February 17, 2008 - General Motors and Chrysler, Detroit MI

Automakers Seek $14 Billion More in Aid

The price tag for bailing out General Motors and Chrysler jumped by another $14 billion Tuesday, to $39 billion, with the two automakers saying they would need the additional aid from the federal government to remain solvent.

In return, the two companies also promised to make further drastic cuts to all parts of their operations, in the hope that they can eventually strike a balance between their bloated cost structures and a dismal market for new car sales.

G.M., for example, said it would cut 47,000 more of its 244,000 workers worldwide; close five more plants in North America, leaving it with 33; and cut its lineup of brands in half, to just four: Chevrolet, Cadillac, GMC and Buick.

The Pontiac brand will have a much smaller role, if any, in G.M.’s future, and the company also said it would phase out its Saturn brand, which it once hoped would build small cars to counter the best of the Japanese brands.

G.M. also said it had made progress in discussions with the United Automobile Workers union and its bondholders to reduce its costs further.

The cash crisis will require fast action by the administration’s new cabinet-level Presidential Task Force on Autos, which is overseeing the reorganization of G.M. and Chrysler.

The deteriorating finances of the two companies present the Obama administration with two options, neither of them appealing.

It can provide the money in the hopes that the companies will stabilize, and no longer have to keep pushing workers into a growing pool of people without jobs. But there are no guarantees, as the Treasury Department learned on Tuesday when the automakers filed updates on their restructuring plans, that they might not be forced to come back again with requests for more money.

But if the federal government balks at the automakers’ requests, that would mean the two companies probably would have no choice but to file for bankruptcy protection, because they are losing hundreds of millions of dollars each month.

And the car companies said on Tuesday that the cost of a bankruptcy reorganization, with the government providing financing to help it through that process, would be far greater than their latest loan requests. Without such help, the companies would have to liquidate, creating staggering new job losses.

In a statement, the administration said Tuesday night that its task force would be reviewing the carmakers’ reports in coming days, adding that “more will be required from everyone involved — creditors, suppliers, dealers, labor and auto executives themselves — to ensure the viability of these companies going forward.”

The third Detroit auto company, Ford Motor, has not received federal assistance and has no requests pending.

By March 31, the presidential task force is expected to rule on whether G.M. and Chrysler have restructured enough to be viable businesses for the long term.

Big questions remain, including whether G.M. and Chrysler, as well as Ford, will be able to cut their unionized labor costs to parity with foreign automakers, as was required in the original loan agreement from last December.

The companies have been in marathon negotiations with the United Automobile Workers on reducing costs, as well as determining how they will finance health care trusts for retired blue-collar workers and their surviving spouses.

G.M. is also pushing for a deal with its bondholders to help it reduce its debt to $9 billion, from $27 billion. The U.A.W. said on Tuesday it had reached “understandings” with the Detroit companies on modifications to their contracts. Ron Gettelfinger, the union’s president, said “discussions are continuing” regarding how to fund the health care trusts at each of the companies.

Rick Wagoner, G.M.’s chief executive, said there had been “good progress” in talks with both the union and bondholders.

On the concessions in the U.A.W. contract, he said, “the things that have been negotiated really take a big bite out of what needed to accomplish.”

G.M.’s restructuring plan extends to its global operations. It will cut 47,000 jobs worldwide by the end of this year. It also said it would close 14 plants in North America by 2012 — five more than were included in its Dec. 2 loan request.

Mr. Wagoner said on Tuesday that the revamping plan was “comprehensive, responsive and achievable,” and could help the company break even by 2010. Both G.M. and Chrysler said they expected to begin paying back their federal loans by 2012.

A bankruptcy filing, Mr. Wagoner said, would be a “highly risky and costly process.” G.M.’s president, Frederick Henderson, said the company would require as much as $100 billion in debtor-in-possession financing from the federal government if it filed for Chapter 11. Chrysler said it would need $25 billion if that step were required.

G.M. and Chrysler admitted that their current federal loans would be exhausted by March 31.

G.M. said Tuesday that it had increased its overall loan request from the government to a total of $30 billion, up from $18 billion.

The company has received $13.4 billion so far from Treasury, and the most recent installment — $4 billion — was turned over to G.M. on Tuesday.

But G.M. said that loan would not last long. Company officials said they hoped to receive another $2 billion loan in March and $2.6 billion in April. Beyond that, G.M. is asking for another $12 billion by 2011 — $7.5 billion in loans and $4.5 billion to pay off a credit facility that comes due.

Chrysler, which has received $4 billion in loans, also increased its overall request for funding. In December, it said it needed $3 billion more to survive 2009, but it raised that request to $5 billion.

The smallest of Detroit’s Big Three, Chrysler has drastically scaled back its operations since being acquired in 2007 by the private equity firm Cerberus Capital Management.

On Tuesday, Chrysler said it would cut another 3,000 jobs and discontinue three models — the Dodge Durango, P.T. Cruiser and Chrysler Aspen.

“Chrysler will be viable,” said the company’s chairman, Robert L. Nardelli. “An orderly restructuring outside of bankruptcy, together with the completion of our stand-alone viability plan and enhanced by a strategic alliance with Fiat, is the best option for Chrysler employees, our unions, dealers, suppliers, customers, and certainly the taxpayers.” The company is exploring a deal with Fiat to share products.

But Mr. Nardelli said Chrysler would have to consider liquidating itself in the event that it received no more federal aid.

G.M. executives sidestepped questions on Tuesday on whether they had been given any assurances by administration officials about additional loans. “They fully understood we would be coming in with additional requests,” said Ray Young, G.M.’s chief financial officer.

But the possibility exists of a negative political reaction to the administration’s pouring more taxpayers’ money into the companies, especially when they continue to operate at huge losses.

