Detroit's $ 25 Billion Fast-Track Bailout

Detroit's
$25 Billion
Fast-Track
Bailout

Automakers' desperate plight is speeding along a rescue from Washington, with for now
no plans for hearings

• Plus: GM's Crippling Burn Rate

Market Info

The incoming Obama Administration is determined to help the U.S. auto industry survive the deepening recession. And with General Motors, Ford, and Chrysler hanging on by threads, there is little pressure so far to have auto executives give something in return, except perhaps a promise to preserve jobs. The only questions that remain, say those close to and on the President-elect's transition team, is how the help materializes—and when.

Obama said in remarks at a press conference Friday, Nov. 7: "I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States. I have asked my team to explore what we can do under current law and whether additional legislation will be needed for this purpose."

Michigan Governor Jennifer Granholm, who is a member of Obama's Transition Economic Advisory Board, said in a conference call with reporters on Friday that the President-elect wants to sit down with the chief executives of the auto companies "immediately," and wants to explore the best way to get the companies the help they need. But there is no plan for congressional hearings on the bailout.

On Ford's (F) Friday conference call to discuss its $2.9 billion operating loss for the third quarter (BusinessWeek.com, 11/7/08), CEO Alan Mulally said he would be willing to discuss granting stock or stock warrants to the U.S. government in return for loans. However, he added, no details of such an equity stake in the automaker had been discussed.

The Far Side of the Recession

Obama's remarks came a day after a highly publicized meeting between executives including GM CEO G. Richard Wagoner Jr., Chrysler CEO Bob Nardelli, and Mulally, and House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.). There, the Detroit execs specifically requested a bridge loan of $25 billion to help get their companies, as well as some of their suppliers, through the recession. The requested loans would have few strings attached, unlike $25 billion in loans coming from the Energy Dept., which are targeted specifically toward retooling plants and offsetting companies' investments in more fuel-efficient vehicles.

"The President-elect wants to find the best way to get bridge loans to the industry and determine what it is a bridge to," said Granholm.

That, of course, is the $25 billion question, given the recent money-losing record of the Big Three. General Motors (GM) on Friday reported a $4.2 billion third-quarter loss and said that without help it will run out of cash next year (BusinessWeek.com, 11/7/08). Previously, GM was advocating using government loans to help acquire Chrysler. The automaker said Friday, though, those talks are on hold. Now GM is simply focusing on its own survival.

Granholm said linking aid to the merger was politically untenable. "Everybody was leery of providing loans to do a deal that would result in a lot of job loss," she said.

According to the governor, there are two likely scenarios to help the auto industry before Obama takes office in January. One is an amendment to the $700 billion financial rescue package passed in October by Congress and signed by President Bush. Treasury Secretary Henry Paulson said on Nov. 3 that the Bush Administration's reading of the law did not include aid to carmakers, so an amendment may help if it can be passed.