The Real Price Of The Auto Bailout

Some Estimates As High As $75 Billion-$125 Billion To Save Industry, Reports CBS' Sharyl Attkisson

(CBS/AP)  U.S. automakers drew fresh skepticism from lawmakers Thursday in a rocky confrontation over their pleas for an expanded $34 billion rescue package they say they need to survive.

After the six-hour hearing before the Senate Banking Committee, General Motors Corp. CEO Rick Wagoner said he's optimistic that Congress will reach an agreement to help his company survive its critical cash shortage.

Wagoner said he's encouraged that Banking Committee Chairman Chris Dodd, D-Conn., expressed an interest in staying in Washington until a rescue plan can be crafted

But with time on the current Congress running out, opposition to the bailout appeared to be as strong as last week - before Detroit's Big Three auto chiefs returned to Congress with more detailed plans on how they would spend the money.

And congressional analysts said one bailout plan under consideration would fall short of what the carmakers want.

Several lawmakers in both parties are pressing the automakers to consider a so-called "pre-packaged" bankruptcy in which they would negotiate with creditors in advance and downsize, then file for Chapter 11 protection in hopes of emerging quickly as stronger companies. The Big Three have publicly shunned the notion, saying it would kill sales by destroying customers' confidence - but executives have indicated in recent days that it might ultimately be necessary.

The executives all agreed in Thursday's hearing that a multibillion-dollar bailout deal would include a supervisory government board that could order major restructuring of the companies if deemed necessary for survival - similar to the results in many reorganizing efforts under bankruptcy law.

Perhaps the harshest dose of reality came from economist Mark Zandi, reports CBS News' Sharyl Attkisson

"The $34 billion in loans requested by the Big Three will not be sufficient for them to avoid bankruptcy at some point in the next two years. They would ultimately need, in my view, somewhere between $75 billion and $125 billion to avoid this fate."

The automakers may know that. CBS News dug into the numbers and found they're actually seeking way more money than they appear to be:

In addition to the $34 billion at issue today - $18 billion for GM, $7 billion for Chrysler and $9 billion for Ford - each company has applied for billions of dollars in federal funds from the Department of Energy, another $8 billion for GM, $8.5 billion for Chrysler and $5 billion for Ford. On top of that, they're seeking a piece of the $700 billion bailout fund aimed at Wall Street, though they haven't publicly disclosed the amounts.

That puts the real taxpayer sticker shock somewhere above $55.5 billion.

United Auto Worker union President Ron Gettelfinger, aligned with the industry in pressing for the aid, told senators at that any kind of bankruptcy, even a pre-packaged one, was not "a viable option." Gettelfinger said consumers would not buy autos from bankrupt companies, no matter the terms of the arrangement.

He also warned that in the absence of action by Congress: "I believe we could lose General Motors by the end of this month." He said the situation was dire and time was of the essence.

Meanwhile, Rep. Barney Frank, a Democrat, who has been dealing with both the financial bailout and the auto rescue proposal as chairman of the House Financial Services Committee, said President-elect Barack Obama needs to play a more significant role on economic issues.

"He's going to have to be more assertive than he's been," Frank said at a Consumer Federation of America conference in Washington. "At a time of great crisis with mortgage foreclosures and autos, he says we only have one president at a time. I'm afraid that overstates the number of presidents we have. He's got to remedy that situation."

At the Capitol building, the Big Three chief executives told the senators they hoped to make amends for past blunders. "We made mistakes, which we're learning from," General Motors chief executive Rick Wagoner said. Ford chief executive Alan Mulally also acknowledged big mistakes, saying his company's approach once was "You build it, they will come."

Chrysler CEO Bob Nardelli made similar comments in an interview with CBS News anchor Katie Couric Thursday.

"We produced more vehicles than our customers wanted, then slashed prices," he said. But as a result of these past mistakes, "we are really focused," he said.

Congressional Democrats have urged the administration to tap into an already enacted $700 billion financial bailout program to help the auto industry. The Bush administration has said that it has no intention of doing so, and would prefer aid be taken from an earlier $25 billion program to help the industry retool its plants to make their vehicles more fuel-efficient.

But congressional budget analysts have privately told top Democrats that tapping that program wouldn't come close to covering the $34 billion that carmakers now say they need to survive.

It would yield only $10 billion to $15 billion in short-term loans, the analysts claimed, according to congressional officials who spoke on condition of anonymity because they were not authorized to disclose the analysis.

