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Carmaker Failure Would Be Catastrophe, Wagoner Says (Update2)

By John Hughes

Nov. 18 (Bloomberg) -- The U.S. economy would suffer a ``catastrophic collapse'' if domestic carmakers fail, General Motors Corp. Chief Executive Rick Wagoner testified as leaders of the nation's auto industry renewed appeals to Congress for federal aid.

Three million jobs would be lost within the first year, personal income would drop by $150 billion and government tax losses would total $156 billion over three years, Wagoner said in testimony prepared for delivery at a Senate hearing today.

``Such a level of economic devastation would far exceed the government support that our industry needs,'' he said. ``This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse.''

The Big Three chief executives, Wagoner, Alan Mulally of Ford Motor Co. and Robert Nardelli of Chrysler LLC, are testifying today at a hearing held by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. They are seeking $25 billion in loans to keep them operating.

``I support efforts to assist the industry, not because their leaders necessarily deserve the taxpayers' help,'' Dodd said in his opening statement. The aid is needed, he said, ``to minimize the possibility of a destabilizing event in the economy.''

Senator Richard Shelby of Alabama, the committee's top Republican, said the panel must determine the financial condition of automakers and their long-term outlook before deciding on the aid.

End or Beginning

``Is $25 billion enough?'' Shelby said. ``Is this the end or just the beginning?''

Congressional Democrats yesterday proposed tapping the recently enacted $700 billion financial rescue package for the aid. President George W. Bush and Senate Republicans said they oppose that approach and instead prefer using $25 billion that was earlier approved by Congress to retool auto plants.

``A decision to make government assistance available makes much more sense than taking the tremendous risk to our already- fragile economy that come with inaction,'' Mulally said in his prepared testimony.

Nardelli said, ``Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations.'' If Chrysler was forced to declare bankruptcy, he said in his prepared testimony, ``we cannot be confident that we will able to successfully emerge.''

Too Vital to Fail

Senator Charles Schumer, a New York Democrat, said automakers are ``too vital to let fail,'' though he was concerned they would be back in months to seek more dollars unless Congress requires changes. ``We need a business model based on cars of the future.''

Senator Jim Bunning, a Kentucky Republican, said the Democratic plan ``is not a serious one'' and is ``virtually a blank check'' that doesn't require concessions.

Senate Republican leader Mitch McConnell of Kentucky earlier today called for expediting $25 billion in previously approved U.S. Energy Department loans to automakers as an alternative to the Democratic plan.

McConnell said he will meet with Senate Majority Leader Harry Reid of Nevada about how to proceed. House Majority Leader Steny Hoyer said Congress might come back into session in December if lawmakers can't pass a bill this week.

No Energy Loans

Speaking to reporters, Reid said of the Energy Department loans: ``I don't think that's going very far in our caucus.'' He said he doesn't want to return to Washington for a December session.

Senator Carl Levin of Michigan, who helped write the Democratic legislation, said he is open to alternatives.

Democrats in the Senate probably need 60 votes to advance their plan and they hold only a 50-49 majority. Bush spokeswoman Dana Perino said yesterday the Senate lacks the votes to pass the Democrats' legislation.

Wagoner said GM was ``well on the road to turning our North American business around'' when the global credit crisis hit. GM had reached an agreement with the United Auto Workers union and in 2009 will offer 20 models that get at least 30 miles per gallon on the highway, he said.

``The recent plunge in vehicle sales threatens not only GM's ongoing turnaround but our very survival,'' he said.

Mulally disputed what he described as recent ``highly critical'' commentary by automakers, saying the critics don't grasp that ``we at Ford are on our way to realizing a complete transformation of our company.''

Changing the Mix

Ford has been changing its model mix, accelerating the development of fuel-efficient vehicles and has closed 17 plants in North America, Mulally said.

The subject of executive pay could arise at today's hearing.

Wagoner got $14.4 million in compensation in 2007, including a salary of $1.56 million, an incentive bonus of $1.8 million and ``other pay'' of $697,358. He also recorded $6.34 million in stock and stock option awards and an increase in his pension value of $4 million.

Mulally received $21.7 million for 2007, including $2 million in salary, $7 million in bonuses, $11.2 million in stock options and awards and $1.4 million in ``other pay.''

Chrysler, which is closely held, hasn't disclosed Nardelli's pay.

To contact the reporter on this story: John Hughes in Washington at Jhughes5@bloomberg.net.
Last Updated: November 18, 2008 16:08 EST

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