Big Three's Uphill Drive
by Elizabeth Olson, Portfolio Magazine
The chief executives of Detroit's Big Three are doggedly trying to turn back what seems to be a rising tide in Congress against spending billions of dollars to rescue the domestic auto industry.
Fresh from a skeptical Senate audience the day before, the auto chieftains spared no effort to persuade the House Financial Services Committee, fielding a phalanx of Michigan lawmakers to argue for approval of what they called a loan, not a bailout.
The executives looked positively elated to hear Carl Levin, senator of Michigan, warn that "time is shorter than short." The Democrat acknowledged the need for stringent conditions on any government rescue, but asked his colleagues not to "throw millions of jobs overboard in your frustration."
Encouragement among the House panel's lawmakers, however, was scant. The first shot across the bow came from the committee's ranking Republican, Spencer Bachus of Alabama, who said that G.M.'s $75 average hourly wage was "three or four times what my constituents are making."
Auto industry management should "not kick the can down the road," he said, but first sit down "and hash out a solution to make these companies competitive."
Democrats weren't any easier on the Big Three executives.
"There's a delicious irony that there are private luxury jets landing in Washington with people who have tin cups in their hand," shot Gary Ackerman, the New York Democrat. "It's like seeing people show up at soup kitchens in top hats and tuxedos. Couldn't you have downgraded to first class or pooled jets?"
Underscoring public opinion that not just hefty pay packages but upscale perks also need to be banished, Brad Sherman, a California Democrat, asked the panelRick Wagoner of G.M., Alan Mulally of Ford Motor, and Robert Nardelli of Chrysler as well as the president of the United Automobile Workers, Ron Gettelfinger"raise your hand if you flew here commercial."
Not one hand was raised, and Sherman honed in: "Are you willing to sell the jet here and fly back commercial?"
Nobody ventured a peep, let alone a hand. Wagoner, looking pained, gave a slight shrug as Sherman said: "I don't know how I go back to my constituents and say the auto industry has changed."
It didn't take lawmakers long to focus on one of the hottest issuesexecutive compensation. And it was a RepublicanPeter Roskam, of Illinois, who challenged the auto executives to work for $1 a year.
"Those things really matter, and they set a tone," he said. But his query produced an unenthusiastic response. Wagoner of G.M., who grew increasingly flushed under the questioning, said he had given up cash bonuses in three of the last four years, and had voluntarily reduced his salary. But when Roskam persisted, asking him whether he would work for $1, he demurred.
Mulally tried to dance around the question, but when Roskam repeated it, he replied: "I think I'm okay where I am."
When it came to his turn for questioning, Paul Kanjorski, a Democrat of Pennsylvania, tried to pin down the elusive specifics of the industry's financial condition.
"When will General Motors run out of money?" he asked Wagoner.
"We don't have the luxury of a lot of time," Wagoner parried.
Undeterred, Kanjorski pressed: "How much money do you need until March 30?"
Wagoner equivocated, and the lawmaker pointedly repeated: "Maybe I'm dense. How much money do you need to survive from today until March 30?"
The G.M. chief conceded that under "the worst-case scenario, it would be $5 billion a month if the market doesn't turn around."
So, Kanjorski retorted, "You will be out of money then?"
Wagoner, who said G.M.'s forecast is based on selling cars at the current leveland not lowersaid, "We think we have a good shot to make it through next year."
During repeated questioning, Wagoner and his counterparts insisted that the problem was the flailing economy and credit crunch that has stymied car loans, not their management.
"It's not G.M., but the economy that has landed us in such a precarious position," he maintained. "Our industry needs a bridge over a financial chasm."
"Many people have a picture of G.M. that does not reflect what it has been doing" to shave costs, pare product lines, and reduce benefits and health-care costs, Wagoner argued. He insisted that American automakers are "matching, or besting, our foreign competitors."
He argued that closure of automakers would be a devastating blow to the American economy in terms of lost jobs, benefits, and tax revenuesarguments that are not new but seemed to touch some lawmakers, especially those whose districts are involved in U.S. automaking.
Gettelfingerwho spoke much less than the auto chieftainsargued that the union was continually negotiating, and had made a number of concessions on wages and benefitsincluding slashing the wages of newly hired workers.
Not everyone was convinced. Donald Manzullo, Republican from Illinois, questioned why car loans were so difficult to get if community and other banks have plenty of money for loans as they testified at a separate committee hearing Tuesday. Other lawmakers questioned why a tax break to consumers for buying cars wasn't a better idea than infusing that money into a dying industry.
Another Republican, Patrick McHenry of North Carolina, tried to unearth what bankruptcy plans the automakers havebut the manufacturers swatted that off, insisting they would survive. Later, Jeffrey Sachs, of Columbia University, excoriated the idea of bankruptcy, arguing that it simply could not work given the absence of markets.
But Jackie Speier, Democrat of California, noting that Congress "has become the people's bank of the United States" quoted from Deutsche Bank and other analyses of the auto industry, which said bailout costs would likely rise to $30 billion. She triedin vainto get the Big Three to commit to fuel-efficient vehicles ahead of their current schedule.
Barney Frank, the Massachusetts Democrat who chairs the committee, raised the sticky issue of whether there is "a double standard for blue-collar employees being judged by a standard that is different than white-collar employees."
"The average A.I.G. (American International Group) worker makes a good deal more than a blue-collar worker," he said. Noting that "bankruptcy has become the new spectator sport, with people perfectly willing to let others go through it," Frank said the idea that it's acceptable to rescue financial-industry workers but not their blue-collar counterparts" is something that needs to "be confronted honestly."