Doubts About Auto Bailout Spark Drastic Stock Sell-Off
Wednesday, November 19, 2008SUSIE GHARIB: A nasty sell off on Wall Street today as investors worried how a collapse of the nation's auto industry could damage the U.S. economy. The Dow plunged 427 points, closing below the 8,000 level for the first time in 5 1/2 years. The NASDAQ lost 96 points or 6 1/2 percent. The shares of American auto makers were among the big losers. General Motors tumbled almost 10 percent and Ford dropped 25 percent. Meanwhile, the CEOs of Detroit's big three auto makers were back on Capitol Hill today pleading for an emergency loan of $25 billion. But as Darren Gersh reports, once again the executives got a cool reception from law makers.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: With hopes for fast congressional action fading, auto executives continued to argue bankruptcy is not an option. Chrysler CEO Bob Nardelli said his company considered, but rejected the idea.
ROBERT NARDELLI, CEO, CHRYSLER LLC: We have looked at all aspects of whether it's pre-packaged, whether it's pre-negotiated, whether its bankruptcy and every aspect of that sir I can tell you is certainly more negative and more costly.
GERSH: But if auto executives want taxpayer dollars to keep the lights on, members of Congress want to know that the big three are really changing their ways. Congressman Brad Sherman was not happy to learn all the auto executives flew to Washington on private jets.
REP. BRAD SHERMAN, (D) CALIFORNIA: I'm going to ask you to raise your hand if you're planning to sell your jet, in place now and fly back commercial. Let the record show no hands went up.
GERSH: When asked, GM CEO Rick Wagoner did say his company was cutting back on advertising. There would be no glitzy $3 million Super Bowl ads from GM this season.
RICK WAGONER, CEO, GENERAL MOTORS: We're actually shifting a huge amount of our ad budget that remains to digital marketing, which is less expensive and more efficient. And I think it's fair to say, every part of our business is cutting back expenses dramatically.
GERSH: If they do get a government bridge loan, the big three have already divided it. GM would get $10 billion to $12 billion, Ford $7 billion to $8 billion and Chrysler $7 billion. But a better bet than handing over cash says economist Mark Zandi, would be a well-planned restructuring through a bankruptcy financed by government guarantees. If that happened, Zandi says consumers would still have a reason to keep buying from a bankrupt auto maker.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: Unless consumers believe these are viable companies and are going to be around for years to come, it doesn't matter whether you give them a loan or an equity infusion or send them into bankruptcy. It's not going to matter.
GERSH: GM and the United Auto Workers told Congress their labor costs will soon be as competitive as any auto maker in the United States, but that's not quote the case. By 2010, GM will be paying wages and benefits of $53 an hour. Toyota pays $48. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
