Pigs at the Trough: GM, Chrysler ask for another $21.6 billion

More of our money down the rathole
Pigs at the Trough: GM, Chrysler ask for another $21.6 billion http://tinyurl.com/cav5rn
Last Updated: February 17, 2009: 6:34 PM ET
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.
Civis Romanus Sum

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Once pigs, cats, or humans get used to feeding, they always return to the source. So it's no surprise that these two feeders came back. And it won't be the last return.
Many of us felt that the Detroit Three should have been left to fight bankruptcy on their own. But we were overruled by other pockets.
We're just suckers for the big lie.
We read and hear that car sales are way down, but living in the D.C. area, most new vehicles I'm seeing are the larger SUVs and Caddies. Doubtless purchased at reduced prices, but still burning 10 mpg.
I've always thought the car companies were lying when they told us they were committed to making smaller, more gas-efficient vehicles. And I'm sticking to my sentiments. Big bonuses and increased management salaries do not come from cost efficiencies and smaller products. UNTIL the CEOs are satisfied that their accumulated and accruing wealth will NOT be further buttressed and sustained by more and larger bailouts, we'll never see those fanciful 40 mpg models on the road in the U.S.
Remember. It's impossible to wrench away bailout money once it's in the firm grip of determined thieves. And it's equally tough to deny a subsequent bailout request once one has been granted.
Enjoy your Great Bush Depression.
-------------------- "GM, Chrysler Seek Billions More in Aid"
"Firms to Cut 50,000 Jobs, Drop 6 Brands"
By Peter Whoriskey and Kendra Marr Washington Post Staff Writers Wednesday, February 18, 2009; A01
General Motors and Chrysler, two flagships of traditional American manufacturing, reported yesterday that the decline of the U.S. economy has outpaced their bleakest expectations of just two months ago, forcing them to significantly boost their request for billions of dollars in government aid.
The companies said they plan to cut an additional 50,000 jobs worldwide, drop as many as six brands and shutter 14 plants in an attempt to survive one of the deepest recessions in decades.
Once-popular lines such as GM's Hummer and Saturn will be spun off or, failing that, eliminated. Saab is up for sale. Chrysler will stop production of the PT Cruiser, Aspen and Durango by the end of the year.
"Today's plan is significantly more aggressive because it has to be," GM chief executive G. Richard Wagoner Jr. said. "We have taken stronger actions; we needed to."
The automakers yesterday said they may need as much as $21.6 billion in additional loans -- $5 billion for Chrysler and the rest for GM. The requests announced yesterday come on top of $17.4 billion the companies received in recent months.
GM has just $9 billion in cash on hand, enough to last through March, and Chrysler has $2.4 billion. The companies have both said that without additional aid, they could be forced to seek bankruptcy protection.
"We have continued to see an unprecedented decline in the automotive sector," Chrysler chief executive Robert L. Nardelli said in a conference call.
The Obama administration and leaders in Congress agreed to review the automakers' requests, compelling officials to weigh the risks of making another huge investment in the industry against having one or two of the nation's most important manufacturers go bankrupt.
"The president of the United States wants to see a strong and vibrant auto industry that's employing tens of thousands of hardworking Americans and building the cars of tomorrow for Americans right now. That's what this president wants to see," Obama spokesman Robert Gibbs told reporters aboard Air Force One.
Some members of Congress, however, are expressing skepticism about more aid for the automakers. "In general, all of us in this country are becoming far more concerned about continual potential bailouts, continuing taxpayer money going into companies, going into institutions," Sen. Bob Corker (R-Tenn.) said, "and I think at some point we're going to have to take some tough medicine."
In addition to U.S. loans, GM is also requesting financial support from the governments of Canada, Germany, Britain, Sweden and Thailand.
The latest requests came as the companies submitted to the U.S. government their plans for becoming viable, a requirement set by the Bush administration when it offered the first round of loans in December.
Those loan agreements will now be managed by the Obama administration, which is expected to take a different view of some of its terms.
Under the terms of the existing agreement, the companies were supposed to have presented signed agreements with the union that would cover reductions in wages and benefits, as well as alterations to the fund for retiree health care.
GM and Chrysler each announced yesterday that they have reached limited agreements with the United Auto Workers.
But significant labor issues remain.
Among other things, the companies and the union have not come to a final understanding on how the companies should meet their obligations -- more than $20 billion worth -- to provide retiree health care.
Despite their differences, all sides presented optimistic views of the labor negotiations.
"The changes will help these companies face the extraordinarily difficult economic climate in which they operate," UAW President Ronald A. Gettelfinger said in a statement.
The agreement "demonstrates the professionalism and maturity of both groups coming together," Nardelli added.
The federal loan agreement also required GM to have reached an agreement with company's bondholders, but the company has not yet settled with them.
Some of the Bush administration's mandates in the loan agreement have proved difficult, if not impossible, for the parties to meet.
For example, the loan agreement proposed that GM fund half of its upcoming $7 billion payment to the union-run health-care trust in company stock instead of cash. But the total value of GM shares is only $1.33 billion.
Economists continue to disagree over how long and how deep the recession will prove to be. But in recent months, a growing number have suggested that the downturn will continue through the year, running longer than some had once anticipated, and the automakers' announcements yesterday reflect the growing doubts.
When GM and Chrysler presented their plans to the government in December, each anticipated that U.S. auto sales would amount to 12 million in 2009.
At the time, that estimate reflected a drastic drop. But as the economy turned for the worse, the projections have fallen further.
In filing their plans yesterday, GM and Chrysler predicted that that U.S. auto sales would slump to about 10.5 million, a 13 percent drop. Chrysler offered the gloomiest prediction, suggesting that annual sales were unlikely to rise much until after 2012.
Under the plan GM submitted, the company will cut 47,000 jobs worldwide this year and over the next few years will reduce its plants to 33 from 47. The company said it will focus on "fewer, better" products.
But to get by the next few years, GM said it needs at least $9 billion more. If economic conditions and sales forecasts worsen, however, officials said the company would need an additional $16 billion.
With government help, GM predicted, it could return to profitability in 24 months. Without the loans, GM could run out of money by March, company officials said.
Both companies had been asked to consider the possibility of declaring bankruptcy and using the process to restructure their operations. Under such a scenario, the government would most likely foot the bill of the companies' debtor-in-possession financing, or short-term loans geared at carrying a company through bankruptcy proceedings.
But both companies said that option would be more expensive. And it could prove more disruptive, as customers shun the companies. Suppliers, too, would probably be hurt, adding to the nation's job losses at a time of soaring unemployment.
Ford has not yet pursued government aid, but the company has also been talking separately with the union about concessions. Although the automaker insists that it has enough money to survive the economic slump, it said it does not want to become disadvantaged by not negotiating along with its cross-town rivals.
[Staff writer Brady Dennis contributed to this report.]
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