Big Three CEOs Plead Their Case

As Congress considered whether the Big Three auto makers would be the next beneficiaries of government financial assistance, General Motors bought a full page ad in The Wall Street Journal to make the case that the company is worthy of a loan, based on steps that it has already taken to improve its financial position and plans for continued progress.

According to the ad, GM has reduced structural costs in North America by 23 percent since 2005; eliminated raises, bonuses, and 401(k) matches for executives and salaried employees through 2009; negotiated a landmark labor agreement with the UAW that will enable the company to eliminate the trade gap with foreign automakers; addressed legacy costs like pension and retiree health care in the United States and shifted production from trucks and SUVs to smaller cars.

The ad went on to state that the company will use federal money to launch key cars and crossover vehicles, maintain its leadership in developing advanced propulsion technologies, reinvent the auto industry by introducing a new extended-range electric vehicle and maintain full engineering, technology, capital, and operational requirements.

CEO Rick Wagoner wrote in a WSJ editorial that "such assistance will save millions of jobs now and produce enormous benefits for years to come."

The crisis in the auto industry is not of their making, Big Three executives contend; their woes stemmed from failures in the financial industry. But members of Congress at this week's hearings aren't buying into the rescue idea, unlike the response for the airline industry's crisis after 9/11, when carriers suffered heavy losses due to the shutdown of flights.

The bailout for banks has reminded Congress that the devil's in the details; wrestling with the best methods of assisting automakers in ways that benefit employees, taxpayers, and the health of the U.S. economy creates as many questions as answers, dimming the likelihood that automakers will prevail. The proposed legislation, which is based on a 10-year, $25 billion loan to the companies, causes concerns in many quarters. "The proposed legislation doesn't say where such a loan would sit in the companies' capital structures," writes David Reilly in a WSJ editorial. Figuring that out is tough.

"The government can't simply come in as the most senior lender. That is because in Ford's case for example, its assets are already being used as security against its bank debt."

Free traders on Capitol Hill would prefer to see automakers operate in Chapter 11 in the belief that it would be the only way the firms can make needed changes to ensure sustainability in the long term.