In an attempt to show a doubting Congress that its industry is not hopeless and is worth preserving, Ford Motor (F) said on Dec. 2 it is accelerating some of its hybrid and plug-in electric vehicle plans. Ford, along with General Motors (GM) and Chrysler, also said it was limiting executive pay and reopening contracts with union workers in the hopes of getting rank-and-file pay and benefits more in line with foreign carmakers with factories in the U.S.
All three of the U.S. automakers—Ford, GM, and Chrysler—are filing reports with Congress on Tuesday outlining how they propose to use some $25 billion in requested taxpayer loans. The companies, burning their cash reserves at an alarming rate, say they probably won't survive (BusinessWeek.com, 11/12/08) the current recession and dramatic downturn in sales without government loans to tide them over.
Ford is in the best shape of the Detroit Three and has said it may not need government money. But it is asking Congress for about $9 billion in loans to use as a backstop just in case. GM is asking for $12 billion. That leaves about $4 billion for Chrysler, though the company said last month it was looking for about $6 billion to $7 billion. Chrysler's report to Congress is expected to state that the company is looking for more alliances with other automakers to lower costs. While the automaker is deliberately keeping the language vague, it is widely seen as the company's attempt to sell itself or merge with another automaker.
Ford said on Tuesday it will put "a family of hybrids, plug-in electric vehicles (BusinessWeek.com, 10/3/08), and battery-electric vehicles" on sale by 2012. Specifically, the plan calls for a battery-powered electric commercial van in 2010 and a battery-powered retail sedan in 2011. The company is also believed to be developing plug-in versions of its Focus and Fusion cars by 2012-2013.
Overall, Ford said that 80% of its investments in 2010 will be in cars and crossovers—as opposed to trucks and SUVs. In 2007 the share of investment in cars and crossovers was 60%.
Ford's global chief of product development, Derrick Kuzak, said in a recent interview that the biggest change at Ford in the last two years related to fuel economy is that the company has set a goal of being "best-in-class" in every vehicle segment. "Previously, we tended to just strive to be competitive with our chief competition, and that, in the long run, made us uncompetitive," Kuzak says.
General Motors and Chrysler are expected to make their specific plans known later on Tuesday. GM, as previously reported by BusinessWeek (BusinessWeek.com, 12/1/08), is widely expected to announce that it is reopening talks with the United Auto Workers to get pay and benefit concessions from workers and retirees. It is trying to sell its Saab and Hummer brands, examining the future of the Saturn brand with an eye toward closing it, and winding down Pontiac to a very small niche brand that would sell perhaps a sports car and an affordable high-fuel-economy car in the same showrooms as Buicks and GMC trucks. Ford also said it is in talks with the UAW to lower wages and benefits for hourly workers.
UAW Considers Concessions
The United Auto Workers union is meeting this week to set strategy on what concessions it is willing to grant the automakers. The focus is on eliminating a "jobs bank," which continues to pay several thousand workers who do not currently have a factory to go to. Also under consideration are pay and benefit cuts for senior workers to align their pay with that at foreign-owned factories operating in the U.S., and retirees accepting higher deductibles and co-pays on their health benefits.
Several members of Congress have complained that the companies have not been specific enough about their business plans, and that they are sure the companies will be back later for more money. "They didn't make money when things were going good in the economy, and now they are losing more when it's bad.…This is a failed business model that I can't support with taxpayer money," says Senator Richard Shelby (R-Ala.), ranking member of the Senate Banking Committee, before which the CEOs testified last month (BusinessWeek.com, 11/20/08). The auto executives are scheduled to appear again before the committee later this week.
CEO Alan Mulally says Ford is on track to break even or make a profit in 2011, based on assumptions of U.S. vehicle sales for the total industry that some analysts believe may be too rosy. Ford is looking for industry sales of 12.5 million units in the U.S. next year, 14.5 million in 2010, and 15.5 million in 2011. This year's sales are expected to be about 13.5 million vehicles. "While we clearly still have much more work to do, I am more convinced than ever that we have the right plan that will create a viable Ford going forward and position us for profitable growth," says Mulally.
Much of the "green" product plans put forth by Ford were already in the works—Ford has been sharing these with employees for several weeks. The automaker, for competitive reasons, was hoping to save the public announcements for down the road and upcoming auto shows.
But Ford and the other automakers are facing an onslaught of negative attention because of the need for government loans. Cable TV pundits, newspaper columnists, and bloggers have been relentlessly criticizing the automakers. The spectrum of critics have ranged from arch conservative lawmakers like Alabama's Shelby and former Republican Presidential hopeful Mitt Romney to liberal blogging magnate Arianna Huffington.
"The automakers have made it easy for the pundit class to hit them with baseball bats," says independent marketing consultant Dennis Keene, who has at times worked for automakers. "The most vocal opponents in Congress come from states with foreign-owned auto plants or no auto plants, and the pundits largely come from New York, Washington, and Los Angeles, where market share of the Big Three is low and their brands are largely seen as unfashionable.…That's a lot of negative energy to counterprogram."
The barbs have even come from Saturday Night Live, which spoofed the previous round of auto-bailout congressional hearings on Nov. 22. Much of the criticism at those hearings centered on the fact that the CEOs flew corporate jets to Washington to ask for money—a PR blunder that to some extent drowned out the actual testimony.
CEO Pay Cuts
Another big topic at the last round of hearings was executive pay and the need to show sacrifice. Mulally and GM CEO Richard Wagoner have agreed to take $1-a-year salaries. Chrysler CEO Robert Nardelli had already agreed last month to work for no salary, though his compensation is more tied to the disposition or sale of Chrysler by majority owner hedge fund Cerberus Capital Management. Mulally, who earned almost $22 million last year, said he would take the big pay cut if the company actually had to draw on the government loans made available to Ford.
Crisis public relations experts say the companies need to simplify their arguments this week and do the symbolic things that people remember.
"The logic here is similar to why there was more pundit buzz over Martha Stewart than Enron even though Martha was pocket change next to Enron," says Eric Dezenhall, who helps companies manage public crises.
People are focused on the $25 billion the automakers are asking for instead of the $700 billion and more going to banks because most voters and consumers don't understand banking, Dezenhall says. "But everybody has a personal grievance with cars—performance, dealers, repairs—and they all have strong opinions about what brands and companies are good and which they think are bad."