Detroit's Big Three Consider Bailout With Strings Attached

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The Big Three automakers appealed to Congress for billions in emergency aid Thursday by touting overhauls to their business models, but skeptical lawmakers may be looking to impose even more-severe changes -- possibly including a corporate merger -- as part of the deal.

The latest developments come after a top economist warned that the $34 billion that General Motors, Ford and Chrysler are requesting is just the beginning. Lawmakers are divided over whether the government should intervene and how.

In the first round of hearings Thursday on Capitol Hill, Sen. Bob Bennett, R-Utah, suggested the idea of a merger of Chrysler and General Motors as a condition of receiving government aid. The two companies' CEOs said it was worth considering.

"I'd be very willing to look at it," GM CEO Richard Wagoner said.

"The first job that would go would be mine," Chrysler CEO Robert Nardelli said. "But if in fact that's the criteria ... I would do it."

All three executives, including Ford's Alan Mulally, agreed that a multibillion-dollar bailout deal would include a supervisory government board that could order major restructuring of the companies if deemed necessary for survival -- similar to the results in many reorganizing efforts under bankruptcy law.

The heads of the Big Three are treading carefully, and with fresh concessions, after a botched attempt at emergency aid in Washington last month. They pledged to mend their ways and place renewed focus on fuel-efficient vehicles in testimony before the Senate Banking Committee on Thursday. They enter a new round of testimony on the House side Friday.

Several lawmakers in both parties are pressing the automakers to consider a so-called "pre-packaged" bankruptcy in which they would negotiate with creditors in advance and downsize, then file for Chapter 11 protection in hopes of emerging quickly as stronger companies. The Big Three have publicly shunned the notion, saying it would kill sales by destroying customers' confidence -- but executives have indicated in recent days that it might ultimately be necessary.

United Auto Worker union President Ron Gettelfinger warned bluntly that in the absence of action by Congress: "I believe we could lose General Motors by the end of this month." He said the situation was dire and that time was of the essence.

Democratic Sen. Chris Dodd, chairman of the banking committee, came out in favor of granting emergency aid to the auto industry at the top of the hearings, warning that inaction would amount to playing "Russian Roulette with the entire economy of the United States."

Sen. Chuck Schumer, D-N.Y., also said bankruptcy is not a "viable option" for the automakers.

But Sen. Richard Shelby, R-Ala., ranking Republican on the committee, maintained a high level of skepticism, saying at the top of the hearings that "I intend to oppose" the requests from the Big Three. Shelby complained that in "just two short weeks" since the last round of hearings, the industry's request has jumped from $25 billion to $34 billion.

"If you made this presentation to get a bank loan, I suspect that any sensible banker would summarily dismiss your request," he said.

Mark Zandi, chief economist at Moody's, warned that the $34 billion would be just the beginning, and that the total price tag of bailing out the automakers could approach $125 billion. Indeed, Nardelli was the first to request additional funding from the federal government's $700 billion Troubled Assets Relief Program.

In the near-term, the heads of the Big Three automakers are looking for government loans and lines of credit, trying to make the case that the money would be a bridge to survival and profitability.

The CEOs admitted mistakes before the Senate Banking Committee but also told federal lawmakers the strains of the global financial crisis have hindered their efforts to reinvent themselves.

Wagoner, the first of the three CEOs to testify, said his company was creating a "blueprint for a new General Motors," as he asked Congress for $12 billion in loans and a $6 billion line of credit.

"GM has been an important part of American culture for 100 years and most of that time, as the worlds leading automaker," Wagoner said. "We're here today because we made mistakes, which we're learning from, because some forces beyond our control have pushed us to the brink -- and most importantly, because saving General Motors and all this company represents is a job worth doing."

Ford's Mulally said his company had, to its detriment, historically produced too many brands under the false assumption that consumers would purchase them. Mulally said Ford would scale back production to meet demand, and focus on smaller, more fuel-efficient vehicles over trucks and SUVs. He said the $9 billion line of credit his company is requesting is just a "safeguard" he hopes not to use.

Nardelli said his company needs a $7 billion loan to bridge the financial crisis and continue Chrysler's "product renaissance."

In opening remarks, Dodd warned that a collapse of the auto industry would have "severe and sweeping" consequences, and said that if the debate centered only on whether to protect a handful of companies, "I would let them fail."

But he said in this case, "Inaction is not an option." He complained about the handling of the financial sector bailout, and said the auto industry's request was modest by comparison.

Gene Dodaro, from the Government Accountability Office, told lawmakers that a tough oversight board should be established if Congress approves any funds.

All three CEOs ditched their private jets and took fuel-efficient hybrid cars for the 520-mile road trip from Detroit to Washington.

Wagoner said "we're sorry" to ask for government funding as he arrived Thursday, but "market conditions" have forced them to extend their hand.

Full-fledged support for the automakers' pleas has been scarce, especially among Republicans. Senate Majority Leader Harry Reid says he also doesn't have the votes to pull money for the automakers out of the $700 billion financial bailout package.

Even Dodd wrote to Federal Reserve Chairman Ben Bernanke on Wednesday asking the central bank chief whether there was anything stopping him from using his considerable lending authority to help the automakers. Dodd said Bernanke and Treasury Secretary Henry Paulson declined to testify Thursday.

He echoed the stance of other Democratic leaders in complaining that the administration was not tapping into the already enacted $700 billion financial bailout to help the auto industry.

The companies' three separate survival plans, delivered to Congress Tuesday, include massive restructuring, the ditching of corporate jets and vows by CEOs to work for $1 a year.

Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., said the hearings would help determine whether Congress would consider a massive aid package for the industry in a special session next week. Critics say the companies have been poorly managed and failed to show they won't be back for another government rescue.

The Big Three are struggling to stay afloat heading into 2009 during an economic recession, a steep decline in sales and a tight credit market. The three companies burned through nearly $18 billion in cash reserves during the last quarter.

Wagoner and Mulally both say said they'll work for $1 a year -- a move Chrysler's Nardelli has already made -- if their firms accept government loans. All three plans envision the government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover.

In Detroit, the United Auto Workers union said it would delay the three companies' payments to a multibillion-dollar, union-run health care trust and essentially end a jobs bank program in which laid-off workers continue to be paid most of their salaries. They also decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed last year, a move that could lead to wage concessions.

Click here to read the General Motors CEO's statement. 

Click here to read the Ford CEO's statement. 

Click here to read the Chrysler CEO's statement. 

Click here to read the UAW president's statement. 

The Associated Press and Reuters contributed to this report.