More of our money down the rathole
Pigs at the Trough: GM, Chrysler ask for another $21.6 billion
NEW YORK (CNNMoney.com) -- General Motors and Chrysler LLC presented their updated turnaround plans to the federal government Tuesday and said they could need an additional $21.6 billion in federal loans between them because of worsening demands for their cars and trucks.
The two firms also detailed plans to cut 50,000 jobs worldwide by the end of the year.
GM (GM, Fortune 500) said it now may need as much as $30 billion by
2011, up from the $13.4 billion in federal loans it has already received. The company had originally asked for $18 billion in federal help last December.GM said it needs $9.1 billion now and that it could need another $7 billion in the next two years if auto sales get even worse.
Chrysler said it now needs $9 billion, up from the $4 billion loan from the Treasury Department in December as well as its original request for a $7 billion from Congress earlier that month. Chrysler said it will need that money by March 31.
GM also accelerated its job cut plans, saying it is looking to eliminate
47,000 jobs worldwide over the course of 2009. The company said it would cut about 20,000 jobs in the United States, or about 22% of its remaining U.S. staff.Previously GM called for U.S. job cuts of between 20,000 to 30,000 jobs, but it had stretched out those reductions through 2012.
Chrysler said it plans to cut about 3,000 jobs, or 6% of its workforce, and reduce capacity by another 100,000 vehicles this year as it tries to adjust to reduced demand. It also said it has won the concessions from the United Auto Workers union and its creditors that were demanded under terms of the loan from the Treasury Department.
The companies had a deadline of Tuesday to update the government on the status of their turnaround plans. The new plans highlighted a worsening forecast for sales, and more job cuts at the companies in the coming months. Bankruptcy could be 'cataclysmic'
A newly-appointed auto panel will review both plans and determine by March 31 if GM and Chrysler can be viable in the long run. Specifically, the Treasury Department is looking for details about the progress of negotiations with creditors and the UAW.
If the panel rules either company is not viable, it could recall the outstanding loans, a move that would likely force them into bankruptcy. In a statement, Chrysler chairman Robert Nardelli said he believes additional federal help is the best course for both Chrysler and the battered U.S. economy.
"We believe the requested working capital loan is the least-costly alternative and will help provide an important stimulus to the U.S. economy and deliver positive results for American taxpayers," said Nardelli in the statement.
To that end, the companies also submitted an analysis of what would happen if it filed for bankruptcy. In a reorganization scenario, GM said it might need up to $100 billion in additional federal loans to finance their operations during a two-year reorganization. Chrysler said it would need up to $20 billion to $25 billion.
If it was forced to liquidate, Chrysler estimated there would be a loss of 2 million to 3 million jobs, resulting in a $150 billion reduction in federal tax revenue over three years.
Nardelli added that a Chrysler bankruptcy would have a "cataclysmic" impact on the auto parts supplier industry, which would affect operations and production at all automakers. Sales forecast: From bad to worse
The other member of Detroit's so-called Big Three, Ford Motor (F, Fortune 500), requested a credit line of $9 billion from Congress in December.
But Ford said it would not to have to tap the line of credit unless conditions in the auto market and economy deteriorated more than expected.
Since then, demand for cars and trucks has gone from bad to worse, with January sales falling to their lowest level in 26 years. The automakers and industry experts have also slashed sales forecasts for 2009 and beyond.
Chrysler has been among the hardest hit in the industry though. Sales plunged 54% from year-earlier levels in December and January, and the company left most of its 12 North American assembly plants idled throughout January due to weak demand and excess inventory.
In addition to the job and production cuts, the company pledged to further lower costs by eliminating a manufacturing shift and discontinuing three models.
"We fully understand the need to adapt to significantly reduced annual U.S. sales," said Nardelli in Chrysler's statement.
The company now expects to industrywide U.S. sales this year of only
10.1 million vehicles, which would be a 40-year low. It believes sales from 2010 through 2012 will average only 10.8 million a year.Separately, UAW president Ron Gettelfinger said in a statement Tuesday that the union had "reached tentative understandings with Chrysler, Ford and General Motors on modifications to the 2007 national agreements."
Gettelfinger said "the changes will help these companies face the extraordinarily difficult economic climate in which they operate." But he declined to disclose specific terms of the tentative agreement and said that discussions were continuing.