Washington is engaged in a giant game of chicken with the Big Three automakers and unless someone swerves soon, Detroit is going to end up as wreckage on the side of the road.
In their first day of testimony before Congress, the chief executives of Ford, General Motors and Chrysler were the picture of humility. Hats in hand, they pleaded for money. "We made mistakes, which we're learning from," GM's Rick Wagoner told the Senate Banking Committee, outlining plans for change that Congress had requested as a pre-condition for receiving billions of dollars in much-needed loans. Ford's Alan Mulally said his company has shifted "in a completely new direction."
Unlike the hearings last month, though, where Congress presented a nearly united, hostile front against the Big Three, the fight Thursday was not so much over whether or not Washington should let them fail; almost all the witnesses and lawmakers agreed that would be like "playing Russian roulette with the economy," as Senate Banking Committee Chairman Chris Dodd put it. But that didn't mean there was anything like a consensus on how to handle the urgent request for a total of $34 billion in bridge loans — $7 billion for Chrysler, $9 billion for Ford and $18 billion for GM. Democrats and Republicans clearly still have major disagreements on where the money should come from, how much Detroit should get upfront, and what kind of conditions to impose on any such government assistance.
The Bush administration, leery of adding yet another taxpayer bailout to its already shaky legacy, has been unwilling to step in, appoint a car czar and negotiate a solution to the problem. The incoming Obama administration is expecting such talks to fall to them, but the automakers, especially GM, have warned they cannot wait. "I believe that we could lose General Motors by the end of this month," said Ron Gettelfinger, head of the United Autoworkers of America, which announced Wednesday it would be willing to sacrifice job security provisions and financing for retiree healthcare in order to save the companies — major concessions reflecting the seriousness of the situation.
Sympathetic Democrats like Charles Schumer of New York suggested that the most realistic solution would be to appropriate just enough money to keep the companies alive until early next year, when a new Congress and administration can tackle the complicated issue in a more comprehensive fashion. But even if a short-term fix of, say, $15 billion, is approved to keep Detroit going until the end of March there is still a disagreement over many of the details. Republicans want to take the money from a $25 billion modernization fund set up earlier this year, but environmentalists are adamantly opposed to such a move. And as House Speaker Nancy Pelosi's office pointed out, the companies factored using at least $21 billion of those funds to get back on their feet in plans they submitted Tuesday to Congress.
Democrats prefer to use money from the $700 billion approved to bailout the banking system in September, a move opposed by President Bush, Treasury Secretary Henry Paulson and most congressional Republicans. In the Senate, especially, Dems need at least nine Republicans to pass veto-proof legislation, assuming they can count on all of their members, which makes coming to a deal in a lame duck session particularly difficult. Other options Democrats are exploring include asking the Federal Reserve to supply the loans or requiring the banks that they are currently bailing out to loan the money to the Big Three. As an alternative, Utah Senator Bob Bennett suggested Thursday that those banks getting money from the Treasury be required to convert any car maker debt that they hold into equity, thereby easing the Big Three's cash crunch.
Dodd has been given the unenviable task of coming up with a compromise bill in a matter of days before Congress adjourns for the year. One solution would be to divert the $25 billion from the modernization fund and then take $9 billion more from the bank bailout funds. In this scenario the Senate would pass the measure first, but whether such a move would pass the House is far from certain, as leadership from both sides of the aisle have voiced opposition to pieces of such a plan.
The senators on the panel did manage to agree on one thing, that any money would not come without some strings. "It's happening with the [$700 billion bank bailout] program where there is no strategy and we're just throwing money out there," said Senator Bob Menendez, a New Jersey Democrat. In addition to monthly updates on their progress, many members of congress would want an oversight board or one single trustee to be empowered to win concessions from employees, retirees, dealers and creditors that are essential for any long-term restructuring plan to work.
Many members were particularly wary about how Chrysler, which is controlled by a private equity fund and has made no secret that it's shopping for a merger partner, will spend the money. "It troubles me a little bit knowing that basically all we're really doing is providing a little capital for y'all to hang around long enough to get married," said Republican Bob Corker of Tennessee.
"I can assure you, Senator, that I don't wake up every morning thinking about how to sell the company. We're busting our guts and the people who are left there are busting their guts to make this thing work," Nardelli argued back. At another point in the hearing, he told Dodd that the weakest of the Big Three can survive alone and that $7 billion is all they will need, "to avoid, Mr. Chairman, having to come back and again ask you for support." Utah's Bennett broached the idea of Congress writing into any package a proviso that forcing GM and Chrysler to merge. UAW chief Gettelfinger questioned the benefits of such a move, saying, "in terms of synergies, it's debatable about how effective it would be." Wagoner said he was open to looking at it. And Nardelli said that even though it would mean he'd lose his job, "if it was the only way to save Chrysler...then I'd do it."
The Big Three's claims that they would not have to come back for more money soon was met with great skepticism from both the lawmakers and an economist testifying side-by-side with the CEOs, Mark Zandi, of Moody's Economy.com. Given declining vehicle sales and market share and the amount of profit they make per car — about $4,000 less than Toyota, for example — Zandi said he expects the Big Three would only survive until the fall of 2009 before they would be forced to return to Washington to beg for more money. "I'm skeptical, doubtful that it's going to end in $34 billon," he said. "I estimate it'll be more like $75 billion to $125 billion."
Still, Zandi stressed that even that amount would be dwarfed by the costs of the alternative, the entire (or even just part of) the auto industry going under. Some Republicans like Corker argue that a bankruptcy reorganization — potentially aided by temporary government financing — is the only way for the automakers to make the serious reforms (closing factories, dealerships, and cutting union wages and benefits) necessary to really make them competitive with foreign competition. But Zandi stated what many experts believe, that bankruptcy for the already ailing auto makers would only mean one thing, total liquidation and a potential loss of hundreds of thousands, or even millions, of jobs. "Bankruptcy at this point would be cataclysmic for the economy," he stated plainly.
The one lesson the CEOs clearly had learned since their last disastrous appearance on Capitol Hill was the need to present a better face to their plight. They all drove hybrid or fuel cell vehicles from Detroit in stark contrast to the corporate jets all three arrived in last month. Senator Richard Shelby, of Alabama, the top Republican on the panel and a fierce opponent of giving them any aid, grilled them on their road trips. "Did you drive? Did you have a driver?" he pressed. "Do you plan on driving back?"
All three said they carpooled, or drove themselves and planned on driving back. "Where'd you stay? What'd you eat?" Dodd, a Connecticut Democrat, quipped.
"Mr. Chairman I don't want to make light of this," Shelby tersely replied, citing a CNN poll released Thursday that showed 60% of Americans are opposed to bailing out the automakers.
As if to highlight the unpopularity of a potential rescue package, a dozen of so protesters in the back of the room interrupted the hearing an hour later: "The bailout is a sell out the poor are suffering!" they chanted. A few yelled additional complaints: "The homeless! The homeless!" "Money off the poor people's backs!" "Put the money in the food banks where people need it!"
On Friday, lawmakers on the House Banking Committee will get their second round with the Big Three. And if the hours of grilling in the Senate seemed tough, they are sure to face a much more skeptical lower chamber of Congress. Senate Majority Leader Harry Reid and Pelosi have said if both committees approve of Detroit's recovery plans, they will call Congress back into session next week to pass a bill. Of all the compromises open to lawmakers, one thing is nearly certain: the bigger and more complicated the plan the less likely it is to pass.