The Big Three executives made the trip from Detroit in new-model hybrid autos made by their respective companies, two weeks after a botched appeal for $25 billion in which they were chided for flying on private jets to beg for money.

Nardelli promised that his company, recipient of a previous government-subsidized rescue loan in the 1970s that it repaid, would repay taxpayers by 2012 and would devote itself to manufacturing "fuel-efficient cars and trucks that people want to buy."

The Big Three executives said they would be willing to work under a federal oversight board as a condition for receiving financial aid from the government.

Dodd and several others on the panel asked them if they would agree to a setup like the one established for the U.S. bailout of Chrysler Corp. in 1979.

Sen. Mike Crapo, a Republican, said such an oversight board would be "basically a federal restructuring trustee" with some of the same powers as a bankruptcy court.

"I did not hear any objection from any of the three of you to the establishment of an oversight board or whatever we call it, of a federal oversight entity that has the literal authority to impose restructuring conditions and to enforce those as a matter of law as these dollars are utilized. Am I correct?" Crapo asked.

The three answered in the affirmative, although Ford's Mulally said, "I probably need to think about that a little bit. It sounds right, but I just don't know all of the implications of that."

Sen. Richard Shelby, the senior Republican on the panel, complained that the pricetag on the package had jumped since the trio last appeared just two weeks ago. He pressed the automakers to explain why, and to justify how such aid would not simply "prop up a failed business model for a few months ... and how are you going to pay it back to the taxpayers?"

Banking Committee Chairman Chris Dodd, a Democrat, supports helping the industry, but said that detailed plans submitted earlier this week on how the companies would use low-cost federal loans to reorganize still left a lot of questions unanswered.

But Dodd also said that doing nothing "plays Russian roulette with the entire economy of the United States."

[payasyougo]

And after the taxpayer money runs out. What then?

[mh4cbs1]

The problem is all these greedy Union workers in America. Why can''t they work for lower wages like the rest of us? They still act like it is 1950, where a family could have a good middle class job on a decent wage.

But those days are gone! Now to enjoy the benefits of free trade we all have to sacrifice so that we can compete with 3rd world wages. This is the beauty of Globalization. Without it we could not by lots of cheap plastic stuff made in China at Super Walmart. Without it, our CEOs and the super rich would not have seen such a massive increase in their wealth over the last couple decades.

So, you want to save GM?? Stop whining about the economy and cut your wages and benefits like the rest of us! Work for less so the wealthy can enrich themselves. This is the American Dream that Ronald Reagan got you to believe in with his charm and smile. Why are you complaining about it now??

[jsd330]

I would sure like to know where you can get a union carpenter for $27 per hour. If I call a plumber it''s $50 to walk in the door and another $50 minimum even if it takes less then an hour to do the job. All the union trades in my area pretty much make the same hourly rate.And the non union might charge $1 an hour less.
My wife has been a nurse for 30 years and makes if you divide the hours up that she works about $30 per hour of course she puts in anywhere from 9 to 12 hours per shift no overtime she''s paid salary . So with her benifits it probobly comes out to $80 per hour, So according to some of the posts I''ve read she should take a 50% pay cut because her hospital isn''t making enough money to stay out of the red. Why are they in the red , because they can''t turn a person away even if they have no means to pay for the services, and in our area there are a lot of unemployed and uninsured people. When the auto industry shuts down and the workers don''t have insurance and can''t pay their medical bills, guess what $450 will be cheap the price will probobly jump 25 to 50%.It''s called the ripple effect. You are going to pay one way or another.

[tincup356]

to farh 451,By the time next election rolls around , party line voters will have forgotten the reason they have lost so much and suffered.they will dance happily to the polls and vote their party line no matter how bad their representative had ignored them and courted the lobby dollar.The only hope we have is that those people wake up and realize...the same jokers will never represent them.Switching parties is no better , both the democrats and the republicans have taken turns telling lies to gain control for at least the last50 years.Yes its time for change....get rid of the corrupt two party system that encourages corruption, outlaw lobbying completely, and term limits.

[alanrobisch]

It''''s OK to bail them out, just fire the current management. All of them. As far as them wanting a blank check what do you expect of Republicans. They wanted a blank check to wage war for oil execs. And for their filthy banking crime associates.


