The Big Three: Counting on Aid

Automakers Asking Congress for $38 Billion

With new union concessions on the table and plans they say will restore the U.S. auto industry to viability, chief executives of the Big Three Detroit car makers return to Capitol Hill today for two days of Congressional hearings that could prove critical in their quest for tens of billions of dollars in help from taxpayers.

John Smith, General Motors Group VP of Global Product Planning, was online Thursday, Dec. 4, at 2 p.m. ET to discuss the latest plans of the automakers, their reaction to the UAW and what lies ahead.

In an e-mail interview told washingtonpost.com, "General Motors Corp. submitted a plan Tuesday to use federal bridge loans to create a leaner, more competitive company, one that is profitable and self-sustaining for the long term."

He continued, "That plan includes building on a product renaissance and comprehensive restructuring that has been underway for several years, the plan calls for: increased production of fuel-efficient vehicles and energy-saving technologies; review of brands, models and retail outlets; reduced wage and benefit costs, including further reductions in executive compensation; significant capital structure restructuring; and further consolidation in manufacturing operations."

A transcript follows.

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John Smith: Hello everyone. My name is John Smith and I serve as GM's Group Exec responsible for Global Product Development. I work for Bob Lutz who has overall responsibility for product development. I'll address as many of your comments and questions as I can in the next hour.

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East Lansing, Mich.: I have a vested interest as someone who lives in Michigan to see the U.S. automotive industry succeed. I also personally know people who work in the factories building U.S.-manufactured vehicles as well as parts for such vehicles. However, I cannot believe the arrogance the executives of the Big Three auto companies showed by going in private corporate jets last month to Washington, D.C. to ask for taxpayer help. When one of the executives was asked about his multimillion dollar salary, he implied that he thought it was justified. These executives are out of touch with the workers who build our cars, citizens of Michigan, and the general public at large. As much as I would like for Congress to help our auto industry, I hope Congress can also push for new and more responsible leadership at these companies.

John Smith: GM was already in the process of selling some of its aircraft. As announced earlier this week, GM is shutting down its company aircraft operation altogether, and presently looking for potential buyers/sublessees. As for comp, would encourage a look at gmfactsandfiction.com, where the entirety of GM's submission to Congress can be viewed. In both the main body and Appendix A, there is a summary of compensation-related impacts that GM's executives have sustained in the past few years, and the additional reductions that will be taken as part of the request for a temporary loan.

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Charleston, W.Va.: I don't mean for this to be a smart aleck question, but even with the government loans to the automakers, how are the companies going to survive if consumers are not buying? What are you looking at that encourages you to believe that we, the public, will be auto shopping on a massive scale this winter/spring?

John Smith: Important question. . the uncertainty around if/if not the temporary loan has potential consumers thinking. Recent survey results indicate the specter of bankruptcy is a growing concern. That, coupled with an inability by many with good credit to get financing (resulting from the overall credit freeze), has really slowed sales--which slows dealer orders--which slows production. Among the real important positives coming from Congressional action this week is removal of this uncertainty.

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Albany, N.Y.: This may be outside of your portfolio, but I'd be interested in your take on why your industry seems to have such a tin ear in dealing with the political process. No, politicians don't know much about the car business and yes, they're trying to get on TV, but CEO's of the largest companies in the world ought to be able to handle that and make their case effectively. Why so much trouble?

John Smith: Thanks for cutting me some slack, as I don't usually work the government relations side of the street. That said, having spent a bunch of time with them the past two weeks it is clear, to me, that--for whatever reason--it wasn't as clear before the last hearings what the two committees were looking for as it obviously was this time. Perhaps we just assumed that the folks in D.C. knew as much about our business as they appear to know about banking.

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washingtonpost.com: GM Facts and Fiction (GM)

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Arlington, Va.: Dear Mr. Smith. Thank you for participating in this chat. It can't be easy given everything going on right now.

