Chief executives from the United States' iconic Big Three automakers faced a skeptical audience this week as they took their plea for a 25-billion-dollar bail-out to US lawmakers. Despite warnings of an economic "tsunami" if any one of GeneralMotors Corp, Ford Motor Co or Chrysler LLC declares bankruptcy, legislators are unwilling or unable to give the ailing automakers what they want, at least for now.
Nevada Senator Harry Reid, leader of the centre-left Democratic majority in the upper chamber, late Wednesday cancelled a Thursday vote by the full Senate. He suggested that Congressional action was unnecessary if President George W Bush, who has two months left in office, would simply give the carmakers a 25-billion-dollar bail-out from the 700-billion-dollar rescue package approved just weeks ago for the financial sector.
As we have said all along, the Treasury already has the authority and resources to protect thousands of Americans who work in our nation's struggling auto industry," Reid said. "If the Bush administration has any interest in saving Detroit, it has the power to do so."
While acknowledging the reality that he lacked the votes to act, Reid seemed to also be positioning his Congressional Democrats to blame the centre-right Republicans for any automotive bankruptcies. Weeks after being battered in the November 4 elections, most Republicans and some Democrats who have not supported special help for the auto industry find themselves aligned with a skeptical public.
A survey last week by the respect Gallup organisation found that 49 per cent of respondents opposed an automotive bail-out, to 47 per cent in favour. It marked a sign of just how much ill-will exists toward an industry that has failed to modernise and keep up with more fuel- efficient competitors from Asia over the last decade.
Lawmakers had tough words for the three chief executives who appeared before committees of both the US Senate and the House of Representatives on Tuesday and Wednesday. Many legislators argued that the Big Three had followed a failed business model and should simply be allowed to file for bankruptcy.
"The Big Three stand as emblems of the American dream, and they've been an integral part of the American economy for generations," said Congressman Max Bauchus, the top Republican on the House's Financial Services Committee. But Bauchus wasn't about to be seduced by the American romance with the automobile: "The American way to solve this problem is not to depend on the government for a solution. The government handing them taxpayer money ... will only lead to prolonged pain."
The corporate chiefs were forced to defend their heavy salaries and criticised for not making their own sacrifices in the face of an industry meltdown. Legislators pointed to perks like the private jets they used to fly to Washington for the congressional hearings.
"There's a delicious irony in seeing private luxury jets flying into Washington, DC, and people coming off of them with tin cups in their hands saying that they're going to be trimming down and streamlining their businesses," said Congressman Gary Ackerman, a New York Democrat. "It's almost like seeing a guy show up at the soup kitchen in high hat and tuxedo."
Both General Motors and Chrysler said they will soon run out of money for daily operations if they don't get a government loan. GM chief executive Rick Wagoner warned that 3 million jobs would be lost if the company goes under. With the United States already likely in a recession, executives argued that the last thing the world's largest economy needs is a collapse of the automotive industry.
Together, the three automakers employ more than 240,000 people, while another 2.3 million work for suppliers. The executives spoke of 4.5 million jobs being dependent on the auto industry, which accounts for about 4 per cent of US economic output. Michigan politicians on both sides of the political aisle made an especially impassioned pleas for aid, as a bankruptcy will disproportionately affect the automakers' base of operations in Detroit.
The industry has been in trouble for a while. GM reported a 39- billion-dollar loss last year, the largest in company history. Hundreds of thousands of jobs have already been eliminated. While legislators blamed the automakers' failure on poor business models, executives insisted that they were making good progress in reorganisation efforts before the global financial crisis ballooned out of control in September.
Auto sales in the US plummeted 32 per cent in October to their lowest level since 1991 as consumers cut back on purchases and struggled to get car loans. Credit has seized up across the country as banks, fearful of their own collapse, began hording cash. Democrats in Congress have been pushing for the 25-billion-dollar bail-out to be approved, arguing it should be taken out of the 700- billion-dollar rescue package approved for the financial sector.
The Bush administration and their fellow Republicans in Congress have balked, instead offering to simply modify the conditions on an existing 25-billion-dollar loan connected to fuel-efficiency standards. That means any additional auto bail-out package will likely have to wait until a more sympathetic president-elect Barack Obama takes office next year - if automakers can last that long.