Detroit’s struggling Big Three automakers shift gears in a second attempt today to persuade Congress to loan them $25 billion to keep them from crashing.
Congress last month rebuffed pleas by General Motors Corp., Ford Motor Co. and Chrysler LLC, telling them to come back with more details about how they can restructure their ailing companies and assure lawmakers that the money won’t go up in smoke out the tailpipe.
All three companies were expected to present separate plans, and congressional hearings were scheduled for later this week. Declaring bankruptcy, the companies have said, is not an option because they argue that no one would buy a car from an automaker that might go out of business.
A combination of factors created massive problems for the carmakers.
Among them were high fuel prices earlier this year that put a huge dent in sales of their profitable SUVs, a worsening recession and financial meltdown that has led to a tight credit squeeze, preventing potential car buyers from borrowing money, and competition from imports that get higher gas mileage.
GM, Ford and Chrysler spent $18 billion in cash reserves in the last quarter, which ended Sept. 30. GM and Chrysler have warned that they could go out of business in weeks.
Ford appears to be in better financial shape. It mortgaged factories to arrange for a $23.4 billion credit line in 2006, and the company can last until at least 2010, CEO Alan Mulally has said.
Despite problems for the carmakers, skeptical congressional leaders served notice that a bailout was not Job. 1 for Congress at a time when a devastating financial crisis cost taxpayers $700 billion money to save banks and other institutions. They told all three company chief
executive officers to return home and come up with better ideas.
Senate Majority Leader Harry Reid, D-Nev., and House speaker Nancy Pelosi, D-Calif., told them to come up with changes that include the elimination of exorbitant executive pay packages and that taxpayers will be reimbursed for the loans.
Chrysler CEO Robert Nardelli said he would work for $1 a year and GM CEO Rick Wagoner is expected to make the same offer. Ford plans a pay cut for its chief, Mr. Mulally.
GM will try to negotiate exchanging some of the huge company’s debt for equity stakes in the automaker, either shares or warrants for them, the Associated Press quoted two people who were briefed on the firm’s plan.
GM also will try to shed some of their brands Pontiac, Saturn or Saab, the AP said. But dropping a brand, such as GM did with Oldsmobile in 2004, costs money that GM may not have.
GM owes creditors $45 billion and must pay more than $7.5 billion in 2010 to a United Auto Workers trust fund that will take over retiree health care payments, one of the company’s biggest expenses, according to its quarterly report to the Securities and Exchange Commission.