The credit crisis roiling Wall Street makes the $25-billion (U.S.) loan package for U.S. auto makers even more critical than it was a month ago, says Ray Young, chief financial officer of General Motors Corp.
"It becomes a lot more important for the auto makers to get these loans to make sure we can continue funding investments in advanced technologies," Mr. Young told The Globe and Mail Wednesday as the Detroit Three sent a letter to Nancy Pelosi, Speaker of the U.S. House of Representatives, urging her to make sure the legislation is passed.
There was talk in some quarters of the auto industry and Wall Street yesterday that the U.S. government's bailouts of selected financial firms might cause Congress to balk at loan guarantees for the car companies.
If the $25-billion in financing — already approved in a U.S. energy bill last year, but not yet enacted — is scrapped, auto makers may be forced to consolidate to develop new technologies to meet stringent fuel requirements, Mr. Young said.
"You can collaborate through joint projects or you can collaborate through merger," he added. "It's not just the Detroit Three. Can the European auto makers survive on their own or do they have to collaborate? They're going to be subject to the same regulations in the U.S. market."
The market meltdown and crisis in confidence in the U.S. financial system are just one more headache for GM and its Detroit competitors, which lost more than $20-billion in the second quarter alone.
"We all three entered this with a relatively weak balance sheet and we had three crises at the same time," Bob Lutz, GM's vice-chairman and global product development chief, said in a separate interview in Toronto.
The first was the subprime mortgage crisis, followed by soaring gasoline prices that roared above $4 a gallon in the U.S. and wiped out the pickup truck and sport utility vehicle market.
Layered on top of that were moves by the U.S. and other governments creating new, stringent targets for fuel consumption, instead of following 30 years of advice from Mr. Lutz and gradually increasing gas taxes in order to change consumer behaviour.
He and Mr. Young were in the city to speak to a national meeting of General Motors of Canada Ltd. dealers.
They made their comments one day after the auto maker celebrated its 100th anniversary by rolling out at its headquarters in Detroit the production of the Chevrolet Volt, the electric-hybrid vehicle that GM vows will travel 60 kilometres on a single charge and make its mass-market debut late in 2010. A small gasoline engine backs up the vehicle's electric power plant, which is the reverse of current hybrids where the gasoline engine is supplemented by an electrical charge.
GM's plan is for 10,000 of the compact cars to be on the road in 2010, with full production being reached in 2011.
U.S. taxpayers will need to play a role in this area as well, Mr. Lutz said, with discussions with the government focusing on a subsidy of about $7,5000 for customers. "If that were to come about, that would make the vehicle affordable for most people," he said.
Reports have suggested that the Volt will start at about $40,000 when it goes on sale in 2010, a price that analysts and others regard as exorbitant for a compact car.
"Here's the fundamental issue that GM faces on this," one former GM executive said. "Hybrids and electric vehicles only make sense if the economics of a vehicle make sense and if that thing comes out at $40,000 it ain't saving anything."
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