The total the U.S. auto industry needs to survive: $97.4 BILLION

PitBull · Feb 20, 2009

WASHINGTON -- Add together all the billions on the table and this number pops up on the calculator -- $97.4 billion.

That's what the U.S. auto industry says it needs from the government to keep itself afloat through a recession that looks deeper every day. The sum will only grow if consumers don't buy more new cars and trucks.

The figure -- equal to $874 from every U.S. household -- includes up to $39 billion in survival loans for General Motors Corp. and Chrysler LLC, a $25.5-billion rescue sought by auto suppliers and $25.4 billion in requests to retool auto plants to build more efficient models.

And it's likely not the end.

Many experts say more of such requests are inevitable. But the White House warned Tuesday there was a limit to the help any industry could expect.

"The president understands that whether it's financial stability, whether it's banks and the lending system, whether it's the auto companies, there can't be a bottomless pit to this," said White House spokesman Robert Gibbs. "There's just not the resources to deal with it."

In their turnaround plans submitted Tuesday, GM and Chrysler said their finance arms would need unspecified federal help to restart lending to consumers. GM warned it could need more federal loans to fill a $12.4-billion hole in its pension plans by 2012. And analysts question how long Ford Motor Co. can last without government help after it spent $5.5 billion in cash in the final three months of 2008.

Following on the heels of a $787-billion federal economic stimulus and a $700-billion financial industry rescue (including financial firm bailouts as large as insurer AIG's $150-billion package), the auto industry's pleas will compete for resources -- and face a skeptical public. The competition includes the prospect of more spending needed to stabilize Wall Street and the housing market.

"The country as a whole has great concerns about the economy, but people are questioning where does government involvement end," Sen. Bob Corker, the Tennessee Republican who helped craft the first auto loan agreement, told the Free Press. "This is even more of a defining moment because of the size of their request."

Obama will convene his task force on the auto industry later this week to review plans from GM and Chrysler. Gibbs told reporters on Air Force One that Obama already had been briefed on parts of the plans, and that the Treasury was exploring the details of the plans with the automakers.

The president has "pointed out that we have to change some of the decisions that Detroit has made in the past, that have come to reckoning now," Gibbs said.

The GM plan laid out Tuesday included cuts of 47,000 workers globally, with a little less than half coming in the United States through 2012. Both GM and Chrysler had reached agreement with the UAW to cut compensation for hourly workers. Chrysler said it would cut 3,000 workers.

Robert Reich, former secretary of labor under President Bill Clinton, said any aid should make a distinction between helping workers and companies, and that preserving jobs should be the first goal of federal help.
"It seems quite odd for taxpayers to be supporting these companies and not supporting the workers who, after all, are the reason for the public to be getting involved in the first place," Reich said. "Otherwise it's just a transfer of wealth from taxpayers to shareholders."

The Obama administration task force will consider GM's request for $2 billion and Chrysler's request for $5 billion in loans by the end of March. GM has said it needs another $2.6 billion in April, another $4.5 billion by 2010 and a $7.5-billion should the market remain at four-decade sales lows.

So far, the federal government has provided the industry with $24.9 billion in assistance, including $17.4 billion in loans to GM and Chrysler, $6 billion to GMAC and $1.5 billion to Chrysler Financial. It has yet to approve loans for retooling, which require a determination that the automakers are financially viable without the loans.

The aid sought by Detroit's automakers is many multiples of their current market values.

The $97.4-billion request for government help doesn't include the $2-billion tax break for new-car buyers included in the economic stimulus plan, a break that was pared back from its original $11-billion estimate.
Corker noted that in December, economist Mark Zandi had predicted that the automakers would need $75 billion to $125 billion in federal aid to survive, a figure the industry dismissed at the time. The plan Corker and other senators attempted to craft was "designed to avoid that" by forcing GM and Chrysler to shed debt, talking bondholders into a two-thirds cut while giving the UAW half of what it was owed for health-care trusts in stock.

Those negotiations were under way Thursday, and Corker said the requests from GM and Chrysler for more government loans threatened to backfill any successful debt reductions from bondholders and the union. He also said that he anticipated that additional loans for the auto industry would come through the Obama administration and the $700- billion financial bailout package, not Congress.

Analysts still were digesting the plans Wednesday, but already raising questions about whether they were enough to keep the companies afloat. Bruce Clark, a senior vice president with Moody's Investor Service, said the firm hadn't changed its December estimate of a 70% likelihood of bankruptcy for both GM and Chrysler.

Shelly Lombard, a credit analyst with Gimme Credit, said the plans still had a lot of blanks to be filled in, including the debt concessions, foreign aid for GM and Chrysler's tie-up with Fiat SpA. But she said it was unlikely that the Obama administration would suddenly decide the industry's survival was not worth the price on the window sticker.

"We only have three car manufacturers," Lombard said. "There probably is some price at which it's not worth saving one or two of them, but I'm not sure what that number is. And you can't replace these guys when they're gone."
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http://www.freep.com/article/20090219/BUSINESS01/902190486/1210/BUSINESS/Bottom+line++U.S.+auto+industry+says+it+needs+$97.4+billion+to+live

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The total the U.S. auto industry needs to survive: $97.4 BILLION

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