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The Washington Independent
The Washington Independent

Big Three Submit Plans for Government Money

After being rebuffed last month, chief executives of General Motors, Ford and Chrysler try again to persuade lawmakers that a government bailout is necessary.

Adan Duran
Last updated: Jul 31, 2020 | Dec 03, 2008

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Executive bonuses scrapped. Private jets sold. Chief executives volunteering to accept a yearly salary of $1. It’s not the end of capitalism. It’s just a sign that U.S. automakers are desperately in need of government help.

Hoping for a cash infusion of at least $25 billion in low-cost loans from Washington, Detroit’s Big Three automakers on Tuesday unveiled plans to revamp their businesses to produce smaller, more fuel-efficient vehicles as a way to return to profitability.

Last month, the CEOs of the companies failed to presuade Congress to give their companies $25 billion in emergency aid after many lawmakers criticized them for having no specific recovery plans on how they would spend the cash. Congressional critics also blasted the Big Three — Ford, Chrysler and General Motors — for their reluctance to make sacrifices in return for receiving the money.

The documents detailing the automakers’ plans to remain economically viable — arriving at Congress’s insistence — are intended to quell such concerns. Along with plans to produce more fuel-efficient vehicles — including hybrid and electric cars — the companies propose other concessions targeting managers, workers and dealers. Among them are limits on executive pay and cutbacks in the number of dealerships.

The plans arrive as the nation’s automakers are struggling to avoid bankruptcy amid the financial crisis. With consumers spending less and consumer credit lines basically frozen, the Big Three are burning through cash and piling up record quarterly losses. On Tuesday, as the automakers were unveiling their new business plans, the news got worse: GM announced that November sales were down 41 percent from the year before. Ford sales, meanwhile, fared little better, falling 30 percent compared to last year.

Ford was the first to announce its proposal Tuesday. The company said it would to eliminate 2009 bonuses, suspend its matching-rate program for 401(k) retirement plans and downsize its dealer network in the country’s 130 largest metropolitan areas.

GM, for its part, plans to suspend dividend payments to shareholders and scale back production of less popular models, like those under the Pontiac and Buick lines.

Both Ford and GM will sell off their fleets of corporate jets. The planes caused a stir at the congressional hearings last month after it was reported that the Big Three CEOs had flown separately to Washington to ask for the bailout — traveling in costly style at the same time they were begging for a taxpayer gift.

Ford, which says it has enough cash to survive 2009 without federal help, wants access to $9 billion in loans as “a back-stop to be used only if conditions worsen further.” That’s a change from last month, when Ford chief executive Alan Mulally told lawmakers the company would need $7 billion to $8 billion if the $25-billion bailout was approved by Congress.

GM, meanwhile, is requesting $18 billion — $12 billion in loans through 2009 and another $6 billion line of credit if the recession persists, as many economists suspect it will. That’s a long way from the $10 billion to $12 billion that CEO Rick Wagoner said last month that the company would request.

Chrysler head Robert Nardelli told Congress last month that his company would seek $7 billion. At posting time, Chrysler, which is privately owned, had not gone public with its bailout spending plan.

Mulally has also offered to accept an annual salary of $1 if the company taps the credit line, and Wagoner has made the same commitment.

While Ford is in better financial shape than its two rivals, economists and lawmakers worry that the collapse of Chrysler or General Motors would have a cascading effect. “Because our industry is an interdependent one, with broad overlap in supplier and dealer networks,” the Ford plan states, “the collapse of one or both of our domestic competitors would threaten Ford as well.”

The Senate Banking Committee, headed by Sen. Chris Dodd (D-Conn.), will meet Thursday to consider the automakers’ plans. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, will convene his panel Friday for the same purpose.

The full Congress is slated to return to Washington next week to consider a Detroit bailout bill. In a statement issued yesterday, Sen. Carl Levin (D-Mich.), a staunch defender of the auto industry, said he’s “confident” that the companies’ plans will provide “compelling” evidence that the emergency funds are necessary.

Yet Senate Republicans — many of whom supported the $700-billion Wall Street bailout — seemed to have drawn the line at helping Detroit, arguing that it would be better for the economy long-term if the sputtering companies were allowed to file for bankruptcy and reorganize.

“There may not be a need for three automakers,” Sen. Bob Corker (R-Tenn.) told the company heads last month.

The Bush administration has also been adamant in its resistance to new funding for Detroit, calling on Congress instead to tap $25 billion in previously approved funding intended for help Detroit retool its manufacturing plants to make more fuel-efficient cars. White House spokeswoman Dana Perino told reporters Tuesday that the administration won’t veer from that position before they’ve seen the automakers’ recovery proposals.

“It is refreshing for us to see Democrats finally coming forward and accepting that companies need to prove that they are viable in order to get taxpayer dollars,” Perino said. “But we’ll have to see what these plans are, and we’ll have to see what the Congress decides to do.”

While the automakers’ new plans include some self-sacrifice, the companies aren’t conceding everything. For example, for years the Big Three fought government efforts to implement higher fuel-efficiency standards, called CAFE. Before Congress approved new mileage rates last December, the standards hadn’t been raised in 32 years.

Ford’s plan makes no mention that its resistance to higher mileage rates for its fleets might have contributed to the industry’s current distress, even as higher fuel prices have pushed consumers away from Detroit’s gas-guzzling SUVs and trucks toward smaller, fuel-efficient imports.

Instead, the company says it “was proud to support stronger CAFE standards.”

Adan Duran | Adan is a high-energy keynote speaker who encourages audiences to use their focus to pay attention to what matters most at work and in life. His audience members adore his realistic techniques that they can use in their personal and professional lives. As a professional speaker, he has won several awards. His extensive experience in learning, growth, and leading large corporate teams makes his an ideal candidate. Employers recruit Adan because of his actionable techniques for avoiding disruptions, stopping interruptions, prioritizing everyday objectives, and saying no to demands that divert resources away from actual goals and priorities.


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