By Lori Montgomery
Washington Post Staff Writer
Wednesday, November 19, 2008

The chieftains of Detroit's Big Three automakers made a desperate appeal to skeptical lawmakers yesterday for $25 billion in emergency loans to forestall the possible collapse of the domestic auto industry, offering to cut their own salaries in exchange for government aid.

But the chances were looking increasingly bleak that Congress would quickly approve a lifeline to help the firms survive some of the most devastating economic conditions since Henry Ford founded the Ford Motor Co. in 1903.

In testimony before the Senate Banking Committee, the chief executives of Ford, General Motors and Chrysler blamed the failure of the global credit system for driving down auto sales and plunging their firms into crisis. Chrysler chief executive Robert L. Nardelli revealed that his company had considered filing for bankruptcy protection, but decided it would take too long to reach an accord with suppliers, lenders and labor.

"We're in a very fragile position," Nardelli said.

Even Ford, the strongest of the three, is worried about its long-term survival. Ford chief executive Alan R. Mulally said in written testimony that because the auto industry is "uniquely interdependent" on a nationwide chain of suppliers, the failure of even one of the companies could cause a "severe disruption" that would be felt by every auto plant in the country "within days, if not hours."

"In the face of incredibly fragile economic conditions and the interdependence of our industry, we believe it is appropriate at this time to join our competitors in asking for your support to protect against an uncertain economic future," Mulally wrote.

The stakes are high, the executives argued. The U.S. auto industry employs 240,000 workers. It is the largest purchaser of American-made steel, aluminum, iron, copper, plastics, rubber and electronic chips. Last year, it bought $156 billion in U.S. auto parts, supporting jobs in all 50 states. Auto sales typically account for 4 percent of the gross national product.

Several senators in both parties said they recognize the industry's importance to the national economy and the severity of the crisis that has left GM and Chrysler in danger of running out of money within months. But the patience of even some sympathetic lawmakers was tested by evasive answers from the executives about whether $25 billion would be enough to restore them to financial health or whether Congress, having approved one bailout, would be asked to approve another next year.

"I voted for $25 billion to help you restructure," said Sen. Robert Menendez (D-N.J.), referring to a package of low-interest loans Congress approved earlier this year to help the car companies retool factories to produce more fuel-efficient vehicles. "But when I hear you not being able to give us how this $25 billion will take you to that place in time in which you will be able repay the taxpayers of the country . . . well, it's a difficult proposition."

In one particularly testy exchange, Sen. Bob Corker (R-Tenn.) demanded to know how the three companies plan to divide the cash if Congress is persuaded to approve it.

"Obviously, you've all created a pact," Corker said. "I just want the numbers."

Nardelli quickly replied that Chrysler would seek $7 billion. Mulally said Ford wants about the same. And, after an initial vague response, GM Chairman G. Richard Wagoner Jr., confessed to hoping for as much as $12 billion.

When Corker raised the prospect of a prearranged bankruptcy with the government offering to help one or more of the firms restructure under court supervision, Wagoner snapped back that the idea is "pure fantasy."

A bankruptcy, he said, "would ripple across this economy like a tsunami we haven't seen. It seems to me like a huge roll of the dice."

The auto companies say a bankruptcy filing would trigger fears that warranties would not be honored and that parts and service would be hard to come by, driving away customers. Suppliers, who count on each of the companies for a huge portion of their business, could be crippled. And there would be no assurance, Nardelli said, that once a company entered bankruptcy protection it would be able to emerge, given the state of the credit market.

Sen. Jon Tester (D-Mont.) asked the executives whether they would be willing to cut their own salaries to $1 a year to avoid that outcome, following in footsteps of Lee Iacocca, former chairman of Chrysler, which received a government bailout in 1979. All three said yes.

"I'm willing to be part of the solution," Wagoner said. Mulally said it would be "a symbolic gesture," because Ford had eliminated merit raises and bonuses for this year.

The automakers may come away empty-handed. At the close of the four-hour hearing, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) acknowledged that a Democratic proposal to carve $25 billion in emergency loans out of the $700 billion financial rescue program Congress enacted last month does not have sufficient support to win approval during this week's session of Congress.

The White House adamantly opposes the idea, saying it would raid money needed to stabilize the financial system. President Bush has urged lawmakers to modify and accelerate the existing $25 billion loan program to build fuel-efficient vehicles, but the car companies, House Speaker Nancy Pelosi (D-Calif.) and other key Democrats are unwilling to divert the money from its original purpose.

A test vote on the Democratic measure in the Senate could come tomorrow, but Dodd said he will revisit that idea with Senate Majority Leader Harry M. Reid (D-Nev.). "Trying to jam something through, I think, would be a mistake," Dodd said.

Faced with an apparent impasse and the Thanksgiving break fast-approaching, Reid and Pelosi must decide whether to try again in December or put the matter off until January, when Democrats will have stronger majorities in both chambers of the Capitol, as well as control of the Oval Office.

While Reid and House Majority Leader Steny H. Hoyer (D-Md.) yesterday raised the prospect of a December session, Pelosi told reporters she knows of "no likelihood of us being in session in December."

No action would leave the car companies in a grim position. GM has said it could run out of cash next year, and Nardelli said yesterday the same was true for Chrysler. This comes despite their efforts to produce better, more fuel-efficient cars and to dramatically cut costs by slashing workers, trimming salaries and benefits, and dumping nonperforming assets. Yesterday, Ford continued its campaign, announcing that it would raise about $540 million by selling part of its stake in Japanese affiliate Mazda today.

Mulally noted that Ford had even made a profit during the first quarter of this year.

"What exposes us to failure now is not our product lineup or our business plan or our long-term strategy," Wagoner said. "What exposes us to failure now is the global financial crisis, which has severely restricted credit availability and reduces industry sales to the lowest per capita level since World War II."

Staff writers Kendra Marr and Paul Kane contributed to this report.