Ford, Chrysler, General Motors: Facing The Future

Motoring Channel Staff - 19/November/2008

Washington, America — Today the heads of the big three Detroit automakers met with the Senate Banking Committee in the US Congress to talk about a potential financial bailout.

The respective chiefs of the big three, GM's Richard Wagoner, Ford's Alan Mulally, and Chrysler's Robert Nardelli all testified today in order to try and ease the financial strain their companies face, as all three car makers have seen monthly sales drop rapidly in their domestic market and are chewing through their cash reserves at a rapid pace.

Car Makers State Their Case

During the hearing, GM's Richard Wagoner replied tersely to the politicians questioning him on a potential bailout: "This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse."

Many American politicians don't see it this way however, and some senators view the big three automakers as stubborn old men running flawed, out-of-date businesses that need complete restructuring.

GM is looking for around $12 billion in tax-payer funded handouts and Ford and Chrysler are aiming for $7 billion each, but the chances of this happening in 2008 are now slim. 

The pleas from the chief executives of the big three U.S. automakers have caused concern with some members of the Senate Banking Committee who questioned the CEOs over how the funds would be used and, specifically, if the money would serve to change their failed business models or simply maintain them.

GM's Richard Wagoner fired back that the automotive industry's woes were the result of the global financial crisis, but senator Robert Menendez had this to say in response: 

"I voted for [the previous] $25 billion to help you restructure. But when I hear you not being able to give us how this $25 billion will take you to that place in time in which you will be able repay the taxpayers of the country . . . well, it's a difficult proposition."

The previous funding package was approved earlier in 2008, to allow the big three to retool their factories to produce more fuel-efficient vehicles.

Christopher Dodd, the chairman of the committee, said that the car companies were "seeking treatment for wounds that were largely self-inflicted".

Beyond The Bailout

Some senators on the committee, including Republican senator Bob Corker, have flagged the idea of the big car companies being pushed into a preordained bankruptcy and then restructured with government help. 

The head of General Motors, G. Richard Wagoner Jr., bristled at this suggestion and called it "pure fantasy" adding that bankruptcy for even one of the big three automakers would cause damage to the USA that "would ripple across this economy like a tsunami we haven't seen."

"It seems to me like a huge roll of the dice," said Wagoner, saying that "the cost [of bankruptcy] would be catastrophic" in every respect (tax revenue, lost jobs etc).

But even after meeting with Congress and pleading for a bailout package, a financial salve to ease the pain is still eluding the big three automakers from Detroit.

The most likely scenario is that they'll have to fend for themselves until December or more likely January in 2009 when American senators will vote on the bailout plan.

Avoiding Bankruptcy

Ford recently sold assets in the form of its Mazda holdings, raising $540 million. It sold 20% or one fifth of the company, which drops its controlling share in the Japanese automaker from 33 to 13%.

Detroit's big three automakers are all scrambling to raise finances to avoid bankruptcy as sales droop and one method may be the selling of other assets such as factories and manufacturing plants.

A report in the 21st Century Business Herald, a Chinese newspaper, quotes an official from the Ministry of Industry and Information Technology (which governs China's car industry) as saying car companies Dongfeng and SAIC are looking at the assets of Chrysler and General Motors.