Detroit's New Bill: $34 Billion

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One option is to leave Saturn short on new models and marketing cash. Some of Saturn's 220 dealers would just go away, and the company would later buy out the rest. When GM killed off Oldsmobile starting in 2000, that division had more than 1,000 dealers. So presumably it would cost GM something less to get rid of Saturn than the $2 billion it paid to drop Olds.

GM has already been cutting Pontiac's offerings. All but about 30 Pontiac dealers are paired with Buick and GMC dealers. Henderson said Pontiac might just sell one or two performance cars in the Buick-GMC dealerships. Hummer and Saab are already for sale. If it succeeds, GM would be down to the four brands it has earmarked for investment. "That's perfect," says Wolkonowicz of IHS Global Insight. "It's what they need to do. GM can't support those other brands because they simply can't afford to do it."

UAW concessions strategy

Next, GM will need to go to the UAW to try to cut jobs of tenured workers whose pay and benefits cost about $58 an hour. They cost $76 an hour, if you count pension and health-care costs for retirees. Ford and Chrysler are in talks with the UAW as well. The union's leadership met Tuesday to form a strategy about what concessions to offer to win over Congress.

Under last year's labor agreement, GM can bring in new hires at wages of $14 an hour and an all-in cost of $28 an hour. But first GM must get the older workers to leave. Henderson wouldn't say what's on the bargaining table, but he said GM needs to work on staffing levels, job security provisions, and coaxing more workers to retire.

Henderson also didn't say how GM would negotiate its debt down by half. But analysts say the company could offer bondholders an exchange of roughly 50¢ on the dollar to reduce the principle by half. Given the vague warnings that—without Congressional help—bankruptcy is nigh, the carmaker may have a good case for its bondholders to cut their losses and run.

To monitor its progress, GM has proposed that the government set up an oversight committee. It would monitor cost-cutting benchmarks; if GM misses the targets, the committee could call the debt.

sales assumptions…

Finally, GM Chairman and CEO G. Richard Wagoner Jr. will take a cue from retired Chrysler Chairman Lee Iacocca, who worked for $1 after the government guaranteed a $1.5 billion loan for Chrysler in 1979. Wagoner will work for $1 in 2009; Henderson will take a 30% pay cut, while those at the executive vice-president level and above will see their pay cut by 20%.

Henderson said government loans would get GM through to March, when cost cuts and previous moves would help the company stand on its own. The plan would make GM a break-even company—assuming overall U.S. car sales of 12.5 million to 13 million cars per year. Sales are expected to finish at about that level this year, and GM has already lost $21 billion. Henderson said the company expects total U.S. sales of 11.7 million cars next year, 13.5 million in 2010, and 14.5 million in 2011.

Chrysler and Ford offered few actual new cuts, claiming they've already cut deeply. Chrysler, for example, has cut its head count by 32,000 people since 2007, including 5,000 who left last week. It has cut employee programs ranging from leased-car subsidies, to company 401(k) matches, to tuition reimbursement. Salaried retirees have lost life insurance benefits and workers are paying more for health care.

Ford has made similar cuts, and said it is selling off its five corporate jets. It plans to cut CEO Alan Mulally's salary to $1 a year if it draws down the government loans.

…and profit projections

In an attempt to appease lawmakers who have bashed Detroit for lagging Japanese companies in innovation and producing fuel-efficient vehicles, Ford pledged to accelerate its launch of electric, hybrid, and plug-in electric cars between 2010 and 2012. House Speaker Pelosi has argued against tapping a $25 billion fund that was already set up by Congress to help the automakers retool factories for more fuel-efficient vehicles; some Democrats worry the automakers will burn up that cash without delivering the green vehicles.

Indeed, a big issue at the hearings that will begin on Thursday is what assurances the carmakers can give that they won't be back a short while later for more money. Toward that end, all three offered profit projections. Ford expects to turn a profit by 2011, assuming industry auto sales climb from 12.5 million in 2009 to 14.5 million in 2010. Chrysler says it can turn an operating profit by the end of 2009 and stay profitable, assuming industry sales of 11.1 million sales in 2009 and 12.1 million sales in 2010.

The wide gap between the assumptions of the various companies about the length of the recession and depth of the car-buying slump is certain to come under fire by members of Congress. Said one Capitol Hill staffer working for a Democratic lawmaker who favors a bailout of the automakers: "I wish they would have gotten together on industry sales, but future sales can't be counted on…. But neither are these government loans, if they don't make a strong case this week."

Business Exchange related topics:
U.S. Automakers
United Auto Workers (UAW)
Bailout
U.S. Financial Crisis
Obama's Stimulus Plan

Welch is BusinessWeek's Detroit bureau chief. Kiley is a senior correspondent in BusinessWeek's Detroit bureau.