Published November 20, 2008

Desperate plea as US car giants run on near empty

US GDP could take a 4% hit if the Detroit Three go bust in Q1 2009

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(WASHINGTON) Senate Republican leader Mitch McConnell pressed lawmakers to expedite US$25 billion in previously approved auto loans as US car company executives returned to Congress for the second straight day to plead for aid.

McConnell said loans approved last year to help pay for retooling auto plants to build fuel-efficient cars can be altered to fund auto-company operations.

'This is a proposal which I believe has support from both sides of the aisle and actually has the potential to pass right now and not next year,' the Kentucky Republican said on the Senate floor.

'It is the only proposal now being considered that has a chance of actually becoming law.'

Support has waned for a Democratic plan to help the automakers with funds from the recently approved US$700 billion bank-rescue fund. That idea is opposed by President George W. Bush and Senate Republicans, making it unlikely there are enough votes to overcome a presidential veto.

General Motors Corp. chief executive Richard Wagoner, Ford Motor's Alan Mulally and Robert Nardelli of Chrysler LLC testified on Wednesday at a House Financial Services Committee hearing after telling a Senate panel Tuesday they need US$25 billion to keep operating.

'Without fresh capital, we project that GM may not have sufficient liquidity to make it to year end,' Deutsche Bank AG analysts including Rod Lache in New York wrote in a note to investors.

GM, the biggest US automaker, said on Nov 7 that it may run out of operating cash as soon as this year and will be 'significantly short' of its needs by mid-2009 without new money or a turnaround in the auto market.

Senator Robert Casey, a Pennsylvania Democrat, said yesterday that he hoped to get an aid plan passed this week, though a vote now on the Democrats' proposal 'would not be successful'. He said that he would be open to the Republican proposal.

Automakers 'might be willing to go along with' speeding up the Energy Department loans, Senate Banking Committee chairman Christopher Dodd, a Connecticut Democrat, told reporters after a hearing yesterday. The idea would likely face opposition from House Speaker Nancy Pelosi, a California Democrat, he said.

Senate Majority Leader Harry Reid said yesterday that any plan to use the Energy Department loans for the aid isn't 'going very far in our caucus'.

GM tumbled 33 US cents, or 10.7 per cent, to US$2.76 at 10.29 am. in New York Stock Exchange composite trading, while Ford slid 16 US cents, or 10 per cent, to US$1.52.

Senator Carl Levin of Michigan, who helped write the Democratic legislation, urged lawmakers to reach a compromise. 'One way or another this week we have to merge these two paths and provide the bridge loans,' he said.

GM's Wagoner told Dodd's committee Tuesday the US economy would suffer a 'catastrophic collapse' if domestic carmakers fail. Three million jobs would be lost within the first year, personal income would drop by US$150 billion and government tax losses would total US$156 billion over three years, he said.

GM needs US$10-12 billion, according to Wagoner, Ford needs US$7-8 billion, said Mr Mulally, and Chrysler is seeking US$7 billion, Mr Nardelli told the panel. Chrysler burned US$3 billion in cash in the third quarter and had US$6.1 billion remaining at the end of the period, Mr Nardelli said.

A first-quarter 2009 bankruptcy of the automakers could cause US gross domestic product to shrink by at least 4 per cent as US car production would slide by 30 to 35 per cent, according to an analysis by Deutsche Bank. Unemployment would jump to between 8 per cent and 8.25 per cent, the analysis showed. The rate currently is 6.5 per cent. -- Bloomberg