GM presented particularly dire outlook for the future, saying it may need $30 billion in additional government aid but is asking now for $16.6 billion in loans
Tuesday, February 17, 2009
DETROIT -- General Motors and Chrysler said Tuesday their request for federal aid ballooned to a staggering $39 billion -- only months after receiving billions in loans -- in new plans that envision massive job losses and intense restructuring to survive a deepening recession.
General Motors Corp. presented a survival plan that calls for cutting a total of 47,000 jobs globally and closing five more U.S. factories, a move that represents the largest work force reduction announced by a U.S. company in the economic meltdown. Chrysler LLC said it will cut 3,000 more jobs and stop producing three vehicle models.
The grim reports came as the United Auto Workers union said it had reached a tentative agreement with GM, Chrysler and Ford Motor Co. on contract changes. Concessions with the union and debt-holders were a condition of the government bailout.
GM said it could need up to $30 billion from the Treasury Department, up from a previous estimate of $18 billion. That includes $13.4 billion the company has already received. The world's largest automaker said it could run out of money by March without new funds and needs $2 billion next month and another $2.6 billion in April.
"We have a lot of work to do," GM Chairman and Chief Executive Rick Wagoner said. "We're still going at this with a great sense of urgency."
GM's request includes a credit line of $7.5 billion to be used if the downturn is more pronounced than expected. But the automaker claimed it could be profitable in two years and repay its loans by 2017.
The requests pale in comparison to what it might cost taxpayers if GM or Chrysler go bankrupt, said Aaron Bragman, auto industry analyst for the consulting firm IHS Global Insight in Troy, Mich.
"These are not small, insignificant organizations," he said. "These are the lifeblood of American manufacturing."
The company looked into three bankruptcy scenarios, all of which would cost the government more than $30 billion, GM Chief Operating Officer Fritz Henderson said. The worst scenario would cost $100 billion because GM's revenue would severely drop, he said.
Although little is known about whether people would buy cars from a bankrupt automaker, some research "suggests that sales fall off a cliff," Henderson said.
Chrysler LLC requested $5 billion in new loans on top of the $4 billion it received in December. That's $2 billion more than expected.
Both requests were part of restructuring plans the two automakers owed the government in exchange for earlier loans.
Treasury Secretary Timothy Geithner, who will lead an Obama administration task force reviewing the plans, said his team would meet "later this week to analyze the companies' plans and to solicit the full range of input from across the administration."
Dearborn, Mich.-based Ford, which borrowed billions from private sources before credit markets tightened, has said it can make it through 2009 without government help.
GM and Chrysler plan to reduce the number of models they offer. GM raised the possibility its Saturn brand could be phased out and said its Swedish-based Saab unit could file bankruptcy this month.
The restructuring plans must be vetted by the Obama administration's new autos team. President Barack Obama's top spokesman told reporters aboard Air Force One on Tuesday that he wouldn't rule out bankruptcy for the Detroit automakers.
The GM job cuts include 10,000 salaried and 37,000 blue-collar positions, amounting to 19 percent of its current global work force of 244,500. Jobs outside the U.S. account for 26,000 of the reductions.
The cuts would take place by the end of this year, and more would follow: The new plan has the U.S. work force declining from about 92,000 hourly and salaried employees at year-end 2008 to 72,000 by 2012.
Wagoner said the new plan was "significantly more aggressive" than the one presented to the government on Dec. 2 because the global economy and auto sales had deteriorated swiftly.
Chrysler had 54,007 employees at the end of 2008, so Tuesday's cuts would equal about 6 percent of its work force.
Auburn Hills, Mich.-based Chrysler said it now projects that automakers will sell 10.1 million vehicles in the U.S. this year, the lowest level in four decades.
"We have continued to see an unprecedented decline in the automotive sector," Chrysler Chief Executive Bob Nardelli said.
Chrysler will eliminate the Dodge Aspen, Durango and Chrysler PT Cruiser, company president Jim Press said. The Aspen and Durango, both large sport utility vehicles, have sold poorly while the PT Cruiser, released to much fanfare in 2000 due to its retro look, has also slumped in sales.
Detroit-based GM said it plans to sell or spin-off its Saturn brand. If those attempts are unsuccessful, GM will phase it out by 2011. GM is discussing the sale of its Hummer division and could complete the talks by March.
The automaker has also sought buyers for its Saab unit. Selling or eliminating those brands would leave GM to focus on Chevrolet, Cadillac, GMC and Buick, with Pontiac reduced to one or two models.
GM would also reduce the number of vehicle models, dropping the nameplates from 48 in 2008 to 36 by 2012, four fewer models than in the December plan.
All of GM's major U.S. vehicle launches from 2009 to 2014 would be high-mileage cars and crossovers.
Details were unveiled the same day President Barack Obama signed into law a massive economic recovery plan. Signs that the recession was deepening were more immediate for investors, however, and they dumped stocks and pushed oil prices sharply lower.
The UAW said discussions were continuing regarding the union-run trust fund that will take on retiree health care expenses starting next year.
Terms of the union deal were not announced, but they were expected to eliminate the jobs bank in which laid-off workers get most of their pay, as well as changes that make the companies' labor costs competitive with their Japanese counterparts that have U.S. factories.
"The changes will help these companies face the extraordinarily difficult economic climate in which they operate," UAW President Ron Gettelfinger said in a statement.
GM Chief Financial Officer Ray Young said the company hopes to exchange two-thirds of its roughly $28 billion in unsecured bond debt by the end of March. Bondholders, he said, signed a letter saying that they were making progress with the company.
House Speaker Nancy Pelosi, D-Calif., said she was hopeful the plans would help lead to the "transformation of our domestic automobile industry into a viable, technologically advanced, and globally competitive manufacturing force."