Alexander Nikolayev/AFP/Getty Images
A security guard stands near a GM factory in St. Petersburg, Russia, in November, when it opened. Because GM has business outside the U.S., the suppliers might not play hardball with them to demand cash, according to Brian Johnson, a research analyst at Barclays Capital.
A security guard stands near a GM factory in St. Petersburg, Russia, in November, when it opened. Because GM has business outside the U.S., the suppliers might not play hardball with them to demand cash, according to Brian Johnson, a research analyst at Barclays Capital. Alexander Nikolayev/AFP/Getty Images
Congress failed Thursday to approve a $14 billion package for the Big Three automakers, leaving big questions about what will happen to the teetering companies.
General Motors and Chrysler are in particularly precarious financial situations, both warning they are close to running out of cash.
Against that uncertain backdrop, what is likely to happen to the industry?
Since Congress didn't reach a deal, the White House has said it is considering tapping money from the Troubled Assets Relief Program, or TARP, for the auto companies. How quickly could this happen?
The money could get to the companies immediately if the White House approves it. The $700 billion bailout that was signed in October was broken into two chunks of $350 billion. There is about $15 billion left of that first batch of money. Congressional approval is required if the White House needs to tap the second $350 billion.
In a news conference Friday, Press Secretary Dana Perino said the White House will "consider other options if necessary ... including use of some of the TARP; that's one of the options."
If the money is approved through TARP, the money could get to the auto companies in a matter of days.
What further concessions, if any, can the UAW make to help the Big Three survive?
United Auto Workers President Ron Gettelfinger said on Friday that if the White House steps in to rescue the auto industry, then the union won't necessarily have to make additional concessions, such as wage cuts, for the industry to be eligible for federal funds.
That's because the Bush administration gave its nod of approval to a bill, passed by the House, that would appoint a "car czar" to negotiate terms with a range of parties, including the union, dealers and others.
Earlier this month, the UAW announced that it was willing to make additional concessions including renegotiating part of contracts that were signed in 2007 that could change wages, delaying the automakers' payments to a multibillion-dollar health care trust and suspending a jobs bank program for laid-off workers.
Eve Weinbaum, director of the Labor Relations and Research Center at the University of Massachusetts, Amherst, says the UAW has already done its fair share.
"The budget is not going to be balanced on the backs of the workers. There's not enough money there to add up to the $14 billion or the $60 billion that those companies are going to need," she says.
Can GM and Chrysler survive the next month without an infusion of funds? What happens if they don't get it?
Both companies have said they're running out of cash. GM has said it needs $4 billion by the end of the month to pay its bills. Chrysler has said it needs $7 billion immediately.
The issue is cash flow. GM has its next set of bills due Jan. 2, according to Brian Johnson, senior research analyst for Barclays Capital. Chrysler also has a bill coming up, but it's unclear when.
"Neither of them has a chance of getting through its next bill payment," Johnson says.
GM has retained bankruptcy counsel and restructuring advisers, according to The Wall Street Journal. But GM Chief Executive Rick Wagoner has said bankruptcy "is not a viable option."
Can GM and Chrysler do anything else to raise cash or cut costs immediately?
GM said Friday it will temporarily close 21 factories across the country and cut 250,000 vehicles from its first-quarter production schedule. Also, as part of its plan submitted to Congress, it would sell its Hummer, Saab and Saturn brands and radically downsize Pontiac.
But these solutions will not give it the cash it needs to pay its bill to the suppliers. One thing the government could do is create a backup line of credit, says Barclay's Johnson.
"If the suppliers could understand that sooner rather than later, they would continue to ship the goods," Johnson says.
The companies could also defer items they have ordered. But any other measure, like layoffs, might not be fast enough for the companies, he says.
"The only one tool in this situation is to pretend the bills were lost in the mail," Johnson says.
What about money from the Federal Reserve?
This is unlikely. Fed Chairman Ben Bernanke said in a Dec. 5 letter to U.S. Senate Banking Committee Chairman Christopher Dodd that the central bank would be "extremely reluctant to extend credit" to the auto industry. If the Fed agreed to dole out money to the Big Three, it would open the door to other nonfinancial companies to seek help as well. Because the Fed's leadership does not change in January with the new administration like the Treasury does, Bernanke has more incentive to hold the line, Johnson says.
What would the impact on Ford be if one of the other two files for bankruptcy? Ford is said to be in better shape and was asking only for a standby line of credit initially.
Ford has said it is still liquid, but the company would suffer if GM or Chrysler files for bankruptcy. All of the automakers, not to mention a vast network of suppliers — such as companies that sell axles, seat belts, paint and steel — are interconnected. The auto companies buy from the same suppliers. If they go under, they won't be able to deliver the parts to Ford. Also, if one Detroit automaker were to not honor its warranties, consumers might shun other Detroit vehicles in favor of cars from more financially stable foreign companies, Johnson says.
What about the fallout for foreign competitors, including those who manufacture in the U.S.?
There are shared suppliers between the Big Three and the foreign companies who manufacture in the U.S. If the suppliers shut down and the foreign companies can't get the gaskets or windshield wipers, says Johnson, they would also be idled. But there is a debate in Detroit as to how long it would take to re-establish suppliers, Johnson says.
Is the auto industry being treated differently from Wall Street?
Weinbaum says there's a double standard with regard to how funds are doled out from the $700 billion bailout to the financial services industry, which has been labeled essential to the economy.
"That happens with zero restrictions," she says, adding that the average worker in the financial services industry didn't have to take any pay cuts as a condition of the bailout.
Weinbaum says the UAW is "up against a huge amount of propaganda and a pretty anti-union culture in this country." She says Chrysler, Ford and GM workers are earning wages that are "mostly lower" than the average for Toyota or Honda (workers for those companies are not unionized).
Better health insurance and retirement benefits for the Big Three, however, come with a price. Weinbaum says the Big Three have huge numbers of retirees, so the companies are under pressure to provide more in pensions and health care benefits for their former workers.
Additional reporting from NPR's Joshua Brockman and wire reports