WASHINGTON – Connecticut's 300 auto dealerships,already squeezed by the credit crunch,will be forced to shut their doors unless Congress loans up to $34 billion to struggling U.S. automakers.
That dire prediction came from James T. Fleming,president of the Connecticut Automotive Retailers Association,who said Thursday that 14,300 jobs at dealerships across the state would be lost unless Congress acts. He appeared on Capitol Hill alongside the chief executives of General Motors,Ford and Chrysler to make the industry's case for federal aid.
All warned Sen. Chris Dodd,D-Conn.,and members of his committee that failure to act would prove disastrous for the economy.
“If you say no,if you do nothing – which is essentially no – the impact on the dealers in your home state will be dramatic,” Fleming said.
Dodd,who has backed the plan since it was first floated,said the government's failure to act could wreak havoc. Letting even one automaker fail would amount to playing “Russian roulette” with the economy,Dodd said.
Thursday's hearing before the Senate Committee on Banking,Housing and Urban Affairs,which Dodd chairs,was a do-over for auto executives,who bungled their first plea for help two weeks ago.
This time,executives could tell the committee how much money each company needs and how it will be used. All three released business plans explaining why their companies need federal money,what they will do with it and when they will repay taxpayers.
Ford,the most stable of the three,asked for a $9 billion line of credit over 10 years. The company says it won't use the money unless the economy worsens.
“This line of credit will serve as a critical safeguard if events require it,” said Alan R. Mulally,Ford's president and chief executive officer.
Chrysler asked for a $7 billion bridge loan by the end of the year,warning that without the loan it could run out of the money to complete its restructuring plan and become profitable.
GM presented a doomsday scenario. Without up to $18 billion,GM could collapse – and drag Chrysler and Ford down with it. G. Richard Wagoner Jr.,GM's chairman and chief executive officer,said his company would likely need $4 billion of that this month and another $4 billion in January.
“Absent such assistance,the company will default in the near term,very likely precipitating a total collapse of the domestic industry and its extensive supply chain,” reads GM's business plan.
If their estimates hold,the industry expects to begin repaying the loans in 2012.
But Mark Zandi,chief economist of Moody's Economy.com,said he estimates the industry will likely need $75 to $125 billion to restructure successfully. Automakers should get the $34 billion anyway,he added,to prevent them from collapsing in the next few months.
“Bankruptcy,at this time,would be cataclysmic for the economy – I really believe that,” Zandi said.