Each Player in Big Three Auto Makers to Bring Its Own Plan

If GM intends to reduce their North American operations, including shutting more factories, why should tax payers pay them to eliminate more U.S. jobs?
---BBB

12/1/2008
Each Player in Big Three to Bring Its Own Plan
By BILL VLASIC
New York Times

DETROIT " The Detroit automakers have been lumped together for decades as the Big Three, and for good reason; their goals have usually been aligned.

But this week, as the automakers take a second run at Congress, hoping to persuade lawmakers to give them $25 billion in federal aid, their agendas are diverging as they contemplate futures as drastically different car companies.

Those differences will become clear as they deliver more detailed plans for how they would use that money not just to survive, but also to turn themselves around to be competitive in the long term.

That should make for a sharp contrast to the hearings two weeks ago, when the executives presented a united front, saying in lockstep that it was the credit crisis and weak economy, not their strategies, that had put them in dire straits.

General Motors, the biggest of the troubled car companies, is expected to propose a significant shrinking of its North American operations, including shutting more factories and streamlining its sprawling brand lineup, according to people with knowledge of G.M.’s deliberations.

One move under discussion, for example, would have G.M. buy out dealers that exclusively sell Saturns and market the cars through its Buick-Pontiac-GMC dealers instead, according to these people.

G.M. is also likely to propose moves that would require cooperation from the United Automobile Workers union, including delaying the company’s $7 billion payment to the union’s retiree health care fund.

The Ford Motor Company, however, is not likely to propose more cuts, as it is further along than Chrysler and G.M. in shifting to a more fuel-efficient lineup of vehicles. It also has more cash to weather the downturn. Instead, people with knowledge of Ford’s strategy say the automaker is considering more symbolic moves, including reducing the pay of its chief executive, Alan R. Mulally, who earned more than $21 million last year.

The third automaker, Chrysler, which is privately owned, has acknowledged it is running out of cash and may tell Congress that it needs a merger or alliance with another company to survive long term.

The U.A.W., whose members build cars for all three companies, is not involved in developing any of the plans, even though its political influence is a crucial factor in whether a bailout gets approved.

On Tuesday, G.M., Ford and Chrysler are scheduled to deliver separate aid requests to lawmakers, who will hold hearings on the plans later in the week.

The critical components in each of the plans will be how the companies expect to spend their share of the money, and what changes each automaker will make to shore up their faltering operations.

“We need to understand what this money is going to be used for and why it makes sense for the American people to invest in these companies,” said Senator Claire McCaskill, Democrat of Missouri, in an appearance on “Fox News Sunday.”

At the forefront is G.M., whose board began a two-day meeting on Sunday to complete its aid request.

G.M., which has lost more than $20 billion so far this year, is asking for up to $12 billion to keep its operations running through 2009.

The company has suffered a steep decline in revenue this year, in what has been the worst market for vehicle sales in the United States since the early 1990s.

G.M. has previously announced huge cuts, including a 30 percent reduction in white-collar costs and the elimination of health care for salaried retirees.

But the company, under the direction of its embattled chairman, Rick Wagoner, is expected to reorganize further to win over skeptical lawmakers.

People with knowledge of G.M.’s plans say the automaker may eliminate one or more of its eight domestic brands and downsize its manufacturing capacity to match its shrinking market share.

“It’s clear that G.M. has to shrink, but the bigger question is, How does the company change its structure and do business if it gets smaller?” said John Casesa, a principal in the automotive consulting firm the Casesa Shapiro Group.

The union’s president, Ron Gettelfinger, said Sunday that his members were prepared to reopen bargaining on terms of their contract. But he said the automakers needed to share in any sacrifice by limiting executive pay and other compensation.

“They need to establish that executive compensation is something that they’re willing to curtail, as well as bonuses and golden parachutes on exiting the business,” he said on the CNN program “Late Edition.”

During the first round of Congressional hearings on the bailout last month, Mr. Wagoner and his counterpart at Ford, Mr. Mulally, declined to say whether they would cut their salaries. Chrysler’s chairman, Robert L. Nardelli, said he would consider taking a nominal $1-a-year salary.

All three executives were also roundly criticized for flying to Washington on corporate jets. The companies have said that the chief executives will find other means of traveling to this week’s hearings.

While G.M. will lay out specific changes in its future business plans, Ford is expected to detail its efforts to transform itself from primarily a manufacturer of larger vehicles into a producer of smaller, more fuel-efficient passenger cars.

Both G.M. and Ford are using up more than $2 billion in cash a month, but Ford has greater cash reserves " $18.9 billion compared with $16.2 billion at G.M. " and a $10.7 billion line of credit from private banks to carry it at least through 2009.

Because it is in better financial shape, Ford is not asking for an immediate infusion of government money. Instead, the company will seek access to about $7 billion in federal aid only if its own cash runs out.

“Our position is different,” Ford’s executive chairman, William C. Ford Jr., said in a recent interview. “Our position is what we’d like to have is access to a line of credit if we need it. And we hope not to need it.”

Still, people familiar with Ford’s strategy say the company is mulling whether to offer concessions to gain Congressional support " including cutting Mr. Mulally’s salary.

Of the three automakers, Chrysler may have the most difficult case to make for government assistance.

Because its majority owner, Cerberus Capital Management, is a private firm, Chrysler is not required to make public financial data like revenue and earnings.

During the last hearings, Mr. Nardelli revealed under questioning that Chrysler was spending more than $1 billion in cash a month and had already studied the possibility of filing for bankruptcy.

In an e-mail message to employees last week, Mr. Nardelli said its explanation for how it would use $7 billion in government loans was a simple one. “In short, the money would be used to support our ongoing operations,” he wrote.

But to get support from lawmakers, Chrysler will probably have to open its books to Congress and lay out its longer-term business plans.

“We have to know what the financials are internally, particularly Chrysler, since it’s a private company,” Ms. McCaskill said.

Chrysler is expected to reiterate its overall strategy to pursue alliances and partnerships with other automakers to defray the costs of developing new vehicles.

The company had been in merger talks with G.M. until Nov. 7, when G.M. canceled the discussions to focus on its own deteriorating financial conditions.

People knowledgeable about Chrysler’s plan said Mr. Nardelli might suggest that a merger was still the company’s best opportunity to survive long term.

Executives from all three companies have said that setting a positive tone at the hearings is critical to winning support from lawmakers.

After coming to the previous hearings seemingly unprepared, the Big Three will go into detail on gains they have made in cutting jobs and plant capacity, developing more fuel-efficient cars and investing in alternative technologies like electric vehicles.

But the companies will mostly focus on their own efforts to change, rather than their collective transformation.

People close to the Big Three said there were no plans yet for the chiefs of G.M., Ford and Chrysler to share details of their testimonies with one another. And each company has been assured by Congressional leaders that any proprietary information will be kept confidential.