The White House voiced concern about a Democratic plan on Monday to bail out stricken automakers with up to $15 billion in loans and provide longer-term help if certain conditions were met.
President George W. Bush questioned the ability of the wounded automotive giants to survive, prompting a meeting between White House aides and Democratic staffers. Democrats sought to address administration concerns in a counter proposal, congressional aides said. Democrats said they remained confident a deal could be struck. The White House wanted greater assurances that the automakers, in a long downward spiral, would be able to reorganize and compete.
The rescue aims to avert the threatened collapse of General Motors Corp and Chrysler LLC, saving more than 350,000 jobs and millions of others that depend on the industry. “This is no blank check or blank hope,” Senate Majority Leader Harry Reid said as he reconvened the chamber.
GM, Ford and Chrysler submitted business plans to Congress last week along with a $34 billion bailout request. The Bush administration hopes for a deal but insists that the companies be commercially viable. “Viability means that all aspects of the companies need to be re-examined to make sure that they can survive in the long term,” Bush said in an interview with ABC News’ ‘Nightline.’ Both GM and Chrysler have requested billions by month’s end to replenish dwindling cash reserves. The Dow Jones industrials rose 298 points partly on hopes of a bailout deal. Ford stock was up 24% to $3.38, while GM was 20% higher to $4.93.
The plan would release loans later this month but Democrats dropped the idea of creating a single oversight figure, or "car czar," to dictate company operations. The plan still calls for one or more officials to enforce compliance. Also absent were any mandated changes in management but GM chairman and CEO Rick Wagoner is under pressure to quit. Democrats have avoided putting GM or Chrysler on a path towards bankruptcy or a required out-of-court reorganization. Still, GM seems headed for a wrenching restructuring.
House Speaker Nancy Pelosi said that to get federal money, management, labor, bondholders, dealers and other stakeholders will have to make serious concessions. “Everyone’s taking a hair cut,” she said. The Democrats propose to set a March 31 deadline for the companies receiving loans to submit detailed plans to cut costs and further overhaul their businesses.
Any long-term restructuring would occur under the Obama administration, thought to be more sympathetic than the Bush White House to automaker woes, especially on labor. Lawmakers have questioned whether Chrysler keep its independence. But Chrysler CEO Bob Nardelli told employees on Monday the company can survive, although management says alliances are crucial to its future. Chrysler said in a statement it plans to complete its restructuring “in an orderly fashion,” if it receives loans. GM promised to abide by the bailout conditions.
GM wants $10 billion in loans through March, with $4 billion of that immediately. Chrysler needs $4 billion to run operations through the first quarter. Ford is seeking up to a $9 billion line of credit if its finances worsen in 2009. Ford supports GM and Chrysler because suppliers and other elements of the industry are interconnected and a bankruptcy at one could pull down other companies.
A provision in the bill would make federal loans take precedence over other obligations, a potential problem for Ford because it has already mortgaged its assets. Awarding equity to the government could be another problem if it threatens the Ford family’s control and the iconic “Blue Oval” logo.
GM would have first claim on bailout funds because its failure would hurt the economy most. The plan would grant the government the right to acquire preferred shares, or the economic equivalent, equal to 20% of the amount loaned. No bonuses or “golden parachutes” for top executives are permitted. GM, Ford and Chrysler would have to sell their company planes.
Automakers would have to give up lawsuits against California’s law limiting greenhouse gas emissions, handing environmentalists and groups advocating stricter fuel efficiency standards a major victory. Many lawmakers doubt the Detroit Three would be worthy of aid if the country was not in recession. Last week’s startling jump in jobless claims reversed what had been an uncertain bailout effort on Capitol Hill. Lawmakers blame the companies for failing to innovate and leaving the industry vulnerable to downturns and failure.
GM unveiled an advertisement on Monday acknowledging it had “disappointed” and sometimes even “betrayed” American consumers by letting “our quality fall below industry standards and our designs became lackluster.”
The grim outlook for automakers spread to Italian carmaker Fiat, which said it was too small to survive alone, drawing attention to the prospect of mergers. Sweden reportedly mulled a rescue package for Volvo and Saab. Mitsubishi Motors Corp will suspend production at its Illinois plant for seven weeks next year in response to sales slump, the company said. Daimler AG said its main plant would adopt a shorter work week for three months and Toyota was said to be eying spending cuts of up to 40%. (Reuters)