I have bought GM cars for a long time and I really want GM -- and all the Big 3 for that matter -- to succeed. I really do. But I am very troubled at their request for taxpayer help (or a bailout, for those who call it that). Putting aside the philosophical objections to governments distorting the market and the question of whether anything that has been proposed will be enough to save the Big Three at this point (especially given Mr. Zandi's testimony earlier today), I can't help but think there is some hypocrisy here. For decades, the Big Three have alternatively asked the government to prop them up (such as by lobbying for export restraints against the Japanese in the 1980s), while resisting any efforts by government to "interfere" in their business judgment with regulation or oversight (such as aggressive lobbying against CAFE standards when you were all making money hand over fist on SUVs and light trucks). And, let's face it, GM in particular has been great at putting out nice-looking business plans that end up fizzling out spectacularly. So, why should the taxpayers rush in to help your companies now? How can we trust that the money will be well-spent or that you will be able to turn things around?

John Smith: Being in business for 100 years might have created some bad habits that we just didn't see them for what they were. That said, the past few years have seen some very big changes in our relationship with both our labor and dealer partners, and meaningful and positive changes contractually as well. These things, along with being in a kind of groove related to developing product (we changed from a regional approach to a global approach a little over 3 years ago), had us in a really good place about a year ago, given what everyone believed to be the economic outlook for the next few years. We summarized the improvements we've made, versus competition, in our submission to Congress, which can be viewed in its entirety on gmfactsandfiction.com. With housing bubble bursting, setting in motion an avalanche of financial institution defaults, and the economy crashes, the company's liquidity has evaporated. Some are calling current times the beginning of the Great Recession. We can get through this with a loan, finish execution of the good path we were on, and keep the 4% of GDP the domestic auto industry accounts for motoring along. . or we can say no, and watch the Great Recession become Great Depression Redux.

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Richmond, Va.: I'm as liberal as they come, but I saw nothing wrong with the corporate jets. Most Partners Insurance REQUIRES CEOs use corporate jets. Talk about a red herring! If we focus on that, we'll never solve our long-term issues such as transit, environmentalism and energy use. It makes me think someone vested in keeping things the same way threw out the Jet issue to keep people from focusing on fuel consumption, product changes. We need a real change in our basic way of life and some don't want to admit that.

John Smith: Agree--no question, though, our economy was needing to adjust to the full realities of globalization. The added, untasty layer associated with the economic meltdown is accelerating this process across the board in this country.

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Loan Amount: Thanks for taking my question. Can you give us an idea why last week's $25 billion request has ballooned to $38B?

John Smith: During the first hearings, both Representatives and Senators alike asked several times if the amount requested was enough, would more be required if times stayed tough longer, or got worse. This time, they specifically asked for plans developed around baseline, high and low industry scenarios, and the higher amount represents the need if the low scenario occurs. All companies have couched their respective requests as 'up to. . .' reflecting the low scenario.

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Long Beach, Calif.: I once had an EV1 for 3 days after complaining relentlessly that I had repeatedly been denied a test drive at multiple dealerships. This was the tip off that you guys never intended to make the car successful. Then there is that movie about the oil industry payoffs, etc. that helped to kill it.

THAT wasted opportunity is YOUR legacy.

Now, India, France, Japan, and Australia have moved beyond batteries and are building cars that run on compressed air to push pistons, or a rotary engine... and you're still talking plug-in hybrids.

Compressed air power is now proven, clean, near free to operate, low maintenance, and DEFINITELY the way forward... Yet it escapes you.

Since gas stations make profits on food sales rather than gasoline, and insurance is high for stations due to explosion risk, they would be incredibly successful with lowered costs of pumping compressed air, instead of gas. Drive the compressor on solar power and you're green all the way around. $2 fill-ups for the consumer, little maintenance, and zero carbon emissions.

WHY isn't GM moving into the future with compressed air cars like these guys?: Zero Population Motors

They promise a car on the street in 2010 running on compressed air.

"Whatever will the dealers do for profits without maintenance?" is not a suitable response from you on this matter.

Why isn't GM leapfrogging to the forefront of technology with this money we're giving you? Why no compressed air cars when others have proved them workable?

John Smith: We work with a wide variety of alternative fuel/propulsion possibilities, more in fact than any other manufacturer. Given the vast and growing quantities of natural gas in this country, we're looking at trading upon GM's use of LPG/CNG-equipped engines in other regions of the world for possible application here. Infrastructure will pace this some, but it looks attractive from a consumer point of view and really delivers on energy independence also. We are looking at compressed air although is doesn't look so promising just yet. Happy to send you more information on this if you care to leave me your email.

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Novi, Mich.: How come GM has no solid plan to replace the Cadillac STS before 2012? How come BMW, Lexus and Mercedes can develop new flagship products faster than Cadillac?

