Auto CEOs Back to Detroit After Fresh Bailout Plea

(page 2 of 2)

The two days of hearings were markedly different (BusinessWeek.com, 11/19/08) from last month's two-day appearance. Then, lawmakers rebuked the CEOs (BusinessWeek.com, 11/20/08) dozens of times for flying to Washington in private jets to solicit money and for offering few details on how the money would be spent, or whether it would keep them out of bankruptcy for a week or a year. This week each company filed reports in excess of 100 pages and drove to Washington. And members of Congress made fewer overheated speeches and asked more questions.

Bankruptcy Debate

At the House Financial Services Committee hearing Friday, a day after a hearing before the Senate Banking Committee, even frequent critics of Detroit urged caution. "I strongly believe we need a viable U.S. auto industry," said David Friedman of the Union of Concerned Scientists, who is often withering about carmakers' over-reliance on gas-guzzling SUVs. Friedman said Congress should look upon the opportunity "as an investment, not a bailout," and use their power as chief creditor after granting loans as a cudgel to require the companies to meet tougher fuel-efficiency and emissions standards.

There are still some experts advocating that the companies reorganize under Chapter 11 bankruptcy. Professor Edward Altman, an influential finance expert at New York University's Stern School of Business, recommended to the House committee that the federal government act as debtor-in-possession financier to the automakers in a Chapter 11 filing. Altman estimated it will take $70 billion just to save GM, and that extensive restructuring to ensure the companies' success wouldn't occur outside of bankruptcy court. He brushed aside worries that consumers will abandon a bankrupt car company. "Government participation will blunt consumer fears and take away the surprise and uncertainty around the companies now," said Altman. On Dec. 5, The Wall Street Journal (NWS) reported that Chrysler has engaged a leading bankruptcy law firm to start advising the company.

The automakers have warned Congress not to consider Chapter 11 because of the loss of customer confidence that would bring. In the last few months the companies have already seen sales fall more precipitously than the industry has, in part they say, because of all the media attention on possible bankruptcy. A Chapter 11 filing, GM CEO Rick Wagoner warned, "will turn into liquidation very quickly."

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