Outlook for Automaker Loans Fragile as Senate Hammers Detroit Chiefs
By Michelle Krebs November 19, 2008By Bill Visnic and Michelle Krebs
Chief executives from each of the Detroit Three automakers couldn't
have come to Tuesday's session of the U.S. Senate Banking, Housing and Urban Affairs Committee at a less-receptive time. Seeking $25 billion in emergency loans to keep their ailing operations afloat, they might as well have been kids who've gorged on all their Halloween candy and now are whining for more.
Although the committee is chaired by a receptive persona in Senator Chris Todd (D-CT), Republicans are largely presenting an icy posture regarding Detroit's plight - and senators on both sides of the aisle grilled Ford's Alan Mulally, GM's Rick Wagoner and Chrysler's Bob Nardelli with varying degrees of understanding and acidity. The three are scheduled for a House committee hearing Wednesday morning.
After the intense four-hour session, the most definitive thing that could be taken away is that action could be unlikely before Congress officially recesses for 2008 at the end of the week. Although it was suggested a special session could be called despite the recess, the overall tenor of the hearing left plenty of doubt as to whether Congress either will meet again or, more importantly, relent and extend the $25 billion in "bridge" loans the three automakers say is vital to their near-term solvency.
No Country for More Bailouts
Saying they are continually chastised by constituents about the $700-billion Wall Street cash infusion enacted earlier this year, a bailout of brazen insurer AIG and the trend of outlandish executive compensation - the Senate suddenly is acting with considerably more attention to the government's purse strings than when it agreed several months ago to the controversial $700-billion action to shore up the financial sector.
Although Mulally, Wagoner and Nardelli expounded on their companies' downsizing and economizing efforts of the last several years, many lawmakers were openly critical of Detroit's legacy for resisting innovation, stonewalling regulation and overindulging organized labor.
One of the most skeptical and acerbic interrogators, Senator Bob Corker (R-TN), suggested the automakers' boards of directors might surreptitiously hope the funding request is turned down so that the companies can proceed to Chapter 11 bankruptcy, enabling them to nullify their contracts with the United Auto Workers union - and circumvent individual states' restrictive dealer-franchise laws.
Senator Elizabeth Dole (R-NC) also assumed a stony posture about the money Ford, GM and Chrysler seek - either as part of the broad financial bailout package or, more likely, a rewrite of the $25-billion loan package already approved by the U.S. Department of Energy and originally intended to enable automakers to develop new fuel-efficiency technologies and retool assembly plants.
Dole said the nation and its lawmakers should "end the practice of private rewards at public risk."
And Senator Bob Menendez (D-NJ), although seemingly in favor of a loan rescue package the automaker CEOs insist must come quickly, cited concern there wasn't much obvious contrition or willingness to assume blame in the statements of Mulally, Wagoner and Nardelli, leading him to add, "I think there needs to be strings attached."
Senator Mel Martinez (R-FL), advocated restructuring the DOE loans to provide the immediate money the auto companies need, but issued a skepticism repeated by several Senators, asking if an approved $25 billion would be nothing more than a "down payment" for more bailout money required later when turnaround efforts have not succeeded.
"Would you make a pledge that if you get the $25 billion, you won't be back?" asked Corker, sounding like a chastising parent.
This drew a sharp rejoinder from Wagoner, saying he would make such a pledge if Corker could, in turn, guarantee the economy will improve and the nation's other financial woes will be solved.
A 'Pre-Packaged' Fantasy
More than once, senators said they believe that if the automakers truly are in such dire straits, the best scenario is to declare Chapter 11 bankruptcy and reorganize - possibly, at that juncture, with federal aid. The notion has given life to the phrase "pre-packaged bankruptcy," and several senators asked the Detroit CEOs if bankruptcy might indeed be the most realistic - and efficient - solution. One that also does not immediately require taxpayer money.
GM's Wagoner reacted strongly after repeated mentions of pre-packaged bankruptcy, insisting structured bankruptcy is a "fantasy" for those who believe it could lead to a newly sustainable auto company.
UAW president Ron Gettelfinger said it would be markedly difficult to convince customers to buy a vehicle from a bankrupt car company, worsening an already battered auto-sales situation.
The Detroit contingent also said bankruptcy by even one company likely would lead to a spiral into bankruptcy for one or both of the remaining Detroit Three.
Blaming it on Everything But Themselves?
For much of the hearing, the CEOs endured a grilling about their past strategies and management mistakes and were badgered for reassurances the companies would not repeat the actions that have brought them to the brink. Several senators insisted that is part of the problem - Detroit still seems inclined to blame its plight on everything but its own management.
Senator Jim Bunning (R-KT) asked bluntly if automakers were prepared to shut down brands and sack executives. This was followed by more pointed suggestions from several, including chairman Dodd, that company executives should be prepared to take symbolic but meaningful pay cuts.
Dodd said any proffered government funds would likely include stipulations regarding executive pay and that he would expect the auto companies to "reassure the American public" there would be no unseemly pay packages or golden parachutes for departing executives.
Several committee members hammered away at one particularly salient point: none of the CEOs seemed prepared with much in the way of detailing accounting for how much each company needed - and that $25 billion appears to be a number arrived at in a seemingly cavalier fashion.
"Everybody's guessing," said Senator Bob Bennett (R-UT).
"The proposal coming before the Senate tomorrow is not a serious one," Bunning said of the situation.
New Jersey's Menendez became visibly testy when the auto-company executives would not be pinned down about details regarding amounts each company proposed to borrow from the total - and when it might be repaid. "I hope we get better accounting," he said.
The most sensible solution to the matter came from Tennessee's Corker, who reminded that because the automakers had applied for loan monies under the DOE plan to stimulate development of fuel-efficient technology, figures from those applications should give insight as to whether the automakers are in a position to eventually "be successful."
Up In The Air - With Strings Attached
At the end of the exhaustive session, the three CEOs appeared anything but reassured.
Several senators had strongly advocated a "let them fail" strategy that appears rooted in the pre-packaged bankruptcy scenario. And many telegraphed scant hope that there will be action before the year's end, leaving the automakers in a highly precarious holding pattern.
Although the prospects for an immediate loan seem to be 50-50, there were positive signals.
Senator Tom Carper (D-DE), said "I don't believe bankruptcy is the answer."
Senator Dole at least left the suggestion she is open to consideration of the bailout with her assertion that renegotiation of UAW contracts "would be essential if we are to keep these companies afloat."
And Senator Sherrod Brown (D-OH) voiced a notion that likely prevails on much of the Democratic side of the aisle - one that ultimately could win enough bipartisan support to approve the quick cash Detroit's automakers require.
"Our economy cannot survive on mouse clicks alone," Brown said. "We need to build real things."
Photo by General Motors
Detroit Three executives -- Chrysler's Bob Nardelli, Ford's Alan Mulally and GM's Rick Wagoner -- were all grins at the Detroit auto show earlier this year, but on Tuesday, they were pounded by Senators during hearings as they sought government bridge loans."
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