US automakers' quest for aid apt to force changes

Only a few cars were parked in a lot near a closed automotive factory last week in Detroit. The city, home to the Big Three, would be hard hit if the automakers fall into bankruptcy. (Spencer Platt/Getty Images)

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

But this week, as they take a second run at Congress to convince 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 to not just 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 Detroit's 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 GM's deliberations.

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

GM 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 healthcare fund.

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

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

The United Auto Workers union, whose members build cars for all three companies, is not involved in developing any of the plans, even though its political influence is a key factor in whether a bailout is approved.

Tomorrow, GM, Ford, and Chrysler are scheduled to deliver separate aid requests to lawmakers, who will hold hearings later in the week.

The critical components will be how the companies expect to spend their share of the money, and what changes each will make to shore up 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 Clare McCaskill, Democrat of Missouri, on "Fox News Sunday."

At the forefront is GM, whose board began a two-day meeting yesterday to formulate its aid request. GM, 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 revenue decline this year, in what has been the worst market for vehicle sales in the United States since the early 1990s. GM has previously announced huge cuts, including a 30 percent reduction in white-collar costs and the elimination of healthcare for salaried retirees.

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

People familiar with GM's plans say it 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 GM 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, at the automotive consulting firm Casesa Shapiro Group.

The UAW's president, Ron Gettelfinger, said his members were prepared to reopen bargaining on contract terms reached last year. But he said the automakers need 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.

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

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

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

Both GM and Ford are burning through more than $2 billion in cash a month, but Ford has greater cash reserves - $18.9 billion, compared with $16.2 billion at GM - 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, it will seek access to about $7 billion in federal aid only if its 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."

People familiar with Ford's strategy say it's mulling whether to offer concessions to gain congressional support - including cutting Mulally's salary.

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

Chrysler will likely 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," 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.