Breaking Down the Detroit 3 Bailout Plans

Yesterday, GM, Ford and Chrysler released official plans to Congress in hopes of securing federally backed loans to survive. Both GM and Chrysler say that without immediate cash – meaning, within the next month — the companies will go out of business. The situation is dire and complicated, so we’ve pulled out the information from each that we think matters most. We’ll leave commentary on which of these plans are worthy of funding to you.

GM Plan: Asking for $12 billion-$18 billion, 21-page plan

• Needs $4 billion by the end of December to survive, $4 billion in January, $2 billion in February-March, $6 billion to keep in reserve.
• Repayment to begin in 2012, even under the company’s “downside” scenario of meager car sales.
• 22 of 24 new models between 2009 and 2012 will be cars or crossovers. Meaning there will be two new trucks or truck-based SUVs, too.
• Vehicle lineup will meet future government mileage requirements.
• The company’s eight brands will be consolidated.
• Agrees to government oversight.
• Currently renegotiating UAW contracts to be cost-competitive in salary by no later than 2012.
• CEO Rick Wagoner will take a $1 salary for 2009; executives overall will not get bonuses for 2008 or 2009, and will see salaries reduced 20%-30% in 2009.
• Will be profitable with annual industry sales between 12.5 million and 13 million units. 2008 will likely see no more than 11 million in total sales.
• Ceases all corporate jet operations.
• Reduces total dealers by 1,750 by 2012.
• Reduces engine sizes: “Eight-cylinder engines are replaced by six-cylinder engines, six-cylinder engines are replaced by four-cylinder engines,” with the appearance of four-cylinder engines increasing by 42% in the lineup by 2012; 90% of the lineup will have six-speed transmissions by then.
• Car fleet mileage up to 37.3 mpg in 2012; trucks up to 27.5 mpg.
• Will work with other companies to collaborate to streamline costs.
  

Chrysler Plan: Asking for $7 billion, 14-page plan

• Needs $7 billion by Dec. 31 to survive.
• Plans 24 “major product launches” through 2012, including a number of electric and gas-electric hybrid vehicles.
• Says it will comply with government requirements when it comes to executive compensation, but makes no mention of definitive numbers in the plan itself. CEO Robert Nardelli has already agreed to a $1/year salary.
• Says it will cooperate with the government for oversight.
• Will allow the government to call the loan by March 31, 2009, if the company doesn’t meet benchmarks.
• Will repay government loan in part by 2012.

Ford Plan: Asking for $9 billion, 31-page plan

• Ford won’t tap “standby” line of credit unless the market continues to be as bad as it has been for the past few months.
• Says 2009 will have worse car sales than 2008.
• Will realign U.S. and global product mix to share vehicles, reducing R&D and other costs.
• 50% of cars made in the U.S. will be small and midsize vehicles.
• Looking to sell Volvo.
• Nearly all U.S. plants will be set up for flexible manufacturing to meet shifting consumer demands.
• Will reduce supplier base to 850 from 1,600 today.
• By the end of 2008, will reduce dealers by 606 compared to 2005 levels. Will reduce more dealers, but only unspecific numbers mentioned.
• No merit raises or bonuses to be paid in 2009.
• Reopening union negotiations to lower hourly costs.
• Will “redefine” existing products, including the Ford Explorer. 2011 Ford Explorer will get better highway mileage than Toyota’s Highlander Hybrid, which gets 25 mpg on the highway.
• 2011 Ford Fiesta will get better highway mileage than Toyota Yaris or Nissan Versa (36 mpg and 33 mpg, respectively).
• Number of SUVs, trucks and vans will be reduced from 52% of the product mix to 40% in three years.

Comments

[segfault]

I don't buy this $1 CEO "salary" garbage. The CEOs need to agree to $1 total gross and net compensation until the crisis is over. No bonuses, no stock options.

[JP]

Why doesn't Ford eliminate Mercury brand, what is the point of really?

[Colin B.]

