NPR logo Q&A: Detroit Continues Its Rescue Campaign


Q&A: Detroit Continues Its Rescue Campaign

The CEOs of Ford, General Motors and Chrysler are back on Capitol Hill asking for $34 billion in loans. Last month, Congress turned down the automakers' request for a $25 billion bailout because of questions over whether the industry could restructure in a way that would keep it solvent.

This time around, however, they have the backing of the United Auto Workers union. The union said Wednesday that it was prepared to make concessions to assist the beleaguered automakers.

Congress will decide whether it will hold a special session next week concerning a bailout for the automakers. Even though the three automakers submitted detailed plans to Congress earlier this week about how they would use federal funds to reorganize, a number of questions linger. Here, a look at some of the issues.

Why not let Detroit go bankrupt?

There are some critics who say that's exactly what should happen. But industry advocates say Chrysler, Ford and General Motors cannot be allowed to fail.

On Wednesday, the UAW announced a number of concessions that it would make to assist the automakers, including delaying the automakers' payments to a multibillion-dollar health care trust; suspending a jobs bank program that lets laid-off workers collect almost all of their pay for extended periods; and renegotiating part of contracts that were signed in 2007 that could result in changes to wages.

Can Ford and General Motors survive without a bailout?

Ford has requested a $9 billion line of credit that it may need to tap as a safeguard in case one or both of its rival Detroit automakers become insolvent or if auto sales remain low.

In a research note on Tuesday, Brian Johnson, a senior equity analyst who watches the auto industry for Barclays Capital, said, "Ford has positive equity value without government assistance," but he added that such assistance could give the company additional funding resources and help prevent Ford and its parts suppliers from "feeling the negative effects of a potential competitor bankruptcy." Another reason Ford may not need government funds is that it has $10.2 billion it can borrow from a line of credit it negotiated with banks, he said.

What shape is GM in?

GM says it needs $4 billion to pay its bills by the end of the month. GM has requested up to $18 billion in loans (that includes a $12 billion loan and a $6 billion line of credit) from the government.

Of the restructuring plans that the Big Three automakers submitted to Congress this week, "GM's plan has evolved the most," said Johnson. Its new plan calls for selling its Hummer, Saab and Saturn brands and radically downsizing Pontiac. That would leave GM with four core brands (Buick, Cadillac, Chevrolet and GMC), reducing its highly leveraged balance sheet, trimming labor costs and consolidating its dealer network, he said.

But even if GM avoids bankruptcy with the plan, the company still faces a very steep climb back to profitably, Johnson says. "While government assistance would lower the likelihood of bankruptcy, we continue to see little equity value in the recapitalized GM," he wrote in a research note Wednesday.

What about Chrysler?

Chrysler, a privately held company, is in a weaker position. Chrysler said that it needed $7 billion in cash right away to be able to survive into 2009.

With reporting by NPR staff and The Associated Press