John Smith: Just an opinion, mind you, but the noble marquees will have some difficulty continuing to sell as many large luxury cars as they have in the past given CAFE, European CO2 and, possibly, California CO2 rules. The only way they might dodge the latter is if, somehow, they receive some kind of 'low volume exemption', which would be a total travesty.

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Seattle, Wash.: Why hasn't GM been able to shrink their dealer network to date and what makes you think that you can do that now? Also what makes you think that GM DESERVES this money after being so unprepared last month?

John Smith: GM's dealer network has shrunk quite a bit the past few years. . by about 1200 or so in the last 8 years (300 in the last year alone). We anticipate an additional 1200 in the next 4 years. As for Q2, while we may have overweighted what we have accomplished the past few years (see gmfactsand fiction.com, and view our Congressional submission), and underweighted what we'll do in the next few years, the submission is very detailed, with any draws from the requested loan facilities being tied to getting stakeholder agreements to deliver the indicated changes. The car business touches a lot of people in this country, nearly 1 in 10 working folks according to many external studies. 4% of the country's GDP is tied up in designing, engineering and manufacturing cars here, and just walking away will ripple through the non-auto sectors of the economy like a tsunami. We're making better cars,crossovers and trucks than people know--and, yes, we earned their view of us with sub par products in the 70s and 80s, but many of our products are objectively better and better values than competitive makes--products like Malibu, CTS and the recent European Car of the Year, Opel Insignia. .variants of which will be sold in the U.S. in the not to distant future.

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Berkley, Mich.: Hi Mr. Smith,

What can we do to communicate the real story of the Big Three -- better quality, better product -- to a world that doesn't seem open to discussing it. In other words, for those folks who have, for whatever reason, made up their mind that Detroit stinks, how can we get them to consider buying American over Toyota or Honda?

John Smith: First, we need to keep doing what we're doing on the product side. We're in a good place in terms of what we do and how we do it, and we're getting consistently good critical reviews, not just here but abroad. I think we've won over 270 'best of. . ' awards globally, over half here in the U.S. Second, we need to focus on fewer brands, not just with our product development monies but with our marketing funds. The same money spread over fewer brands makes for greater reach and frequency, more awareness, more shopping, more sales. Third, with Chevy Volt, get everybody's attention that GM is, in fact, a technology leader. Here's a car that, for 70% of America's daily commuters, requires no gas, as it delivers up to 40 mpg on a single charge. We're working other high FE solutions as well. We have a old reputation to live down, and consistency, and word of mouth from those who give us another chance, will be powerful change agents for us.

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Senators' knowledge: I also don't want to see the Big 3 fail -- but I think consumer tolerance for watching their taxes giving everyone a break but themselves has unfortunately hit the breaking point. And Congress is well aware they could be voted out, so it seems like they are being extra cautious with the auto loans.

I sure hope this extended process leads to them having more knowledge about your industry than they do about banking -- we have given plenty of money to the banks to help unfreeze credit lines, which would greatly help your sales -- instead, the banks have squirreled our money away so they can use it improve their bottom line.

I wish Congress spent as much time working out the fine points with the banking industry as they are doing with your industry.

John Smith: As a taxpayer, I'm as confused as you are about all the weekend dough being showered over banks. No testimony, no management sacrifices, no business plans, no media coverage/outrage. I suspect Citibank's air force remains in operation!

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Lyme, Conn.: Would you accept the bailout money with conditions for the type or standards of automobiles that are produced? If so, are there breaking points where you would not accept the conditions and, if so, what are those conditions?

John Smith: We've laid out some very specific conditions to protect taxpayers in our submission (see gmfactsandfiction.com for the submission)--draws are conditioned on achievement of specific actions, all overseen by a Federal Oversight Board which we propose in the document.

Our Plan commits us to meeting CAFE. More importantly, virtually all of our new product launches the next four years are high FE cars and crossovers. Our Plan also specifically calls out our investments in hybrids (we'll have 20 models in 2012, and we already have more than any other manufacturer), and extended-range electric vehicles (first edition, the Chevy Volt). We commit ourselves to be the industry leader in FE and related to greenhouse gas emissions reductions. I think this is what you mean, and this is where our heads are at as well.

