DETROIT — So what will it cost to fix Detroit’s Big Three automakers?þþNow that Congress has signaled its willingness to help the ailing car companies with short-term loans, that question has gained new urgency — particularly for President-elect Barack Obama, who will inherit the crisis in Detroit when he takes office. þþThe ultimate price tag for a new and improved American auto industry may be as unfathomable as questions about the potential harm to the economy if any of the companies were allowed to collapse. þþBut estimates of the final bill are rising rapidly, particularly as the economy weakens and car sales keep falling.þþA comprehensive bailout for General Motors, the Ford Motor Company and Chrysler could cost as much as $125 billion, and even the companies themselves are hard pressed to dispute that figure.þþMark Zandi, chief economist of Moody’s Economy.com, testified before Congress last week that the Big Three’s request for $34 billion in loans “will not be sufficient for them to avoid bankruptcy at some point in the next two years.” He said from $75 billion to $125 billion would be needed to pay for a full-scale reorganization of the automakers.þþLawmakers have indicated they may give G.M. and Chrysler about $15 billion in emergency aid to keep them in business until the spring, when the Obama administration and the new Congress can craft a longer-term rescue plan.þþThroughout four hearings on Capitol Hill, the chief executives of G.M., Ford and Chrysler have tried to assure lawmakers that all they need is temporary assistance until the sick economy and the depressed auto market recover.þþG.M.’s chairman and chief executive, Rick Wagoner, tried to assure Congress last week that G.M. can be profitable again with $18 billion in federal loans and an aggressive reorganization plan.þþ“Our plan is far reaching and extensive,” Mr. Wagoner said. “It is a different way of thinking and our team is committed to achieving it.”þþStill, there are many variables that could derail the Big Three’s recovery plans.þþDespite an infusion of $700 billion into financial institutions, there are few signs that car loans are becoming more available to consumers — a critical component in any rebound in vehicle sales, which have fallen to their lowest level in 25 years in the United States.þþImportant foreign markets in Europe and Asia are also deteriorating, further reducing revenues at G.M. and Ford.þþAnd Detroit is also facing huge bills — interest payments on their enormous debt loads, large contributions to health care trusts for retired hourly workers as well as tens of billions of dollars in expenses to meet stringent new government fuel-economy requirements.þþThe magnitude of the companies’ obligations left some lawmakers groping for answers during the testimony of the Big Three executives.þþ“Do we know what we’re doing? Do we know what we’re trying to achieve?” asked Representative Peter King, Republican of New York. “If I was reasonably convinced that the money was going to work, I would support it.”þþDetroit has lost tens of billions of dollars in recent years; credibility has evaporated among investors and analysts who have seen a series of reorganization efforts and new products fail to produce a lasting turnaround.þþThe fact that the companies first asked for $25 billion in mid-November, then upped the ante to $34 billion two weeks later hardly gave lawmakers confidence in the automakers’ current plans.þþ“I don’t want to send you home again because it’s going to get more expensive in another two weeks,” Representative Gary L. Ackerman, Democrat of New York, said at last Friday’s hearing.þþBecause it is the biggest and most troubled of the automakers, G.M. generated the most skepticism with its plan. The company says that it needs $10 billion to get through March, another $2 billion for the remainder of 2009, and a $6 billion line of credit beyond that.þþBut this is a company that has lost $20 billion so far this year, spent $2 billion a month in cash since July, and consistently missed its sales targets and financial benchmarks.þþG.M. has already cut its American work force in half in the last three years. Yet its latest reorganization plan calls for downsizing its brands and dealerships and cutting another 30,000 jobs — without addressing how it would generate new revenue.þþBecause G.M. also has more than $60 billion in debt outstanding and a bill for $21 billion in retiree health care benefits coming due, experts cannot see how it will survive with temporary government loans.þþ“Even with the most generous assumptions as to operating results and carefully adhering to G.M.’s proposed restructuring, G.M is still a highly distressed company and likely to go bankrupt, probably within in one year,” said Professor Edward I. Altman, of the Stern School of Business at New York University.þþDespite the willingness of the United Auto Workers union to make concessions on job security and health care payments, G.M. desperately needs its bondholders and other creditors to allow it to revamp its debt payments.þþG.M. could accomplish those ends if it sought bankruptcy protection, but the company maintains steadfastly that a Chapter 11 filing would ruin its already shaky reputation among consumers.þþIn a bankruptcy proceeding, the U.A.W. would be in jeopardy of losing its $28-an-hour wage scale and its long-term health care benefits. The union’s president, Ron Gettelfinger, argued during the hearings that Congress should appoint a trustee or oversight committee with authority to force concessions from G.M.’s debtors.þþ“What Congress can and should do is put in place a process that would require all the stakeholders to participate outside of bankruptcy,” Mr. Gettelfinger said.þþBut a federally appointed “car czar” would hardly have the same legal authority as a bankruptcy judge to demand that bondholders, for example, take equity in exchange for reducing their debt.þþThe situations at Ford and Chrysler are a little different, but both companies still have large obligations to debtors and union health care trusts.þþWhile Mr. Obama has repeatedly said that Chapter 11 is not preferable for the companies, several lawmakers see bankruptcy as the only viable way for the Big Three to get a fresh start as smaller, less-indebted entities.þþ“They could come out leaner and more vibrant and more successful,” Senator Jeff Sessions, a Republican from Alabama, said Sunday in an appearance on CBS’s “Face the Nation.” “This is the way to save jobs.”þþBeside debts and legacy costs, Detroit faces substantial costs to meet new federal fuel-efficiency requirements for cleaner vehicles. The automakers have said it may require $100 billion to remake their fleets, far beyond the $25 billion program that Congress approved to help the companies meet the new standards.þþThe mounting cost issues obscure what lies at the heart of the Big Three’s current cash crisis — a shrinking share of a vehicle market that has sunk to levels not seen since the 1980s.þþG.M., Ford and Chrysler have based their turnaround plans and loan requests on market projections that would have seemed outrageously low just a year ago.þþG.M., for example, is tying its profitability to maintaining at least a 20 percent share of an annual United States sales market of about 13 million vehicles.þþThat level is far below the 16 million in annual sales that the industry has achieved in recent years, but in line with the depressed levels of 2008.þþ
Source: NY Times
