With Hat In Hand, Detroit's Big 3 Go To Capitol Hill

The chief executives of GM, Ford and Chrysler go before the Senate Banking Committee on Tuesday — ahead of this week's vote on a Democratic plan to provide their companies $25 billion in loans. Will Congress act before one of the Big Three has to declare bankruptcy?

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RENEE MONTAGNE, host:

This is Morning Edition from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning. What U.S. car companies want from you is $25 billion. They say they need it right away to survive economic trouble. And today their top executives, as well as the Auto Workers Union leader, will be asking U.S. senators to help them get the money. They'll be speaking with members of the Senate Banking Committee, and by extension you. NPR labor correspondent Frank Langfitt is with us. Frank, good morning.

FRANK LANGFITT: Good morning, Steve.

INSKEEP: If I may say, Frank, this has been discussed for some time now, this possible bailout, and there is a lot of skepticism. What else can these executives say to persuade people?

LANGFITT: Well, this is really going to be their first chance to really make a public case to Capitol Hill, and by extension taxpayers, people like you and me. And what they're going to say, first of all, I think, is, you know, this isn't our fault. These are extraordinary circumstances that no one could have predicted 12, 18 months ago because of the recession, because of the credit crunch. Last year car sales were 16 million. Next year they're going to be 12 million across the country. And that's a huge drop.

What they're going to say is, you know, we've also - we've made changes. We cut health care costs. We've got new products in the pipeline. And what they're going to basically say to people is, you know, if you can help us through difficult times, we really think we can make it. One of the lines you might also hear is, you know, the problems of Wall Street have come to Main Street.

INSKEEP: I just want to ask one thing that may have people scratching their heads. Didn't the auto industry already get $25 billion in assistance from the U.S. government not very long ago?

LANGFITT: Well, they're waiting on that money. And yes, they did. Congress did appropriate that money. But it's for fuel-efficient technology. The whole idea is to help them finance a lot of changes in their technology so they can become more competitive in the future. So it's really for long-term strategic use, not for, like, paying the monthly bills.

INSKEEP: Couldn't they just use it for paying the monthly bills if it's an emergency like this?

LANGFITT: They could, but Congress would have to change the legislation.

INSKEEP: We're talking with NPR's Frank Langfitt. He's giving us a preview of testimony before Congress of the major auto companies. That will include the CEO of General Motors, Rick Wagoner, who talked with an NBC affiliate in Detroit over the weekend, and said this.

Mr. RICK WAGONER (Chairman & CEO, General Motors): I mean, it's not one company. This is an issue of the whole auto industry. If that becomes under severe pressure, the impact on the whole economy in the U.S. will be devastating. So it's really - it's really time to move on this.

INSKEEP: So, that's Rick Wagoner's view. But Frank Langfitt, give us the facts here. How bad would it be if these loans don't come through?

LANGFITT: Well, you know, some analysts have said that it could cost three million jobs. But you know, that's if the entire industry were just to disappear tomorrow. And that's not going to happen. I mean, the auto market is down, but it's not nonexistent. And the idea of this big, big job loss seems to anticipate what we call a freefall bankruptcy where a company just stops. But history says companies generally the size of GM usually have what's called a control bankruptcy. They keep operating. They renegotiate with creditors. They don't close their doors. I mean, that's not really in anybody's interest.

Either way, most analysts say the companies need to restructure further, in bankruptcy or out. I was talking to Douglas Baird yesterday. He's a law professor at the University of Chicago. He teaches about bankruptcy. And here's how he put it.

Professor DOUGLAS BAIRD (Law, University of Chicago Law School): You can't lose such a large part of your customer base and not expect that large employment consequences are going to follow.

LANGFITT: And, you know, one of the employment consequences people say, no matter what happens, is these companies are going to have to lose about 30,000 jobs because of the way the market has fallen off. And there's no question there's going to be downstream impact, and it could be pretty big. The Detroit Three, they employ about 240,000 workers. But if you look at parts suppliers, that's around 700,000, and there's no question that they're really going to suffer too.

INSKEEP: I just want to be clear on this and on what Baird was just saying, because there was, kind of, a triple negative in that statement. He's basically saying if car sales go from 16 million a year down to 12 million a year, people are going to get fired, end of story. The government cannot prevent that.

