Congress to Detroit: What's Your Plan?

If the Big Three automakers can't come up with a radical plan that will satisfy Congress, they can kiss the $25 billion bailout goodbye

The Ford Flex rolls off the assembly line at an assembly facility in Oakville, Canada. Simon Hayter/Getty Images

By David Welch

After going to Capitol Hill and begging for a $25 billion bailout, the three chief executives of General Motors (GM), Ford (F), and Chrysler have been sent away with a request for a "plan" by members of Congress. And if they want to get the taxpayers' money they so desperately need, they had better come up with something good.

The problem is, there's not a lot they can say that Congress, specifically Senate Republicans, wants to hear.

Many people, inside and outside the industry, believe the Big Three need to make wrenching cultural and strategic changes if they are to survive. One is former Treasury Secretary Paul H. O'Neill, who sat on the GM board from 1993 to 1995. "This is not going to work," O'Neill says, "unless there is 100% change [in Detroit]."

Which brings us to the question: How can government give Detroit a bridge loan while ensuring that the companies do more to be competitive? While the automakers offered nothing new in Washington, GM sources say President and Chief Operating Officer Frederick A. "Fritz" Henderson has talked almost daily with United Auto Workers President Ron Gettelfinger, discussing different things the two sides can do to cut costs. For its part, Ford says it can last into later next year, and Chrysler has been seeking a buyer.

UAW Calls for Concessions

In the meantime, government, labor, and the automakers need to come up with a plan that Congress will buy. Otherwise, bankruptcy is a possibility. If that happens, buyers would be turned away and revenue would plummet, Henderson said in an interview on Nov. 18.

But here's the tricky part. According to one Big Three lobbyist, Democratic congressional leaders don't want a plan that slashes jobs and cuts union benefits. Republicans think that's a great idea. With no clear direction from Washington yet, here's what a smart bailout package might look like. Let's start with the union. There's no question the UAW has made huge concessions over the past three years. The union cut more than 100,000 jobs and agreed to a new $14-an-hour wage for new workers (half the rate of veteran employees), as well as a health-care deal that will make GM much more competitive with Toyota (TM). Detroit will reap that savings mostly in 2010.

But there's a big problem. None of the companies can hire new workers because they have to retire the veterans first. Plus, sales are too low to justify new hiring so none of them have been able to realize the savings, says Henderson. For GM, he says the company can find its breakeven point even at sales rates as low as 11 million or 12 million vehicles a year, but it will take time and any new action must be negotiated.

To see these companies through to 2010—and send the message to Congress that management and the union are serious about helping to build the bridge—the UAW could agree to cut to Toyota-level pay and lower benefits at least until the loans are repaid. The good news is that UAW chief Gettelfinger indicated at a news conference on Nov. 20 that he'd be willing to do something. "The UAW is at the table," he said. "We welcome all stakeholders to make concessions."

White-Collar Perks Under Scrutiny

So the union is prepared to make cuts if Congress demands it. UAW workers in domestic plants make $29 an hour while Toyota workers make at most $25.

At least 110 banks have requested more than $170 billion from the Treasury Department's rescue fund, and many more are expected to have submitted applications before Friday's deadline.

The requests would come from the $250 billion the Treasury set aside from the $700 billion fund to purchase stock in banks.

Analysts at Keefe, Bruyette & Woods estimated that 62 banks have received full or preliminary approval from the Treasury for $173 billion from the Troubled Asset Relief Program. The government said Monday that American International Group Inc. also would receive $40 billion from the program.

That $40 billion, however, won't come from the $250 billion set aside for the banks.

Another 48 banks have applied for about $6.5 billion, according to the Keefe, Bruyette & Woods report. Several banks that have filed applications said they haven't yet decided whether to accept any funds.

The tally doesn't include requests from four life insurance companies that are seeking regulatory approval to purchase savings and loans in order to become eligible for government funds.

One of those companies, Hartford Financial Services Group Inc., said it would be eligible to receive between $1.1 billion and $3.4 billion if its purchase of Federal Trust Bank is approved. Generally, only banks and savings and loans are eligible for direct investment from the TARP. AIG is the only nonbank company to receive such funds so far.

The total also doesn't include American Express Co., which said Monday it has restructured as a bank holding company, reportedly to seek up to $3.4 billion in funding.

Publicly-held banks were required to file their applications by Friday. Private banks have been given an extended, though unspecified, deadline.

