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LCT Magazine
Posted on December 3, 2008

Ford CEO Worries Detroit Rivals Won't Survive

WASHINGTON, D. C. - Ford Motor Co. Chief Executive Alan Mulally said Wednesday he was increasingly worried about the fates of General Motors Corp. and Chrysler LLC after Detroit's Big Three submitted detailed plans to secure up to $35 billion in government-backed loans.

In an interview with The Wall Street Journal in Washington, Mr. Mulally said he was "very concerned" about the financial health of GM and Chrysler after the auto makers told Congress they needed the immediate infusion of cash to survive.

As part of a renewed bid for a financial rescue, GM said it needs an immediate injection of $4 billion to stay afloat until the end of the year and a total of $18 billion in loans to return to viability. With a dwindling pot of cash, Chrysler is seeking $7 billion in loans to help it pay bills coming due as soon as the first quarter of 2009.

Mr. Mulally traced back his deepening worry to last month when GM publicly questioned whether it could continue to be a "going concern" without access to quick cash. Testifying before Congress on Nov. 18, GM CEO Rick Wagoner offered a more dire assessment, saying the loan package for the auto makers is needed to save the "U.S. economy from a catastrophic collapse."

Compare how the auto makers presented their cases to Congress, on their second attempt to win support for $25 billion in government loans.

"Each revelation by our competitors has been of growing concern," Mr. Mulally said Wednesday.

Representatives at GM and Chrysler were not available for immediate comment.

Ford is seeking a $9 billion line of credit from the government, though it adds it may not need to tap it. According to the 36-page plan it submitted to Congress Tuesday, the company said it will only need to access the line of credit if the economy worsens or one or more of its competitors fail and disrupt a joint supplier network.

Mr. Mulally said he is aware of suppliers who are now demanding shorter payment terms from auto makers, including cash-on-delivery. "We have a very delicate supply base right now."

He offered no details and he wouldn't say whether these demands are coming to Ford or whether the suppliers are tightening terms on GM and Chrysler. He also declined to venture how widespread the new terms could be.

The Big Three last month appealed to Congress for $25 billion in low-cost loans to carry them through the downturn in the economy and one of the worst auto sales slumps in decades. But lawmakers were unconvinced that the three had clear restructuring plans to return to profitability and told them to come back by Dec. 2 with more details on how they would use taxpayer funds to "become viable."

Mr. Mulally also said it was positive sign that leaders of the United Auto Workers union are close to signing off on changes to the 2007 labor contract with Detroit's three auto makers. Changes may include relaxing job-security provisions and push back the date on when a new health-care trust becomes active.

Many in Congress had been critical of the high labor costs Detroit's Big Three have compared with their Japanese competitors operating in the U.S.

Speaking about his upcoming testimony before Congress on Thursday and Friday, Ford's chief executive said he was enthusiastic to demonstrate how different his company is from its competitors. He also admitted Ford learned a lot from the skewering Mr. Mulally received for traveling to Washington on a corporate jet and the size of his multimillion-dollar pay.

The company now plans to sell its five aircraft and Mr. Mulally's $2 million salary will be reduced to $1 if Ford accesses government loans. Mr. Mulally arrived in Washington this time inside a Ford gas-electric hybrid SUV.

"We are a in a different place" than other auto makers, Mr. Mulally said. "We believe we have sufficient liquidity to get through this recession. But if the economy continued to deteriorate and the industry continued to deteriorate, then even Ford might have to need a bridge loan also."

As for the cold shoulder that Congress gave the auto makers last month, Mr. Mulally said Ford and its competitors were simply not ready for the follow-up questions posed by members of Congress. Mr. Mulally had expected the hearings to focus solely on the ailing health of the U.S.-based auto sector.

"We were not prepared for that next round of discussions," he said. Now, Mr. Mulally added, they are.

Source: Wall Street Journal

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