March 12, 2009 at 1:47 pm

Task force holds fate of auto industry

Fed officials sorting out who will win and who will lose -- by March 31.

WASHINGTON -- With just about every sector of the U.S. auto industry pleading for help, the White House auto task force bears the enormous responsibility of deciding who deserves money and how much, effectively selecting the winners and losers.

After a three-week crash course filled with meetings and presentations from executives, suppliers, consultants, dealers, analysts, prospective merger partners and politicians -- sometimes at the rate of six or seven a day -- task force members appear to have a solid grasp of the extent and complexity of the industry's difficulties.

"We're focused on all these challenges, and they're big challenges, in the supplier base, in the car companies themselves," an administration official told The Detroit News. "We're trying to make sure we're on top of all of them."

Complicating their task is the urgency. Even after receiving $17.4 billion in government loans in recent weeks, General Motors Corp. and Chrysler LLC are about to run out of money again.

Dozens of parts suppliers are on the verge of bankruptcy and, in an industry whose players are as interconnected as the auto sector, task force members must identify which potential failures could bring down the whole industry.

"What the task force is trying to do is make sure they prop up the right players," says Craig Cather, CEO of consulting firm CSM Worldwide in Northville.

"The challenge is, where do you support strong players and where do you let Darwin's law take its course? There will be lots of consequences to their judgment."

While President Barack Obama has said he wants a strong U.S. auto industry, the administration probably cannot rescue all the struggling players, which include hundreds of car dealers and suppliers. The tab for the industry could come close to $60 billion. Other industries also are vying for funds, and bailout fatigue is growing. Meanwhile, polls show support for Detroit's automakers is waning.

The task force, headed by U.S. Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, is scheduled to approve or reject the restructuring plans that GM and Chrysler submitted to the government by March 31. "What we want to do is figure out what restructuring plan will leave them viable, without government support," Geithner said this week on the Charlie Rose TV show.

Sources close to the task force discussions say the panel will meet the March 31 deadline, refuting speculation it may use an option set out in the automakers' loan terms to delay a decision for up to 30 days.

The task force has not yet sent any recommendations to Obama, White House spokesman Robert Gibbs said Wednesday. But, he added, "We're obviously getting closer and closer to the end of the month where it's likely that action will have to be taken."

The task force includes key Cabinet members such as the Energy and Transportation secretaries. But on a day-to-day basis, meetings are led by two restructuring experts with Wall Street experience, Steve Rattner, co-founder of the Quadrangle Group, and Ronald Bloom, a former adviser to the United Steelworkers. They report daily to Geithner.

"Given the makeup of that committee, they've probably got their arms around the industry dynamics," said John Casesa of the Casesa Shapiro Group LLC in New York.

"Now, the process is in the realm of politics. The solution will be the product of a compromise between what's politically acceptable to the White House, and what Congress will fund."

Many members of Congress will oppose a big bailout, he said, while the White House seems opposed to letting GM go bankrupt.

When asked about the option of bankruptcy for GM, Geithner told Charlie Rose that a failure of the U.S. automaker "would cause enormous damage," particularly "in a recession like this."

Even before the task force was formed a month ago, Chrysler was already viewed as a weaker outfit unlikely to emerge from this downturn on its own.

The smallest of Detroit's automakers, Chrysler relies almost entirely on the U.S. market and on sales of large vehicles. In terms of technology, it trails its rivals.

Some industry analysts say the government may seek to facilitate a proposed alliance between Chrysler and Italy's Fiat SpA to avoid a collapse of the Auburn Hills automaker. Fiat Chief Executive Sergio Marchionne appeared before the task force last week and outlined how an alliance would benefit Chrysler.

A deal with Fiat would offer the advantages of preserving U.S. jobs, increasing the number of fuel-efficient cars on the market, and allowing Chrysler to repay the money it has borrowed from the government, sources close to the discussions said.

On its own, Chrysler would have a difficult time. According to a study by CSM Worldwide, Chrysler's global sales are expected to decline by 13.6 percent in the period between 2007 and 2013, while Ford Motor Co. and GM are expected to show a small increase.

Chrysler's utilization rate of its production capacity, a key indicator of profitability, is just 46 percent, the lowest among major automakers, according to CSM.

Its restructuring plan is less convincing than GM's, Cather said. But he disputed the notion that Chrysler's failure might be salutary for the industry because it would reduce excess capacity.

"If you take out Chrysler, that's going to have cascading effects through the supply chain," Cather said, noting that 77 percent of U.S. auto parts makers supply all three U.S. automakers.

Japan's leading automakers also rely on many of the same suppliers for their U.S. plants, Toyota Motor Corp.'s top U.S. executive told the task force Wednesday.

"The biggest challenge we face is on the supplier side of the business," Toyota Motor Sales President Jim Lentz told reporters after the 35-minute meeting at the Treasury building next to the White House.

"They understand that this is a very complex industry and that each time you peel back the onion, you discover something else that you didn't know was there."

Lentz and others who have spoken with the task force members say they are impressed how much and how quickly they have learned about the industry.

But task force members are saying very little, and administration officials are being extremely cautious in both their public and private statements.

"They're not going to let out their current thinking," said Sen. Carl Levin, D-Detroit. He said he has been given no hints on what the task force will decide. "They want to keep that closely held until they reach a resolution."

Staff Writer Robert Snell contributed to this report. You can reach Christine Tierney at ctierney@detnews.com">ctierney@detnews.com.