Carmaker Failure Would Be Catastrophe, Wagoner Says (Update4)
By John Hughes
Nov. 18 (Bloomberg) -- The U.S. economy would suffer a ``catastrophic collapse'' if domestic carmakers fail, General Motors Corp. Chief Executive Rick Wagoner said, as the nation's auto industry renewed appeals to Congress for federal aid.
Three million jobs would be lost within the first year, personal income would drop by $150 billion and government tax losses would total $156 billion over three years, Wagoner told a Senate panel.
``Such a level of economic devastation would far exceed the government support that our industry needs,'' he said. ``This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse.''
The Big Three chief executives, Wagoner, Alan Mulally of Ford Motor Co. and Robert Nardelli of Chrysler LLC, testified today at a hearing called by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. The companies are seeking $25 billion in loans to keep them operating.
Congressional Democrats propose tapping the recently enacted $700 billion financial-rescue package for the aid. President George W. Bush and Senate Republicans said they oppose that approach and instead prefer using $25 billion that was earlier approved by Congress to retool auto plants.
Reid, Pelosi
Senate Majority Leader Harry Reid said he didn't think the idea of using the earlier-approved Energy Department loans for the aid would be ``going very far in our caucus.'' The impasse dimmed prospects for aid approval during this week's lame duck session of Congress. House Speaker Nancy Pelosi said she won't call Congress into session next month even if lawmakers fail to enact automaker aid.
``A decision to make government assistance available makes much more sense than taking the tremendous risk to our already- fragile economy that comes with inaction,'' Mulally testified.
Nardelli said, ``Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations.'' If Chrysler was forced to declare bankruptcy, he said, ``we cannot be confident that we will able to successfully emerge.''
GM needs $10 billion to $12 billion, according to Wagoner, Ford needs $7 billion to $8 billion, said Mulally, and Chrysler is seeking $7 billion, Nardelli told the panel. Chrysler burned $3 billion in cash in the third quarter and had $6.1 billion remaining at the end of the period, Nardelli said.
Jump in Unemployment
A first quarter 2009 bankruptcy of the automakers could cause U.S. gross domestic product to shrink by at least 4 percent as U.S. auto production would slide by 30 to 35 percent, according to an analysis released today by Deutsche Bank economist Joseph LaVorgna. Unemployment would immediately increase to 8 to 8.25 percent from the current 6.5 percent, the analysis showed.
``I support efforts to assist the industry, not because their leaders necessarily deserve the taxpayers' help,'' Dodd said as the auto chiefs looked on. Aid is needed ``to minimize the possibility of a destabilizing event in the economy.''
Still, Dodd said ``I don't think it is likely'' that any aid will be approved in the next few days.
Senator Richard Shelby of Alabama, the committee's top Republican, said the panel must determine the long-term outlook of automakers before deciding on the aid.
``Is $25 billion enough?'' Shelby said. ``Is this the end or just the beginning?'' He later told the auto chiefs, ``A lot of people think you already failed, that your model has failed.''
`Generate Profits'
When Shelby asked how the loans will be repaid, Nardelli replied, ``We will generate profits.''
Senator Charles Schumer, a New York Democrat, said automakers are ``too vital to let fail,'' though he was concerned they would be back in months to seek more funding unless Congress requires an industry overhaul. ``We need a business model based on cars of the future.''
Senator Jim Bunning, a Kentucky Republican, said the Democratic aid plan ``is not a serious one'' and is ``virtually a blank check'' that doesn't require concessions.
``You're going to come back for more,'' said Senator Bob Corker, a Tennessee Republican.
Democrats in the Senate probably need 60 votes to advance their plan and they hold only a 50-49 majority. Bush spokeswoman Dana Perino said yesterday the Senate lacks the votes to pass the Democrats' legislation.
Senate Republican leader Mitch McConnell of Kentucky said earlier today the $25 billion in the previously approved Energy Department loans should be expedited as an alternative to the Democratic plan. The loans were part of the 2007 energy bill and are designated for retooling auto plants to help build smaller and alternatively powered cars.
`The Common Goal'
Senator Carl Levin of Michigan, who helped write the Democratic legislation, said he is open to alternatives. ``We need to see language of people who have different paths to the common goal, so we can try to reconcile them,'' he said.
Wagoner said GM was ``well on the road to turning our North American business around'' when the global credit crisis hit. GM had reached an agreement with the United Auto Workers union and in 2009 will offer 20 models that get at least 30 miles per gallon on the highway, he said.
``The recent plunge in vehicle sales threatens not only GM's ongoing turnaround but our very survival,'' he said.
Mulally disputed what he described as recent ``highly critical'' commentary on automakers, saying the critics don't grasp that ``we at Ford are on our way to realizing a complete transformation of our company.''
Ford has been changing its model mix, accelerating the development of fuel-efficient vehicles and has closed 17 plants in North America, Mulally said.
``America's auto companies are investing in innovation,'' Nardelli said. ``Chrysler plans to emerge from the current downturn as a lean, agile company.''
To contact the reporter on this story: John Hughes in Washington at Jhughes5@bloomberg.net.
Last Updated: November 18, 2008 19:34 EST |
