NEW YORK, USA - U.S. auto executives were set to take their case for a $25 billion(S$38.2 billion) industry bailout to the U.S. Congress on Tuesday as they hope to overcome political opposition from influential congressional Republicans and the White House.
Ahead of the hearings, scheduled to start at 3 p.m. in Washington, Ford Motor Co Chief Executive Alan Mulally warned of dire possible consequences for the auto industry if one of Detroit's Big Three carmakers had to file for bankruptcy.
Mulally said in an interview with CNBC that consumers would be less likely to buy a car from a bankrupt automaker, thus deepening the industry's problems.
Tuesday's hearings come a day after Senate Democrats proposed to bail out the ailing industry with $25 billion in loans.
Mulally is slated to testify with Rick Wagoner, chief executive of General Motors Co; Robert Nardelli, head of Chrysler LLC, and Ron Gettelfinger, head of the United Auto Workers union.
The industry has been battered by soaring gasoline prices, the credit crisis and economic slowdown. In the past 12 months, GM shares have lost 90% of their value and Ford is down more than 80%.
Legislation under consideration would provide funding on top of $25 billion of loans approved earlier this year for the companies to improve their technologies and create a line of more fuel-efficient vehicles.
Some legislators have called for the industry to re-purpose those funds instead of getting more cash. Texas Sen. Kay Bailey Hutchison, a Republican, said those funds should be reallocated and that the current funding was enough.
With the year's congressional calendar down to a few days, lawmakers and the Bush administration have sparred over the best way to extend help to the automakers.
"We're surprised that Senate Democrats would propose a bailout that fails to require automakers to make the hard decisions needed to restructure and become viable," White House spokeswoman Dana Perino said.
The Senate bill would impose conditions on the industry, but it is unclear whether those conditions would be enough to satisfy critics.
The government would take warrants for shares in exchange for aid, which would come with limits on executive compensation and a prohibition on the payment of dividends.
Automakers would also have to submit plans on how they intend to remain competitive.
RAISING CASH
The congressional proposal comes as the automakers announced some immediate steps to improve their liquidity.
Ford said on Tuesday it would sell a 20% stake in Japanese automaker Mazda Motor Corp. Ford will raise more than $538 million from the sale and remain Mazda's top shareholder with a stake of just over 13%.
For its part, GM said on Monday it would delay incentive payments to its U.S. dealers by two weeks.
The payments for dealer incentives, which are made on a weekly basis, will be delayed from Nov. 28 until Dec. 11, GM spokesman Pete Ternes said.
There is also a question whether the automakers would continue their sponsorship of sporting events and whether they would rein in their advertising spending.
MARKET FEARS
A rescue package for U.S. automakers could avert another stock market plunge like the one seen after the collapse of Lehman Brothers in September.
"The reason people think failure could be cataclysmic is that there are so many companies that are tied to the auto industry," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.
The companies and their allies in Congress argue a bailout is justified on grounds they back one in 10 U.S. jobs.
GM, Chrysler and Ford employ close to 250,000 people in the United States and supporters claim they touch more than 4 million other jobs at suppliers, dealers, car haulers and rental companies.
It is anticipated that funds from the new bailout would be doled out according to immediate need.
"Applicants would receive priority based on their magnitude on the overall economy as measured by employment, manufacturing, components and dealerships," wrote Citigroup analyst Itay Michaeli in a note to clients. "Based on this, we roughly estimate Detroit 3 eligibility as follows: GM ($11 billion), Ford ($7 billion) and Chrysler ($6 billion)."
Other analysts also saw GM as the biggest benefactor from the new bill.
"The bill favors GM over smaller competitors, as it prioritizes on the basis of impact on the US economy," said Brian Johnson, Barclay's autos analyst wrote on Tuesday. "The bill also proposes that the automakers submit a plan for long-term viability but does not make funding contingent on any approval or review of the plan."
For the Senate measure to pass, it must gain support from both Democrats and Republicans in the narrowly divided chamber where 60 votes are needed to overcome any procedural hurdles.
GM shares were about 7% lower in early Tuesday trade at $2.96, and Ford shares were slightly higher at $1.74.
