WASHINGTON, Nov 19 - The three biggest US automakers pleaded with Congress on Tuesday for a $25 billion lifeline to save their once-proud companies from collapse, warning of broader peril for the American economy as well.
Despite the automakers’ pleas, the new rescue plan appeared stalled in Congress, opposed by Republicans and the Bush administration who do not want to dip into the Treasury Department’s $700 billion financial bailout programme to come up with the $25 billion.
Rank and file Republicans and Democrats from states heavily impacted by the auto industry worked in private trying to come up with a compromise that could speed some aid to the automakers before year’s end. It was an uphill fight.
“Our industry ... needs a bridge to span the financial chasm that has opened up before us,” General Motors Corp CEO Rick Wagoner told the Senate Banking Committee. He blamed the industry’s predicament not on management failures but on the deepening global financial crisis.
Also, Robert Nardelli, CEO of Chrysler LLC, told the panel the bailout would be “the least costly alternative” when compared with damage from bankruptcy.
Under questioning from skeptical senators, both said they would be willing to consider slashing their salaries to $1 to show a willingness to sacrifice for federal help.
Sympathy for the industry was sparse, however, with bailout fatigue dominating Capitol Hill. Lawmakers bristled with pent-up criticism of the auto industry, and questioned whether a stopgap loan would really cure what ails the companies.
At the start of a grilling before his committee that lasted more than fours, Democratic Sen. Christopher Dodd told the leaders of GM, Chrysler and Ford Motor Co that the industry was “seeking treatments for wounds that I believe to a large extent were self-inflicted.”
“You’re asking an awful lot,” Dodd, the panel chairman, said at the close of the session. “I’d like to tell that you in the next couple of days this is going to happen. I don’t think it is.”
Sympathy for the industry was sparse, with bailout fatigue dominating Congress. Lawmakers bristled with pent-up criticism of the auto industry and questioned whether a stopgap loan would cure what ails the companies.
Senate Banking Committee Chairman Christopher Dodd, a Democrat, told Wagoner and leaders of Ford Motor Co and Chrysler LLC that the industry was “seeking treatment for wounds that were largely self-inflicted.”
Still, he said, “Hundreds of thousands would lose their jobs” if the companies were allowed to collapse.
Sen. Mike Enzi, a Republican, complained that the larger financial crisis “is not the only reason why the domestic auto industry is in trouble.”
He cited “inefficient production” and “costly labor agreements” that put the U.S. automakers at a disadvantage with foreign companies.
Wagoner said that despite some public perceptions that General Motors was not keeping pace with the times and technological changes, “We’ve moved aggressively in recent years to position GM for long-term success. And we were well on the road to turning our North American business around.”
“What exposes us to failure now is the global financial crisis, which has severely restricted credit availability and reduced industry sales to the lowest per-capita level since World War II.”
Failure of the auto industry “would be catastrophic,” he said, resulting in 3 million jobs lost within the first year and “economic devastation (that) would far exceed the government support that our industry needs to weather the current crisis.”
Chrysler’s Robert Nardelli sought to respond to critics who suggest the automakers seek Chapter 11 bankruptcy protection, as have some airlines that later emerged restructured and leaner.
“We just cannot be confident that we will be able to successfully emerge from bankruptcy,” Nardelli said.
Chrysler was bailed out by the federal government once before, in 1979, with $1.2 billion in loan guarantees. The company repaid the loan, plus interest, ahead of schedule. Back then, former Chrysler CEO Lee Iacocca reduced his salary to $1.
Under questioning from Democratic Sen. Jon Tester, Ford’s Alan Mulally did not join the other two executives in saying he would do the same now.
“I sure respect the intent of it, but the most important thing is that we not degrade our ability to be competitive and deliver this plan,” Mulally said.
Congressional leaders worked behind the scenes in an effort to come up with a compromise that could speed some aid to the automakers before year’s end. But the outlook seemed poor.
“My sense is that nothing’s going to happen this week,” Sen. Bob Corker, a Republican, said at the opening of the hearing.
Democratic Sen. Max Baucus of Montana said he also smelled a flameout. “I sense that nothing is going to be passed,” the Finance Committee chairman said.
Earlier, in the House of Representatives, Rep. Steny Hoyer said Congress might have to return in December — rather than adjourning for the year this week, as expected — to consider an auto bailout.
“Dealing with the automobile crisis is a pressing need. We are talking about a lot of people ... and a great consequence to our economy,” said Hoyer, the House majority leader.
The financial situation for the automakers grows more precarious by the day. Cash-strapped GM said it will delay reimbursing its dealers for rebates and other sales incentives and could run out of cash by year’s end without government aid.
In the Senate, Democrats discussed but rejected the option favored by the White House and Republican lawmakers to let the auto industry use a $25 billion loan program created by Congress in September, which was designed to help the companies develop more fuel-efficient vehicles, to tide them over financially until President-elect Barack Obama takes office in January.
“There was no indication that there was any traction” for the White House plan, Sen. Ben Nelson said after a Democratic luncheon.
The leader of the House, Speaker Nancy Pelosi, and other senior Democrats, who count environmental groups among their strongest supporters, have opposed that approach vehemently because it would divert federal money that was supposed to go toward the development of vehicles that use less gasoline.
“I don’t think that’s going very far in our caucus,” said Senate Majority Leader Harry Reid.
Instead, they want to draw the $25 billion directly from the $700 billion Wall Street bailout, which would bring the government’s total aid to the car companies to $50 billion.
A Senate vote on that plan, which also would extend jobless benefits, could come as early as Thursday, but aides in both parties and lobbyists tracking the effort privately acknowledge it does not have the support to advance. Treasury Secretary Henry Paulson renewed the administration’s opposition on Tuesday.
Even the car companies’ strongest supporters conceded that changing the terms of the fuel-efficiency loan programme might be the only way to secure funding for them with Congress set to depart for the year and the firms in tough financial shape.
Meanwhile, the chief executive of a major US bank that received $25 billion from the government’s financial bailout package said Tuesday that federal aid shouldn’t be dispensed to the ailing Detroit Three automakers — unless they become the Detroit Two.
“I think there’s one too many” automakers, Bank of America CEO Kenneth Lewis told the Detroit Economic Club during a meeting in Cobo Centre, the downtown convention centre that’s home to the North American International Auto Show each January. He added he would require consolidation if he was deciding on a bailout.
“I think the American people are suspect of just giving more money and buying more time,” he told reporters after the speech. “They want to see that the companies have in fact changed and the strategies have changed.” - AP
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