The bailout package bill for General Motors Corp. (GM), Ford Motor Co. (F) or Chrysler LLC was passed by House lawmakers by a vote of 231-170. Democrats said they reached agreement with the White House on the details of the plan yesterday.

“If we do nothing, we take the risk that, sometime soon, there’ll be no American automobile industry,” House Majority Leader Steny Hoyer, D-Md., told MarketWatch.com.

The $14 billion is a long way from the $34 billion now being sought by the Big Three. And that $34 billion was well in excess of the $25 billion in loans the carmakers said they would need. Of the three companies, GM and Chrysler are in the greatest need of cash. Ford says it is seeking a long-term line of credit and doesn’t need money in the short term.

The House bill, if enacted, would do several things. It would:

• Grant the U.S. government warrants for nonvoting stock equal to 20% of the value of the loan it makes to each company.
• Create a White House-chosen “car czar,” an appointee empowered to hold the companies accountable for developing long-term viability plans. The czar would be able to require immediate repayment of the loans if the companies don’t make adequate progress by Feb. 15.
• Require GM, Ford and Chrysler to submit “final” restructuring plans by March 31.
• End such financial standard fare as dividends for shareholders and “golden parachutes” and bonuses for executives – in the interest of conserving cash.

House Speaker Nancy Pelosi, D-Calif., said the bill is “tough love” for the industry but offers the Big Three “a chance to get back on track.”

The Bush Administration said yesterday that the “car czar” would have the power to revoke the loans and develop a new plan – including one that would have the Big Three seek Chapter 11 bankruptcy protection if the carmakers don’t make progress toward long-term viability by March 31.

“If there’s not a plan that makes these firms viable, the government gets its money back,” Joel Kaplan, deputy White House chief of staff for policy, told reporters.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., unveiled a bill similar to the House measure late yesterday. A vote in the Senate may not come until the weekend, Senate Majority Leader Harry Reid, D-Nev., said yesterday. Congress has been working on this for several weeks.

Shares of GM closed at $4.60 each yesterday, down 2%. Ford shares advanced 2 cents, or 0.62%, to close at $3.25. Chrysler is privately held, with private-equity firm Cerberus Capital Management LP holding a controlling interest. Before Cerebrus bought it, Chrysler had spent years as part of Germany’s Daimler AG (DAI).

Throughout the day yesterday, House and Senate Republicans repeatedly said that a Big Three bailout wouldn’t lead to a long-term viability or competitiveness for GM, Ford and Chrysler. In fact, U.S. Sen. Richard Shelby, R-Ala., who is the ranking GOP player on the Senate Banking Committee, vowed to block the legislation with a filibuster.

“Unless Chrysler, Ford and General Motors become lean and innovative and competitive in the marketplace, this is only delaying their funeral,” Shelby told journalists yesterday.

Of course, as MarketWatch reported, Shelby’s home state of Alabama has provided millions of dollars in subsidies to attract Japan’s Honda Motor Co. Ltd. (ADR: HMC), South Korea’s Hyundai Motor Co. (PINK: HYMLF) and the Mercedes-Benz unit of Germany’s Daimler AG, to build plants that provided 48,457 jobs in 2007. The Toyota Motor Corp. (ADR: TM) factory in Huntsville, Ala., makes motors for SUVs and pickup trucks.

The Wall Street Journal reported that a breakthrough in the negotiations between the White House and Democrats came after Democrats agreed to scrap language that would have forced the carmakers to drop lawsuits challenging tough emissions limits in California and other states.

Reid told MarketWatch that that he needs 60 votes to get the plan through the Senate. A key Democrat, Finance Committee Chairman Sen. Max Baucus, D-Mon., actually came out against the bill, since it contains a tax provision he said that he opposes. Democrats control the Senate by a narrow 50-49 majority.

Dodd said the Senate bill is “a far cry from a blank check to the industry.”

Said Dodd: “The legislation requires these companies to make painful, fundamental changes if they are going to be competitive internationally and viable in the long term.”

Source: Auto Bailout Passes House, Faces Hostile Senate

So what does the future of the American automobile industry look like? Will all three survive, or will GM absorb Chrysler? No one knows for sure. But one thing is evident: drastic changes must be made. Continuing as is, and keeping the status quo, will surely result in each of the automakers being on the brink again in a few years. And if that occurs, there is no way the government can save them again. Chrysler lining up for a handout twice in 30 years is bad, but GM and Ford holding out their hands twice in a few years is unacceptable (at their current monthly burn rate, even the bailout money won’t last long).

So what changes can be made, and made quickly to save the companies? Here are a few that would make significant impacts.

1. Trim the fat. There is no need for GM to have eight divisions and 76 different models. By comparison, Toyota (TM) has three divisions and 32 different models.
2. Close plants and eliminate jobs through consolidation. This would take serious concessions from the UAW since it violates agreements, but paying the costs to get it done now will save the rest of the jobs. After all, if GM goes out of business, all plants would close and all those jobs would be gone.
3. Eliminate the job bank. Talks are underway to get rid of this dinosaur. It basically guarantees laid off workers full compensation and benefits for not working.
4. Eliminate dealerships. Again, there are costs involved with this, but it is necessary. There are over 15,000 domestic car dealers, outnumbering import dealers 3 to 1. Some of this may be handled through attrition this year, but buyouts are needed.

Will this cure what ails the Detroit 3? Not entirely. There are many other battles to be fought, such as with the UAW. But to continue to operate as they are now only guarantees failure again.

There’s no reason that the companies can’t rebound after the bailout and become leaders once again.  When Chrysler was bailed out by the government in 1979, they made great initial strides. The K car saved the company, and they also created the minivan segment.

Innovation brought Chrysler back from the brink, and the Detroit 3 need to innovate to survive this. Electric cars or alternative fuel vehicles could lead them into the future, and establish them as real players again. GM has their “Flex Fuel” vehicles which can run on E85 (still a debatable solution), the Volt is an electric hybrid, and Dodge (Chrysler) has shown electric vehicle concepts (Dodge EV). More innovation is needed, but at least they are moving in that direction. I would hope that with their backs against the wall, they break archaic processes and really stretch their creative minds. Bland econo-boxes just aren’t going to bring buyers back.

I also find it interesting that Chrysler created the minivan, which saved the company after the bailout. The minivan morphed into the SUV, which the Detroit 3 relied on so heavily for profits, and has proven to be what may kill them. So what once saved them has almost become what kills them.

Source: After the Bailout, The Detroit 3 Still Have Work To Do