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Re: Coporate Jets by CEOs: I've prepared many a corporate tax return, worked in corporate America for a long time, I've never seen anything that forces executives to fly charter jets. I hope Richmond, Va., is not suggesting that the U.S. airline industry is unsafe... or we're gonna have a real problem. Corporate jets actually slow down commercial traffic, since they take up valuable space in our skies. And the fuel used to transport a couple of people, as opposed to a 757? Puleeze! This is a case of tone deafness -- if you want our money, take a walk in our shoes, or lifestyle -- most people can't afford air travel now, much less millionaire perks like private jets. Start with your image, and listen to the public. Like safe, smart affordable, reliable cars.

John Smith: I noted in an earlier chat reply that we've shut down our corporate aircraft operations. Having just driven to DC in the last 24 hours, and having gotten into this biz because I like to drive (especially at our Proving Grounds), I'm fine with that, too. BTW, we drove a Malibu Hybrid and salted away 30 mpg during the trip!

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Washington, D.C.: Pontiac Aztec. What else do I have to say.

John Smith: OK, not our best effort, but that was a few years back as well. . but how about CTS, Malibu, Enclave, Sky, Solstice, G8, Traverse,etc. No one gets them all right, but I don't want to take off on the competition. . .well. . .I do remember once thinking that, with Aztec, we were ugly before ugly was cool (remember xB, and Element. . .puleeeeassse!).

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Woodbridge Va.: My husband enjoys going early Saturday mornings to the dealerships before they open to poke around and see what's new.

For my part, I don't necessarily want to buy a car on-line (want to see, feel, smell, etc.). Will the dealership model change drastically?

John Smith: There are many elements of value provided by the dealer model, and not just in this country. As I have visited other countries where GM does business, including ones that are 'clean sheets of paper', those fledging car industries also gravitate to the dealer model. Of course, you have online options, from dealers themselves, and from other sites, predominately used. Everyone has to do what they are comfortable with. Me, given the significant investment a car or truck represents, I have a little trouble not kicking the tires, sitting in the car, driving it a bit, before plunking my money down. Your neighborhood dealer is, for my money, your best bet!

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Houghton, Mich.: If Congress agrees to help the Big Three, what do you think the domestic industry will look 3 or 5 or even 10 years from now?

What permanent, legitimate, core changes are going to occur? Not re-arranging deck chairs, and not adjusting course -- but really building a better ship?

John Smith: Our Submission is pretty clear about restructuring details for our company. . brands, dealers, other stakeholders. . both on the operating and financial side (see gmfactsandfiction.com for all the specifics). I do believe the domestic industry, as a set, have among them some real value-adding consolidation potentials. . .joining forces in areas like advanced propulsion, powertrains, etc., that are somewhat transparent to the consumer but very investment intensive.

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"...remember xB, and Element...": But while the xB and Element were considered ugly by some, they are actually well built cars. The Aztec looked awful, and was awful in all respects!

John Smith: Au contraire. . .3rd party reliability and durability data just don't support that conclusion. As I said, not our best design effort, but that was years ago. 3 of the last 4 North American Car and Truck of the Year awards went to GM (Silverado, Malibu, Aura), Motor Trend picked CTS Car of the Year, the Opel Insignia just won Car of the Year in Europe.

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Washington, D.C.: As a former Detroiter, I can only say that I am disappointed with the Big Three, particularly GM. In the 1980's was your opportunity to really make a difference and you fell very short. These are drastic times, which call for drastic measures. GM needs to focus on 20 good cars/trucks. You don't need GMC, if Chevrolet is making the same trucks. Get rid of the divisions of Pontiac and Buick. Cadillac should be your elite division of cars. Saturn should focus on cars that are futuristic and green. Chevrolet is the division that makes cars that compete against Honda and Toyota. Show us a plan that will really make GM viable and a leader in car manufacturing. Just my two cents worth. Hope you find it helpful.

John Smith: In our submission, we commit to a reduction in models offered, a byproduct in part of also reducing the number of brands offered. Our model count will look pretty much like that offered, say, by Toyota when all 3 of their brands are combined.

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Fairfax, Va.: Offbeat question here but here goes: Who comes up with names for your cars/vehicles? Is there a brainstorming session or is just one person in charge of the task?

John Smith: Mostly, we leave this to our Sales and Marketing folks, who are accountable for the effectiveness of the annual marketing spend. A whole bunch of legal checks in involved with any new name. Also, new names take more money to establish. A great product makes the name, in any event.

