Moody analyst Mark Zandi is killing the automakers. Her says that $34 billion wonl;t be enough and that it will take more like $75 billion to $125 billion because of how low industry sales will stay, buyers won’t come back to the Big Three brands because of bad publicity, etc. He also is casting a lot of doubt on their ability to deliver on their plans and promises. He suggests lending them $34 billion in exchange for stock warrants, and to give the money in two tranches. He is advising against a Chap. 11. If after the first tranche, the benchmarks aren’t met, then he says cut off the money. Zandi’s testimony is confusing and I’sm sure is going to be the subject of much of the afternoon. He is basically saying it will never be enough, but give it to them anyway?

Zandi: Captive financing arms of the automakers are a drain. He says to facilitate them to bank holding companies. That would be a significant help in loosening credit. The captive finance companies of the automakers have basically stopped leasing cars. That has been 20% of sales in some years. Chrysler said it lost 20% of sales overnight. The automakers have applied for industrial bank status with the Federal Reserve so they could access Fed money for the purpose of making car loans. The Fed has not responded yet.

Senator Dodd is asking if government money is going to facilitate a merger or acquisition of the company.

1:09 PM: Dodd is asking if SUV plants can be converted to build mini buses and other new kinds of urban transportation vehicles that are in demand. Dodd says that in some cases cities that are buying these vehicles are buying foreign vehicles. GM still builds a commercial van. Chrysler sells a Dodge Sprinter that is a twin of a Mercedes van. This seems to bee an area where the three companies could easily form a joint-venture business.

Dodd says many people think that a new management should be installed. Wagoner made the point that he has no golden parachute and serves at the pleasure of the board.

Shelby says there are too few details about how the companies will return to profitability. He wants a three year pro-former plan. In truth, that is in the filings from Chrysler, GM and Ford pretty much done that. Shelby seems to have only read the summaries.

1:24 PM:Moody’s Zandi: Bankruptcy at this point in time would be cataclysmic for the economy right now. You need to help them right now. They have done some goods things…they deserve the opportunity to execute [the rest of their plan.]. Bankruptcy financing, Zandi notes, is not available to these companies. They will go into liquidation if they are allowed to go Chapter 11.

Shelby: “If they got the $34b, how long will it be before they are back?” Zandi says the Fall. Shelby: “$34 billion is just the beginning?” Zandi: “That’s the high probability."

Shelby is a master at seizing on the cherries that back up his own position that the automakers would be allowed to go into liquidation. But I have never heard him articulate why he thinks the impact on the national economy is just fine with him.

1:43PM Sen. Jack Reed (D-RI) asked Moody's Zandi if the costs to the government of allowing these companies to go Chapter 11 would exceed his worst case scenario of the companies needing $125 billion. Zandi: "It's measurably worse...not even in the same universe." This exchange is going to be problematic for Shelby. At least it should be.

1:58PM UAW President Ron Gettelfinger: By the end of December we could lose General Motors as a corporation.

Senator Schumer: Suggests that Congress pass a bill with enough money to keep the companies alive, and then appoint a car czar answerable to the President. The czar or "trustee" would bring all the stakeholders together--bond holders, UAW, management and dealers--in order to extract sacrifices. The payback plan and structure of ongoing help would revolve around the broad based sacrifices.

2:20PMSenator Bob Corker (R-Tenn.) is perhaps the best prepared questioner of the day. He basically says that there is nothing to discuss unless GM bond holders take a 66% haircut, and the UAW agrees to take $10.5 billion in future healthcare (VEBA) payments in stock rather than cash. UAW President Gettelfinger said he did not have the authority to agree to that today and started reading a letter from a UAW surviving widow who depends on her payments from GM to survive.

Corker also admonished Chrysler LLC owner Cerberus Capital LLC for not putting more of its money into Chrysler, and accused Chrysler of just using the plight of GM and Ford to "ride along" to get government money in order to pull of a sale or merger.

2:35 PM The hearing was interupted by a group of protesters who appeared to have leaked into the room from the hallways outside the hearing room. I encountered them last month. They have a right to be heard and to question the process, but they make fools of themselves by yelling at everybody.

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