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WASHINGTON — The Detroit Three auto makers are warning of a “catastrophic collapse” of the entire U.S. economy if Washington fails to throw the industry an emergency $25-billion lifeline.
The spectre of economic Armageddon was raised as the heads of ailing General Motors Corp., Ford Motor Co. and Chrysler LLC descended on Washington Tuesday in a high-stakes plea for cash from the U.S. government, which is already spending $700-billion to rescue banks and insurers.
The three companies are rapidly running out of cash in the face of the steepest drop in sales in a quarter century.
Testifying at a Senate committee hearing alongside the heads of GM and Chrysler, Ford chief executive Alan Mulally acknowledged his industry has “made mistakes,” but he said Congress would make matters far worse by ignoring his industry's desperate cry for help.
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Chrysler CEO Robert Nardelli said a bankruptcy filing by one or all of the auto makers would trigger “systemic risk” for the rest of the economy as suppliers, dealers and employees suffer.
The industry wants Congress to approve revolving bridge loans to tide auto makers over until the economy turns around.
“Our industry … needs a bridge to span the financial chasm that has opened up before us,” GM CEO Rick Wagoner told members of the Senate banking committee as part of an unprecedented industry lobbying effort.
Mr. Wagoner blamed the industry's predicament not on management failures but on the deepening global financial crisis. As evidence, he said GM is already working hard to cut costs in North America – by about 35 per cent, or $14-billion to $15-billion by 2011.
Many senators remain unconvinced, and legislation that would authorize the Bush administration to use the $700-billion bank rescue fund to help auto makers appears headed to defeat – at least for now.
Republican Senator Bob Corker of Tennessee predicted that Tuesday's pitch by the Detroit Three is just the beginning of “a long application process” that likely won't result in legislation until January.
“You'll be back here,” Mr. Corker told the CEOs.
House Democratic Majority Leader Steny Hoyer said Congress might have to return in December to push through an auto bailout.
“Dealing with the automobile crisis is a pressing need. We are talking about a lot of people … and a great consequence to our economy,” Mr. Hoyer said.
Ontario Premier Dalton McGuinty joined the chorus calling for bailouts on both sides of the border. He warned that bankruptcy would affect not just individual workers, their communities and the Canadian economy, but would also harm Japanese auto makers with vehicle-assembly operations in Ontario.
“It's something I would prefer not to have to deal with,” the Premier told reporters. “It might happen, but we'll wait and see.”
Ottawa and Ontario will investigate whether any U.S. proposal aimed at helping auto makers will carry risks for Canada – including job losses, Ontario Economic Development Minister Michael Bryant said Tuesday.
Mr. Bryant and federal Industry Minister Tony Clement are expected to travel to Detroit and Washington to talk to the auto makers and to U.S. politicians about how to co-operate on a solution.
The Canadian units of the Detroit Three are asking Ottawa and Ontario for financial help “proportional” to the size of a U.S. government bailout, said David Paterson, vice-president of corporate and environmental affairs for General Motors of Canada Ltd.
Based on a U.S. package of $25-billion (U.S.) and Canada producing about 14 per cent of the vehicles in North America, Canadian help would amount to $3.5-billion.
Any help could be rendered without using taxpayers' money, but instead using “the balance sheet of the Canadian government as a guarantee for bank loans that would then be paid back,” Mr. Paterson told The Globe's editorial board Tuesday.
“It's very easy to portray this as a big hole in the ground that you pour tax dollars into,” he said.
Even Democratic senators, most of whom support an immediate bailout, expressed skepticism Tuesday about the industry's commitment to truly change – to become competitive and produce cars North Americans want to buy.
The White House vehemently opposes using the $700-billion bank bailout fund, arguing that doing so would water down efforts to stabilize the financial system and could create a dangerous precedent.
“I don't see this as the purpose of the [troubled asset relief program],” U.S. Treasury Secretary Henry Paulson told the Senate banking committee. “There are other ways.”
Instead, the Bush administration wants Congress to amend a $25-billion loans program designed to help companies retool to make more fuel-efficient vehicles.
It's unlikely the Democrats will be able to woo enough Republicans to get the bailout passed – at least during the current lame-duck session of Congress. But the incoming Obama administration could return in late January with a plan B, assuming General Motors and the other auto makers can survive that long.
One of Mr. Wagoner's predecessors, Charles Wilson, said famously in 1953 that what's good for the United States is “good for General Motors and vice versa.”
That maxim isn't universally shared in the current political environment, undermining support for the bailout. There is no doubt that what's good for the Detroit Three is good for Michigan and Ohio. It's less clear that it's still true for the country as a whole.
The auto industry has dramatically changed. Japanese, Korean and European car makers have moved into North America in a big way, with non-union plants mainly in the South. Faster-growing foreign car makers now directly employ 113,000 U.S. workers, or about half what the Detroit Three employ, according to 2007 figures compiled by the Center for Automotive Research.
Detroit has also changed. Its workers still account for 2 per cent of the U.S. work force. But the clout of the U.S. auto makers in the overall economy has shrunk to just 2.3 per cent, down from 5 per cent in the 1990s. And consolidation and restructuring have left the industry more heavily concentrated than ever in the Midwest.
There are members of Congress from Alabama, Georgia, Kentucky and elsewhere whose loyalties are with the foreign car makers that have built plants in their states.
The Detroit Three have also alienated many Democrats for repeatedly blocking efforts to raise fuel-economy standards – legislation that would force them to make greener cars.
Many Democrats are still beholden to labour unions, who are a force in raising campaign cash and providing election ground support. But fewer Americans than ever enjoy the benefits of union membership.
And experts dismiss the dire warnings of the industry that bankruptcy would kill their businesses. They point to airlines, such as United Airlines and Continental, which used Chapter 11 to water down restrictive union contracts and significantly lower their operating costs.
With reports from Murray Campbell, Greg Keenan and The Canadian Press
