Big Three Automakers Make New Plea for Government Loans

As new reports showed that misery in auto dealers' showrooms worsened in November, Detroit automakers on Tuesday submitted detailed plans to Congress reinforcing their pleas for government loans totaling $34 billion.

General Motors Corp. and Chrysler LLC said the need for government help is urgent. General Motors said it must get $4 billion by the end of the month, and another $4 billion in January, to keep operating. Chrysler said it would run out of cash in the first three months of 2009 unless it gets $7 billion from the government by the end of this month.

Ford Motor Co. said its situation isn't as dire, but the company requested a $9 billion "standby line of credit" to help deploy its restructuring plan.

As if to illustrate their need for cash, the automakers announced November auto sales that were off at least 30 percent from a year ago. Total
industry sales were down 37 percent, according to data compiled by Ward's Automotive. That's worse than October, which was considered the worst month for sales, adjusted for U.S. population growth, since World War II.

The chief executives of the three automakers return to Washington on Thursday and Friday to appear at congressional hearings to make their case for taxpayer funds. It's an uphill battle, given public opinion is divided on whether taxpayer money should support the Detroit automakers -- and given the harsh criticism they received for failing to provide details of how they would use the government cash in their appearances before Congress last month.

"They need to be a lot more humble than they were the last time, for starters," said analyst David Whiston, who follows the auto industry for
Chicago-based Morningstar Inc.

The automakers were taking pains to avoid repeating last month's missteps.

Vilified for flying to those hearings on corporate jets, the CEOs of Ford and GM plan to ride to Washington this time in hybrids assembled at their factories. In addition, both companies announced plans to sell off their fleets of corporate aircraft.

The top executives of all three companies agreed to be paid an annual salary of $1 a year.

"It's all just the presentation, but it helps," Whiston said.

While GM and Ford are looking for buyers for nine airplanes, dealers across the country are looking for buyers of just about any new vehicle.

November sales were "horrific," said Mark LaNeve, GM's sales chief. GM's sales fell 41 percent, Chrysler's fell by 47 percent, and Ford's were down 30 percent. Some foreign carmakers were hammered as well, with Toyota's sales down 35 percent and Honda's down 32 percent from November 2007.

From his dealership in Glendale, David Hobbs of David Hobbs Honda said he was glad he's not selling Ford, GM or Chrysler models, but he emphasized he supports a congressional package to lend billions to the Detroit companies.

The federal government shares some of the blame for Detroit's problems because it failed to require automakers to meet tougher fuel-economy standards and even offered tax credits to some buyers of big SUVs and pickups, Hobbs said.

A failure to act would be "cataclysmic" and could lead to the failure of small and large auto-parts suppliers, some of which provide parts not just to Detroit automakers but to Honda and Toyota as well, Hobbs said.

The industry's weak sales numbers and the "ebb and flow" of the debate about whether to provide taxpayer loans to the Detroit Three will serve to add only volatility to the stock prices of some parts suppliers, Robert W. Baird & Co.'s analysts said in a research note.

Baird's analysts singled out two Milwaukee-area companies as stocks that investors should focus on as "franchise-type companies (trading) at
once-a-cycle valuations." Among them are Johnson Controls Inc. of Glendale and Snap-on Inc. of Kenosha, as well as Autoliv Inc. of Sweden and Gentex Corp of Zeeland, Mich.

In the restructuring plans they presented to Congress, the Detroit automakers stressed their commitment to building more fuel-efficient cars, to cutting costs by eliminating brands and dealerships, and to repaying the government loans by 2011 or 2012.

Asked whether GM would consider bankruptcy or other options if it fails to win congressional support, CEO Rick Wagoner said he was confident the company was making a more "compelling case" than it made last month.

"At least as of this moment, we haven't identified any other funding sources," Wagoner said in a conference call with reporters. "It would get into an uncertain and dangerous period for us and, we believe, for the U.S. economy."

In Washington, House Speaker Nancy Pelosi said letting the Detroit Three go bankrupt was "not an option."

Ford said it expects to break even or turn a profit in 2011. The company said it plans an "accelerated vehicle electrification plan for a family of hybrids, plug-in hybrids and battery electric vehicles" as it spends $14 billion on advanced technologies and products to boost fuel efficiency during the next seven years.

GM, which is ending production of SUVs at a plant in Janesville this month, is seeking a $12 billion loan and a $6 billion line of credit. It said it plans to cut back on its number of brands, by converting Pontiac into a specialty niche brand. The company is exploring a sale of the Saab brand and is considering alternatives for its Saturn brand.

Chrysler, which makes engines at a factory in Kenosha, said it continues to believe that a consolidation or alliance with another carmaker is a
"fundamental" component of its long-term survival plan. The company said it estimates it could save $3.5 billion to $9 billion a year through an alliance or merger.

Like GM and Ford, Chrysler also announced plans for a surge in electric vehicles, vowing to produce 500,000 "electric-drive vehicles" by 2013.

Before the chief executives head to Washington, they planned an emergency meeting today in Detroit with the United Auto Workers to discuss further cuts.

In a research note Tuesday, Baird analyst David Leiker said that in order to be viable, the three companies will have to become "much smaller companies, which in turns means fewer jobs in congressional districts. The challenge will be to balance between preserving jobs and convincing Congress of their future viability in order to secure funding."

http://www.hispanicbusiness.com/news/2008/12/3/big_three_automakers

Business Financial Services

Big Three Automakers Make New Plea for Government Loans