By Lori Montgomery and Kendra Marr
Washington Post Staff Writers
Friday, December 5, 2008
The chief executives of Detroit's automakers returned to Capitol Hill yesterday bearing austere business plans and a dose of humility, but they failed to close the deal for as much as $38 billion in federal loans.
Lawmakers said they were not convinced that the automakers could return to profitability even with a massive infusion of government cash. That left the once-mighty manufacturers with no clear path to salvation and serious questions about their immediate future. Without a quick rescue, General Motors has said it may not survive the month.
After a six-hour hearing with the auto executives, Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said he would try to assemble a plan to revive the automakers, asserting that "inaction is not an option." But he could not say what that plan might look like, and he conceded that enacting any proposal to save the car companies would be "a tall order."
Meanwhile, Democratic congressional leaders again urged the Bush administration to use its authority under the $700 billion financial rescue program to forestall the auto industry's collapse. Dodd said Treasury Secretary Henry M. Paulson Jr. must explain why the car companies, which support one in 10 U.S. jobs, are less deserving of assistance than Wall Street banks and insurance companies.
"If the Federal Reserve and the Treasury Department, under President Bush, can find $30 billion for Bear Stearns, if they can concoct a $150 billion rescue for AIG, if they can commit $250 billion to Fannie Mae and Freddie Mac, and if they can back Citigroup to the tune of more than $300 billion, then there ought to be a way to come up with a far smaller dollar figure to protect this economy from the unintended consequences that would be unleashed by a collapse of the automobile industry," Dodd said.
Paulson, who was in China, and Federal Reserve Chairman Ben S. Bernanke both rebuffed invitations to appear at yesterday's hearing, Dodd said.
In testimony, Gene L. Dodaro, acting comptroller general of the Government Accountability Office, said the financial rescue program is "worded broadly enough" to permit Paulson to help the automakers. Several Republicans on the panel agreed: Paulson "clearly has the authority under TARP to do this," said Sen. Bob Corker (R-Tenn.), using the acronym for the Troubled Asset Relief Program. "He could do it in five minutes."
Although Paulson has said he hopes to avoid the bankruptcy of any of the auto companies, he and other Bush administration officials remain adamant that the bailout funds be reserved exclusively for the financial system.
"Our preference is not to use TARP. We've said that over and over," Commerce Secretary Carlos M. Gutierrez said in an interview. Still, Gutierrez has been in constant communication with the automakers and met with Chrysler chief Robert L. Nardelli late Wednesday. "There's no question that there's a heightened sense of focus and intensity coming into these meetings," Gutierrez said.
After appearing yesterday in the Senate, the chief executives of GM, Chrysler and Ford, along with the president of the United Auto Workers, are scheduled to appear again today before the House Financial Services Committee. The twin hearings represent a second chance for the auto executives, who irritated many lawmakers two weeks ago when they flew on private jets to make an initial request for $25 billion and weren't prepared to answer questions about how they would spend the money.
Under orders from House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.), the companies drafted business plans, increasing their request to as much as $38 billion, and returned to town to defend it. This time, they made the 500-mile trip from Detroit in cars.
Their performance yesterday was more humble.
"We're here today because we made mistakes, which we're learning from," GM chairman G. Richard Wagoner Jr. told the panel in his opening statement. Although last month's hearings "were difficult for us," Wagoner said, lawmakers' concerns had "accelerated a healthy internal review."
That review apparently produced a far clearer assessment of the rocky road ahead. Instead of the vague request from two weeks ago, this time Wagoner asked for $12 billion in short-term loans, plus a $6 billion line of credit. He said GM needs $4 billion immediately and $4 billion more in January, and hopes to repay the government by 2012.
Nardelli said Chrysler needs a $7 billion bridge loan, as well as immediate assistance for Chrysler Financial, the company's auto financing arm, from the Treasury's financial rescue program, a request that startled Dodd and other lawmakers.
Noting that Treasury has not granted the bailout funds, Dodd marveled: "Even if we do what we're doing up here, Chrysler fails anyway?"
Nardelli declined to answer directly. "It's a candid request," he said.
Ford President Alan R. Mulally, meanwhile, requested a $9 billion line of credit, which he said he hopes never to use. But Ford projects that its needs could grow to $13 billion if the economy continues to decline.
The automakers have already applied for nearly $22 billion from an Energy Department loan program intended to promote development of fuel-efficient technology, bringing their total request to about $60 billion, Corker noted with skepticism. Corker said the Bush administration has rejected those requests; an Energy spokeswoman said the agency has merely asked for more information.
In any case, all three companies have crafted business plans that count on the Energy Department money to help them stay afloat over the next two years. The Bush administration has proposed redirecting that money to provide immediate liquidity. But Sen. Jon Tester (D-Mont.) noted that that idea "totally destroys the business plan."
Tester was one of several senators who said they didn't find the business plans particularly convincing. Neither did Mark Zandi, chief economist at Moody's Economy.com, who testified that the auto giants are likely to need as much as $125 billion "to avoid bankruptcy at some point in the next two years."
Zandi urged lawmakers nonetheless to give the car companies the money, because their "bankruptcy, at this point in time, would be cataclysmic" to the economy. But lawmakers should release the money in two installments, Zandi said, making clear that if the firms' restructuring is not successful, Washington will "work to ensure that there is an orderly bankruptcy process."
Zandi's was one of half a dozen ideas batted around the hearing room. Dodaro urged lawmakers to create an oversight board similar to the one that managed the 1979 Chrysler bailout. Dodd and Sen. Charles E. Schumer (D-N.Y.) promoted the giving some money to a presidential designee -- perhaps Paulson -- who could sit down with the companies, their creditors, their suppliers and the UAW and hammer out a plan. Corker and Sen. Robert F. Bennett (R-Utah) discussed a forced merger of GM and Chrysler, which Bennett said could save up to $10 billion a year.
And Sen. Richard C. Shelby (Ala.), the senior Republican on the panel, said he opposes any bailout, which would "just prop up a failed business model for a few months."
Schumer asserted "there's a growing consensus we have to do something." But he acknowledged that no one is sure quite what that is, even as the Senate prepares to return to Washington on Monday. With opposition to a bailout strong among Republicans and even among many Democrats, congressional leaders have given themselves one week to make something happen.
"Nobody knows the endgame right now," Corker said.
Staff writer William Branigin contributed to this report.