Original Story - New York Times

Update February 18, 2009

GM, Chrysler now say they need billions more

Automakers to cut 50,000 more jobs, speed plant closings

General Motors Corp. and Chrysler LLC summoned the prospect Tuesday of their collapse unless they get $7 billion in federal aid within six weeks -- part of a dramatic plea for a total of up to $39 billion to survive the worst economic crisis in the history of Detroit's signature industry.

Yet the automakers warned that any new money from the federal government would be much cheaper than the staggering cost of bankruptcies and forced liquidation of the two companies. By their estimates, bankruptcies would cost a combined $124 billion in federal loans and up to 3 million lost jobs.

Since GM and Chrysler submitted their last restructuring plans to Congress in December, their estimates of what they need to survive has grown by $14 billion combined, reflecting the worsening U.S. economy and a lack of credit for potential car buyers.

"Today's plan is significantly more aggressive because it has to be," GM Chairman Rick Wagoner said Tuesday.

The plan calls for closing five more plants in the United States than previously announced, bringing total plant closures to 14 over the next three years, and eliminating 47,000 jobs worldwide this year and 20,000 in the United States by 2012. Chrysler said it would cut 3,000 jobs and eliminate three models from its lineup.

While officials didn't identify which plants would close, the cuts are certain to send even more shivers through Michigan, which is already struggling under the weight of the nation's worst unemployment rate.

"Everyone is very anxious because we need these jobs," said Liz Lackey, 51, of Roseville. She has worked for 14 years at Chrysler's assembly plant in Sterling Heights. "We have no idea if we're going to have a job or not."

Another crisis for Washington

The pleas for aid and the bleak economic outlooks from both automakers present yet another economic crisis for President Barack Obama in his first month in office, even as the stock market sank Tuesday to a near five-year low. White House spokesman Robert Gibbs said the president's auto task force will review the reports closely in the next few days.

"It is clear that going forward, more will be required from everyone involved -- creditors, suppliers, dealers, labor and auto executives themselves -- to ensure the viability of these companies going forward," he said.

Both companies also urged the government to help suppliers, who have petitioned the U.S. Treasury for up to $25.5 billion in aid to survive weeks of idled production by U.S. automakers so far this year.

The auto task force headed by Treasury Secretary Timothy Geithner and National Economic Council director Lawrence Summers will meet for the first time later this week to review the plans. Sen. Bob Corker, the Tennessee Republican who played a key role in crafting the original loan deals, said he would reserve judgment on the automakers' plans.

He did say he would like to see Obama insist on shareholder and labor concessions as a part of the restructuring plans.

"I think it would be very helpful for the Obama administration to say this is a line in the sand, these things have to occur," Corker told CNBC.

Where would aid come from?

The administration has not addressed whether it would grant more aid or where such money would come from, a potentially explosive political question. The companies' $17.4 billion in loans to date have been drawn from the $700-billion bailout of the financial industry. Of that original $700 billion, $387.5 billion has been committed, and experts say the financial crisis could easily soak up the rest.

U.S. Rep. Thad McCotter, a Livonia Republican, said if the Obama administration backs the industry but has to come to Congress for cash on the heels of the hard-fought battle for a $787-billion stimulus package, it will be "a nightmare."

"We just seem to be cursed with timing problems," McCotter said. "I think it's going to be very difficult. We'll have to see what the task force's response to this is."

The detailed restructuring plans from GM and Chrysler, required by the government loans, outline a swarm of cuts necessary to survive a U.S. market suffering its worst decline of auto sales in four decades, and give each automaker a positive net value.

GM said it would focus on four core brands -- Chevrolet, Buick, GMC and Cadillac -- and plot a course to become profitable by 2011. The automaker said it would need $2 billion in March and $2.6 billion in April, along with $4.5 billion to replace a credit line by 2011 and a $7.5-billion line of credit if the market worsens.

Giving bankruptcy a hard look

The administration asked GM and Chrysler to address bankruptcy as part of their plans. GM detailed three bankruptcy options, saying its research showed the company's filing could cost up to $100 billion, which would lower the chances of the government getting its money back, as well as drive away car buyers.

GM "remains convinced bankruptcy would be protracted with a significant possibility that exit would not be achieved," the company said.

GM's plan comes with several caveats. It warns that if its supplier Delphi Corp. can't emerge from bankruptcy, its plans could be thrown off, and that its pension fund may need more money.

It's asking for $6 billion in help from foreign governments for branches in Canada, Europe and elsewhere. And both GM and Chrysler warned they might have to limit sales of some models should the Obama administration allow California and other states to regulate greenhouse gas emissions from vehicles.

Chrysler's remedies include cutting an additional 3,000 jobs this year, slashing total costs by $700 million, the end of three models -- including the PT Cruiser and Durango -- and the sale of $300 million in assets.

Chrysler Chairman Bob Nardelli said should the company fail to receive $5 billion by March 31, on top of the $4 billion it was granted last year, it would have to consider bankruptcy or an "orderly unwinding" of the company's business. It also outlined the benefits of an alliance with Fiat SpA, saying the partnership could boost cash flow by $6.9 billion through 2016.

But the company's submission to the Obama administration also included an "industry consolidation" option suggesting that if GM and Chrysler were to merge, the combined company could boost pretax profits by $40 billion to $54 billion between now and 2016. Chrysler and GM had talks last year, but Chrysler said GM had taken any deal off the table.

The two automakers and Ford Motor Co. reached agreements with the UAW for undisclosed reductions in hourly worker costs, which the government had said should be competitive with those at foreign-owned plants in the United States.

The UAW said it had not agreed to changes in retiree health-care trust funds at all automakers, but Chrysler said it had reached a tentative pact depending on sacrifices by bondholders.

Update Story - Detroit Free Press