US Carmakers In New Bail-Out,Ford,US Congress

December 2, 2008

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Ford has asked the US Congress for a $9bn (£6bn) bridging loan in case it gets in financial difficulties.

In return, it pledged to reduce its boss’s pay to one dollar a year should it have to use the emergency loan.

General Motors and Chrysler are also presenting their new cost-cutting plans to Congress to try and get $25bn (£17bn) in emergency loans.

The Detroit Three need to make more concessions to secure the much-needed government bail-out.

Ford also said it would sell its five corporate jets as part of its cost-cutting plan.

Other measures could include selling some businesses, such as Swedish carmaker Volvo.

Ford said a $14bn investment was needed in new technologies in the next seven years in order to improve fuel efficiency.

But it is also seeking an emergency bridging loan from the US government in case it got into financial difficulties.

“Ford is asking for access to up to $9bn in bridge financing, but reiterated that it hopes to complete its transformation without accessing the loan should Congress agree to make the funds available,” the carmaker said in a statement ahead of a hearing in Congress.

Ford said it expected to return to profit, or at least break even, by 2011.

But the White House has already expressed scepticism about the plans.

“We are sticking to our guns that the companies have to prove that they are viable before taxpayer dollars should be given to them,” said White House spokeswoman Dana Perino.

Avoiding criticism

The company’s heads decided not to use private jets to get to Washington this time to avoid criticism.

GM chief executive Rick Wagoner and Chrysler head Robert Nardelli are expected to arrive to Washington by commercial flights or use other means of transport, while Ford chief executive Alan Mulally was said to be driving a Ford hybrid car from Detroit.

GM has warned it could run out of cash in a matter of weeks and cannot wait until President-elect Barack Obama – who may be more sympathetic to industry pleas – is sworn in in January.

The company was left with $16bn in cash at the end of September after losing $6.9bn in the previous three months.

But Republican critics and some Democrats say the financial crisis is not the only reason why the biggest US carmakers are in trouble.

They say that the Ford, GM and Chrysler’s production was inefficient, and that their labour costs were higher than many of their foreign rivals.

Other critics want to make sure that the Detroit automakers adopt more environmentally friendly policies, including strict fuel efficiency targets, in return for government aid.

The union representing the autoworkers, the UAW, is reportedly considering renegotiating their union contracts.

Two Congresses

Most analysts think that GM is “too big to fail”, while Chrysler is the most vulnerable of the Detroit Three and might be forced into a partnership with stronger rivals.

The three carmakers Tuesday’s presentations precede hearings in Congress later this week.

According to sources familiar with the carmakers’ plans and statements from the companies, GM may consider selling off its Pontiac, Saab and Saturn brands, while Ford could sell off its Volvo luxury brand.

They may also move to consolidate their sprawling dealer networks.

The lame-duck Congress could vote on a bail-out plan, or could delay consideration until the new Congress, with a much bigger Democratic majority, takes office on 6 January.

The Bush administration has offered to accelerate the payment of some $25bn in green investment credits already allocated to the car industry, but this has been opposed by Democrats in the House of Representatives.

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