Big Three CEOs Head to the House to Plea Again for Financial Help
December 04, 2008

By Bill Visnic

It's still anybody's guess, but Congress seems to be warming somewhat to the idea of helping Detroit's automakers, if for no other reason than to keep the entire U.S. economy from collapsing on their watch.

On Friday, Detroit's auto chiefs were headed to Capitol Hill to testify again before the House Financial Services Committee. On Thursday, they were before the Senate Banking, Housing and Urban Affairs Committee for nearly six hours.

At the opening of Thursday's session, the potential for the Detroit Three automakers' proposed bridge-loan package of as much as $34 billion appeared to be steering towards the much-discussed - and much-dissed by the automakers - "pre-packaged bankruptcy" option.

But as the testimony wore on, the case against bankruptcy gathered a palpable momentum, and it now seems likely Congress will broker some kind of immediate funding General Motors Corp. and Chrysler LLC say they must have to survive to see 2009.

The real question now seems to be from where, how, and how quickly the help will come. GM CEO Rick Wagoner and Chrysler CEO Robert Nardelli were unabashed in reiterating their companies' need at least $4 billion each - by the end of the month.

Not Just Writing a Check

Committee chairman Chris Dodd (D-CT), wrapped up the nearly six-hour hearing by declaring, "Inaction is unacceptable." But, he added, "We're not about to just write a check."

Dodd emphasized at the beginning and end of the session that the Bush Administration currently has the tools at its disposal, either through the now well-known Troubled Assets Relief Program pool of $700 billion or through the $25 billion already earmarked by the U.S. Dept. of Energy for automakers and suppliers seeking to invest in and retool for fuel-efficient new models and technologies.

The Bush camp has refused to pursue these options, however, leading Dodd to conclude it will be difficult for his committee and the entire Congress to devise a politically palatable funding scheme by Dec. 8, when a vote on the matter is expected - but he intends to try.

Today, the chief executives from Ford Motor Co., GM and Chrysler endured a second siege of skeptical and at times acidic questioning perhaps only slightly less cynical than that following their testimony before this same committee two weeks ago.

Bankruptcy Ain't The Cheap Way Out

The main scare that the day might not go Detroit's way came before the CEOs testified, as Mark Zandi, chief economist and co-founder for Moody's Investor Services, flatly said his analysis suggested the Detroit Three would require much, much more than the collective $34 billion their individual restructuring plans - demanded by Congress - call for to assure continued operations through most of 2009.

Zandi said that instead of $34 billion, his data indicate the Detroit Three are likely to require on the order of $75 to $125 billion to survive the nation's now-official recession. 

This to already-dubious Senators that in last month's hearing repeatedly badgered the automakers' chiefs to guarantee they would not be coming back to Congress when they had expended the funds for which they asked.

But that initial stinger was blunted by later questioning, when Zandi recommended approval of funds to keep the Detroit Three. Zandi candidly admitted that allowing any or all of the Detroit Three to slip into bankruptcy would be "cataclysmic" to the U.S. economy with costs  in "another universe" to the nation's economy, more than the as much as $125 billion he proposes it might actually cost to avoid bankruptcy.

Of Bankruptcy And Advisory Boards

The committee's members extensively debated two primary issues, however: first, whether a "structured" Chapter 11 bankruptcy reorganization would be a de facto death sentence for automakers - it was essentially agreed bankruptcy would seriously compromise the automakers' already battered ability to sell new vehicles (GM's Wagoner said the "overhang" from public discussion of the possibilities of the company's bankruptcy already had measurably affected sales in the past 45 days) - and second, how to establish ground rules and measurable objectives to assure the automakers would stick to their word to undertake the drastic structural reorganizations outlined in the restructuring blueprints submitted to Congress.

On this point, the lawmakers and CEOs agreed a strongly empowered "advisory board" should oversee the process, set goals, and develop consequences if the automakers do not live up to their word.

The Elephant

The liveliest and perhaps most-informed questioning came from Sen. Bob Corker (R-TN), who stridently addressed the elephant in the room when telling Chrysler CEO Bob Nardelli that majority owner Cerberus Capital Management LLC is endowed with capital but does not want to invest it in the company - adding it is widely believed management has no intention of continuing to operate Chrysler as "a standalone company."

Corker went on to accuse Chrysler's restructuring plan as being a feint to obtain "a little capital for you all to hang around long enough to get married (merge with another automaker)."

Corker also said it was well-known that GM and Chrysler had examined the potential for merger prior to pleading their cases before Congress, but that GM's board had ruled against moving ahead with such a strategy. He added that he believed as a privately-held company, it should be incumbent upon Chrysler's owners to invest to keep the automaker afloat.

"Cerberus has lots of cash they are unwilling to put into this company," Corker admonished.

That aside did not detour the main themes of the hearing, however, and after some discussion about the impact on dealers and suppliers and talk about assurances any funds loaned to the automakers would be used to further their companies' interests in this country, committee chairman Dodd wound up the marathon by reiterating his contention that to allow one or more of the automakers to fall into bankruptcy is an unacceptable gamble with an already too-fragile U.S. economy.

In terms of the immediate cash infusion the automakers say is vital, Dodd admitted whipping decisive - and responsible - action from the entire Congress in the allotted timeframe will be difficult. Sen Richard Shelby (R-AL) concurred, saying "I have my doubts" about Congress' ability to act in time to get the money to the automakers this month.

Some media sources suggested after the lengthy Thursday hearing that Dodd and other Congressional leaders yet still may pressure for the automakers' money to be distributed from the TARP funds or the DOE retooling monies.

But for Detroit, the worst trial may be over, as they seemed to convince the Banking Committee of the severity of the situation - and their sincerity to stand behind what promise to be perpetually scrutinized blueprints to radically change their ways.

 

Posted by Michelle Krebs at 6:02 PM under Chrysler , Companies , Featured , Ford , GM | Comments (2) | digg this | Seed Newsvine

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