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Washington, D.C.: As a 2007 Saturn Aura owner, I personally was quite annoyed to see that GM might sell Saturn. I've also been annoyed with the car, as it's had its share of issues since we bought it. Despite the fact that my brother-in-law is a GM engineer and my other brother-in-law works for a supplier, my husband and I really regret that we didn't buy a Camry. This is my first American car and probably will be my last. What can GM do to win over consumers like me?

John Smith: First off, send me your email address and let me take a shot at helping with your current Saturn. As for Saturn generally, it has the newest showroom of any GM brand. Still, from a business point of view, the results have been below our expectations. So, in our submission, we stated that we're going to work with Saturn's Franchise Operations Team, comprised of Saturn retailers and Saturn leadership, to consider all options leading to a better result for all.

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Alexandria, Va.: Is GM North America the only part of the company having problems. compared to Europe, for example? If so, why and what can you learn from operations elsewhere?

John Smith: We're doing pretty well in other regions, although Europe has a dose of the U.S. flu. In fast-growing new markets like China, India, Russia, places like Brazil as well, we're growing and in many cases outperforming competition. In the new markets, we've benefitted from a clean sheet of paper. . and our submission to Congress contains restructuring initiatives that, to some extent, would allow us to operate like we do in these markets.

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Warranty Question: If the Big Three go down, who will cover their warranties? Anyone?

John Smith: In our submission to Congress, which requests temporary loan support, we are very clear about honoring our warranty commitments while identifying changes to virtually all other aspects of our business that we would streamline. See gmfactsandfiction.com to view the submission--middle of page 6.

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Washington, D.C.: What's so bad about bankruptcy? You'll still be operating, just in Chapter 11. It seems to me that it gives you the opportunity to trim costs and realign the company far more easily.

Plus, considering that current management drove this company into the ground (you can't just blame the economy when other car companies are succeeding), why should we trust this management team with billions of dollars? It seems the most likely result is that you will waste this money as well.

And stop holding out the $1 salary as some evidence that your CEO is noble. Please tell us what he's earned to total compensation the last 2 years while GM has slid towards bankruptcy and tell us what the CEO of Toyota made over the same timeframe.

John Smith: Bankruptcy is a huge roll of the dice for America. This isn't the airlines where you're hung out for the price of a cancelled airline ticket. Car shoppers are already concerned about buying a car from a company potentially in bankruptcy, and the upshot from this is that anticipated revenues start falling away from you rapidly, so much so that you might never exit. Even if the Feds agreed to finance a bankruptcy proceeding, the ultimate financial support probably involved is several times the temporary loan support that is being requested. . with each draw subject to Federal Oversight Board review and approval. We can, with the Board's involvement, accomplish everything that bankruptcy theoretically can, more assuredly and with far less claim on this nation's resources with our proposal.

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Washington, D.C.: Why did GM kill the electric car. Justify the expansion of production and fabrication factories across America's borders to both Canada and Mexico while reducing factories and jobs domestically over the last 20 years. Why do the top three have some of the largest income differences between their employees. Is GM vital to the survival of the American economy? Do you really expect total economic collapse if the 1, 2 or all of the Big Three fall? What has been your contingency plan if the Big Three does not receive monetary advantage leverage from the us government? What do you plan to do if the business fails.

John Smith: If we had it to do over again, we probably would have stayed with EV1 longer. . EV2, EV3 etc. Oddly, we get no credit for having done it. . .That said, EV1--while liked by some--wasn't very practical, being just a 2-seater in a market where history is littered with 2-passenger cars that came and went. You'll love the Volt. . .we're taking advantage of battery technology that wasn't around when EV1 was in the market (Lithium Ion). And we're committed to Volt--have prototypes running on test tracks, over 1100 men and women working on the program, and looking to preside over a whole bunch of technology- and manufacturing-related spinoffs this endeavor, right here in the U.S.

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John Smith: I am a crummy typist, and probably spent more time on some questions than necessary. . even asked for (and got) from the Post some more time. . .but I have to sign off now.

Thanks for the questions and comments. I would have like to answer them all. We have a lot to say and, as some have observed one way of the other, we have a prior reputation to live down. I hope you will all read our submission to Congress. It can be found on gmfactsandfiction.com.

Thanks again!

John Smith

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