Humbled and increasingly desperate as car sales plummet, the heads of the country’s Big Three automakers told Congress on Thursday that they were willing to accept oversight of their spending in return for $34 billion in government loans to keep them afloat.
The chief executives also said they would be amenable to taking the money in stages, which would allow the government to put the brakes on additional funding if the companies were not making solid progress reinventing themselves as leaner, profitable enterprises.
But skepticism remained high on Capitol Hill during a hearing of the Senate Banking Committee, with lawmakers questioning Detroit’s commitment to becoming more competitive and worrying that the taxpayers’ money would quickly be frittered away.
As a result, General Motors Corp., Ford Motor Co. and Chrysler still face tough odds in getting government help this year.
“In just two short weeks the price tag has jumped from . . . $25 billion to $34 billion,” said Sen. Richard C. Shelby of Alabama, the Banking Committee’s top Republican. “I’m interested in hearing what changed and why we should believe things will get better.”
Democrats are generally more sympathetic to the automakers’ plight, saying thousands of jobs would be lost -- and the nation’s industrial might jeopardized -- if any of the automakers is allowed to collapse.
“None of us relishes this task that we are asked to consider, yet who among us believes we should risk the consequences of the collapse of . . . one or more domestic automobile manufacturers?” Banking Committee Chairman Christopher J. Dodd (D-Conn.) said at the start of a nearly six-hour hearing. “Make no mistake about it -- those consequences would be severe and sweeping.”
The auto executives face another grilling today, when they appear before the House Financial Services Committee, which gave them an even rougher mauling than the Senate panel last month.
The idea of paying out government funds in installments rather than all at once appeared to gain traction among members of Congress, though nothing approaching a final deal was at hand.
As described to the auto executives, about half the money would be disbursed quickly to keep the companies afloat through March 31. The rest would be held back until a government board of trustees was convinced that the companies were making progress toward becoming more competitive and retooling their lineups to offer more fuel-efficient cars.
Sen. Charles E. Schumer (D-N.Y.) pushed the idea of a single trustee designated by the president to control disbursement of additional money after March 31 and force changes on the companies and the United Auto Workers union, which has been criticized for protecting the compensation packages of its members.
“I think that there’s a general view that we want to see the conditions before we give you the money. And you folks sort of want the money and then say, ‘Let the conditions work out,’ ” Schumer said. “I don’t trust the car companies’ leadership. . . . I worry that if they’re left on their own, they’ll be back a short time later asking for more, and we won’t be better off.”
The auto executives said they welcomed the prospect of government oversight.
“It would be very helpful for us, whether it’s a board or an individual, to have someone to work with on this, to submit our proposals, and then for that person to say, ‘OK, don’t agree with that. You’ve got to change this,’ ” said GM Chief Executive Rick Wagoner.
Another idea floated at the hearing was to require banks that received bailout money to lend to the automakers, with government guarantees on the loans. That would require federal officials to renegotiate the terms of the capital injections.
Some also suggested that Chrysler and GM be required to merge.
A continuing concern among many lawmakers is that the $34 billion would be just the beginning.
Mark Zandi, chief economist at Moody’s Economy.com, testified to the committee that the companies would most likely need $75 billion to $125 billion in government loans to avoid bankruptcy over the next two years.
Even so, Zandi said he favored a bailout, saying the economic cost of the auto industry’s failure would be “cataclysmic.”
GM said it needed $4 billion this month to avert bankruptcy, another $8 billion next year and a $6-billion line of credit if economic conditions worsened. Chrysler said it needed $7 billion in loans or it could run out of cash early next year.
A new attitude
Ford, which is more financially stable, requested only a “stand-by line of credit” of up to $9 billion. But Ford said that a failure by either competitor could threaten it as well because the automakers depend on many of the same suppliers.
The portion to keep the companies afloat until March 31 drops to $14 billion -- $10 billion for GM and $4 billion for Chrysler.
In their appearance before the Banking Committee, the attitudes of the company executives were markedly different from their bearing in November, when they first appeared to ask for a bailout.
In the earlier hearing, they were vague, evasive and mostly unwilling to agree to requests by lawmakers for concessions in exchange for emergency loans. On Thursday, the CEOs were so eager to please that they agreed to almost every request from members of the Senate panel.
For example, in their earlier appearance before Congress, only Chrysler Chief Executive Robert Nardelli had agreed to reduce his annual salary to $1. Now, all three have accepted the idea.
Also, faced with sharp criticism for traveling to Washington in private jets, the CEOs all drove from Michigan in advanced gas-electric hybrids.
“We’re sorry to be asking for this support. We wish the market conditions were better. They’re not. So this is what we need to do,” Wagoner said after journeying to Capitol Hill in a test version of the Chevy Volt electric car.
Congress gave the executives a second chance to persuade lawmakers to provide federal aid after they did a poor job during their November testimony. Democratic leaders also demanded detailed turnaround initiatives and spending plans from GM, Ford and Chrysler.
The companies submitted those plans Tuesday, promising major changes such as producing smaller, more fuel-efficient cars, reducing the number of models they offer and slashing executive pay. That resulted in an increase in the overall estimate to $34 billion.
“It used to be that our goal was simply to compete. Now we are absolutely committed to exceeding our customers’ expectations for quality, fuel-efficiency, safety and affordability,” Ford Chief Executive Alan Mulally told the committee.
“In short, we are on the right path to becoming a profitable, growing company.”
Dodd and several other senators declared themselves largely satisfied with the plans and were seeking a way to pass a bailout soon.
“Nothing concentrates the mind like a death sentence,” Dodd said.
Senate Majority Leader Harry Reid (D-Nev.) said Wednesday that he didn’t think there was enough support in Congress to pass legislation compelling the Bush administration to lend the automakers money from the $700-billion economic rescue fund.
reasury Secretary Henry M. Paulson has said that that money should be used only for financial institutions, and the White House wants Congress to use money from an existing $25-billion loan fund designed to help automakers retool factories to make more environmentally friendly vehicles.
Gene L. Dodaro , acting comptroller general for the Government Accountability Office, told the committee that the Treasury Department and the Federal Reserve had the authority to lend money to the automakers without congressional action.
But because of the need GM and Chrysler have expressed for immediate loans to avoid bankruptcy, Dodaro also endorsed the idea that Congress provide short-term aid and create an oversight board to monitor the companies and determine whether they need additional funds.
Sen. Bob Corker (R-Tenn.) and some other Republicans are pushing the companies to enter “prepackaged” bankruptcies as an alternative, arguing that it is the only way to bring about the substantial changes necessary for them to become competitive.
But Schumer said bankruptcy was not an option.
“Nobody’s going to buy a car from a bankrupt company,” he said. “To let the auto industry fail during a recession would make a sick economy sicker, so we’ve got to do something.”