Desperate Automakers Launch PR Campaign

The Big Three automakers are taking a page out of their unions' playbooks as they deploy grassroots tactics to drum up public support for the proposed $25 billion auto industry bailout, which is on precarious ground in Washington, D.C.

"Mobilize Now!" cries a Web site created by General Motors Corp. at GMfactsandfiction.com. "Tell your U.S. senators and representatives that support for the U.S. auto industry is in America's best economic interest."

As GM, Ford Motor Co. and Chrysler LLC approached Congress with hat in hand, a whirl of activity in the traditional and new media intensified over the last two weeks to mount public pressure on lawmakers.

What happens to the industry "matters on Main Street," according the GM Web site's home page.

"If a plant closes, so does its suppliers, the local stores, the hot dog vendors, and the local restaurants," the site says.

The company ran a full-page ad in the Wall Street Journal on Wednesday with a more business-oriented tone calibrated for that paper's readers.

"The grassroots effort was to correct falsities and misperceptions that are out there and help people get accurate information about the significant impact of the U.S. auto industry on America," said Kelly Cusinato, a spokeswoman for GM in Detroit.

GM also placed ads in USA Today and other publications to lay out its case that loaning car companies billions of dollars is good for America. Local dealers also placed ads in their cities' newspapers to support the effort.

Meanwhile, a bipartisan group of auto-state senators reached a last-ditch compromise to throw Detroit's Big Three a government lifeline worth billions, but the plan faces an uphill battle in a reluctant Senate.

Warning of economic disaster, Democrats and Republicans from auto industry states reached a deal on an alternative package that would temporarily divert money from a fuel-efficiency loan program to cover the Big Three's immediate costs. But it was unclear whether it could draw enough support to pass. The group, led by Sens. Carl M. Levin, D-Mich. and Kit Bond, R-Mo., scheduled a news conference to announce details.

Meanwhile, at Wednesday's media preview at the Los Angeles Auto Show, there was little of the usual fanfare from the Big Three.

Casting a shadow on the annual event's glitz was the absence of a news conferences or vehicle debuts from GM or Chrysler, whose top executives are in Washington begging for $25 billion in loans they say they need simply to stay in business.

In fact, CBS News correspondent Jeff Gilbert reported that Chrysler's exhibit looked particularly depressing, as the troubled automaker saved money by not adding extra lighting.

At the same time, Asian and European automakers are unveiling new models that will likely chip away at the U.S. market share.

With hats in hand, the leaders of General Motors Corp., Ford Motor Co. and Chrysler LLC painted a grim picture of their financial position during two days of congressional hearings this week, warning that the collapse of the auto industry could lead to the loss of 3 million jobs.

But a plan to give the troubled automakers billions of dollars in government-backed loans is stalled on Capitol Hill, leaving the fate of hundreds of thousands of workers and Detroit's once-venerable car companies hanging in the balance.

Senate Majority Leader Harry Reid, D-Nev., canceled plans Wednesday for a vote on a bill to carve $25 billion in new auto industry loans out of the $700 billion Wall Street rescue fund. The Bush administration and congressional Republicans have rejected the Democrats' plan to dip into that pot of money.

Warning of economic disaster, a bipartisan group of senators from auto industry states is trying to reach a deal on an alternative package. Even if an agreement can be reached, Reid signaled Thursday that the Senate would likely not be able to consider the bill until after Thanksgiving.

"We have some procedural roadblocks," Reid said.

With all sides sensing doom for a rescue of the Big Three, the finger-pointing began.

White House press secretary Dana Perino said that if Congress "leaves for a two-month vacation without having addressed this important issue ... then Congress will bear responsibility for anything that happens."

Congressional Democrats countered that the Treasury Department already had the power to grant emergency funds to the automakers, but the Bush administration opposed the approach.

Detroit's automakers, hurt by a sharp drop in sales and a nearly frozen credit market, burned through nearly $18 billion in cash reserves during the last quarter - about $7 billion at GM, almost $8 billion at Ford and $3 billion at Chrysler. Both GM and Chrysler said they could collapse in weeks.

"I don't believe we have the luxury of a lot of time," GM CEO Rick Wagoner told a House hearing.

Alan Mulally, the CEO of Ford Motor Co., said the company had enough cash reserves to make it through 2009. But United Auto Workers union president Ron Gettelfinger said a bankruptcy could spawn others.

"If there's a Chapter 11 (for) one of the companies, it will drag at least one other with them, if not all of them. And I do not believe Chapter 11 is where it will end. It will go to liquidation," he said ominously.

At the Los Angeles Auto Show, Toyota's general manager Bob Carter said if an American automaker went away, everybody would be hurt.

"The supplier base and the dealer base is very much intermingled, so if there was a disastrous situation by one automotive brand, it would affect all automotive brands," Carter told CBS News' Jeff Gilbert

But CBS News Correspondent Bob Orr said the executives may have shot themselves in the foot with the way they arrived in Washington. "They painted this picture for Congress of a really deteriorating condition, warning that they're about to go under without some help," Orr said.

"Congress then learned that all three of these top CEOs from Detroit arrived in Washington, all separately, on their own personal corporate jet. These are expensive planes, expensive to operate, and so the question naturally was raised on the Hill, 'What are you doing? How can you come here on a private jet and then ask the taxpayers for money?'"

As calls for the Treasury Department to use some of the Congressionally-approved $700 billion bailout program for the auto industry go unheeded, GMAC Financial Services has applied to become a bank holding company, which would allow General Motors' financing arm to be eligible for aid under the government's bank rescue plan.

GMAC said Thursday the change in status would shore up its capital position and allow it to continue providing automotive and mortgage financing.

