U.S. Automakers Are Said to Seek $50 Billion in Federal Loans

By John Hughes

Nov. 7 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC, strapped for cash as sales plunge, are seeking $50 billion in federal loans to help them weather the worst auto market in 25 years, a person familiar with the matter said.

The package would be $25 billion for health-care spending and $25 billion for general liquidity that could be delivered in different ways, including short-term borrowing from the Federal Reserve, said the person, who asked not to be identified because the plan isn't public. In return, the companies would be willing to take steps such as granting stock warrants, the person said.

The automakers should receive ``additional help'' from President George W. Bush's administration, Senate Majority Leader Harry Reid said after meeting with their chief executive officers in Washington. Congress approved a $25 billion loan program in September to help build fuel-efficient vehicles.

The three companies, their unions and legislative allies are hunting for aid after a combined $28.6 billion in combined first-half losses. New vehicles sold at a seasonally adjusted annual rate of 10.6 million in October, the lowest since 1983.

The Bush administration should use its existing authority to provide the help, Reid said yesterday in a statement, without being specific as to the amount. Congress will also continue exploring ways to aid the automakers, the Nevada Democrat said.

Spokesmen for the automakers have declined to say how much assistance they're seeking. The UAW said Nov. 5 it backed $25 billion in loans for automakers' health-care costs and other aid for ``immediate liquidity.''

Analysts estimate that GM and Ford will report operating losses when they release third-quarter results tomorrow. The financial demands on the automakers include contributing to UAW- run trusts being created to take over responsibility for retirees' medical bills.

CEOs and Pelosi

GM CEO Rick Wagoner, Ford's Alan Mulally, Chrysler's Robert Nardelli and United Auto Workers President Ronald Gettelfinger also met yesterday with House Speaker Nancy Pelosi, a California Democrat. The auto chiefs didn't take questions from reporters.

GM will work with Reid and Pelosi ``to ensure immediate and necessary funding to keep the auto industry viable,'' the Detroit-based automaker said in a statement.

Nardelli said in a statement Chrysler was ``encouraged'' by the lawmakers' understanding of the importance of the auto industry. Mulally said ``we applaud their efforts.''

The government wants to ``ensure the viability of this industry,'' Pelosi told reporters before her meeting with the CEOs. U.S. officials also will be ``looking out for taxpayers,'' she said.

`Very Positive'

The meeting with Pelosi was ``very positive,'' according to House Majority Leader Steny Hoyer, a Maryland Democrat, who also attended. Hoyer, when asked whether the automakers mentioned bankruptcy, said, ``No, but I'm not going to say anything further.''

Representative Sander Levin, a Michigan Democrat who also attended, said the meeting ``went very well'' and that the outcome would be ``positive.''

President-elect Barack Obama said last week he plans to work with the industry to make it more competitive. Obama has called for a $175 billion stimulus package to follow the $168 billion package signed into law in February.

Automakers, the UAW and state political leaders have sought support from the Energy Department, the Fed, the Treasury Department and from Congress.

The Energy Department said Nov. 5 it has moved ahead with one piece of automaker aid as it set the interim rules for the $25 billion low-interest loan program, which was crafted to help the companies retool plants to build more-efficient vehicles.

The government needs to ensure that this money goes for the purposes Congress intended, said Public Citizen, a consumer- advocacy group in Washington.

The Energy Department ``should not provide loans to upgrade plants that produce performance vehicles,'' Joan Claybrook, Public Citizen's president, said in a statement.

To contact the reporters on this story: John Hughes in Washington at Jhughes5@bloomberg.net;