Republican Leader Presses Compromise as Auto Chiefs Renew Plea

Nov. 19 (Bloomberg) — Senate Republican leader Mitch McConnell pressed lawmakers to expedite $25 billion in previously approved auto loans as U.S. car company executives returned to Congress for the second straight day to plead for aid.

McConnell said loans approved last year to help pay for retooling auto plants to build fuel-efficient cars can be altered to fund auto-company operations.

“This is a proposal which I believe has support from both sides of the aisle and actually has the potential to pass right now and not next year,” the Kentucky Republican said on the Senate floor. “It is the only proposal now being considered that has a chance of actually becoming law.”

Support has waned for a Democratic plan to help the automakers with funds from the recently approved $700 billion bank-rescue fund. That idea is opposed by President George W. Bush and Senate Republicans, making it unlikely there are enough votes to overcome a presidential veto.

General Motors Corp. Chief Executive Richard Wagoner, Ford Motor Co.’s Alan Mulally and Robert Nardelli of Chrysler LLC are testifying today at a House Financial Services Committee hearing after telling a Senate panel yesterday they need $25 billion to keep operating.

“Without fresh capital, we project that GM may not have sufficient liquidity to make it to year end,” Deutsche Bank AG analysts including Rod Lache in New York wrote today in a note to investors.

Operating Cash

GM, the biggest U.S. automaker, said Nov. 7 it may run out of operating cash as soon as this year and will be “significantly short” of its needs by mid-2009 without new money or a turnaround in the auto market. Deutsche Bank said GM’s plight may worsen should “suppliers become uncomfortable with shipping parts on extended payment terms.”

Senator Robert Casey, a Pennsylvania Democrat, said yesterday that he hoped to get an aid plan passed this week, though a vote now on the Democrats’ proposal “would not be successful.” He said he would be open to the Republican proposal.

Automakers “might be willing to go along with” speeding up the Energy Department loans, Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, told reporters after a hearing yesterday. The idea would likely face opposition from House Speaker Nancy Pelosi, a California Democrat, he said.

Democratic Opposition

Senate Majority Leader Harry Reid said yesterday that any plan to use the Energy Department loans for the aid isn’t “going very far in our caucus.”

GM tumbled 33 cents, or 10.7 percent, to $2.76 at 10:29 a.m. in New York Stock Exchange composite trading, while Ford slid 16 cents, or 10 percent, to $1.52.

GM’s 8.375 percent bond due in July 2033 was unchanged at 19 cents on the dollar, yielding 43.89 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Ford’s 7.45 percent bond due in July 2031 fell 4 cents to 22 cents on the dollar, yielding 33.87 percent.

Himanshu Patel, a JPMorgan Chase & Co. analyst in New York, said today in a note to investors that while he still expects the industry to receive some form of financial rescue, “the timing of any such aid is not imminent.”

Congress had planned to spend only this week in a post- election lame-duck session, and Pelosi said she won’t call lawmakers back for a session in December if they fail to resolve automaker aid this week.

`Change Their Minds’

Democrats “may change their minds” on their demand regarding the source of automaker aid as the end of the legislative session looms, Tennessee Republican Senator Bob Corker said.

Senator Carl Levin of Michigan, who helped write the Democratic legislation, urged lawmakers to reach a compromise. “One way or another this week we have to merge these two paths and provide the bridge loans,” he said.

GM’s Wagoner told Dodd’s committee yesterday the U.S. economy would suffer a “catastrophic collapse” if domestic carmakers fail. Three million jobs would be lost within the first year, personal income would drop by $150 billion and government tax losses would total $156 billion over three years, he said.

GM needs $10 billion to $12 billion, according to Wagoner, Ford needs $7 billion to $8 billion, said Mulally, and Chrysler is seeking $7 billion, Nardelli told the panel. Chrysler burned $3 billion in cash in the third quarter and had $6.1 billion remaining at the end of the period, Nardelli said.


GM is the “most-mismanaged of the three, with the most problems of the three,” Maryann Keller, an automotive consultant in Greenwich, Connecticut, said today in a Bloomberg Radio interview.

A first-quarter 2009 bankruptcy of the automakers could cause U.S. gross domestic product to shrink by at least 4 percent as U.S. auto production would slide by 30 to 35 percent, according to an analysis released today by Deutsche Bank economist Joseph LaVorgna. Unemployment would jump to between 8 percent and 8.25 percent, the analysis showed. The rate currently is 6.5 percent.

Senator Richard Shelby of Alabama, the committee’s top Republican, said the panel must determine the long-term outlook of automakers before deciding on the aid.

“Is $25 billion enough?” Shelby said. “Is this the end or just the beginning?” He later told the auto chiefs, “A lot of people think you already failed, that your model has failed.”

When Shelby asked how the loans will be repaid, Nardelli replied, “We will generate profits.”

Dodd told automaker chiefs their compensation packages “are pretty rich” and that they should take steps to voluntarily rein them in since they’re asking for taxpayer aid.

Wagoner got $14.4 million in compensation in 2007, including a salary of $1.56 million, an incentive bonus of $1.8 million and “other pay” of $697,358. He also recorded $6.34 million in stock and stock option awards and an increase in his pension value of $4 million.

Mulally received $21.7 million for 2007, including $2 million in salary, $7 million in bonuses, $11.2 million in stock options and awards and $1.4 million in “other pay.”

Chrysler, which is closely held, hasn’t disclosed Nardelli’s pay.

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