Industry sources expect a flurry of last-minute applications will be filed Friday. Treasury spokeswomen on Friday wouldn't disclose how many applications have been filed or how much has been requested.

Nine large banks, including Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and JPMorgan Chase & Co., received $125 billion last month.

Neel Kashkari, interim director of the bailout at Treasury, told lawmakers Friday that about 20 more banks would receive funds that day.

The Treasury has "approved dozens of applications from banks across the country," he said.

Several banks announced Friday that they have received funds under the plan, including Huntington Bancshares Inc., Comerica Inc. and KeyCorp.

NEW YORK (Reuters) - Morgan Stanley (nyse: MS - news - people ) plans to cut 10 percent of staff in its institutional securities unit and 9 percent in asset management, it said Wednesday, as it copes with a deteriorating economy, disrupted capital markets and falling asset values.

The cuts are in addition to roughly 4,800 jobs eliminated since the middle of 2007 by what was once Wall Street's second-largest investment bank.

It was not immediately clear how many employees will be affected by the latest cuts, or over what time period. A spokeswoman declined to comment. Morgan Stanley employed 46,383 people as of Aug. 31, according to its website.

The change requires it to lower leverage, potentially cutting profitability. The bank has slashed its asset base to below $800 billion from $987 billion at the end of August.

"We're in a period of tremendous dislocation," Co-President James Gorman said at a Merrill Lynch (nyse: MER - news - people ) financial services conference. "We're very mindful of the environment that we live in at the moment, and we will continue to rationalize headcount and costs accordingly."

Goldman Sachs Group Inc (nyse: GS - news - people ), Morgan Stanley's main rival, also became a bank holding company in September. It set plans last month set plans to reduce 10 percent of its staff, or nearly 3,300 jobs.

In late morning trading, Morgan Stanley shares fell 80 cents, or 5.7 percent, to $13.28 on the New York Stock Exchange. They began the year at $53.11.

NO QUICK FIXES

Gorman said the bank holding company structure will allow Morgan Stanley to tap a wider array of funding sources.

He said the company plans to bulk up in retail banking, including through "targeted" acquisitions, and preserve or expand operations in capital raising, cash trading, commodities, corporate credit, equity derivatives, foreign exchange, mergers and acquisitions and rates.

On the other hand, he said Morgan Stanley plans to "reshape" operations in prime brokerage, proprietary trading, principal investments and commercial real estate origination,

In October, Morgan Stanley raised $9 billion from Japan's Mitsubishi UFJ Financial Group Inc, and received $10 billion from the U.S. government's bank bailout plan.

Chief Financial Officer Colm Kelleher said the infusions leaves Morgan Stanley "well-capitalized, with excess capital."

Yet he said the company still faces "incredibly dislocated markets," including "gridlock" in efforts to sell or dispose of troubled assets. "I'm not sure who is buying it," he said.

He also said Morgan Stanley aims to fund half its assets with equity, long-term debt and deposits, up from 26 percent at the end of August.

Many other companies are also seeking more stable funding, and credit card issuer American Express Co (nyse: AXP - news - people ) this week also became a bank holding company.

"There are no quick fixes," Kelleher said. "There is no magic bullet that will suddenly solve the deposit question for institutions that are moving over from wholesale funding." (Additional reporting by Juan Lagorio; editing by Jeffrey Benkoe)

President-elect Barack Obama has laid out a broad plan to deal with the economic crisis, promising to enact a fiscal stimulus to promote job growth in the early days of his presidency if Congress does not get to it within the next few weeks.

"Immediately after I become president, I will confront this economic crisis head-on by taking all necessary steps to ease the credit crisis, help hardworking families, and restore growth and prosperity," Obama said, following a meeting with a 17-member brain trust of key economic advisers.

He said that if lawmakers don't act on a stimulus package quickly, "it will be the first thing I get done as president of the United States."

Speaking to a packed hotel ballroom full of reporters in Chicago, and flanked by his all-star cast of advisers, Obama outlined four broad points to dealing with the economy. First, he wants to see middle-class rescue plan that creates jobs and extends unemployment benefits. Second, he reiterated that the financial crisis is global and his administration will work to contain it.

Third, he said his administration will review the current plan to stabilize financial markets, but he also wants to see the Treasury work closely with other government agencies to make sure families stay in their homes. Finally, Obama said he will continue to move forward with a plan that will create jobs and focus on health care, clean energy and middle-class tax relief.