LANGFITT: I think that's exactly what he's saying, and I haven't heard an analyst who has said anything other than that.

INSKEEP: OK, so does all of that add up to an argument against the bailout?

LANGFITT: Well, one of the things that - the argument against a bailout is that these companies caused the problem. And this is something I think you're going to hear a lot of today on Capitol Hill, that they didn't control their high labor costs earlier, and then they got caught in this recession. The other thing is I think there'll be an attack on them basing their business on SUVs. There were high profits into the 1990s, but they became very vulnerable to the gas spike. So I think that the companies have a big PR problem, and this is one of the first chances they're going to get to really try to rectify that.

INSKEEP: NPR's Frank Langfitt, thanks very much.

LANGFITT: Happy to do it, Steve.

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Senate Debates Bailout For U.S. Automakers

Sen. Barbara Mikulski test-drives a new Chevy and an alternate bailout plan. i i

Sen. Barbara Mikulski test-drives a new Chevy and an alternate bailout plan to Majority Leader Harry Reid's proposal. Brendan Hoffman/Getty Images hide caption

itoggle caption Brendan Hoffman/Getty Images
Sen. Barbara Mikulski test-drives a new Chevy and an alternate bailout plan.

Sen. Barbara Mikulski test-drives a new Chevy and an alternate bailout plan to Majority Leader Harry Reid's proposal.

Brendan Hoffman/Getty Images

Help for the auto industry is a top priority for Democratic leaders, and it was the opening item of business as the U.S. Senate resumed its duties after a six-week break. But many senators appear to be feeling bailout burnout.

Majority leader Harry Reid of Nevada began the session by proposing an economic stimulus package with help for the auto industry. If that's rejected, Reid said, he'll try again by pairing auto industry aid with an extension of unemployment benefits.

"Senators have a choice to make: They can wait until January, when we have a new Congress and a new president, or we can start trying to work on some of these problems now," Reid said.

He got some spirited support on the Senate floor from Maryland Democrat Barbara Mikulski. "This session of the Senate should not be called a lame duck," she said. "We should neither be lame, nor should we duck the big issue facing our country."

Alternate Plans Emerge

But Mikulski did not call for the $25 billion worth of federally guaranteed loans that Reid is seeking. Instead, she offered her own proposal costing $8 billion: tax breaks for those buying cars between now and the end of next year.

Missouri Republican Kit Bond co-sponsored that proposal. But Bond also called for direct help for the auto industry — as long as some strings are attached. "Funds should be conditioned on a strong restructuring plan for the industry and for each recipient of the funds," Bond said.

Another Republican, Pennsylvania's Arlen Specter, said he was inclined to consider a bailout for the auto industry, but only if there was a plan to make it economically viable. Automakers have been "on notice for a long time that they were in a very difficult, competitive situation, that the standards on gas mileage were about to be imposed and were imposed in legislation last year, and what have they done?" he asked.

It wasn't just Republicans criticizing Detroit. Florida Democrat Bill Nelson said the auto industry should not be rewarded for poor management. "For too long, our U.S. domestic automakers have ... failed to produce vehicles for the 21st century — for that matter, for the last half of the 20th century," he said.

Still, Nelson argued that too many other American jobs depend on the auto industry for it to be allowed to fail.

Such reasoning didn't sway Arizona Republican Jon Kyl. For him, a bridge loan to Detroit's automakers is a bridge too far. "There's no indication that the car companies would do anything different than they've been doing, which has been a big failure, which is why they need the bailout," he said, adding, "There's no reason to throw money at a problem which is not going to get solved."

Votes Uncertain

As the Senate's No. 2 Republican, Kyl's job is to know how his GOP colleagues intend to vote. But when asked Monday how many other Republicans share his opposition to an auto industry bailout, Kyl begged off. He'd only spoken to a handful of colleagues in the new session's opening hours.

Senate Democrats likely would need the support of at least 10 Republicans to pass a bailout for Detroit. That may be too much to hope for in this lame-duck session. With Democrats taking over at least half a dozen GOP-held seats in January, Monday's arguments may be the opening salvos of a debate that concludes in the next Congress.

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