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Auto Giants Ratchet Up Pleas for Aid
As Sales Hit 25-Year Low, Companies Pledge to Unload Brands and Slash Costs

By Kendra Marr and Steven Mufson
Washington Post Staff Writers
Wednesday, December 3, 2008

General Motors, an icon of American manufacturing and the world's largest automaker, yesterday threw itself at the mercy of Congress, saying it needed $4 billion to avert a cash crisis by the end of the month and as much as $18 billion in federal loans over the next year.

GM and its U.S. rivals Chrysler and Ford all pleaded for government loans, promising in return to use the opportunity to slash costs, jettison brands, restructure their finances and speed the introduction of fuel-efficient vehicles widely considered crucial to their future.

Together the three auto giants sought at least $28 billion and as much as $38 billion in government assistance, more than the $25 billion they requested just two weeks ago. Battered by the lowest car sales in a quarter century and tight credit conditions, the companies said they needed the money just to survive the next year.

"There is no plan B," said Fritz Henderson, GM's president and chief operating officer.

It was a humble moment for the three auto behemoths, which once were synonymous with American ingenuity and industrial might. Over the past three decades, they have lost ground to more agile foreign rivals that favored smaller cars built by non-unionized labor at lower wages.

This year the combination of high fuel prices and the paralysis in the credit markets has brought the U.S. companies to the brink. Chrysler yesterday sought $7 billion by the end of the month. Ford, which is in stronger financial condition, asked Congress to set aside as much as $13 billion to help the company if the economic downturn deepens.

The companies presented their plans yesterday, a deadline set by Congress, but there was no guarantee that wary lawmakers would agree to pump taxpayer money into firms that might not be financially viable.

House Speaker Nancy Pelosi (D-Calif.) said yesterday that Congress would not adopt a loan package for the automakers unless the ailing giants presented "a new business model, a new business plan" that was "worthy of the support that the taxpayers will invest in it."

But she also said that "bankruptcy is not an option" and predicted that either Congress or the Bush administration would intervene to prevent a collapse of the industry. Senate Majority Leader Harry Reid (D-Nev.) told reporters he expects to call the Senate back into session early next week with the aim of passing a bill by next Friday.

The chief executives of the three companies all seemed mindful of the drubbing they took two weeks ago when they sought taxpayer assistance. Excoriated for traveling by corporate jets to testify in Washington, all said they would make the 500-mile return trip by car this week for the new round of hearings. Ford and GM even said they would part with the aircraft permanently.

Ford chief executive Alan R. Mulally and GM chief executive G. Richard Wagoner Jr. also offered to cut their salaries to $1 a year if the government provides aid. Chrysler already pays chief executive Robert L. Nardelli that sum in salary. GM said it would also roll back other executives' pay.

The magnitude of the crisis, as portrayed by the companies, is daunting. Though the three companies described a dire situation two weeks ago, the situation seems even more grave now. GM said will need $12 billion by late March to keep operating. If the recession drags on, it might ultimately need up to $18 billion.

Although many critics say the companies should be allowed to go bankrupt, Ford, GM and Chrysler have argued that bankruptcy filings would hurt suppliers, cause massive job losses and drive customers to rival car companies.

"The plan is intended to achieve what would otherwise be achieved in a bankruptcy filing by a negotiated route," GM's Henderson said.

GM said it would sell its Saab division and begin discussions with Saturn dealers to fold or sell the brand. It said it would concentrate on four of its brands -- Chevrolet, Cadillac, GMC and Buick. Pontiac will become a niche brand. It also proposed an oversight board to protect taxpayer interests.

The restructuring plan would lead to widespread job losses. The company said that by 2012 it would reduce its network of dealers to about 4,700 from 6,450. By 2012, it would also close nine manufacturing facilities and reduce the number of workers by at least 20,000.

The United Auto Workers will meet today with delegates of the three automakers "to discuss the auto crisis," UAW spokesman Roger Kerson said.

The companies were also expected to be negotiating with bankers about how to reduce debt and slash interest payments, most likely by pressing bond holders to convert their holdings to equity.

Chrysler's business plan, about half the size of its cross-town rivals, argued that bankruptcy would be even more costly. It said that $17 billion to $20 billion in financing that would be required to sustain Chrysler for one year in Chapter 11, the part of the bankruptcy code that allows firms to continue operations.

Because the company is owned by the private-equity firm Cerberus, the size of Chrysler's request is likely to prompt extra questions from lawmakers. In addition, the company recently had pressed for a merger with GM, arguing that the combined firm would be stronger after eliminating overlapping costs.

While GM and Chrysler emphasized their immediate cash needs, Ford said it was financially prepared to weather this storm. Barring a bankruptcy by one of its domestic competitors or a more severe downturn, Ford said, it does not anticipate a liquidity crisis in 2009.

Nevertheless, it too asked for federal money to be set aside just in case. Ford requested up to $9 billion in financing and said that could rise to $13 billion if economic conditions worsen. It hoped to return to financial stability, or even profitability, by 2011.

The company also said it would invest about $14 billion in the United States on advanced technologies to improve vehicle fuel efficiency over the next seven years. And it provided initial details of a plan to build a family of hybrids, plug-in hybrids and battery-powered vehicles. The all-electric vehicles would include a van for commercial fleet use in 2010 and a sedan in 2011.

In addition, Ford said it would explore the possible sale of its Sweden-based Volvo brand.

"For Ford, government loans would serve as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company," Mulally said in a statement.

Using its 2005 fleet as a baseline, Ford vowed to improve the fuel economy of its vehicles by an average of 14 percent for 2009 models, 26 percent for 2012 models and 36 percent for 2015 models.

It also planned to reduce its dealer and supplier base. By the end of the year, the company said it would have 3,790 U.S. dealers, 14 percent fewer than it had at the end of 2005.

The automakers' pleas coincided with grim new sales figures, the lowest in 25 years. GM's November sales dropped 41 percent, while Ford's slid 30 percent. Chrysler's sales eroded 47 percent from the same month last year.

Both GM and Ford said their expectations of profitability were based on a partial recovery in U.S. auto sales.

The urgent appeals set up a political drama in the waning days of the Bush administration. The administration has urged Congress to redirect funds from a $25 billion loan program to help automakers retool factories and develop fuel-efficient technologies.

But Pelosi and others have urged the administration to tap the $700 billion bailout established to deal with the financial crisis -- a move rejected by the administration.

The automakers say they are counting on money from both the rescue and retooling programs.

In its pitch, GM "acknowledges that it has made mistakes in the past," but it argued that "the company would not require Government assistance were it not for the dramatic collapse of the U.S. economy, which has devastated the company's current revenues and liquidity."

Staff writer Lori Montgomery contributed to this report.

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