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Detroit 3 CEOs make headway in Senate hearing

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Detroit 3 CEOs make headway in Senate hearing

Harry Stoffer
Automotive News
December 4, 2008 - 10:00 am ET
UPDATED: 12/4/08 5:22 p.m. EST

WASHINGTON -- The Detroit 3 CEOs won a warmer reception in Congress today than they did two weeks ago as Senate leaders said they were searching for ways to provide emergency aid.

"I don't think we want to walk away without trying to get something done," Christopher Dodd, D-Conn., said after chairing a six-hour Senate Banking Committee hearing on renewed requests from General Motors, Ford Motor Co. and Chrysler LLC for $34 billion in loans.

Many committee members complimented the industry chiefs on the plans they presented for using federal aid and restructuring to become viable for the long term.

But the senators also showed that they -- as well as the House and Bush administration -- remain far from a consensus on how to help. The House Financial Services Committee holds its next hearing tomorrow.

Today's session offered more ideas on how to deal with the industry's crisis. There was talk of creating a powerful board of trustees or auto "czar" to impose concessions on automakers, organized labor, lenders to the car companies and other stakeholders.

Some lawmakers said financial institutions that have gotten money from a $700 billion economic rescue program should make government-guaranteed loans to the Detroit 3.

Others, such as Sen. Richard Shelby, the ranking Republican on the committee, were unmoved. They said they believe the companies should restructure in bankruptcy. Shelby's Alabama is home to Honda, Hyundai and Mercedes-Benz plants.

Economist: They'll be back

An economist told the committee that the estimated $34 billion overall cost of the bailout cost could rise. Two weeks ago, the automakers had estimated they needed $25 billion.

The industry may need $75 billion to $125 billion to avoid bankruptcy and the companies may well return asking for more money later if they get the $34 billion they want now, said Mark Zandi, chief economist of Moody's Economy.com.

"I'm skeptical, doubtful that it's going to end at $34 billion," Zandi said.

Dodd said he takes seriously warnings that an automaker bankruptcy would be "cataclysmic" for an already weakened economy.

"Maybe history would prove us wrong, but that's a hell of a bet to take," Dodd said.

Dodd and other senators indicated they will look for a way to provide short-term loans, especially to GM and Chrysler, which say they could run out of cash by the end of the year. Then lawmakers could consider a broader, more detailed program when a new Congress and President-elect Barack Obama take office next month.

Said Dodd: "We're not going to write a check for any amount of money without serious conditionality associated with it."

Sen. Carl Levin, D-Mich., called today's hearing "a giant step forward."

He also said information produced over the last couple of days by GM, Ford and the J.P. Morgan banking firm makes the case that failure of one or more of automakers would have a "systemic" impact on the nation's financial system.

That is because an automaker's default on debt would trigger hundreds of billions in loses among financial firms, he said.

No jets this time

GM, Chrysler, and Ford delivered detailed plans this week to Congress for using federal "bridge" loans and becoming viable companies in the long term. The appeals came after their initial hearings two weeks ago.

Those appearances resulted in criticism for rejecting calls for personal sacrifice and for seeking federal aid after flying to Washington in corporate jets. The performances also inspired a lampooning on "Saturday Night Live."

GM CEO Rick Wagoner arrived at the Capitol building today in a light blue Chevrolet Volt electric prototype, but drove most of the way from Detroit in a Chevrolet Malibu Hybrid. Ford CEO Alan Mulally showed up in a white Ford Escape Hybrid, and Chrysler's Robert Nardelli was in a white EV electric vehicle.

With U.S. auto sales at 26-year lows and global credit markets sluggish, GM and Chrysler could be at the brink of failure within weeks, United Auto Workers President Ron Gettelfinger told the committee.

"We could lose General Motors by the end of this month" without a massive government assistance package, said Gettelfinger, whose union promised yesterday to make additional concessions to help save the companies.

GM says it needs $4 billion this year, an additional $8 billion by the end of March and another $6 billion in revolving credit if market conditions don't improve.

Chrysler says it has to have $7 billion by the end of the year, and Ford says it may tap $9 billion if one of its domestic rivals collapses.

Act of contrition

Earlier, GM's Wagoner said if Congress demands contrition from the Detroit 3 in exchange for at least $34 billion in emergency federal loans, he was prepared to offer it.

"We made mistakes," Wagoner told committee members.

GM made many decisions that were "right for the times," Wagoner said. But the company failed to build enough flexibility into its operations and did not move fast enough to invest in smaller, more fuel-efficient vehicles for the United States, he conceded.

Wagoner said the Detroit 3 learned a lot from last month's "difficult" congressional hearings. For GM, he said, that process accelerated "a healthy internal review."

GM's restructuring plan promises deep cuts in brands and nameplates, jobs, executive salaries and corporate debt.

House Speaker Nancy Pelosi, D-Calif., has echoed Dodd in saying that inaction is not an option. Pelosi and Senate Majority Leader Harry Reid, D-Nev., plan to call Congress back to Washington next week to consider aid proposals.

Other witnesses at today's session were:

• Keith Wandell, president of auto-parts supplier Johnson Controls Inc.

• James Fleming, president of the Connecticut Automotive Retailers Association.

• Gene Dodaro, acting comptroller general of the U.S. Government Accountability Office.

• Mark Zandi, chief economist of Moody's Economy.com.

Reporter David Barkholz and Reuters contributed to this report
 

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