Chastened executives from the Big Three US carmakers will return to Washington this week in a bid to convince lawmakers that their companies are worth saving with 25 billion dollars in government-backed low cost loans.
They will be armed with proof that they are working to restructure their stumbling businesses and will be able to emerge from the current deep slump as viable companies focused on developing new technology to build more environmentally friendly vehicles. Further job cuts and plant closures could be announced and the United Auto Workers union could be asked to make additional concessions to help the companies staunch their hemorrhaging balance sheets.
While the "scales (are) tipping in favour of a bailout" the automakers will have to present "convincing" and "relatively aggressive" plans if they are to sway skeptical lawmakers, Deutsche Bank analyst Rod Lache wrote in a research note last week. "Winning over skeptics will require US automakers to submit plans that demonstrate an ability to achieve cash flow breakeven at relatively low demand... and conservative market share levels," Lache wrote.
"For GM and Ford we believe that this is possible, but that it will require significant structural changes - ie brand elimination, re-negotiated labour contracts - that would enable significant reductions to North American fixed costs."
General Motors has warned that it could run out of cash as early as January and some critics in Congress have said the world's second largest automaker should be allowed to fail. Chrysler and Ford are also fast running out of cash and analysts have warned that a bankruptcy at any automaker would cripple the highly-integrated industry and lead to the loss of three million jobs.
President-elect Barack Obama said last week the US auto industry was too vital to disappear but vowed no "blank check" for a government bailout without long-term changes from the Detroit manufacturers.
"What we should expect is that any additional money that we put into the auto industry is designed to assure a long-term sustainable auto industry and not just kicking the can down the road," Obama said at a press conference Monday. The auto giants said their problems are not of their making, arguing they have been hit by falling demand amid the financial crisis just as years of painful restructuring was beginning to bear fruit.
Critics say they were left flat footed by the failures of managers who failed to develop fuel-efficient small cars and were content to let their iconic brands crumble in the face of competition from foreign transplants whose US plants operate at much lower costs. And there has been a public backlash against pumping more government money into bailing out failed businesses, said David Myhrer an auto analyst with Morpace Inc. "They see both the industry's high paid executives and its UAW employees as out of touch with the reality faced by most Americans," Myhrer told AFP.
"They oppose government intervention and feel that the companies should be held accountable for their decisions, just as consumers are responsible for their own." The Big Three will deliver a summary of their restructuring plans to lawmakers on Tuesday, the same day they are expected to report another brutal drop in monthly auto sales.
The chief of GM, Ford and Chrysler will then testify before Congress on Wednesday and Friday. While they will not be joining a caravan of dealers, auto suppliers and auto workers planning a cross-country in fuel-efficient vehicles to raise support for the bailout, they will likely leave their corporate jets in Detroit after being roundly criticised for living large when asking for a handout.
The Big Three have lost tens of billions of dollars and laid off tens of thousands of workers in recent years after high fuel prices undermined demand for their highly-profitable but gasoline guzzling trucks and sport utility vehicles.
They have slashed billions of dollars in annual operating costs and negotiated historic changes to their labour agreements which will bring their costs in line with the US plants of their foreign rivals by 2010.
"Chrysler is changing and will continue to change," Chrysler Chairman Robert Nardelli said in a recent e-mail to employees. "The company is prepared to meet the "accountability and viability" criteria requested (by lawmakers) and is ready to share our plans for returning Chrysler to profitability as we move beyond this unprecedented financial crisis. "GM and Ford have also said they welcome the opportunity to explain themselves further.
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