A list of job cuts, shuttered factories, canceled bonuses and commitments to fuel-efficient cars won’t be enough next week when U.S. automakers get another shot to persuade Congress to give them $25 billion in loans.
Through the Thanksgiving weekend, teams will be tagging more meat to throw at skeptical lawmakers who vilified the automakers’ top executives the last time they went to Washington. That means executive pay cuts, union concessions, and perhaps even higher fuel economy requirements and a glimpse at top-secret product plans.
At General Motors Corp., the largest of the Detroit Three and probably the most needy, teams are preparing a detailed plan, first for GM’s board on Monday, then for delivery to Congress by a Dec. 2 deadline. The House Financial Services Committee plans to hear testimony on the loan requests Dec. 5.
Steve Adamske, a spokesman for committee chairman Barney Frank, D-Mass., said Tuesday that each company is expected to submit a report that will be made public to “give confidence to the people that we’re not giving good money after bad.”
People with knowledge of the plans being built by GM and Chrysler say they will contain more than just details of past restructuring. At GM, the company has slashed production and cut its U.S. payroll from 177,000 eight years ago to the current 104,000. Chrysler LLC’s worldwide work force has been slashed from 123,180 10 years ago to about 66,000 today.
The person briefed on GM’s preparations, who didn’t want to be identified because of the plan hasn’t been finalized, says it is likely to include new, more visible sacrifices from top executives, even working for $1 per year. Also on the table are concessions from the United Auto Workers, including elimination of the much-criticized jobs bank in which laid-off workers keep getting most of their pay.
Executive pay cuts are almost a certainty, given the language in a letter House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., sent to the automakers last week demanding detailed plans.
“In return for their additional burden, taxpayers also deserve to see top automobile executives making significant sacrifices and major changes to their way of doing business,” the letter said.
During last week’s congressional hearings, only Chrysler Chief Executive Robert Nardelli committed to working for $1 per year, while GM CEO Rick Wagoner and Ford’s Alan Mulally didn’t directly answer the question.
Besides getting called out for flying to Washington on separate corporate jets, a lack of answers from the CEOs was a big part of the problem last week and a big reason why the CEOs were chastised by hostile lawmakers, said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight.
“All of that information that was requested should have been communicated during the first round of hearings,” Bragman said. “The communication job that they’ve done thus far to the public and the Congress to get the bailout has been very poor.”
Sen. Debbie Stabenow, D-Mich., said the companies need to talk about advanced vehicles under development and give a specific accounting of how much in loans they need and why.
“The image that they project is very important. It’s important that they show at every level they understand how serious this is and that they’re willing to make sacrifices as well,” Stabenow said.
Automakers need to “rhetorically indicate the willingness to take whatever additional steps are necessary to protect their companies,” said Sen. Carl Levin, D-Mich. “These are good people who are running these companies. They have a sense of fiduciary duty.”
The person with knowledge of Chrysler’s plans said the automaker will present a detailed outline of its restructuring efforts as well as plans for long-term viability, and all stakeholders, including the UAW, parts suppliers, creditors and upper management, are discussing what sacrifices need to be made.
Debt may be refinanced, said the person, who didn’t want to be identified because the plans have not been delivered to Congress. The automakers also must work out terms with lenders so the government can move into the senior creditor position, something that Pelosi and Reid have said is a requirement to get government loans.
All three automakers are strapped for cash as U.S. auto sales have plummeted to a 25-year low, but GM is likely in the worst shape. It has burned through nearly $14 billion in the first nine months of this year and warned that it could reach the minimum amount of cash required to run the company by year’s end. Chrysler LLC isn’t far behind, but Ford Motor Co. says it can hang on through 2009 because of a huge loan it took out before credit markets froze up.
Detroit’s carmakers employ nearly a quarter-million workers, and more than 730,000 others produce materials and parts for cars. If just one of the automakers should declare bankruptcy, some estimates put U.S. job losses next year as high as 2.5 million.
Bragman said the CEOs have to do a better job of explaining the massive restructuring they have undertaken, including a host of new vehicles and a historic new contract with the UAW that cuts wages for new hires and shifts billions in retiree health care costs to a union-administered trust.
“Everything was in place, everything was on track, everything was looking very promising,” Bragman said, “and then, through no fault of their own, quite frankly, the economy went south and nobody bought anything.”