US carmakers take bail-out plea before Congress - again (2nd Roundup)

By Chris Cermak Dec 4, 2008, 17:38 GMT

Washington - The heads of the United States' three ailing carmakers appeared before a still-skeptical Congress Thursday for the second time in less than a month to ask for a 34-billion-dollar bail- out they say is critical to their survival in an economic recession.

General Motors Corp, Ford Motor Co and Chrysler LLC this week submitted extensive recovery plans demanded by lawmakers as a condition for any loan. They agreed to revamp business models, cut wages and speed up the roll-out of more fuel-efficient vehicles.

In testimony before the Senate Banking Committee, GM Chief Executive Officer Rick Wagoner acknowledged that past 'mistakes' had placed the US car industry at a competitive disadvantage.

More efficient Asian models from Japanese giant Toyota Motor Corp and others have been consistently gaining market share in the United States over the past decade.

But the US motor industry chiefs have argued that a devastating economic crisis struck at a time where serious restructuring moves were showing some signs of progress. They promised to unveil a series of new hybrid models over the coming years.

A 'bridge loan' was needed to navigate a recession that has sent US car sales to 25-year lows in the past two months as consumers struggled to get loans. Both GM and Chrysler have warned bankruptcy may be inevitable without federal aid.

'Chrysler requires this loan to get back to our transformation that began just over one year ago,' chief executive Rob Nardelli told Congress, noting that his company had developed a 'sound plan for financial viability.'

All three executives drove the more than 800 kilometres from Detroit to the Washington hearings, after public outrage that they arrived on corporate jets to testify in November.

But many US legislators remain unconvinced, arguing the companies' outmoded business models would have doomed them regardless of the current economic crisis. Senate Majority Leader Harry Reid said he still doesn't believe there are enough votes in favour of a bail-out.

Senator Richard Shelby, the top Republican on the Banking Committee, declared at the start of hearings Thursday that he still opposed any bail-out for the US auto industry, despite the new plans.

'If you made this presentation to get a bank loan, I suspect that any bank would summarily dismiss your request,' Shelby said.

Shelby cited the fact that the companies upped their bail-out request from 25 billion dollars to 34 billion dollars in just two weeks as evidence that this plea was only 'the beginning,' and suggested a forced restructuring under bankruptcy protection may be the best option.

Mark Zandy, the chief economist of Moody's economy.com, testified that '34 billion dollars and a plan may very well not be enough for them to become viable companies again.'

Automakers warned that the bankruptcy of even one of the so- called Big Three would further depress sales and cost millions of jobs at a time when the US economy is already in a protracted recession.

'People will not buy cars from a bankrupt industry,' said James Fleming, president of the Connecticut Automotive Retailers Association.

Zandy said 75-125 billion dollars may be needed to to keep the companies afloat over the next two years, but he suggested delaying bankruptcy to a later date may still be better than the 'cataclysmic' effect an immediate failure would have on the economy.

The Bush administration has said it wants to avoid any bankruptcy, but opposes an outright bail-out. Instead it wants to appropriate other funds already approved by Congress, which had been connected to specific energy improvements by the carmakers. The White House said it was still evaluating the companies' latest plans.

The United Auto Workers union supports the bail-out and has agreed to reexamine its labour contracts with the Big Three carmakers to help them cut costs.

Senator Christopher Dodd, chairman of the Banking Committee, warned that the collapse of the US auto industry 'would affect virtually every sector of our economy.'

'Let us be clear this morning. In my view we need to act,' Dodd said.

GM, the world's largest automaker, is asking for up to 18 billion dollars, including an immediate loan of 4 billion dollars this month. Chrysler is seeking 7 billion dollars.

Ford, which is widely regarded as in the best position of the Big Three, said it may need no help at all, but has asked for 9 billion dollars to be made available in case of a sharper downturn.

Each CEO has agreed to work for 1 dollar for a year and cut management benefits should they gain access to the funds.