By Kendra Marr
Washington Post Staff Writer
Saturday, November 22, 2008
In just 10 days, Detroit's Big Three automakers hope to re-plead their case for a $25 billion emergency loan. But this time they will be expected to produce clearer business plans.
Yesterday, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) sent the automakers a letter calling on them to submit "a credible restructuring plan" by Dec. 2.
The letter came a day after congressional leaders delayed a vote on providing the auto industry as much as $25 billion in emergency aid.
President Bush, in his weekly radio address, castigated Democrats for failing to vote on an alternative proposal to let automakers instead tap $25 billion in loans that are supposed to help them improve the fuel efficiency of their cars.
"If the automakers are willing to make the hard decisions needed to become viable, they should be able to receive the funds Congress already allotted to them for other purposes," Bush said. "The American people expect their elected leaders to do what it takes to solve it."
Pelosi and others have said there was not enough support in Congress to provide funding without a detailed turnaround plan.
"We don't have any intention of seeing the auto industry go down, but they have to come up with how they survive themselves," Pelosi told reporters yesterday.
Pelosi and Reid laid out a number of requirements for a restructuring plan that would generally answer three questions:
1. How will the $25 billion be spent and paid back?In testimony this week, the automakers told Congress they intend to split the $25 billion emergency loan roughly along the lines of their share of the U.S. market. GM, being the largest, would get about $10 billion to $12 billion. Ford and Chrysler would take about $7 billion to $8 billion each.
Asked by Sen. Richard C. Shelby (R-Ala.) how they intended to pay back the loan, Chrysler chief executive Robert L. Nardelli said the automakers hoped the money would buy them time to transform their businesses.
"We wouldn't be here today asking for this if we didn't have a high confidence level that we could weather this economic trough, continue to resize, make these gut-wrenching decisions to come out the other side leaner, more agile, and for us, a higher quality, higher-reliable product," he said.
Yet some industry analysts said GM alone may need as much as $30 billion next year to deal with a cash shortfall. Pelosi and Reid are asking the automakers to provide "documented assessments" of their current financial positions and to outline their plans for meeting health-care and pension obligations. They want estimates for when the loans would be repaid under varying auto sales conditions.
Some analysts say the automakers also need to work on their marketing pitches, recalling the assertive spirit of former Chrysler chief executive Lee Iacocca, who persuaded Congress to bail out Chrysler in 1979.
"He was much more a salesman," said Bruce M. Belzowski, an associate director at the University of Michigan's Transportation Research Institute. "When he went before Congress, he was excited and emotional about what he was going to do. . . . What a great show for just a $1.5 billion loan."
2. How will the automakers demonstrate their accountability?Congress wants to see that the auto industry is willing to make sacrifices if it accepts government aid. Some lawmakers cringed when Ford chief executive Alan R. Mulally refused to cut his salary to $1 as Iacocca did, saying, "I think I'm okay where I am." And flying three separate private jets to Washington to testify enraged Rep. Gary L. Ackerman (D-N.Y.): "I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here? It could have at least sent a message that you do get it."
Pelosi and Reid demand that the companies ban the payment of dividends and "excessive executive compensation" if they take government money. They want the automakers to report regularly on their progress and spell out how they will safeguard taxpayer investments -- including provisions that the loans be "immediately callable" if certain benchmarks are not met.
The United Auto Workers will probably need to make some "visible indication of sacrifice" to push forward the automakers' plans, said Dave Cole, chairman of the Center for Automotive Research. A special program that pays workers at idle plants may be the first on the chopping block. "Symbolically, it's something everyone hates," Cole said.
Corporate turnaround veteran Wilbur Ross suggested consolidating Chrysler and GM to show the government that the industry is willing to make dramatic cuts. "They have a tremendous amount of duplication at a very high price," he said.
Both Ford and GM made some headway yesterday, announcing production cuts at several plants to better align with demand. GM is preparing to give back two of its leased corporate jets, and Ford is exploring the sale of its five planes.
3. Is the industry viable?This is perhaps the most important question facing Congress. Pelosi and Reid want the companies to explain how they intend to remain solvent while retooling to become global leaders in the production of energy-efficient vehicles.
GM chairman and chief executive G. Richard Wagoner Jr. attempted several times in his recent testimony to convey his company's commitment to make cars more fuel efficient.
"We have 20 models that get more than 30 miles per gallon highway, more than twice any other manufacturer today," Wagoner said. "We have six hybrid models. We'll offer three more next year. We're the global leader in biofuel vehicles. And obviously we have a significant commitment to the electric vehicle with cars like the Volt and fuel cell."
But lawmakers want further assurances. In their letter, Pelosi and Reid asked the automakers to demonstrate their ability to meet new fuel standards of at least 35 miles per gallon by 2020.
This request may be the easiest to comply with.
"All these companies have very detailed plans and strategies in place. It's there. It's on paper. It's in action," said Laurie Harbour-Felax, a longtime industry analyst.
GM is making strides to streamline its manufacturing, much like Toyota's production system, she said. All three companies have plans to roll out fuel-efficient and hybrid electric vehicles in two years.
Staff writer Dan Eggen contributed to this report.
View all comments that have been posted about this article.