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Big Three CEOs Ready Game Plan

Ted Reed

The reception for the heads of General Motors(GM Quote), Ford (F Quote) and Chrysler may be better when they return to face Congress on Thursday, two weeks after the collapse of their first failed bid for a $25 billion industry bailout.

That's because changes have come in three critical areas. For starters, auto sales continued their dizzying drop in November. GM reported that its sales fell by 41%. Ford said sales slumped 31%, while at Toyota (TM Quote), sales slid 34%. Overall industry sales sank about 35% during the month, Ford estimated.

"Every manufacturer is posting awful numbers, and we are no exception," said Mark LaNeve, vice president, GM North America vehicle sales, in a prepared statement. "The consumer is scared and sitting on the sideline."

Next, auto executives have cleaned up their acts. They made a bad impression on Congress last time, flying to Washington in separate corporate jets, declining to consider cuts in their salaries and proving stingy with the information.

On Tuesday, GM CEO Rick Wagoner and Ford CEO Alan Mullaly headed across Ohio on their way to Washington, driving hybrid vehicles produced by their companies. Both have offered to accept annual salaries of $1 if their companies secure government loans. And both GM and Ford said Tuesday that they will unload their corporate jets.

Finally, the companies were providing detailed business plans to lawmakers. Ford said it wants a temporary $9 billion bridge loan from the federal government only if the economic crisis worsens or if a major competitor declares bankruptcy. In that event, Mullaly's salary would fall to $1, down from $21.7 million in 2007. Ford said it "hopes to complete its transformation without accessing the loan."

The company said it will award no bonuses in 2009 and is talking with the United Auto Workers union in an effort "to further reduce its cost structure and eliminate the remaining labor cost gap that exists between Ford and the 'transplants,'" foreign car companies that have set up shop in the U.S.

Ford said it is moving quickly to develop hybrids, and it expects the fuel efficiency of its cars to improve by 35% for 2015 models. It also expects break-even or profitable pre-tax results in 2011.

Meanwhile, GM said it would seek federal bridge loans up to $12 billion to ensure adequate liquidity through the end of next year, as well as a $6 billion line of credit "to provide liquidity should a severe market downturn persist." The company said it anticipates an initial draw of $4 billion on the bridge loans this month, saying it would repay the loans by 2012.

The company said it will focus on four core brands, Chevrolet, Cadillac, Buick and GMC. Pontiac would become "a specialty brand with reduced product offerings." Hummer could be sold. GM will "explore alternatives for the Saturn brand" with dealers, and it will review the future of the Saab brand.

GM said its wage rates will equal Toyota's by 2011. It plans to reduce debt by negotiating with unions, lenders and bond holders. On the labor side, it foresees changes in job security provisions, paid time-off and post-retirement health care. GM would honor warranty obligations and the status of existing trade creditors.

On Wednesday, a top executive of GM said bankruptcy isn't a viable option for struggling U.S. automakers, maintaining that the retooling plan being presented to Congress will save the industry, the Associated Press reports.

Fritz Henderson, GM's president and chief operating officer, acknowledged Wednesday morning that the automakers bungled their initial efforts to get federal relief in their appearances on Capitol Hill last month.

Henderson said the companies have a better, more detailed plan this time around and that company officials already are on Capitol Hill briefing lawmakers on it in advance of the congressional hearings, AP reported.

Henderson was interviewed on NBC's "Today" show Wednesday.

Chrysler was also expected to present its plan to Congress on Tuesday ahead of the hearings.

GM's proposal to scale back its brands is dramatic, because it involves relationships with dealers, said Patrick Anderson, who heads Anderson Economic Group in Lansing, Mich. "They have never talked publicly about reducing the brands in this matter," he said. "Almost all of these dealers are independent companies with dealer protection laws in 30 states."

Meanwhile, Ford took the chance to display financial strength, saying it may not need a loan. "They made a point of saying they are different, that they have a chance to get to profitability by 2011, and their plan has only relatively modest changes in the dealer structure, as compared to the GM plan," Anderson noted.

Earlier, on a conference call with reporters and analysts, Ford officials said the company's market share in October and November was 15%, up from the 14% it had projected. Ford declined to say whether the trend will continue.

Still, in general, Ford's short-term expectations are bleak, at least for the first half of 2009. "Conditions today -- economic conditions, credit conditions, prospects for employment and consumer confidence -- certainly suggest to us that the [low] sales rates we've seen in last couple of months [are] going to persist as we enter 2009," sales analyst George Pippas said.

GM said November car sales were 58,786, off 44%, while truck sales were 96,091, down 39%. A bright spot was the Chevrolet Malibu, which gets 33 miles per gallon on the highway. Its sales rose 31% in November. GM still has plenty of room to sell more hybrids. It delivered 1,335 hybrids in November, making the annual total just 11,884 units.