The Gods of the Auto Industry Kneeling Before Congress

Without the state immediately giving them billions of dollars, General Motors and Chrysler will go bankrupt before the end of this year. The companies’ CEOs stopped going to Washington with their private jets and instead went in hybrid cars.

Richard Wagoner, CEO of General Motors (the most important) has testified in the Senate along with fellow CEOs from Chrysler and Ford – Robert Nardelli and Alan Mullally. At least 266,000 General Motors employees and 129,000 from Chrysler, along with thousands of other employees from their suppliers are at risk of being without a job at the beginning of next year. It was with this grim prediction that the CEOs from the two big companies, who are left with nothing but to declare bankruptcy by the end of 2008, went in front of Congress.

General Motors asked Congress for immediate aid of four billion dollars, out of a total of 18 billion. Chrysler needs seven billion immediately, which is almost as much as the current owner of the company, Cerberus Capital Management (CCM), had for 80,1% of its stock in 2007. The purchase was made through German Daimler, who CCM had the nerve to ask for their money back because they hid the precarious situation of the car maker. The Germans passed CCM’s demand off as “absurd.” They only made the bad deal of investing in car manufacturing in the industry’s last year of profitability, at least for the North American and European market.

Unlike its competitors, Ford representatives told Congress they’re not on the brink of bankruptcy, but that they expect three years of consecutive losses: 2009, 2010, 2011. Only in 2012 might they see an improvement, but only if the Congress will approve a 9 billion dollar loan for the company. Also, the American legislature needs to do whatever it takes to unblock the auto-loan market.

Electrical Cars with Lower Consumption

In exchange for the money they ask, the auto giants promise to invest in electrical vehicles or vehicles that consume less. For example, Ford introduced a 14% consumption reduction for its 2009 products, 26% for those made in 2012 and 36% for those made in 2015. All companies made a promise to invest in the creation of alternatively fuelled vehicles, but reminded congressmen that first and foremost they need to secure their survival on the market – which they’re not capable of doing anymore without a minimum of $28 billion and a maximum of $38 billion. The amount is small compared to the $700 billion Congress allocated to the saving the financial system, but America’s lawmakers don’t trust the auto industry’s future and don’t see it as indispensable as banking services.

One Dollar Salaries and No Planes

As a gesture of penance, the companies’ CEOs went all the way to Washington (over 800km from Detroit) with vehicles equipped with hybrid motors. They promised to ensure that having one dollar salaries becomes a habit for the industry’s big bosses, along with the sale of private jets, something to which neither of them conceded two weeks ago in Congress. House Speaker Nancy Pelosi, warned companies, “Unless they can show us a plan, we can’t show them the money.” Just such a plan was presented by GM, who announced it would focus on four brands (out of eight made in the U.S.), will close nine factories by 2012 and fire 20,000 people, but in doing so ensure the jobs for the rest.

European Subsidiaries for Sale

In Europe, General Motors wants to give its subsidiary Saab, and Ford wants to give up Volvo, but it is unknown which investors would be foolish enough to invest money in 2009’s car industry, perhaps the darkest in its history.

If there are no buyers, European workers will be faced with unemployment.