The Big Three Must Make Their Case For Loan

Automakers to make a clearer case for bailout
Congress is expecting executives to return with detailed business plans that answer three key questions.

By KENDRA MARR, Washington Post

In just nine days, Detroit's Big Three automakers hope to replead their case for a $25 billion emergency loan. But this time they will be expected to produce clearer business plans.

On Friday, House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., sent the automakers a letter calling on them to submit "a credible restructuring plan" by Dec. 2. The letter comes after Congress refused to vote Thursday on carving the loan out of the $700 billion financial rescue plan.

President Bush, in his weekly address Saturday, castigated Democrats for failing to vote on an alternative proposal to let automakers instead tap $25 billion in loans that are supposed to help them improve the fuel efficiency of their cars.

"If the automakers are willing to make the hard decisions needed to become viable, they should be able to receive the funds Congress already allotted to them for other purposes," Bush said.

Pelosi and others have said there was not enough support in Congress to provide funding absent a detailed turnaround plan.

Pelosi and Reid laid out a number of requirements for a restructuring plan that would generally answer three questions:

1. How will the $25 billion be spent and paid back?

Automakers have said they intend to split the $25 billion loan roughly along the lines of their share of the U.S. market. GM would get $10 billion to $12 billion. Ford and Chrysler would take $7 billion to $8 billion each.

Asked how they intended to pay back the loan, Chrysler chief executive Robert Nardelli said the automakers hoped the money would buy them time to transform their businesses.

"We wouldn't be here today asking for this if we didn't have a high confidence level that we could weather this economic trough, continue to resize, make these gut-wrenching decisions to come out the other side leaner, more agile, and for us, a higher-quality, higher-reliable product," he said.

Yet some analysts said GM alone may need as much as $30 billion next year to deal with a potential cash shortfall. Pelosi and Reid are asking the automakers to document their current financial positions and outline plans for meeting health care and pension obligations. They want estimates for when the loans would be repaid under varying auto sales conditions.

Some analysts say the automakers also need to work on their marketing pitches, recalling the assertive spirit of former Chrysler chief executive Lee Iaccoca, who persuaded Congress to bail out Chrysler in 1979.

"He was much more a salesman," said Bruce Belzowski, an associate director at the University of Michigan's Transportation Research Institute. "When he went before Congress he was excited and emotional about what he was going to do. ...... What a great show for just a $1.5 billion loan."

2. How will the automakers demonstrate accountability?

Congress wants to see that the industry is willing to make sacrifices if it accepts government aid.

Some lawmakers cringed when Ford chief executive Alan Mulally refused to cut his salary to $1 like Iacocca, saying, "I think I'm OK where I am." And flying three separate private jets to Washington to testify enraged Rep. Gary Ackerman, D-N.Y.: "I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here? It could have at least sent a message that you do get it."

The United Auto Workers will likely need to make some "visible indication of sacrifice" to push forward the automakers' plans, said Dave Cole, chairman of the Center for Automotive Research.

Ford and GM made some headway on Friday, announcing cuts at several plants.

3. Is the industry viable?

This is perhaps the most important question for Congress.

GM chairman and chief executive Rick Wagoner attempted to convey a commitment to make cars more fuel efficient.

"We have 20 models that get more than 30 miles per gallon highway, more than twice any other manufacturer today," he said. "We have six hybrid models. We'll offer three more next year. We're the global leader in biofuel vehicles."

But lawmakers want further assurances. Pelosi and Reid asked automakers to demonstrate their ability to meet fuel standards of at least 35 miles per gallon by 2020.

Yet some analysts said GM alone may need as much as $30 billion next year to deal with a potential cash shortfall. Pelosi and Reid are asking the automakers to document their current financial positions and outline plans for meeting health care and pension obligations. They want estimates for when the loans would be repaid under varying auto sales conditions.

Some analysts say the automakers also need to work on their marketing pitches, recalling the assertive spirit of former Chrysler chief executive Lee Iaccoca, who persuaded Congress to bail out Chrysler in 1979.

"He was much more a salesman," said Bruce Belzowski, an associate director at the University of Michigan's Transportation Research Institute. "When he went before Congress he was excited and emotional about what he was going to do. ...... What a great show for just a $1.5 billion loan."

2. How will the automakers demonstrate accountability?

Congress wants to see that the industry is willing to make sacrifices if it accepts government aid.

Some lawmakers cringed when Ford chief executive Alan Mulally refused to cut his salary to $1 like Iacocca, saying, "I think I'm OK where I am." And flying three separate private jets to Washington to testify enraged Rep. Gary Ackerman, D-N.Y.: "I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here? It could have at least sent a message that you do get it."

The United Auto Workers will likely need to make some "visible indication of sacrifice" to push forward the automakers' plans, said Dave Cole, chairman of the Center for Automotive Research.

Ford and GM made some headway on Friday, announcing cuts at several plants.

3. Is the industry viable?

This is perhaps the most important question for Congress.

GM chairman and chief executive Rick Wagoner attempted to convey a commitment to make cars more fuel efficient.

"We have 20 models that get more than 30 miles per gallon highway, more than twice any other manufacturer today," he said. "We have six hybrid models. We'll offer three more next year. We're the global leader in biofuel vehicles."

But lawmakers want further assurances. Pelosi and Reid asked automakers to demonstrate their ability to meet fuel standards of at least 35 miles per gallon by 2020.

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