I think the government's market distortions for the past 100 years have finally caught up with this industry, as it did with the railroads and airlines.

Don't get me wrong 90% of the issue here has to do with the Big Three's own bad management. Still, the government interfered with normal market functions and now has to pay the price.

Either cough up the dough or let them die; fully understanding that the consequence will be not only a reduced manufacturing base in America but less leverage in controlling worldwide automotive regulations.

I know congress harasses the transplants too, but not to the same extent as it has Detroit. The Big Three are basically required to build their vehicles in NAFTA countries and then are forced to build unprofitable small cars due to CAFE standards.

If we had a free system, the Detroit Three would simply have never competed in those segments in America and instead invested more of the money into larger vehicles, marketing, services etc.

Or, the Big Three could have outsourced their small car construction to its global operations – say build a rebadged Opel Corsa and Astra as Chevy’s in Brazil, China or Thailand – but our diverging safety regulations and double standard regulations (which force the Big Three to build their small cars in NAFTA countries in order for it to fully count to their CAFE rating – something transplants aren’t required to do) have contributed to a deteriorating situation within the industry.

Basically our American automakers are running the same 100 meter dash as everyone else, but our government has decided that the American automotive industry should run the 100 meter hurdle within the same race.

Everyone should play by the same rules so yes, give them the bailout. They have acknowledged their mistakes now congress should theirs. Make this a more even playing field by either regulated the transplants the same way we do the Detroit Three; or regulate the latter less.

[Go Big 3]

The politicians and investors got the auto industry in this mess, so why is the auto industry being singled out as the bad guy here? Will law makers stop asking the big 3 to go bankrupt? If not for the ridiculous salary and health care demand of the unions, the big 3 would be competitive to foreign car companies and make cars people want. Who can fault them for making SUVs when it was in demand and bring in huge profits to offset high union costs?

[J]

Fors should kill Mercury instead of selling Volvo. What's the point of having a brand of same vehicles selling either in Ford or Lincoln's lineup when Volvo is actually making money?

[Cj]

It's funny how Chrysler won't make it to the end of the month without a whopping 9 billion dollars. I expect them to go bankrupt shortly...

I'm happy with Ford and I hope that they out of the three survive and make it on top. They have better products than Honda, Toyota, or VW globally and they only need to bring those products to the US in order to succeed.

[Dave T]

J,
Because your assumption of Volvo making money is wrong. It is not. Mercury as strange as it seems, same with GMC for GM, returns much more profit because of minimal outlays in R&D and a good customer base.

[Scott]

Kudos to Colin B! I couldn't agree more. Let our automakers compete on a level playing field. CAFE requirements for example, put companies that offer a full line of products including full-size trucks and commercial vans are at a disadvantage compared to companies that specialize only in cars. Also too many crawl up on their soap boxes declaring death to all full size trucks w/V8s but let’s be realistic in all this. Full size trucks, vans and YES even the SUVs still have their rightful place on our roads.

The government is partly to blame for this mess so let’s give them the bridge loans to help the automakers become solvent again. After all too many jobs are at stake if we lose our manufacturing base entirely. Not everyone can be in management, service or government jobs.

One last point - isn't it amazing how the Senators berated the big 3 CEOs for traveling to DC using private jets, but yet, no mention that Nancy Pelosi wanted access to a jet the size of Air Force One just to shuttle from CA to DC weekly? Can you say 'Hypocrite'?

[B]

Colin, what kind of hurdle was the Chrysler Corporation Loan Guarantee Act of 1979?

[Tony]

Scott,
We can vote out Nancy Pelosi when she does some unethycal things. But we can't control what perks some fat pigs in the industry give to themselves.

[Tony]

J,
Volvo used to be profitable. But not anymore.
First, because deval of US$ and now with sales >50% down its in trouble. I've heard, not even Swedesh Volvo group wants it. They don't want to buy it. Looks like Volvo will go to China.

[Colin B.]

