Big Three bill will be plenty big

DETROIT — So what will it cost to fix the Big Three automakers?

Now that Congress has signaled its willingness to help the ailing car companies with short-term loans, that question has gained new urgency — particularly for President-elect Obama, who will inherit the crisis in Detroit when he takes office.

The ultimate price tag for a new and improved U.S. auto industry may be as unfathomable as questions about the potential harm to the economy if any of the companies were allowed to collapse.

But estimates of the final bill are rising rapidly, particularly as the economy weakens and car sales keep falling.

A comprehensive bailout for General Motors, Ford and Chrysler could cost as much as $125 billion, and even the companies themselves are hard pressed to dispute that figure.

Mark Zandi, chief economist of Moody's Economy.com, testified before Congress last week that the Big Three's request for $34 billion in loans "will not be sufficient for them to avoid bankruptcy at some point in the next two years."

He said from $75 billion to $125 billion would be needed to pay for a full-scale reorganization of the automakers.

Lawmakers have indicated they may give GM and Chrysler about $15 billion in emergency aid to keep them in business until the spring, when the Obama administration and the new Congress can craft a longer-term rescue plan.

CEOs try to reassure

Throughout four hearings on Capitol Hill, the chief executives of GM, Ford and Chrysler have tried to assure lawmakers that all they need is temporary assistance until the sick economy and the depressed auto market recover.

GM's chairman and chief executive, Rick Wagoner, told Congress last week that GM can be profitable again with $18 billion in federal loans and an aggressive reorganization plan. Still, there are many variables that could derail the Big Three's recovery plans.

Despite an infusion of $700 billion into financial institutions, there are few signs car loans are more available — a critical component in any rebound in U.S. vehicle sales, which have fallen to their lowest level in 25 years.

Important foreign markets in Europe and Asia are also deteriorating, further reducing revenues at GM and Ford.

And Detroit is also facing huge bills — interest payments on their enormous debt loads, large contributions to health-care trusts for retired hourly workers as well as tens of billions of dollars in expenses to meet stringent new government fuel-economy requirements.

The magnitude of the companies' obligations left some lawmakers groping for answers during the testimony of the Big Three executives.

What's the goal?

"Do we know what we're doing? Do we know what we're trying to achieve?" asked Rep. Peter King, R-N.Y. "If I was reasonably convinced that the money was going to work, I would support it."

After losing tens of billions of dollars in recent years, Detroit's credibility has evaporated among investors and analysts who have seen a series of reorganization efforts and new products fail to produce a lasting turnaround.

Because it is the biggest and most troubled of the automakers, GM generated the most skepticism with its plan. The company says it needs $10 billion to get through March, $2 billion more for the remainder of 2009, and a $6 billion line of credit beyond that.

But this is a company that has lost $20 billion so far this year, spent $2 billion a month in cash since July, and consistently missed its sales targets and financial benchmarks.

GM already has cut its U.S. work force in half in the last three years. Yet its latest reorganization plan calls for downsizing its brands and dealerships and cutting an additional 30,000 jobs — without addressing how it would generate new revenue.

Because GM also has more than $60 billion in debt outstanding and a bill for $21 billion in retiree health-care benefits coming due, experts cannot see how it will survive with temporary loans.

"Even with the most generous assumptions as to operating results and carefully adhering to GM's proposed restructuring, GM is still a highly distressed company and likely to go bankrupt, probably within in one year," said professor Edward Altman, of the Stern School of Business at New York University.

Despite the willingness of the United Auto Workers union to make concessions on job security and health-care payments, GM desperately needs its bondholders and other creditors to allow it to revamp its debt payments.

It could accomplish those ends if it sought bankruptcy protection, but it maintains a Chapter 11 filing would ruin its already shaky reputation.

In a bankruptcy proceeding, the UAW would be in jeopardy of losing its $28-an-hour wage scale and its long-term health-care benefits. The union's president, Ron Gettelfinger, argued during the hearings that Congress should appoint a trustee or oversight panel with authority to force concessions from GM's debtors.

But a federally appointed "car czar" would hardly have the same legal authority as a bankruptcy judge to demand that bondholders, for example, take equity in exchange for reducing their debt.

The situations at Ford and Chrysler are a little different, but both companies still have large obligations to debtors and union health-care trusts.

While Obama has repeatedly said Chapter 11 is not preferable for the companies, several lawmakers see bankruptcy as the only viable way for the Big Three to get a fresh start as smaller, less-indebted entities.