Selling brands and cutting leasing programs, renegotiating deals with union officials and encouraging worker buyouts, the carmakers are doing everything in their power to raise money and cut costs, and they're still barely staying afloat.
That's why Congress's energy bill included $25 billion in loans to help meet stricter fuel efficiency standards. But now that the time to fund the mandate is drawing near, things aren't looking as certain as they should be.
Ralph Nader is among those leading the call for a cold shoulder to Detroit, saying they don't deserve a federal bailout and that "the taxpayer should not be played for a sucker," reports the Detroit News. Instead, he argues, the government should conduct a public takeover or treat the situation as it did with Chrysler in 1979. But neither solution appears to be an improvement over the proposed loan guarantees.
A public takeover would be fraught with the difficulties of finding the right talent to run it, not to mention government oversight and overhead. Treating the problem like Chrysler's disco-era crash would mean loan guarantees supplemented by government defense contracts. How that's substantially different from the loan guarantee package on its own isn't made clear in Nader's position. The 1979 deal involved $1.5 billion in loan guarantees, which in 2008 dollars equates to about $4.45 billion, a large sum of money, but still likely short of Chrysler's share in any of the proposed loan guarantee programs. GM and Ford could be expected to require an even larger share.
Ford thinks loans are the right way to go for its business, but how the financing is secured is what's still up in the air, according to its CEO Alan Mulally, reports Automotive News. "The only conversation we have now is, what is the right way to finance, and what is the right provision for deciding which companies participate," Mulally told reporters. "We are very positive."
Getting the loan guarantees at interest rates that would make retooling affordable is the lynch pin in the financing strategy. Loans at 20% interest aren't a tenable cost, and with the current state of the automotive and finance industries, none of the Detroit 3 are able to get financing at reasonable rates. The recently announced bailouts of Freddie Mac and Fannie Mae are just the visible evidence of the state of finance in the U.S.
The alternative to securing low-interest government loan guarantees is dire, however. Without a significant infusion of funding, meeting the tough government mandated fuel efficiency requirements, at both federal and state levels, will be impossible. That means that the companies would not be able to sell the cars they could produce, effectively legislating them out of business, at least in the U.S. market.
"This industry could fall down, literally, or be absorbed if they don't get something in place very soon. I think it's that severe," said Congressman Joe Knollenberg, R-Bloomfield Hills.
Raising more funds from sales of subsidiaries and valuable nameplates is a limited avenue, since all three have already liquidated large parts of their holdings. Ford completed the sale of the remainder of its Premier Auto Group (PAG) - with the exception of Volvo - to Tata Motors earlier this year. GM is actively seeking a buyer for its Hummer brand, though nothing has yet been made public. And Chrysler is shopping the Viper brand around as its own marque. Beyond those moves there are few choices that aren't core brands and products the companies rely on for their image and brand identity.
The only serious alternative for the Detroit 3, outside of government loan guarantees, comes from the UAW. By deferring payouts to Voluntary Employee Beneficiary Associations, or VEBAs, GM is seeking to effectively free up money now. Already the company plans to defer $1.7 billion in payments over the coming year. How much more money can be freed up by deferring VEBA payouts, and for how long, isn't yet clear. Ford and Chrysler could also likely employ this method to help their bottom lines, but even so it requires a 9% interest rate and can only go so far.