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Posted by noloyalisti at 07:02 PM : Dec 05, 2008
+ report abuse

Now lets see did you check their registration. I know the unions are pro dems and dems have given them sweetheart deals whenever they could. Blame can be split between both. Attacks on republicans is foolish. It has nothing I mean nothing to do with the problems of the auto companies.

[alanrobisch]

The problem with health care is simple...GREED.Research and development costs are ridiculous,people want to gripe about auto workers being paid 70 $ an hour , I just got a doctors bill for a emergency room visit for which the doctors fee only was 450$ for 15 minutes now tell me that is fair and I''''ll tell you to kiss my a$$.


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Posted by tincup356 at 07:02 PM : Dec 05, 2008
+ report abuse
one knows how to save people''s lives as they did my wife''s the other knows how to put in bolts on a machine. I have much greater respect for the skill of a good carpenter who get paid even at union scale less than auto workers

[noloyalisti]

It''s OK to bail them out, just fire the current management. All of them. As far as them wanting a blank check what do you expect of Republicans. They wanted a blank check to wage war for oil execs. And for their filthy banking crime associates.

[jsd330]

If the majority of you want the big 3 to go down then stop talking Chapter 11 and start talking chapter 7. Close them down completly, liquidate their assets,lay everybody off, no more UAW,no more american car companies. Of course there won''t be anbody to buy their assets, Since the banks even with their bailout still haven''t opened up the credit market.
By the way, what happend to all this bank bailout money, nobody seems to want to talk about that. Where did all that money go ? No accountability no plan.

[unlresources]

If you think cars look all the same nowadays just wait till the government gets into the mix of designing new models. Imagine a vehicle that''s twice as wide as it is long, sits higher than a SUV, has recalled tires installed to save production costs, consistently has reliability issues because of the lowest bidder network. Washington should stay out of the automotive designing industry since they have the opposite effect of the Midas touch. Wasn''t it the former Soviet Bloc countries that had state driven automotive industries. Who cannot forget the Trabant or the Yugo, just to mention a couple of of disasters.

[ord6591]

If we don''t buy them then the company suffers, if the company suffers they go to Washington and ask for the money we wouldn''t give them on our own (by buying their overpriced junk)? They saw this coming years and years ago which is why they went offshore for so much of their manufacturing - reorganize and restructure, no bailout!

[jt_lancer]

It seems that the domestic auto companies might be running out of cash, but still spent millions this year to keep politicians happy.

The auto industry spent nearly $50 million lobbying Congress in the first nine months of this year. And people tied to the auto industry gave another $15 million in campaign contributions.

It''s not surprising that a lot of that money went to members of Congress from Michigan, where the auto industry is the biggest employer and politicians are passionate advocates for their constituents.

Take Sen. Carl Levin, who received $438,304 from the automotive industry. And in the House, Rep. Joe Knollenberg received $879,327. Rep. John Dingell got nearly a million from the industry. All have enjoyed generous support from the auto industry over their careers, with GM and Ford as their two top contributors.

All support a bailout.

The politicians are essentially running a protection racket.

[craigh9]

So, we were in favor of bailing out Wall Street, which we did to the tune of 700+ billion dollars, and still we are in a economic slump, with the banks who received the bailout money still laying off workers, and with no end to the crisis in sight. So, now when an industry that actually employs workers needs a bailout that pales in comparison with Wall Street, we decide not to. What are these bailouts for, I ask? is it to really help Americans in trouble with this economy, or is it one last corporate grab at the cookie jar before it empties?

Posted by fornicario at 10:05 AM : Dec 05, 2008

These comments kill me - IF NO HELP WAS FORTHCOMING TO MAINTAIN OUR BANKING SYSTEM THE BIG # WOULD HAVE BEEN COMPLETELY CLOSED DOWN NOW.
You can''t manufacture a gumball without financing. To say that was inappropriate and that the right way to focuse the money to industry is assinine.
Banking is a SYSTEM that reaches into every fiber of our lives. The big 3 are COMPANIES providing a necessary product but one that can be obtained in other ways. Do I want to see them close - certainly not - but we have a system for them to survive - CHAPTER 11 BANKRUPTCY, it provides protection, funding, and flexibility to allow companies to get back on their feet. Asking the gov''t to create a shadow system specific to the auto industry is counter productive.

[craigh9]

Bottom Line - a $30,000 car from the big three doesn''t sell because it isn''t worth.