The financing arms of Ford Motor Co. and Chrysler LLC may also apply to become bank holding companies, and therefore become eligible for a piece of the financial bailout being administered by Treasury.

Romney Says Bankruptcy, Not Bailout

Former Massachusetts Gov. Mitt Romney is behind the forces opposing a $25 billion "bridge loan" for struggling auto manufacturers.

Speaking Thursday morning amid growing signs of gridlock in Congress, Romney said "there's no question but that if you just write a check, you're going to see these companies go out of business ultimately."

He told CBS's The Early Show that he doesn't want to see the carmakers go out of business, "but we don't want them to continue business-as-usual."

Earlier this week Romney penned an op-ed for The New York Times titled "Let Detroit Go Bankrupt," in which he argued that if the Big Three automakers get the bailout they are asking for, "you can kiss the American automotive industry goodbye."

Romney said that, without restructuring, Detroit won't change course from the business practices that have brought them to the brink of collapse. "Detroit needs a turnaround, not a check," he wrote.

Romney, who unsuccessfully sought the Republican presidential nomination, has ties to Michigan. His father, George Romney, headed American Motors in the 1950s and was later the state's governor.

"If you write a check, you're going to see these companies go out of bounds ultimately," Romney told Early Show co-anchor Maggie Rodriguez. "Instead, we have to help these companies restructure - stay in business, but restructure. Shed the unnecessary costs, make them competitive with the transplants and the foreign cars and by virtue of doing that, make sure they stay in business long-term."

Romney clarified that by advocating bankruptcy he did not call for the automakers to close up shop, with the thousands of job losses that would ensue.

"Bankruptcy does not mean closing it down, liquidating it or losing any jobs. The course that this industry is on and been on the last couple of decades has been job loss after job loss, losing market share, unprofitability.

"What I'm talking about is using the court or out-of-court settlement or perhaps special legislation to help these companies get rid of the excess costs that make them noncompetitive, that mean ongoing job losses, and get these companies in a competitive position so they can stay and grow and add jobs. That's the course."

Romney said the kind of restructuring that went on at Chrysler under Lee Iacocca in the 1980s is what has to take place. He said the targets would be excess costs connected to labor, retirees and real estate. "Helping them shed these costs is what is essential," Romney told Rodriguez. "These companies have to become cost competitive or they're going to go away. That's why it's so important to help them. Don't just give them a check and expect them to spend it the way they've been spending the last few years."

What Is "Prepackaged Bankruptcy"?

Lately, the term "prepackaged bankruptcy" has been gaining currency in the halls of Congress as lawmakers struggle with pleas for help from the auto industry.

The idea, embraced by some Democrats and Republicans, would extend taxpayer help in exchange for a company undergoing an accelerated Chapter 11 reorganization. The arrangement could represent a model, or a deterrent, for any other strapped companies considering seeking government help.

Bankruptcy protection has worked before to turn debt-saddled companies in the steel, airline and retail industries into leaner and meaner successes. But a frozen credit market and the rigors of a Chapter 11 reorganization make it a difficult option for struggling companies and an unpalatable solution for many lawmakers.

Simply put, a Chapter 11 bankruptcy lets a company stay alive by paying off creditors over time, retaining control of its assets and reorganizing. In the process, they raise capital, downsize and renegotiate contracts to stay alive.

It's what United Airlines did in 2002. The company filed for Chapter 11, shrank its fleet, cut 26,000 jobs and reduced wages for the rest of its work force. In 2006, it successfully emerged from bankruptcy protection.

But the current financial crisis has changed the bankruptcy terrain. With credit markets frozen, companies would not find easy access to financing. That's why, even as some lawmakers insist that General Motors file for bankruptcy, they acknowledge that federal aid should be part of the package.

New York bankruptcy lawyer Mark Bane recommends that government assistance would serve best during the prepackaging process, leveraging the company's negotiations by setting an expiration deadline on the aid.

Still, bankruptcy is tough medicine. While creditors, suppliers and management take a hit, so do a Chapter 11 company's workers. Besides cutting jobs, pay and benefits, United Airlines also eliminated its pension plans.

Labor unions wince at the idea. Testifying before Congress last year, AFL-CIO Treasurer Richard Trumka decried a bankruptcy system that he said "has become effectively a device for the wholesale transfer of wealth from workers to other creditors."

When Dodd asked United Auto Workers President Ron Gettelfinger this week whether prepackaged bankruptcy backed up with federal guarantees was any more palatable, Gettelfinger cited risks to pensions and to retirees who could lose health benefits and are not yet eligible for Medicare.

What's more, auto executives argued that the stigma of bankruptcy would drive customers away, eliminating a Chapter 11 company's share of the market.

With an auto bailout dead for now, the bankruptcy debate is likely to rear up again next year.

President-elect Barack Obama had urged the Bush administration and Congress to find a way to help General Motors Corp., Chrysler LLC and the Ford Motor Co. In an interview with CBS' 60 Minutes that aired Sunday, he indicated that bankruptcy may not be the answer.

"What we have to do is to recognize that these are extraordinary circumstances," he said. "Banks aren't lending as it is. They're not even lending to businesses that are doing well, much less businesses that are doing poorly. And in that circumstance, the usual options may not be available."

Robert Reich, who was Labor Secretary under President Bill Clinton and is now on Obama's board of economic advisers, has suggested that a company receiving federal aid at least pay a price similar to Chapter 11.

"In exchange for government aid," he wrote in his blog last week, "the Big Three's creditors, shareholders and executives should be required to accept losses as large as they'd endure under Chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts."

Rep. Barney Frank, chair of the House Financial Services Committee, is one is critical of calls for labor to renegotiate contracts with automakers, calling such tactics "union busting."