government, saying it urgently needs $4 billion of the money by the end of December to pay its bills.

Ford told Congress it needed a $9 billion taxpayer-funded standby line of credit and said a further restructuring would push it back to profitability by 2011.

Ford and GM shares both gained almost 6%.

Chrysler LLC, the smallest and most vulnerable of the Detroit automakers, requested $7 billion from the government by the end of this month, saying that without the aid it could run short of cash by early 2009.

The company, privately owned by Cerberus Capital Management, also said it was seeking partnerships, a strategic alliance or merger.

Democratic leaders have demanded a deep range of commitments from the automakers to cut costs and map a clear path to regain competitive footing.

Senate Majority Leader Harry Reid, a Nevada Democrat, said he would introduce a placeholder bill on Monday that could be used to help automakers. A Congressional bailout would extend the scope of the government's crisis intervention beyond the financial sector by making it a major stakeholder in a key industrial sector.

"We're looking to make sure we do everything we can to take care of the auto industry, if in fact it's viable," Reid said.

But Sen. Arlen Specter, a Republican from Pennsylvania, warned that the car companies would still face a skeptical Congress. "The mood of Congress candidly isn't supportive," Specter said after a meeting with auto executives, dealers and labor leaders.

Few friends in high places

The Detroit CEOs met a hostile reception from lawmakers in hearings in November, capped by a controversy over their decision to fly private jets to Washington to plead for aid.

The three auto chief executives made alternate travel plans this time to get to hearings set for Thursday and Friday.

Ford Chief Executive Alan Mulally is driving a Ford Escape hybrid, GM CEO Rick Wagoner is taking a Chevrolet Malibu hybrid and Chrysler CEO Bob Nardelli also plans to drive to Washington.

While the Democratic-led Congress faces pressure to help Detroit and prevent a further shock to the recession-bound US economy, the industry has managed to alienate lawmakers from both parties over the years.

Many Democrats blame the automakers for resisting tougher fuel-economy and emission regulations, while Republicans are wary of extending another bailout after taking a political backlash for backing a $700 billion rescue for banks.

"If these companies are asking for taxpayer dollars, they must convince Congress that they are going to shape up and change their ways," said Christopher Dodd, a Democrat who chairs the Senate Banking Committee. "They must demonstrate a commitment to profitability and viability that includes raising fuel efficiency standards and reining in excessive compensation and perks like private jets."

GM, Ford and Chrysler failed two weeks ago to obtain a $25 billion bailout from lawmakers unconvinced that taxpayer money would be well-spent.

Democratic leaders had asked them to return this week with retooled plans focusing on viability. Although the chances for aid appear to have improved, statements from GM and Chrysler underscored the cost of another rejection.

"There is no Plan B," said GM Chief Operating Officer Fritz Henderson, who vowed the top US automaker would cut brands, models, workers and dealers while negotiating new concessions from bondholders and the United Auto Workers union.

The GM Plan

GM would also phase out its Pontiac brand, try to sell Saab and negotiate with its 400 Saturn dealers about scrapping that line of cars and crossovers despite investing heavily in an attempt to turn it around in recent years.

At its core, the GM plan represents an attempt to convince a range of stakeholders, including its union, bondholders and dealers, to accept the kinds of sweeping changes to contracts that are typically accomplished in bankruptcy.

But GM and Chrysler both said bankruptcy is not an option since it would cause consumers to shun their brands and risk spinning into a liquidation that would touch off a cascade of supplier bankruptcies and cost hundreds of thousands of jobs.

Ford, considered the best-positioned of the three, has said a bankruptcy by either of its rivals could threaten it, as well, because they share most of the same parts suppliers.

"I'm not sure we have the ability to fix the problem. And I would not take bankruptcy off the table," Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, told CNBC television.

The political calculus remains uncertain for the automakers in Washington. Democrats hold a slim majority in the Senate and the Bush administration continued on Tuesday to back a plan not supported by many Democrats.

US Commerce Secretary Carlos Gutierrez told Reuters the administration backs a Senate bill that would redirect $25 billion from a program already approved to help Detroit make more fuel-efficient vehicles. But that bill is opposed by many Democrats, who say the $700 billion bank bailout fund could be used to help the auto industry.

Another complication emerged on Tuesday when GM and Chrysler both said they were counting on loans from the $25 billion fund administered by the Department of Energy in addition to money from the still-pending rescue package.

A key barometer for the industry will be the hearings on Thursday and Friday at the Senate Banking and House Financial Services committees, respectively. Both panels were sharply critical of the industry last month

Ford shares closed up 6% at $2.70 and GM shares gained 6% to $4.85. Shares of both companies have more than doubled since late November on increasing optimism that a bailout deal was coming.

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