Grading the Automaker Bailout Plans

Now that's more like it.

After a disastrous performance before Congress in November, execs from General Motors, Ford, and Chrysler have finally offered some meat to members of Congress wondering if the automakers deserve $34 billion in federal aid. All three automakers have submitted plans to the government showing how they would slash costs, build better cars, become profitable, and pay back the taxpayers. Members of Congress will be able to peruse private plans containing proprietary information on operations and competitive strategy, but each automaker also released a public plan outlining its goals. Here's how the plans rate:

General Motors
Originality: B-. After years of prodding by critics, GM finally stopped defending its bloated lineup of eight brands and said it will focus on Chevrolet, GMC, Cadillac, and Buick, which account for 83 percent of sales. But it didn't say whether it will kill or sell its weaker divisions—Saturn, Pontiac, Saab, and Hummer. It only said it will "explore alternatives."
Honesty: C. GM offered profitability projections under a few different scenarios, because it can't say for sure when the economy, and the car market, will rebound. But its worst-case scenario might be too rosy—and credibility is a chronic GM problem. "One of our primary concerns here is that the downside scenario is not much worse than the current run rate of sales," wrote Credit Suisse analyst Chris Ceraso. Beyond the $18 billion GM is asking for now, "the government may have to write another check before the end of 2Q09," he predicts. GM also pledges to reduce the number of dealers by 27 percent by 2012—but that depends on relaxed state laws and other factors GM may not be able to control.
Thoroughness: B+ . GM's 37-page public plan lays bare many of its problems. GMAC, its troubled financing arm, can only finance 6 percent of GM vehicle purchases today, for instance, compared with 50 percent a year ago. There's also surprising detail on things like labor costs, new-model plans, and nuts-and-bolts things GM plans to do to improve fuel economy and make its cars more appealing, like installing 6-speed automatic transmissions in the majority of its fleet by 2012.
Humility. B. In congressional testimony, CEO Rick Wagoner finally admitted that "we made mistakes." And the tone of GM's plan is contrite without being defensive. Plus, CEO Rick Wagoner's salary will be sacrificed to the gods of populism: He'll get paid $1 in 2009, as will all board members.
Overall: B-. GM's plan has the hallmarks of a good-faith presentation. But it doesn't address what could go wrong. That's unnerving because many GM projections have been wildly wrong in recent years. Still, GM has probably shown the planning—and the humility—it needs to get federal aid.

[See why bankruptcy might be good for GM.]

Ford
Originality: C. Ford is in better shape than GM and Chrysler, and says that even though it wants a $9 billion credit line, it doesn't need emergency cash right now. So, there's less need to demonstrate desperation or radical changes in the works. Ford's 33-page plan includes a few new details on profitability targets and vehicle plans, but it doesn't offer any major changes beyond what Ford has said it's already doing, like shopping around the Volvo division.
Honesty: B. Because Ford is in better shape than GM, its plan exposes fewer vulnerabilities. It also makes fewer risky promises that the automaker might not be able to keep.
Thoroughness: B-. There's plenty of detail about steps Ford has already taken, and some new information on how the company plans to make money on small cars, transform its fleet away from big trucks and SUVs, and adopt electric battery technology. But it's not as forthcoming as GM's plan.
Humility: C. Like Wagoner, Ford CEO Alan Mulally says he will work for $1 in 2009 if Ford gets federal help. But Ford also rejects the idea of giving government loans "senior status" so that taxpayers will get repaid first if Ford defaults on its debts, —even though it wants a line of credit at low government rates. The plan says that such priority status on government loans could upend the terms of other Ford debt and cause financial havoc. That may be so, but it's cheeky to ask for loans well below market interest rates without making concessions to get them.
Overall: B. Ford needs less help, so it's asking for less and holding its cards closer than its Detroit counterparts.

[See 10 cars that sank Detroit.]

Chrysler
Originality: D. Unlike GM and Ford, Chrysler's only public bailout plan is a one-page highlight sheet derived from the private plan submitted to Congress. The highlights mention some electric vehicles Chrysler plans to build, but contain little or nothing that's new. And Chrysler says it needs $7 billion mainly to pay suppliers and just keep the assembly lines rolling. On its own, that's an unconvincing plea.
Honesty: C-. Chrysler's owner, the private equity firm Cerberus Capital Management, has practically been flying banners saying Chrysler is up for sale—cheap. That's one reason it tried to arrange for a merger with GM earlier this year. Chrysler is the weakest of the Detroit 3, and a sale or merger may be the only way vestiges of Chrysler can survive. But there's no mention of that in the highlights. Instead, Chrysler offers an unsubstantiated promise that it could repay a $7 billion loan by 2012. But how it will stay in business until then remains a mystery.
Thoroughness: D. Maybe the formal plan on file with Congress offers a full look at Chrysler's plan and its balance sheet. The highlights don't provide anything like that.
Humility: C. CEO Bob Nardelli is joining the Dollar Club, too—but it's a safe bet he has already banked a huge signing bonus from Chrysler's private-equity parent. And while the highlights include a few factoids about great things Chrysler has accomplished or plans to do, there's no acknowledgement of bad planning or boneheaded decisions, or mention of things Chrysler needs to do differently.
Overall: D. Maybe the congressional version is stronger, but the public version of Chrysler's viability plan makes it sound like they're not trying all that hard. But if you're interested in buying a car company . . .

[See one exit strategy for Chrysler.]