Re-organize with less management, lower UAW costs, and reasonable bonus programs based on OVERALL PROFITABILITY and that same car could sell for $24,000 which would be much more appealing.

Chapter 11 allows change in labor costs immediately, no negotiation to go on for months. Business knowledge is brought in for oversight making sure decisions are made to support the business - NOT CEO POCKETS! That is how the Big 3 can be saved - providing a bridge loan just extends the status quo is just delaying the inevitable.

[sepa2]

Turn our health care system into a "non-profit" like every other country in the free world, and the big three wouldn''''''''t even be in trouble right now.
Posted by IwasHungry68 at 09:21 AM : Dec 05, 2008
1. 7K per capital spent on health care. (ranked #1)
2. 16% of GDP (ranked #1)
3. Infant fortality rate: 6.9 per thousand (we''''re behind Singapore, Japan, France, England, Canada)
4. Life expectancy 77.9 yrs (ranked #10) The southern states are leading the disma way in this category.
5. 45.6M people uninsured (15.3%)
Posted by cntrymuzksux
-------------------
It is a misfit to say "Health care". Better to say "health business". Profit, not care in everone''s mind. Look at the abuse of psychatric drugs. It is all for profit.

[koyt1]

The Big 3 and the UAW are afraid of a prepackaged bandruptcy because it wouls destroy "consumer confidence," and people would not buy their cars. Guess what? It has already been destroyed by the way they conduct their business and the rediculous UAW tactics and wages.

[fornicario]

So, we were in favor of bailing out Wall Street, which we did to the tune of 700+ billion dollars, and still we are in a economic slump, with the banks who received the bailout money still laying off workers, and with no end to the crisis in sight. So, now when an industry that actually employs workers needs a bailout that pales in comparison with Wall Street, we decide not to. What are these bailouts for, I ask? is it to really help Americans in trouble with this economy, or is it one last corporate grab at the cookie jar before it empties?

[cntrymuzksux]

Turn our health care system into a "non-profit" like every other country in the free world, and the big three wouldn''''t even be in trouble right now.

Posted by IwasHungry68 at 09:21 AM : Dec 05, 2008

1. 7K per capital spent on health care. (ranked #1)
2. 16% of GDP (ranked #1)
3. Infant fortality rate: 6.9 per thousand (we''re behind Singapore, Japan, France, England, Canada)
4. Life expectancy 77.9 yrs (ranked #10) The southern states are leading the disma way in this category.
5. 45.6M people uninsured (15.3%)

[sepa2]

Now these "lawmakers" who are sitting in judgment, shuold not they shared part of the blamefor not providing leadership? Let us see Carter in 1979 in his energy policy correctly predicted an energy crisis happening around 2005 and adviced detroit to go green. What happened, Reagan came and with the full blessing of the public everythig was reversed and SUV era started. Bushes and Clinton (blessed by computer era)also did nothing.So it is annoying to see these lawmakers blaming everyone eslse but them for this crisis.

[unlresources]

I have an idea....everyone''s tired of hearing the Big 3 CEOs whine and cry out for a bailout. Here''s how you bring reality to these clueless CEOs. Consider the money lost when it comes to stock share value over the past year. Take this percentage that was lost in stock value and deduct the same percentage from the salary that each CEO was paid last year. That remaining percentage is the amount that they would be entitled to and the larger portion would be paid back to the stockholders. This would be one of the only ways to make the CEOs feel the pain that everyone else is feeling right now.

[craigh9]

We are getting a little off point here folks.
The cost of healthcare is not really different in Detroit than it is in Georgia - the quote/unquote "foreign" auto companies have plants in the USA and face the same issues.
Electric cars and/or improved MPG in autos is important - BUT HAVE NOTHING TO DO WITH THIS SITUATION.
The difference is in Detroit the management has been overwhelmingly greedy as well as the UAW - this is what is driving the bulk of this issues.
That greed has resulted in OVERPRICED vehicles for years and now the quality is compromised in an attempt to continue to pocket huge profits. In short, the cars they make today are not worth what it costs to purchase them so the public buys elsewhere in increasing numbers.
Keep it simple - it''s the multiple millions of dollars paid to executives and the HUGE salries of labor coupled with ridiculous programs like the "Job Bank" where they have paid BILLIONS of dollars to UAW Workers (as I use that term loosely) to NOT WORK!
The ONLY way to change that rapidly is Chapter 11, asking those that have destroyed the company to work together to fix it WILL NOT WORK!