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So Detroit, Where's Your Business Plan?

If U.S. taxpayers are going to guarantee loans for Detroit, it better be worth it.

By Bill Moore

America's carmakers aren't looking for a Freddie Mac/Fannie May-type bailout, Rick Wagoner, the Chairman and CEO of General Motors assured a Senate subcommittee last week.

No, they are only looking for Congress to release -- initially -- $3.8 billion in approved loan guarantees, purportedly to be used to help the industry retool so it can start building competitive, high-mileage cars and trucks.

The nearly $4 billion is only the first round of a larger request for $25 billion. The original figure being sought was twice that number: $50 billion, but carmakers backed off fearing Congress hadn't the appetite for that level of largess.

Wagoner wasn't the only auto executive lobbying for the funds; Chrysler's Jim Press (formerly at Toyota) was also stumping for dollars, saying the $25 billion would be a "good start."

I am sure it would be. In fact, JP Morgan issued a research report last week saying that the loan guarantees could "notably reduce bankruptcy risk" at one or all of troubled Detroit carmakers.

While Democrats in both houses of Congress say they are in favor of assisting the industry, the lead Republican on the Senate Banking Committee isn't, telling CNBC that this isn't "a national problem." In Senator Richard Shelby's view this is "their problem." The senator is from Alabama where several foreign car companies have operations including Mercedes, Toyota and Honda. None of them appear to be looking for bailout bucks.

In one respect, I agree with Senator Shelby, this is Detroit's problem. They made decades of short-sighted strategic product decisions that has left them saddled with vehicles no one now wants and an expensive infrastructure designed to build them. They can turn out fabulous engine blocks and transmissions galore, but with the exception of financially-troubled battery maker Cobasys -- who is being sued in Alabama by Mercedes -- little of the technology with which to develop competitive, high-mileage cars exists in North America. Not one American hybrid qualifies for the new sales tax exemption that goes into effect in Washington State on January 1, 2009, for example. There a hybrid has to get better than 40 mpg, which limits the tax break to just the Toyota and Honda hybrids; presumably including the newly announced Honda Insight, due out in the Spring of 2009.

If Congress decides to come to the aid of the industry in the form of loan guarantees, in my opinion it better see three things right up front: a business plan from Chrysler, a business plan from Ford, a business plan from GM.

The kind of business plan I am talking about is the kind any start up or small business would be expected to have when they walk into their bank or sit down with venture capitalists. Congress -- and the American public -- needs to know exactly how the money is going to be spent. The plan needs to spell out in detail what the long range objective is and what the milestones are along the way. When Wagoner talks about "retooling", what exactly does he mean? Which plants, what machines, what technology, which jobs and where? Will that retooling be in American plants or those outside our borders? If the goal is to produce products that meet EPA fuel efficiency rules by 2020, what will those products be, what will they cost and who are the prospective customers?

Along the same vein, who is going to supply the parts -- especially the critical batteries -- to produce these vehicles? Will they be American companies with plants inside the nation's borders, or offshore contractors importing components from low-cost labor markets with lax environmental laws and histories of human rights abuses? What will be the economic impact of each plan on the community -- and the nation? Who will these plants hire and what skills will they need? Who will train them and what benefits will they receive? Will unions be represented and what role will they play?

Every business plan also needs to reassure investors -- in this case American taxpayers -- about the management team behind it. Who is going to run this retooling of Detroit? The same folks that got the Big Three into this mess in the first place?

Critically, how does Detroit plan to handle competition from not only the Toyotas and Hondas of the World, but the Tatas and Hyundais. Honda's Insight sedan, which debuts at the Paris Auto Show next month, could show up in American showrooms next Spring with an MSRP under $19,000. How's GM's Volt -- rumored to likely cost twice that much -- going to compete? Even more seriously, how do each of the Big Three plan to address the economic impact of an eventual flood of low-cost imports from India and China? How long will restrictive safety standards keep at bay the Nanos, the Revas and the Flybo's lurking just outside America's borders?

Finally, how does Detroit plan to repay the money and how quickly? And what stake do we taxpayers have in this since, collectively, we are the bank and the venture capitalists in this business deal? What will be our rate of return or are we only talking about the economic benefit of salvaging jobs in and around Detroit?

The three plans better be compelling and well-thought out, or Congress should do what any bank or VC firm would do: tell them comeback when they can make the case that America's trust in them is warranted.

Times Article Viewed: 7966
Published: 14-Sep-2008

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