WASHINGTON - Humbled and fighting for survival, Detroit’s once-mighty automakers appealed to Congress with a retooled case for a huge bailout Tuesday, pledging to slash workers, car lines and executive pay in return for a federal lifeline. GM said it wouldn’t last till New Year’s without an immediate $4 billion and could drag the entire industry down if it fails.
General Motors Corp., asking for as much as $18 billion to keep afloat and survive even worse economic storms, painted the direst portrait to date of what could happen if Congress doesn’t quickly step in.
“There isn’t a Plan B,” said Chief Operating Officer Fritz Henderson. “Absent support, frankly, the company just can’t fund its operations.” Without help, he warned, “the company will default in the near term, very likely precipitating a total collapse of the domestic industry and its extensive supply chain, with a ripple effect that will have severe, long-term consequences to the U.S. economy.”
New sales figures underscored the seriousness of the situation. Ford said its November U.S. light vehicle sales tumbled 31 percent, while sales at Toyota, Japan’s No. 1 automaker, fell 34 percent despite its extension of zero-percent financing on many vehicles.
Democratic leaders have said they might call Congress back next week to pass an auto bailout — but only if the carmakers’ blueprints show the Big Three have reasonable plans to stay viable with the help.
Again, the problem for the Detroit Big Three automakers is that for twenty years, they have been building big, gas-guzzling SUVs for the American market, while refusing to invest in smaller, hybrid, fuel efficient cars, that the Japanese automakers have been working on. When gas prices skyrocketed up to almost $5 a gallon, American consumers dumped the gas-guzzling SUVs for the hybrid Toyota Prius. Now with the U.S. economy in a serious recession, American consumers have stopped buying cars altogether. That is why U.S. auto sales have plunged 37 percent in November, to its worst level since 1982. General Motors year-to-year U.S. auto sales plunged 41 percent, Chrysler's LLC's year-to-year U.S. auto sales dropped 47 percent and Ford's U.S. auto sales dropped 31 percent in November.
The Japanese auto market also did not fare too well. According to MSNBC, "Toyota’s sales tumbled 34 percent, while Nissan’s dropped 42 percent and Honda’s fell 32 percent." This is a broad-based decline in both domestic and import auto sales in the U.S. market. However, those American consumers who are buying cars, are probably looking for more fuel efficiency cars, considering the shock of the high energy and gas prices from a year ago. These consumers are buying up the hybrid Toyota, Nissan, and Honda cars.
Graph showing declining U.S. auto sales for the major auto makers. From the New York Times.Going back to the Detroit Big Three auto woes, General Motors is asking for an $18 billion government bailout package. When the Detroit Big Three automakers first asked for the original $25 billion auto bailout package, they were rebuked by Congress, demanding that the automakers come back with a detailed package of how they would spend the government bailout money. General Motors has come back with a plan on how to spend the bailout money. According to the New York Times:
But G.M., the world’s largest automaker for decades, said Tuesday that it was in such dire straits that it would deeply cut jobs, factories, brands and executive pay as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. G.M. also promised that it could be competitive on labor costs with Toyota by 2012.
G.M.’s president, Frederick A. Henderson, said the company would be insolvent if it did not receive federal assistance, including an infusion of $4 billion in cash before the end of the year.Summary of Detroit automakers' proposals for retooling their business lines in return for the government bailout money. From the New York Times.
Of course, the situation isn't looking so good for both Ford or Chrysler. From the New York Times:
Chrysler, the smallest of the Detroit companies, is in similar difficulty, and asked Congress for a $7 billion loan before the end of December to ward off a potential bankruptcy.
Ford said in its plan that it could survive through 2009 with its current cash levels and by tapping its credit line with private banks, and that it could return to profitability by 2011. Even though it is better prepared for the downturn, Ford said it wanted $9 billion in loans to draw upon if necessary.
All totaled, the Detroit automakers are now asking for $34 billion in government bailout money for this month. Perhaps Congress should pull the $34 billion from the $700 billion Wall Street bailout fund--the Wall Street banks are simply using the taxpayer money to shore up their own balance sheets, purchase other banks, or are throwing the taxpayer money into the bad subprime derivative crap they have been gambling with over the past decade or so. None of that money is going in to renegotiate loan contracts for American homeowners, whose subprime mortgages are underwater, or are about to see their homes foreclosed. Then again, Wall Street would cry foul.
One more interesting auto story to talk about. It appears that the United Auto Workers Union is realizing just how dire shape the Detroit Big Three automakers are in, and the UAW is willing to renegotiate their contract terms with the Detroit Big Three:
WASHINGTON - United Auto Workers President Ron Gettelfinger said Wednesday that the union is willing to change its contract and will delay billions of dollars in payments to a union-run health care trust in an effort to help the struggling Detroit Three automakers.
Gettelfinger also said the union will modify the jobs bank, in which laid-off workers are paid up to 95 percent of their salaries while not working, but he did not give specifics.
“We’re going to sit down and work out the mechanics,” Gettelfinger said at a news conference after meeting with local union officials. “We’re a little unclear on some of the issues.”
One local union member who was in the meeting said the changes to the jobs bank would nearly eliminate it. The member asked not to be identified because the details had not been made public.
Gettelfinger stopped short of saying the union would reopen contract talks with General Motors Corp., Chrysler LLC and Ford Motor Co. but said it would be willing to return to the bargaining table to change some terms.
I guess the UAW has suddenly gotten scared of a potential GM bankruptcy, and how the job losses, and non-payment of pension and health care benefits to UAW workers and retirees would devastate the autoworkers union. So the UAW is willing to work with the Detroit Big Three automakers in order to keep their operations running through this recession. We'll have to see what new terms, or contracts, will come from the Detroit automakers and the UAW.
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