Auto execs take case for bailout to Congress

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By Patrick Fitzgibbons

NEW YORK (Reuters) - Auto executives were set to take their case for a $25 billion industry bailout to the U.S. Congress on Tuesday as they hope to overcome political opposition from influential congressional Republicans and the White House.

The hearings come as government and business officials around the globe look for new ways to bolster the struggling automakers.

Ahead of the U.S. hearings, scheduled to start at 3 p.m. in Washington, Ford Motor Co Chief Executive Alan Mulally warned of dire consequences for the auto industry if one of Detroit's Big Three carmakers had to file for bankruptcy.

Mulally said in an interview with CNBC that consumers would be less likely to buy a car from a bankrupt automaker, thus deepening the industry's problems.

Tuesday's hearings come a day after Senate Democrats proposed to bail out the ailing industry with $25 billion in government-backed loans.

Mulally will testify with Rick Wagoner, CEO of General Motors Co; Robert Nardelli, head of Chrysler LLC, and Ron Gettelfinger, head of the United Auto Workers union.

The reception from legislators may be somewhat less cordial than the well-paid executives are used to.

Sen. Richard Shelby, an Alabama Republican and member of Senate Banking Committee, has said in an interview the automakers are "failed models" and should file for bankruptcy.

The industry has been battered by soaring gasoline prices, the credit crisis and economic slowdown. In the past 12 months, GM shares have lost 90 percent of their value and Ford is down more than 80 percent.

While much of the focus has been on the fate of the U.S. companies, the auto industry in Europe is also under pressure.

The EU is studying support for its carmakers and industry Commissioner Guenter Verheugen signaled support for a German offer to help the Opel unit of GM. [ID:nLI591060]

But others insisted there could be no special treatment for the industry and the future of Opel is unclear.

"You cannot compare the car sector with the financial sector," Competition Commissioner Neelie Kroes said, referring to the mass bailouts by EU governments last month of key banks because of the financial crisis.

THE U.S. PLAN

Legislation under consideration by U.S. lawmakers would provide funding on top of $25 billion of loans approved earlier this year for the companies to improve their technologies and create a line of more fuel-efficient vehicles.

One part of the plan that seems to have gained the least traction is using a portion of the $700 billion Troubled Asset Relief Program (TARP) for the automakers.

Treasury Secretary Henry Paulson said during a House Financial Services Committee hearing that while it would not be a good thing to let an automaker fail, the $700 billion fund should not be used to prevent such a failure.

With the year's congressional calendar down to a few days, lawmakers and the Bush administration have sparred over the best way to extend help to the automakers.

The Senate bill would impose conditions on the industry, but it is unclear whether those conditions would be enough to satisfy critics.

The government would take warrants for shares in exchange for aid, which would come with limits on executive compensation and a prohibition on the payment of dividends.

Automakers would also have to submit plans on how they intend to remain competitive.

RAISING CASH

The congressional proposal comes as the automakers announced some immediate steps to improve their liquidity.

Ford said on Tuesday it would sell a 20 percent stake in Japanese automaker Mazda Motor Corp. Ford will raise more than $538 million from the sale and remain Mazda's top shareholder with a stake of just over 13 percent.[ID:nT295006]

For its part, GM said on Monday it would delay incentive payments to its U.S. dealers by two weeks.

The payments for dealer incentives, which are made on a weekly basis, will be delayed from November 28 until December 11, GM spokesman Pete Ternes said.

There is also a question whether the automakers would continue their sponsorship of sporting events and whether they would rein in spending on advertising.

MARKET FEARS

The auto companies and their allies in Congress argue a bailout is justified on grounds they back one in 10 U.S. jobs.

GM, Chrysler and Ford employ close to 250,000 people in the United States and supporters claim they touch more than 4 million other jobs at suppliers, dealers, car haulers and rental companies.

But the breadth of the automakers' impact is not limited to the United States.

Failure of even the smallest Detroit automaker would result in the loss of as many as 70,000 jobs in Canada alone, Canadian Auto Workers union Ken Lewenza said.

"I am hopeful that Washington politicians will recognize the importance of the auto industry to the economy, and that's not just the U.S. economy but the North American economy," he said.

It is anticipated that funds from the new bailout would be doled out according to immediate need.

"Applicants would receive priority based on their magnitude on the overall economy as measured by employment, manufacturing, components and dealerships," wrote Citigroup analyst Itay Michaeli in a note. "Based on this, we roughly estimate Detroit 3 eligibility as follows: GM ($11 billion), Ford ($7 billion) and Chrysler ($6 billion)."

Other analysts also saw GM as the biggest benefactor from the new bill.

"The bill favors GM over smaller competitors, as it prioritizes on the basis of impact on the US economy," said Brian Johnson, Barclay's autos analyst wrote on Tuesday.

GM shares were about 12 percent lower in Tuesday afternoon trade, at $2.80, and Ford shares were down more than 1 percent at $1.71.

(Editing by Steve Orlofsky)

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