A lot is riding on auto roadmap

As General Motors Corp. and Chrysler race to submit plans today for assuring their long-term survival, President Obama’s decision to have his top economic advisors bird-dog the auto industry bailout shows how high the stakes have become -- for Detroit, for Washington and for the nation’s economy.

With job losses escalating and the just-passed $787-billion economic stimulus bill only today being signed into law, the last thing the president or the economy needs is for one or more of the U.S. automakers to collapse.

And the problems that forced former President Bush reluctantly to agree to a $17.4- billion short-term bailout for GM and Chrysler in December-- plummeting car sales and the deepening overall recession -- have worsened in the weeks since.

The plans being submitted today represent the automakers’ response to a deadline the Bush administration imposed when it approved the short-term financial aid. The blueprints are intended to show how GM and Chrysler will put themselves on a sustainable financial footing, which means shedding labor costs and the debt burden that the automakers must carry into the future.


Under the terms of the government loans, GM and Chrysler must also show that they are developing a more competitive mix of vehicles.

Continuing negotiations between the carmakers and the United Auto Workers over jobs and benefits costs were reportedly progressing late Monday, though the union was resisting making major new concessions before bondholders and other creditors also agree to accept cuts. Progress was also reported on the negotiations with bondholders.

Whether final agreements could be hammered out before today’s deadline for submitting the long-term blueprints remained unclear, but some officials suggested the guidelines laid down by the Bush administration did not require such final agreements at this point.

The Obama administration still has until March 31 -- with the possibility it could grant a 30-day extension -- to review the plans and determine whether they are sufficient.

If they are not, the administration could order the immediate repayment of the loans, almost certainly triggering bankruptcies for both of the companies.

Under the December loan terms, the Obama administration today intends to distribute to GM the final $4-billion installment of its $13.4-billion portion of the bailout.

Not only does Obama need to worry about the effect of major auto industry bankruptcies just as he hopes the stimulus package will start to work, but he has strong political concerns. Union workers were major supporters of Obama’s campaign and states with U.S. auto assembly plants such as Michigan and Ohio were crucial to his victory.

“I think the administration wants there to be a plan that will work,” said Rep. Sander M. Levin (D-Mich.). “The situation has become more difficult and the urgency of success has become all the greater.”


GM is ready to deliver “a very full and detailed report” on its recovery plan, spokesman Steve Harris said. Chrysler spokeswoman Shawn Morgan said the firm was committed to meeting the deadline as well. UAW officials did not return calls for comment.

Ford Motor Co., financially the strongest of Detroit’s Big Three, has thus far chosen to do without government rescue loans and thus is not subject to the deadline.

Harris said GM had accomplished a lot already. The company is reviewing the possible sale of its Saab and Hummer units, and is evaluating the future of its Saturn division. It has also announced the closure of a “jobs bank,” which was controversial because laid-off autoworkers could receive much of their regular pay even though they weren’t working.

The UAW has signed off on the jobs bank plan, but GM and the trade union were still trying to work out an agreement on how the auto company would fund healthcare benefits for retirees.


The bailout agreement allowed Obama to name a “car czar” to analyze the restructuring plans and decide by March 31 whether they would work. But Obama opted for a panel of experts. He chose to appoint his top two economic advisors, Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, director of the National Economic Council, as well as restructuring expert Ron Bloom.

White House Press Secretary Robert Gibbs said the panel “provides a vast amount of expertise” in dealing with “the many challenges that this is going to face over the course of the next several months.”

“We’ve had . . . people from our economic team working on this issue throughout the transition, in the first few weeks of this administration,” Gibbs said. “So we’re anxious to take a look at the plans, understanding that it is extremely important to have a strong and viable auto industry.”

The bailout agreement said the plans from GM and Chrysler must contain “specific actions” to repay the government, achieve financial viability and meet fuel efficiency and emission requirements.


The agreement also said the companies needed to make “their best efforts” to achieve several targets, including reducing their unsecured public debt by two-thirds and reducing wages and benefits so worker compensation is competitive with that of U.S. employees of foreign automakers by the end of this year.

But the agreement is vague and provides Obama with flexibility. The March 31 deadline, for example, can be extended for 30 days.

Levin interpreted those provisions to mean the automakers need to make progress toward the restructuring goals by today’s deadline, not complete the negotiations.

“I don’t think they expect a touchdown,” Levin said of the Obama administration. “But they have to move the ball very considerably.”


The global recession has continued to erode consumer spending, especially for big-ticket items such as cars.

In January, U.S. auto dealers had their worst month since 1981, selling 657,000 cars and light trucks. That was down 37% from a year ago, and by some estimates put the industry on pace to sell 9.6 million vehicles in the U.S. this year, down significantly from last year’s horrific 13.2 million.

Results were even worse for U.S. automakers, with sales down 49% from a year ago at GM, 39% at Ford and 55% at Chrysler.

Foreign automakers are also struggling. Toyota Motor Corp., which recently surpassed GM as the world’s biggest carmaker, said it would post its first net loss in almost 60 years.


“Demand for vehicles outside the U.S., especially in emerging markets, had been holding up, but now that’s not the case,” said Jesse Toprak, senior analyst at in Santa Monica.

Retail sales -- as opposed to sales to rental companies and corporate and government fleets -- appear to have bottomed out over the last three months, he said. But industry-wide sales of less than 12 million this year would be a disaster for most dealerships.