(CNSNews.com) - Republicans on the Senate Banking Committee were deeply skeptical of the pitch made Tuesday by the chief executives of the Big Three automakers for a proposed $25 billion bailout.
Sen. Richard Shelby (R-Ala.) asked whether the auto giants would be returning to Congress at a later date, seeking additional funds.
“Is $25 billion enough?” he asked. “Is this the end, or just the beginning?”
The CEOs -- Alan Mulally of Ford; Robert Nardelli of Chrysler LLC and Rick Wagoner of General Motors – came to Capitol Hill to make their case to the committee that only taxpayer help would enable them to stave off a “catastrophe.”
The trio said the collapse of the Big Three would cause the loss of “three million jobs” and an almost certain collapse of the entire U.S. economy. The situation, they said, is not of their making.
GM’s Wagoner said he and his company had been “well on our way” to turning GM around by investing in new technologies that would produce more fuel efficient cars until the credit crunch.
Wagoner explained that it was “not the auto manufacturers’ fault” that auto companies are in dire financial straits, but rather it is the “economic crisis” that put a strain on credit and people’s buying power.
“What exposes us to failure now is the global financial crisis and a reduction in industry sales,” Wagoner said – a reduction he attributed to the credit crunch.
“It’s not our employees, not our cars, not our operations” that are causing the problem, GM’s Wagoner said. “We will use this bridge to pay for essential operations, employee wages, and taxes.”
Chrysler’s Nardelli told the panel that without “immediate bridge financing support,” to help it across “the financial chasm” before it, Chrysler's liquidity could fall “below the level necessary to sustain operations'' as early as next week.
But Shelby and committee colleague, Sen. Bob Corker (R-Tenn.), were openly skeptical -- questioning what the long-term effects of issuing a “bridge loan” would be and whether it would even be helpful.
“People already think the auto industry has failed, that your model has failed,” Shelby said, asking what assurances the CEOs could give that taxpayers would be repaid their $25 billion.
Chrysler’s Nardelli would only assure Shelby that the auto manufacturers “would generate profit” -- but offered no details.
“We wouldn’t be here today if we didn’t have a high confidence level that we could weather this storm,” Nardelli said.
Mirroring Shelby’s sentiments, Corker (R-Tenn.), meanwhile, told the three: “You are going to come back for more” – adding that they would have to, given their financial situation.
Corker also wanted to know why the three had “made a pact” to stick together on this issue – especially since some of the companies were worse off financially than others.
“Why are we talking about three companies that are each in a very different situation?” Corker asked.
Ford, he said, has “done a better job” of handling its financial situation, but GM “barely has a heartbeat.”
On Nov. 7, when the automakers released their third quarter financial statements, Ford Motor Co. reported losses of $129 million -- and the struggling automaker burned through $7.7 billion in cash in the quarter.
At the same time, Chrysler indicated it lost more than $1 billion during the first half of 2008.
GM, in the worst shape, said it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009.
The committee’s Republicans weren’t alone in their skepticism. Sen. Robert Menendez (D- N.J.) questioned the $25 billion figure itself.
“How did you come up with $25 billion?” he challenged. “All economists are saying that the economy will take at least a year to a year-and-a-half to recover. How does this number ($25 billion) take you there?”
Corker, meanwhile, pointed out that the amount each of the auto companies was asking individually had only been revealed to the co-chairman of the Senate Auto Caucus, Sen. Carl Levin (D- Mich.).
“We want to know what each of you have asked for,” Corker said. “Which of you three should survive and which shouldn’t?”
Reluctantly, the three top executives complied. Chrysler is asking for approximately $7 billion, Ford for between $7 and $8 billion and GM somewhere in the $10- to $12-billion range.
Nardelli listed Chrysler's current obligations, including: $20 billion in health care obligations, $2 billion in annual pension payments to retirees and surviving spouses, about $7 billion in current payables and $35 billion in future annual supplier business. In addition, he said, Chrysler pays $6 billion in annual wages.
Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission, meanwhile testified at the hearing that even with a $25 billion loan, extremely high labor and product development costs would keep the auto makers from becoming profitable.
“They (the Big Three) are saying that they are the victims of the suppressed credit market conditions owing to the credit crisis and that people can’t borrow money to buy cars,” Morici said.
The automakers, he said, are wrong to believe that, if they can just get through this period until credit markets recover, they will be able to “make and sell cars at a profit, repay the loans and move forward from there.”
“My view is they can’t do that because their labor costs are too high and their product development costs are too high,” Morici told CNSNews.com
The committee chairman, Sen. Christopher Dodd (D-Conn.), who is supportive of a bridge loan to the auto industry, said that he does “not think it is likely'' that any aid will be approved in the next few days.