Posted by: David Kiley on November 4, 2008
If the U.S. Big Three automakers want bailout help from the Federal government they should submit to at least an afternoon of new public hearings.
Automakers were heard from in September on the subject of attaching the $25 billion loan program to a continuing resolution for the Federal budget. That legislation, which passed, kicked off the process for such loans to move ahead—-loans that were part of last year’s energy legislation. The money is meant to go to help the companies re-tool factories and offset some research and development costs associated with more fuel efficient vehicles. The key is that all the loans must be attached to offset costs of vehicles that get 25% better fuel economy than the vehicle segment average. In other words, if Ford wants loan money to offset the costs of bringing its Fiesta to market, the car will have to exceed the average of the vehicles in the segment by 25% at the time the application is made.
The Department of Energy is finalizing the parameters of how the companies will apply for the loans. Soon after the DOE issues the language, there will be a 60-day comment period for the automakers and other interested parties to say whether it is fair and proper. The rules will be finalized after that period and the applications commence.
The Michigan Congressional delegation, as we have reported before, is pushing all sorts of governmental buttons to try and get General Motors, Ford and Chrysler the money faster, and to keep the parameters of getting the funds loose enough so that the companies can actually use the money to help their dire liquidity problems.
General Motors specifically wants the government money to help it acquire Chrysler. GM’s management thinks that taking over Chrysler is the secret sauce for the automaker getting through the Recession.
As I have previously reported, one of the measures on the table is amending the September legislation so that loans might be granted to offset money the companies have already spent on r&d to bring the more fuel efficient vehicles to market. Some Congressional members argued against that idea in the original legislation. But some lawmakers are trying to re-open it.
The key to making any of this happen is a three day lame-duck session of Congress later this month.
I think that there is enough concern about the future of the auto industry, the proper role of government in propping it up and the dubious insistence by GM that it must acquire Chrysler to survive that we ought to have at least an afternoon of public hearings on the issue.
I would like to hear from the following: GM CEO G. Richard Wagoner Jr., Ford CEO Alan Mulally, Chrysler CEO Robert Nardelli and Cerberus Capital (Chrysler owner) chairman Stephen Feinberg. Also, there should be at least three credible outside voices. For example, I’d like to hear from author and former Wall Street auto industry analyst Maryann Keller, former Merrill Lynch auto analyst and current partner in Casesa Shapiro LLC John Casesa, AutoNation CEO Mike Jackson and United Auto Workers Union chief Ron Gettelfinger.
The hearings could be held in advance of the lame-duck session in a committee hearing.
Among the questions I would ask:
Mr. Wagoner: You have been restructuring GM either as CEO or a senior staffer since Bush 41 was president. Tell us why you think taking over Chrysler and all its problems and issues is the answer to your survival, and why we should help fund a deal that the banks don’t believe in enough to come up with the funding?
Mr. Nardelli: Have you been seeking help from the government in order to keep Chrysler operating independently? Or are you here just to augment Mr. Wagoner’s argument that GM must acquire Chrysler? If so, why do you not wish to have our help to keep Chrysler going as an independent venture?
Mr. Feinberg: Are you interested in operating an auto company for the next ten years? If not, why should we help you, a hedge fund, salvage what has become a troublesome investment for you? Mr. Feinberg, will you detail for us the executive compensation that will be paid out if this merger goes through, and how much of this loan money is earmarked for huge exit packages to executives?
Mr. Mulally: Are you interested in buying Chrysler? If not, why not? Do you think the government should have a role in helping GM do this deal, or should we only concentrate on helping Chrysler stay independent assuming its ownership and management are still interested in being in the car business?
Mr. Casesa: Can you take us through what would happen to the auto industry as a whole if Chrysler was to file Chapter 11? Would there be a dire domino effect throughout the auto and supplier industry? Why aren't banks and hedge funds stepping up to fund this?
Ms. Keller: Do you think this combination of GM and Chrysler is a good idea? Do you think GM’s management is up to making this work?
Mr. Gettelfinger: You stand to lose some 25,000 union jobs if we proceed the way Mr. Wagoner, Mr. Feinberg and Mr. Nardelli would have us proceed. Can you offer some ideas about how we could help Chrysler stay independent? Do you think that’s a desirable outcome? And what is the union willing to do to help the industry through this Recession if we don’t help GM and Chrysler merge?
Mr. Jackson: You have run a car company and now run a major dealer company. I don't care of GM and Chrysler find a way to merge. I do care if the government plays investment banker to the deal. Do you think your government should play this role? Do you think the situation is so unique? Do you think that the management of GM is up to making this work in a way where the tax-payer would get their money back? Would you put your own money behind a GM-Chrysler merger?