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General Motors May Fail This Month Without Aid, UAW Chief Says

Posted by commendatori on December 4, 2008

By John Hughes

Dec. 4 (Bloomberg) — U.S. lawmakers were told General Motors Corp., the country’s largest automaker, may fail this month if they don’t give the cash infusion the company seeks.

“I believe we could lose General Motors by the end of this month,” Ronald Gettelfinger, president of the United Auto Workers union, told a Senate panel today in Washington.

The Big Three automakers renewed their plea for an emergency federal bailout as a deadlocked Congress showed no progress in deciding how to aid them. GM Chief Executive Rick Wagoner said his company needs an “immediate” $4 billion, and $4 billion more next month.

“We’re here today because we made mistakes,” Wagoner told the Senate Banking Committee. “Forces beyond our control have pushed us to the brink.”

Wagoner, Chrysler LLC Chief Executive Robert Nardelli and Ford Motor Co.’s Alan Mulally together are asking for as much as $34 billion in federal aid. “I am sorry to be asking for this support,” Wagoner told reporters before the hearing began.

The three men are trying to recover from their appearance before Congress two weeks ago when they were ridiculed for arriving in Washington in separate private jets to plead for funds and left empty-handed. They demonstrated contrition today, pledging to work for $1 a year, traveling to Washington by car and providing specific plans for viability.

“We need to act,” said Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. Letting automakers fail would amount to playing “Russian roulette with our entire economy.” He said later he was “impressed with the detail of the GM plan.”

‘Cataclysmic’

Senator Charles Schumer, a New York Democrat, said “we realize that letting you fail would be cataclysmic.” He said that if the industry fails, “millions of workers lose their jobs.” He added, “I don’t care where the money comes from.”

The senior Republican on the panel, Senator Richard Shelby of Alabama, said the automakers’ plans aren’t “serious” and have “few concrete details.”

“If you made this presentation to get a bank loan I suspect that any sensible banker would summarily reject your request,” Shelby said. He said earlier he still opposes a bailout.

Mark Zandi, chief economist of Moody’s Corp.’s Economy.com, said the government should aid automakers because liquidations and hundreds of thousands of layoffs would otherwise result. The $34 billion won’t be enough to avoid bankruptcy, he said.

“They would ultimately need $75 billion to $125 billion to avoid this fate,” Zandi told the panel.

Back in a Year?

Senator Jon Tester, a Montana Democrat, said that if Congress aids automakers now, “there is a potential we could be back here in a year, maybe less.”

Democrat Senator Carl Levin, from the carmakers’ home state of Michigan, said “it’s essential” that President George W. Bush and President-elect Barack Obama “become more active” in talks to rescue the carmakers.

White House spokeswoman Dana Perino said it is up to the automakers to show that their plans for revamping their companies will work.

“It’s too early to give these plans a grade,” Perino said. “The linchpin of our support has been that we would not provide taxpayer dollars unless they could prove viability.”

GM said it needs $18 billion altogether, and Chrysler is seeking $7 billion this month to avoid running out of cash. Ford has requested a $9 billion credit line it said it may not need to tap.

“I recognize this is a significant amount of public money,” Nardelli said. “We believe this is the least costly alternative considering the depth of the economic crisis and the options we face.”

Source of Funds

U.S. lawmakers have said they may schedule votes next week to aid automakers after hearings today and tomorrow. Leaders haven’t resolved a deadlock over how to provide aid, with Republicans backing use of Energy Department loans intended to help retool the industry and Democrats preferring to tap a $700 billion rescue package targeted for financial institutions.

“The collapse of one or both of our domestic competitors would threaten Ford because we have 80 percent overlap in supplier networks and nearly 25 percent of Ford’s top dealers also own GM and Chrysler franchises,” Mulally said.

GM and Chrysler executives have held private discussions on possibly accepting a pre-arranged bankruptcy as the last-resort price of securing the bailout, according to a person familiar with the talks.

Bankruptcy Consequences

The executives have said publicly that bankruptcy would lead to liquidation as customers abandon the companies. Wagoner said today bankruptcy isn’t in his plan.

Staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy — negotiated with workers, creditors and lenders — could be used to reorganize the industry without liquidation, a person familiar with that matter said.

“Chapter 11 reorganization — even a so-called pre-packaged bankruptcy — is simply not a viable option,” Gettelfinger said. “The situation at GM, Ford and Chrysler is extremely dire,” the autoworkers’ president said. “It is imperative that the federal government act this month.”

Acting U.S. Comptroller General Gene Dodaro told the committee, in response to a question from Shelby, that the Federal Reserve had authority to put money into the carmakers, as it did with insurer American International Group Inc.

Fed officials have said they want the solution for automakers’ cash problems to come from Congress and taxpayers, not the central bank.

How to ‘Play This’

“Congress will have to decide how they want to play this,” said St. Louis Fed President James Bullard in a Bloomberg Television interview Dec. 2. Rescuing the auto companies “is one thing we don’t have to do,” he said.

Fed officials have an aversion to extending the too-big-to- fail doctrine beyond financial institutions. The premise of the central bank’s $85 billion rescue of AIG in September was that the insurer’s failure posed a threat to the system through its role in the derivatives market.

Other obstacles involved in lending to carmakers might be finding large pools of collateral for the Fed to loan against. Officials are also unlikely to grant bank holding company status to auto-firm subsidiaries as a potential conduit for aid to the parent. Transactions between banks and affiliates are strictly regulated by the Fed.

To contact the reporter on this story: John Hughes in Washington at Jhughes5@bloomberg.net

Last Updated: December 4, 2008 14:15 EST

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