Obama said he has "made it a high priority" for his transition team to help the ailing auto industry, but he reminded the crowd that the U.S. only has one president at a time. He is scheduled to meet with President Bush at the White House Monday.

In Pictures: Who's Shaping Obama's Economic Agenda?

The meeting came the day the government announced unemployment has reached a 14-year high of 6.5%, with 240,000 jobs cut in October, up from 6.1% in September and higher than the worst point of the 2001-03 recession. On Thursday, major U.S. retailers reported double-digit sales declines for October.

Selecting the economic and financial advisers to steer him through an undoubtedly rocky first few months is the most important decision facing the president-elect. Of paramount importance is who will succeed Treasury Secretary Henry Paulson, a Wall Street veteran who is largely responsible for the government's economic rescue package--which the Obama administration will inherit in just over two months.

The next Treasury secretary inherits a badly shaken financial system, a mandate to rein in Wall Street's excesses and hundreds of billions of dollars' worth of risky new programs ginned up by the current president to stop the bleeding.

Washington insiders say it's likely Obama will move quickly to name Cabinet nominees so that they can move through the Senate confirmation process quickly and hit the ground running in January. Obama wants to avoid the experience of President Bill Clinton, who waited until relatively late in his transition period to fill Cabinet posts. So far, Obama has made only one appointment, Rep. Rahm Emanuel. D-Ill,, a fellow Chicagoan, as his White House chief of staff.

Some of the people thought to be under consideration for the Treasury post are scheduled to attend the meeting Friday, including former Treasury secretaries Lawrence Summers and Robert Rubin, business professor and former head of the Council of Economic Advisers Laura Tyson and former Federal Reserve Chairman Paul Volcker.

Warren Buffett, the billionaire chief executive of Berkshire Hathaway (nyse: BRK - news - people ), whom bookmakers had given short odds for the Treasury post before the election, will phone in.

Conspicuously absent from the list of attendees was Timothy Geithner, president of the Federal Reserve Bank of New York. He, along with ex-Treasury Secretary Summers, are thought to be the front runners for the job. Other names being floated, with longer odds, are JPMorgan Chase (nyse: JPM - news - people ) Chief Executive James Dimon, Merrill Lynch (nyse: MER - news - people ) executive and Wall Street veteran John Thain and New Jersey Gov. Jon Corzine, a former Goldman Sachs (nyse: GS - news - people ) executive.

Obama's task in choosing a Treasury secretary is complicated by the situation on Wall Street. The government is taking a direct $250 billion stake in the U.S. banking system by injecting banks with capital. Because all of the nine major U.S. banks, as well as dozens of regional and smaller banks, are participating, appointing a banker could raise criticism that Obama is putting a fox in charge of the hen house.

The transition team has thrown a spotlight on the high-profile gathering because it wants to show that Obama has a steady hand on the economy, that he's listening to all sides and that he's seeking advice from well-respected leaders with significant experience in government and business.

Others in attendance included TIAA-CREF President and Chief Executive Roger Ferguson, who is a former vice chairman of the Federal Reserve's Board of Governors. With his recent central bank experience (1997-2006), he can give Obama valuable insight into how financial regulation should be restructured--a goal shared by lawmakers on both sides of the aisle.

Another valuable ally in this role is William Donaldson, a former Securities and Exchange Commission chairman and former chairman of the New York Stock Exchange.

Not about to be criticized that it's listening only to Wall Street, the transition team is also seeking the input of David Bonior, a former Michigan congressman and an ally of labor groups, who has been mentioned as a potential secretary of labor. Michigan Gov. Jennifer Granholm can provide a voice for the troubled automakers in her state. Also slated to attend, Bill Clinton's former Labor Secretary Robert Reich, whose Labor Department implemented the Family and Medical Leave Act and the Pension Protection Act.

Of course, representatives from the business community are also on Obama's panel. They include Xerox (nyse: XRX - news - people ) boss Anne Mulcahy, Time Warner (nyse: TWX - news - people ) Chief Executive Richard Parsons and Google (nasdaq: GOOG - news - people ) CEO Eric Schmidt.

The tech community has praised Obama as the first "tech president" and, if he's seeking advice from Silicon Valley, few can offer as much insight as Schmidt.

Obama said he believes that the election of a new president can inspire confidence in the economy. "I'm confident that a new president can have an enormous impact. That's why I ran for president."

