Detroit Big 3 Hopeful New President Will Loan Them $50 Billion

LCT Staff
Posted on November 6, 2008

WASHINGTON, D.C. - Detroit's Big Three automakers, facing their worst financial crisis in decades, are counting on President-elect Barack Obama to deliver on his promise to help.

Obama confronts a domestic auto industry in turmoil and the prospect that one or more of the Big Three could run out of money by next year without government assistance. Obama has endorsed providing $50 billion in direct government loans to automakers. And last week, he vowed that, if elected, he would "immediately" meet with the CEOs of the Big Three and United Auto Workers President Ron Gettelfinger.

It is not clear when that meeting might take place, but the CEOs and Gettelfinger are expected to meet with House Speaker Nancy Pelosi and other key Democrats today in Washington to discuss the weakening auto industry. In a radio interview Wednesday, Pelosi said Congress was considering providing additional financial assistance to the Big Three. She met with key Democrats about the issue Monday.

The automakers are seeking federal aid to help them weather the worst auto market in decades and a credit crunch that has shut down their access to cash.

U.S. Sen. Carl Levin, D-Detroit, who spoke Wednesday with Jason Furman, Obama's senior economic adviser, said government aid to automakers is at the top of Obama's agenda.

"I'm very optimistic that we're going to have a fighter in the White House for manufacturers, and that's what we need," Levin told reporters in Detroit.

Help could come from $25 billion in "bridge financing" the companies are seeking in addition to a $25 billion low-cost loan program Congress funded in September to help automakers and suppliers pay for retooling older factories to build more fuel-efficient vehicles.

Congress set a Nov. 30 deadline for the Energy Department to write the rules for the retooling loans, but Energy released interim rules late Wednesday.

Automakers have until Dec. 31 to apply for the first wave of loans, which means they likely would not get any money until sometime in 2009. The rules also restrict the money to new initiatives and could not be used to meet immediate cash needs.

The dire situation facing the automakers will become even clearer on Friday, when GM and Ford Motor Co. are expected to report substantial third-quarter losses and announce new cuts to curtail losses. The companies collectively lost $24 billion in the second quarter.

"At this point they are looking forward to a future that's a pretty grim one," said John Engler, president of the National Association of Manufacturers, adding that policymakers have to act fast. "Nature is going to take its course before (Obama) even takes office in January."

Dave McCurdy, president of the Alliance of Automobile Manufacturers, which represents Detroit's Big Three automakers, Toyota Motor Corp. and six other automakers, said Obama understands the crisis facing the industry.

"The new administration has to help turn confidence around and to address the immediate short-term challenges," McCurdy said. "This was a tsunami to hit automakers."

The struggling auto industry also faces a more liberal Congress, with at least 19 new House Democrats and five new Senate Democrats elected on Tuesday. The first sign of possible change was the decision by Rep. Henry Waxman, D-Calif., on Wednesday to challenge the longtime head of the House Energy and Commerce Committee, Rep. John Dingell, D-Dearborn, for his chairmanship.

Dethroning Dingell would be a titanic blow for the Big Three, which have long relied on the Dearborn Democrat to fight off many regulatory measures.

Some of those battles involved Obama, who has been at odds with Detroit on environmental issues. He's called for doubling fuel efficiency standards to a fleetwide average of 50 mpg by 2027 and has said he would grant California and at least 13 other states a waiver from federal rules that would allow them to impose their own tailpipe emissions limits that would be stricter than the federal standards.

Early in his campaign, Obama repeatedly tussled with automakers. In a scathing speech to the Detroit Economic Club in May 2007, he criticized them for lobbying against higher fuel efficiency standards and paying bonuses to top executives even as they lost money and cut thousands of jobs.

Subsequently, however, Obama bought a Ford Escape hybrid and began reaching out to automakers and the UAW. He also pledged a more aggressive effort to get plug-in and fully electric vehicles on the roads along with requiring all vehicles to be flex-fuel models -- something foreign automakers have strongly opposed.

Automakers are still likely to spar with an Obama administration on fuel economy, but their concern now is survival.

On Tuesday, Ford Executive Chairman Bill Ford Jr. reached out to Obama by inviting him to Detroit for a national summit next June. "The American auto industry, which accounts for millions of jobs across all 50 states, also is under significant pressure," Ford wrote.

GM issued a statement praising Obama's win, saying the company "welcomes President-elect Obama's pledge to support our nation's domestic auto industry in its ongoing efforts to transform its business and develop new technologies. This support comes at an especially critical time as our industry confronts one of the most difficult economic periods in our nation's history."

Cerberus Capital Management LP Chairman John Snow told CNBC Wednesday that Obama must work to prevent the collapse of the auto industry. "What we need is to make sure that a vital industry like autos ... which is such a big part of the overall economy, doesn't lead us into a deeper and harsher downturn," Snow said Wednesday in an interview on CNBC.

Cerberus, which owns 80.1 percent of Chrysler LLC, and GM have been in talks over a possible GM-Chrysler merger. The main hurdle is obtaining financing,

Van Conway, a turnaround expert with Conway, MacKenzie and Dunleavy in Birmingham, predicts Congress will act quickly.

"The Democrats are going to give them money," he said. "The question is how quickly they are going to move because I think Rome is burning."

Source: Detroit News

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