WASHINGTON — Democratic leaders in Congress called on Detroit’s automakers Friday to submit “credible” financial plans to lawmakers by Dec. 2 for spending up to $25 billion in government money, including vows for “significant sacrifices” by top executives.
Oh, c’mon, Dems, your lips tell them no no, but there’s yes yes in your eyes….
Original DVD cover.
The Journal, citing unnamed sources, said the board was willing to consider “all options” for GM, which has said it could be near the minimum amount of cash it needs to operate by the end of the year. The story said the board’s position on a potential filing put it in “rare disagreement with Chairman and Chief Executive Rick Wagoner.”
Wagoner had told Congress this week that bankruptcy is not practical for the company because people wouldn’t buy vehicles from a bankrupt company.”
The Democratic congressional leaders’ letter didn’t ask for specifics for the data they sought, but spelled out several conditions for receiving a desperately needed lifeline.
Pelosi, striking a more positive tone after she and Reid rebuffed the automakers’ plea for rescue this week, said she was committed to bringing Congress back the week of Dec. 8 for some kind of vote. The details would be determined by the information automakers provide.
According to the letter, automakers will have to explain their financial position, how they plan to spend the money and the assumptions behind their assurances that any loan will be paid back. General Motors Corp., Ford Motor Co. and Chrysler LLC consumed nearly $18 billion in cash last quarter, and analysts have said GM and Chrysler could run short of cash by the end of the year.
The terms for any loan are to mirror the conditions set in a draft bill released by Rep. Barney Frank, D-Mass., earlier this week. Among them: The government debt takes precedence among the company’s other loans; automakers have to provide warrants or stock to the government, and if the automaker’s plan appears off track, the government can call its loan back immediately. Automakers also must promise to meet the fuel economy standards set in last year’s energy bill.
And Congress promises to limit executive pay, bonuses and other benefits of top executives, who were roundly criticized after flying corporate jets to two days of hearings this week and providing what many lawmakers called stilted, incomplete answers.
The automakers will submit their plans to Frank and Sen. Christopher Dodd, D-Conn., who are expected to hold another round of hearings in December.
Reid and Pelosi shut down a last-minute attempt at a compromise rescue Thursday, saying there were not enough votes in either side of Congress to pass a bill backed by Michigan’s Democratic senators and key Republicans. That bill would have taken $25 billion in loans for building more efficient vehicles that Congress approved in September and lent it to the automakers immediately, an approach backed by the Bush administration.
All Detroit automakers have committed to sharing their plans with Congress, but were seeking more guidance about how much detail they would need to share.
ON THE morning of December 21st, 1989, over 100,000 freezing Romanians had been assembled in Bucharest’s Palace Square to cheer their president, Nicolae Ceausescu.
The unthinkable happened. The crowd began to boo. Ceausescu stopped, frozen in mid-sentence, lost and incredulous. In that instant his power crumbled. Four days later he was executed and Romania had begun its transition to democracy.
A similar look of perplexed incredulity was to be seen on the faces of the “Big Three’s” chief executive officers, Richard Wagoner of General Motors, Alan Mulally of Ford and Robert Nardelli of Chrysler as they faced a Congressional grilling in Washington last week.
Messrs Wagoner, Mulally and Nardelli do not, thankfully, risk their lives, just their executive careers. The prospects for the three companies they are paid to manage are, however, considerably more sombre.
The depth of their incomprehension of the environment they inhabit, and which they have helped create, was most tellingly revealed by them all flying to Washington in their corporate jets when Detroit and Washington are linked by 24 direct daily commercial flights.
Their behaviour added credence to the assertion by the chairman of the Senate Banking Committee, Democratic Senator Chris Dodd of Connecticut, that “their boardrooms and executive suites have been famously devoid of vision”.
His Republican colleague, Senator Richard Shelby of Alabama, was doing more than defending free market orthodoxy when he declared “Companies fail every day, and others take their place”. Senator Shelby was speaking for a state that has become a major motor industry player as home to Mercedes-Benz, Honda, Hyundai and Toyota factories.
Detroit may still be Motown, but it’s no longer the motor industry.
The assumptions, thought processes and actions which have led what used to be the world’s biggest auto manufacturers – a spot now held by Toyota – to their current sorry state offer an eloquent precis of what has afflicted much of US manufacturing, and by extension the country itself.
They were the first and the biggest global manufacturing companies. They were the trend setters and industrial innovators, Ford with mass production, GM with design and variety
While sitting comfortably on their Olympian thrones, they failed to notice the world changing around them – to the extent that eventually they preferred and fatally believed, their own superiority myths – a process which led them to eventually deny reality itself.
They account for around 4 per cent of US GDP, directly employ almost 250,000, while providing healthcare and pensions for another 2.75 million. They used their political muscle to engineer the tax break that gave us the now infamous Sport Utility Vehicles as a concession to US contractors and tradesmen. The legislative wording mitigated against imports of such vehicles, and suddenly they were competing with each other to offer ever-bigger, ever-thirstier monsters.
They never bothered to apply that muscle to changing US fuel tax rates. Diesel is around 20 per cent more expensive than petrol in the US. This means that GM and Ford never domestically presented the high-performance, frugal diesel engines that equip many of their best-selling European models.
Similarly the flex-fuel technology of their successful Brazilian and Swedish models has only recently started to become available in the US. They shunned technology they owned and mastered in favour of short-term profits on gas guzzlers. Of course those short term profits were what drove executive bonuses, the same affliction that wrecked the US financial system.
They never supported an effective lobby for comprehensive public health and pension systems in the US. As a result they now carry 11 times more retirees and health beneficiaries on their books than active employees. It is estimated that this adds $2,000 to the cost of every car they build, a cost their foreign competitors do not have to directly meet.
The question is whether the Big Three are too big to let fail, or too big to rescue. In all likelihood it will be one of the priority questions in Barack Obama’s in-tray next January.
Whatever the answer is, it will have to come from Washington, for we have entered a world where investors prefer lending to governments rather than investing in businesses. As US treasury secretary Henry Paulson said last week: “There is no play book for responding to turmoil we have never faced.”
So we have to write a new one.