Automakers To Return to Congress Next Week

(RTTNews) - The auto industry will once again be the focus of Washington next week. The Big Three U.S. automakers - Ford (F | Quote | Chart | News | PowerRating), General Motors (GM | Quote | Chart | News | PowerRating) and privately-held Chrysler - were told to deliver plans to Congress next week for lawmakers to reconsider their pleas for a bailout.

The last time auto executives appeared before Congress earlier this month, they were unable to convince lawmakers that they would make good use of taxpayer money if they were given the loans that they were asking for. Top legislators told the automakers to prepare a clear plan and return for another round of committee hearings.

The auto industry is facing tough times, with the weak economy and the credit crunch causing havoc with their results. At least one of the major automakers - GM - has said that it could run out of cash by the end of the year.

On November 20th, Congressional leaders told the automakers they had until early December to make their case that any federal funds used to prop up the industry would be spent wisely and assist the firms in returning to financial health.

At the time, the lawmakers admitted that they did not have the votes to pass the emergency rescue, and hoped a better case from auto executives would help build support.

"The executives of the auto companies have not been able to convince the Congress or the American people that this government bailout will be its last," Senate Majority Leader Harry Reid, D-Nev., said after the first round of committee hearings failed to sway enough lawmakers to make a bailout possible.

"They have not provided a plan that will ensure accountability from and viability for the industry," Reid added, calling for them to return in early December for another chance.

The Senate Banking Committee and House Financial Services Committee will hold hearings next week examining the automakers' plans, potentially paving the way for authorization of federal assistance the following week.

In response to the dressing down from lawmakers, GM, the most seriously imperiled of the Big Three U.S. automakers, said it would idle four plants over the next two months and return some corporate jets in an effort to cut costs and save cash.

The fact that the heads of the Big Three U.S. automakers traveled to Washington in private planes became a key rhetorical point for lawmakers opposed to the bailout.

Reports also surfaced earlier this week that GM was looking into possibly shedding its Saturn, Saab and Pontiac brands. This is in addition to its previously-announced investigation into what to do with the Hummer brand.

This week also saw the termination of GM's endorsement deal with golf great Tiger Woods. The move, which was described as "mutual and amicable," ended a 9-year relationship. GM said it was just a coincidence that the end of the Tiger Woods deal was announced following the automakers' appearance in Washington.

These announcements from GM were just the latest in a string of moves the automakers have made to either raise cash or cut costs. Earlier this month, Ford announced that it was reducing its stake in Mazda, cutting its holdings from about 33 percent to around 13 percent.

The sales of the Mazda shares will net Ford nearly $540 million.

This followed a similar announcement from GM, which revealed that it has selling its 3% stake in Japanese carmaker Suzuki for about $231.5 million.

In its last earnings report, announced early this month, Ford revealed that its net loss for the third quarter narrowed from last year, though this was helped by a huge gain related to retiree health care costs. The company said it burned through $7.7 billion in cash during the quarter and planned to cut North American salaried employment costs by 10%

Meanwhile, GM announced a loss of $2.5 billion for the quarter and said it burned through $6.9 billion in the quarter. Additionally, the automaker warned that it will run out of the cash necessary to run its business in the first half of next year unless conditions improve or it can raise extra funds.

Problems in the automotive industry have been most acute in the US, but the global economic slowdown has also taken a heavy toll on car makers across the Atlantic. On Wednesday, the European Commission pledged €5 billion to struggling auto manufacturers as part of a "green cars" initiative for hybrid and electric technology.

The support for car makers was part of a European Commission economic stimulus package totaling about EUR 200 billion or 1.5% of EU gross domestic product -- 1.2% of which will come from national governments.

French Prime Minister Nicolas Sarkozy said Friday that he would soon detail a national stimulus plan that would "save the car industry." The plan is expected to include tax incentives for the car sector and investments for the development of environmentally friendly vehicles.

For comments and feedback: contact editorial@rttnews.com Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index