In what would be a first for college sports on television, the University of Texas is planning to launch its own 24/7 sports network, signaling a further move toward niche programming on cable and satellite.

Officials from the University of Texas have teamed up with the college sports unit of IMG Worldwide, a talent representation and licensing company, to negotiate distribution on Time Warner Cable (TWC), Comcast (CMCSA), and AT&T (T) in Texas and possibly in bordering states, says Pat Battle, a senior vice-president for IMG College. IMG has an agreement with the Austin (Tex.) school, which is part of the Big 12 Conference, to oversee its trademark licensing, marketing, and multimedia rights.

If the channel, which is tentatively being called the Longhorn Sports Network, gets off the ground, it would be the first time a university has created its own sports network seeking broad distribution. "Texas has such an incredible fan base and such great content through all its sports programs," says Battle, "that we feel a network like this will have a real following." A spokesman for DeLoss Dodds, the UT athletics director, said he was unavailable for comment.

College Sports' TV Expansion

While the network will show a range of sports, from baseball to track and field, it currently does not have the rights to show all of Texas' enormously popular football games, which raise doubts about what kind of an audience the network could attract.

Sports are a huge draw in Texas, with college athletics and music as the main attractions in its largest university's hometown. With a storied history in football and the largest university sports budget in the country, at more than $120 million, Texas reportedly operates one of the most profitable university sports programs. The University of Texas football team is currently ranked No. 4 nationwide, having been knocked out of the top spot by a Nov. 1 loss to Texas Tech. Texas plays unranked Baylor at home on Nov. 8.

Over the past decade, college sports has expanded its reach greatly on television, moving from the broadcast networks to cable outlets like ESPN, to regional sports networks like Fox, to college-themed networks like CBS College Sports and ESPNU, to, more recently, networks established by college conferences themselves.

Now Texas is taking the lead to break out on its own to capture revenues exclusively. But is it economically feasible to support a university-only sports network, particularly when it has become much harder to get the necessary distribution on cable to make a profit? "I don't know how far down the tree you can take this thing," says Mike Trager, founder of TV sports consultancy The Trager Group. "The revenue pie for college sports stays essentially the same, but they keep slicing it up. The question for Texas is, 'Can you get the revenue and distribution for that specific of a niche?'"

Texas Football Telecasts

Even as sports offerings have grown on TV, cable and satellite operators have become more resistant to paying for the escalating rights to show sports, their most expensive category of programming. When the Big Ten Conference tried to get distribution deals for its network in 2007, it was met with huge resistance, particularly since it wanted to charge distributors a dollar a month per subscriber (ESPN charges about $3). Cable and satellite operators balked until the Big Ten lowered its price to about 70¢. The Big Ten Network now has distribution to about 35 million homes. Comcast offers it on its expanded basic service in those states with Big Ten schools and on its digital sports tiers elsewhere.

IMG's Battle says Texas would seek distribution only on digital sports tiers, for which subscribers pay an extra fee. The university has not reached any deals with distributors yet, but Alex Dudley, a spokesman for Time Warner Cable, with 1.8 million subscribers in Texas cities like Austin, Dallas, and San Antonio, called the talks "very productive" thus far. A broadband offering of the network or of some programming on the network is under consideration as well, says Battle.

A big sticking point for distributors is knowing which sports and which games the university network will be able to show—mainly the super-popular Longhorn football games. The Big 12 has rights deals for broadcast television with ABC (DIS) and for cable with Fox Sports Networks (NWS), so many of the Texas football games air on those outlets. Fox sometimes sublicenses those rights so Big 12 games also air on other cable outlets, such as ESPN and Versus. Battle says he and university officials are currently in talks with Fox about buying back rights to some Texas games. As it stands now, the university's sports network would be able to air as many as four football games, says Battle. Clearly, they wouldn't be the most competitive matchups since ABC and Fox would want to keep those. The university could offer Fox, or the cable outlets, an equity stake in the network as an incentive to complete the ongoing deal talks. Battle says that hasn't been ruled out as a possibility.

Battle, whose father was the successful University of Tennessee football coach Bill Battle, is not deterred by the challenges. He's hoping the network will launch next fall and perhaps become a model for other large universities. Of course, Battle is not a disinterested party. IMG College represents the rights for 15 Division I universities, including the University of Michigan in Ann Arbor, where college sports might just be as much of a religion as it is in Austin.