Chrysler Corporation Loan Guarantee Act was partially due to the implementation of Corporate Average Fuel Economy standards, which where enacted in 1975 and came into effect in 1978.

And like I said before probably 90% of the issue had to do with bad management.

Chrysler has been and will continue to be weak/exposed automaker.

I think of Chrysler as the antithesis of Honda. Chrysler is primary a truck company, that uses the resources available to it exteremly well and knows its core demographic very well.

It's unfortunate then that trucks are on the decline. It's my belief that Chrysler can't possibly survive alone, then or now.

In many respects there are a lot of similarities to Chrysler and the company it absorbed AMC.

[Dave T]

And remember, When Chrysler got its new life it got a new CEO to help it turn around. Who's to say GM won't can Wagoner? Which maybe they should.

Mullaly already seems to be in the middle of pulling off another miracle like he did for Boeing. Maybe he's worth $20 million if he does.

Chrysler...let's not talk about them.

Dave,
A new CEO gave Chrysler its new life by selling the idea of a government-backed loan to the nitwits in Washington. They didn't get a new life and then hire Iacocca to help turn things around. And as for Wagoner, people need to stop blaming him like he led GM into this mess. Sure you can negatively critique him on a microscopic level but from a macroscopic level he had GM going in the right direction before the energy crisis and credit crisis blew everything up.

[Troy S.]

I still think the average American should receive bailout money. If I did, I'd certainly consider buying a car. Truth of the matter though is that I'm struggling to make ends meet. There's nothing left over for a new car.

[Texas thinker]

If the yen were a real currency and not intervened by the Japanese Government, most cars from Japan would be impossible to buy in the USA because they would be very pricey...

But for the transplants, they are not going to fare any better, I don't think Toyota or Honda can sell 30% less forever, and their workers and dealerships will have problems with the credit crunch.

[Mike]

Many say that Toyota, Honda, etc. receive the profits and send them back to Japan. If this is the case, then wouldn't Chevrolet, Chrysler, etc. receive profits from their foreign cars abroad and that money would come back here? If that's not true, would the Japan story be also not true?

[Dave T]

Mike,
That money certainly comes back to Detroit. That's how badly the N. American operations are dragging them down.

[J]

Dave,

Having the entire lineup of rebadged vehicle sure saves the automaker money. But what's the point of having such division?

[Steven Schultz MBA CMA]

Many good comments and history here. Little has been done or said about banks freeing up low-cost money for car loans nor tax incentives to temporarily get sales going and focus on fuel-efficient/hybrid/electric car sales. After all, it IS sales reduction that is causing the mess in the auto industry and elsewhere. A redesign of our economy from consumption-based to quality of life basis would get my vote! (Standardize the rules, too)

[Marge]

If the foreign cars are so great why does almost everyone calling in with a problem have a foreign car?!! When was the last time they really drove a US car? (We've driven nothing but US cars and never had any significant problems.)
So, yes Congress should help the "Big 3" .... Then perhaps the the public will get the message that if they "buy American", it may help them to keep their job and their neighbor's too - if indirectly.
......, so often we're "penny wize and pound foolish"!!

[Ken]

Why aren't the banks lining up to loan money to the automakers? The 300+ billion that went to the banks was to provide capital to make loans. Why should the taxpayer fork over more money when the banks are sitting on the money they got from the bailout?

[Bloke]

That 300 million was for the loans they already have that are outstanding.

[Alison]

On a related note, see how news broadcasts from around the world are talking about the auto bailout here:

http://www.linktv.org/video/3330.

Watch Global Pulse to know what the rest of the world is saying. I'm an intern working with them.

From LinkTV, a nonprofit TV channel dedicated to world news, documentaries, cinema and programming.
www.linktv.org

[Kathy]

I have to buy a car right now because my son recently totaled my 1998 CRV. Does anyone have advice as to whether I should buy American or Japanese. Are the prices of foreign cars going to increase because of the demise of the Big 3?

[meagan]

none are even worth it

[meagan]

all funding them will do is make things harder on us and waist money