Auto industry pushing for fast federal aid
DETROIT — The push is on this weekend to convince the Bush administration and Republicans in Congress that General Motors Corp., Ford Motor Co. and Chrysler LLC need federal financial assistance before President- elect Barack Obama takes office on Jan. 20.
The head of the United Auto Workers made a conference call Saturday to tell reporters that such assistance would be a “loan, not a bailout.”
“We need to get this bridge loan and we need it in this lame duck session” of the Congress, UAW President Ron Gettelfinger said.
“We’re on the cliff here,” he said. “We have to make our case.”
Under legislation being drafted by Democrats, the automakers would receive $25 billion in loans out of a $700 billion financial-rescue package approved earlier this year. President Bush’s administration opposes using the funds for carmakers, and top Republican legislators have also voiced opposition.
Not in dispute is a separate loan allocation of $25 billion to help automakers retool to make hybrids.
Separately, GM this weekend is briefing federal officials on how a bankruptcy by the automaker would affect the economy, the Wall Street Journal reported.
The Center for Automotive Research, which receives funding from the auto industry, has warned that the collapse of the Big Three — or even just GM — could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue over the next three years.
GM, Ford and Chrysler are using up cash as U. S. auto sales have fallen 15 percent this year through October.
In recent months, General Motors has been burning through about $3.1 million an hour, or $52,000 — the price of a well-equipped Chevy Tahoe SUV — every minute.
Chrysler said Thursday that survival would be difficult without aid.
Ford burned through $7.7 billion of cash reserves during the third quarter, although Chief Executive Officer Alan Mulally said Nov. 7 that Ford has “sufficient liquidity.”
Gettelfinger blamed the problems the auto industry is suffering from on things beyond its control — the housing slump, the credit crunch that has made financing a vehicle tough and the 1.2 million jobs that have been lost in the past year.
“We’re here not because of what the auto industry has done,” he said. “We’re here because of what has happened to the economy.”
He said the UAW would resist further givebacks. The union agreed in 2007 contracts with the automakers to cut wages and end fixed pensions for new hires. Starting in 2010, GM, Ford and Chrysler are scheduled to shed retiree health care obligations for U. S. factory workers to a union-managed trust.
“The focus has to be on the economy as a whole as opposed to a UAW contract,” he said.
GM said it had $16.2 billion in cash at the end of September, raising the possibility that GM will fall below the minimum of $11 billion to $14 billion needed for day-to-day operations by the end of the year.
If that happens, GM will be unable to pay some creditors, which could seize assets that were pledged as collateral or even try to force the company into bankruptcy.
Worse yet, some suppliers could simply stop shipping parts unless they are paid cash on delivery, said Douglas Baird, a professor who specializes in bankruptcy at the University of Chicago Law School.
“That’s the nightmare scenario they’re worried about, and we don’t know how far off that day is,” he said.
Without parts, GM can’t build vehicles, make money and pay its creditors. Eventually some creditors might try to push the automaker into bankruptcy.
“According to the bankruptcy code, it only takes three creditors to go into court and say this company is bankrupt in an involuntary manner. General Motors must have 25,000 to 35,000 creditors who could do that,” said Harlan Platt, who teaches finance and corporate turnarounds at Northeastern University in Boston.
GM has said Chapter 11 bankruptcy — under which the automaker would continue to operate while holding its creditors at bay and overhauling its finances — is not an option because that would scare away customers.
Some industry analysts say doubts about the company’s chances of survival already are driving away would-be buyers, who worry that their warranties might not be honored or that they might not be able to get replacement parts.
Chapter 11 bankruptcy may be of little use anyway, Baird said, since GM may not be able to get the necessary financing to reorganize itself. That could lead to Chapter 7 liquidation, in which the automaker’s assets would be sold off piecemeal.
Delphi Corp.’s bankruptcy offers a scaled-down look at what automakers could face. After three years in court, the parts supplier has shed 27,000 U. S. hourly employees — more than two-thirds of its blue-collar workers — and cut U. S. salaried employees by nearly half to 7,700. Despite the steep cuts and renegotiated union contracts, the company has yet to find enough financing to pay its reduced debts and emerge from bankruptcy.
The auto industry’s woes have been tough for dealers, too. The National Automobile Dealers Association has predicted that at least 700 dealers will close by the end of the year.
Bill Heard Enterprises, the largest single Chevrolet dealer in the country, closed all 14 of its dealerships, and is having trouble selling them off. Though Heard went bankrupt in September, that dealership still has no bidders.
Part of the problem: Motor Trend reports that as of Aug. 1, GM had 6,776 dealers that sold 1,822,575 vehicles total in 2008, while Toyota Motor Co. had 1,234 dealers that sold 1,437,509 vehicles. That means an average of only 269 sales for each GM dealer, compared with 1,165 vehicles per Toyota dealer.
And even Toyota is hurting. Its October sales fell 23 percent.
The only winners in all this are car buyers.
General Motors has moved up its annual Red Tag Sale, which posts discounted prices of new vehicles in the window. The sale typically starts Thanksgiving weekend, but GM launched it early this month.
Chrysler is offering $6,000 rebates on the 300C sedan, and Ford has $6,000 on the Expedition.
Toyota has 12 models that qualify for zero-percent financing, and Infiniti just began offering 36-month no-interest loans on all 2008 models.
