Chrysler asks U.S. government for more in loans, plans to cut another 3,000 jobs
Feb 17, 2009

Tom Krisher and Ken Thomas
THE ASSOCIATED PRESS

DETROIT–General Motors Corp., presenting a dire outlook for the future, said Tuesday it may need US$30 billion in total government financing to weather the economic downturn and would cut 47,000 jobs worldwide and close five more U.S. factories in a massive restructuring plan.

The automaker is already surviving on US$13.4 billion in federal loans and said in a 117-page plan submitted to the U.S. Treasury Department that it would seek an additional $16.6 billion if economic conditions worsen, but it could achieve profitability in two years and fully repay its loans by 2017.

The U.S. automaker presented its turnaround plan as it worked to win concessions from the United Auto Workers union and bondholders to dramatically resize the company. The UAW said it reached a tentative deal with GM, Chrysler LLC and Ford Motor Co. on contract changes, but discussions were still under way about how the companies would fund union-run trust funds that will take over the companies' retiree health care obligations starting next year.

Chrysler LLC, meanwhile, told the U.S. government Tuesday it needs even more taxpayer money to survive and plans to cut another 3,000 jobs so it can stay alive.

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.

The restructuring will spill over into Canada as the Canadian units of General Motors, Ford and Chrysler negotiate with the Canadian Auto Workers union for wage and workplace concessions to keep a lid on costs at Canadian plants.

"What we've agreed to do is fully examine our cost competitive advantage with the UAW after their bargaining, (and) take a look at what that means to the Canadian operations," CAW president Ken Lewenza told a news conference in Toronto late Tuesday.

"We've committed that the CAW will maintain a competitive advantage in doing business and creating investment decisions for the future here in Canada and protecting jobs not only for our active members but our retirees moving forward. So we have a lot of work to do."

GM said it was making progress but had not yet achieved all the concessions from union workers, lenders, dealers and suppliers that the Bush administration sought in the loan terms provided last December.

Chief financial officer Ray Young said the company hopes to exchange two-thirds of its roughly US$28 billion in unsecured bond debt by the end of March to meet the loan terms.

Bondholders, he said, signed a letter saying that they were making progress with the company. The UAW also signed a similar letter saying progress had been made on the health care trust fund. The terms of the loan suggest that GM make half of the required $20 billion in payments to the fund as company stock instead of cash.

Young said the talks have reached a critical stage.

`At this juncture we feel we can make progress" and meet requirements to finalize the deals by March 31, he said.

President Barack Obama's administration will review the plans from GM and Chrysler LLC but could pull the loans if they don't approve the turnaround plans by then. The review could be extended into April, but if the government demands the money back it would force the companies into bankruptcy.

Chairman and CEO Rick Wagoner said the plan submitted Tuesday is more aggressive than the one presented to the government in December because besides U.S. sales plummeting to a 26-year low, the global economy and auto sales worldwide have deteriorated since then.

`Today's plan is significantly more aggressive because it has to be," Wagoner told a news conference Tuesday night. "We have taken stronger actions, we needed to."

In December, GM said it might need a total of $18 billion in government financing but only got a commitment of $13.4 billion, including $4 billion that the automaker received Tuesday.

GM predicted it could run out of money next month and said it wants to receive an additional $2 billion in March and an additional $2.6 billion in April.

The company has a $4.5 billion revolving line of credit that must be refinanced in 2011 but now believes that private funding won't be available, so the automaker is asking the government to lend the money.

If market conditions deteriorate, GM says it may also need an additional $7.5 billion revolving line of credit to stay afloat, for a total potential request of $30 billion.

Chief operating officer Fritz Henderson said the company explored three bankruptcy scenarios, all of which would cost the government more than $30 billion.

The government, he said, is the only place the company could get financing for a Chapter 11 reorganization, because the credit markets are frozen. The worst-case bankruptcy scenario would cost the government $100 billion, Henderson said, because revenue would severely drop.

He said there is not a lot of research about whether people would buy cars from an automaker in bankruptcy protection, but "that which is there suggests that sales fall off a cliff."

GM's plan details extensive cuts, but most of the eliminated jobs are outside the U.S. Of the 47,000 jobs to be slashed, 26,000 will be overseas. The new plan has the U.S. work force declining from about 92,000 hourly and salaried employees at the end 2008 to 72,000 by 2012.

In its Dec. 2 plan to the former Bush administration, GM said it would cut the number of plants from 47 in 2008 to 38 by 2012. But the new blueprint goes further, cutting an additional five plants by 2012 to a total of 33 factories.

GM would further reduce the number of vehicle models. The plan envisions a reduction in nameplates from 48 in 2008 to 36 by 2012. That's four fewer models than in the December plan.

GM said all of its major U.S. vehicle launches from 2009 to 2014 would be high-mileage cars and crossovers.

GM's eight brands would be reduced to four core lines – Chevrolet, Buick, Cadillac and GMC – as the automaker said in December. But the company said Pontiac also would remain as "a highly focused niche brand."

GM, which has been reviewing the Saab brand and offered it for sale, said the Swedish unit could file for bankruptcy later this month. GM said it is requesting support from the Swedish government prior to any sale, and the company has developed a proposal that would cap GM's financial support with Saab's operations becoming an independent business by January 2010.

Wagoner said the company is still talking to potential buyers for the Hummer brand.

`We're going to try to draw that to a conclusion one way or another by the end of March," he said.

The Saturn brand, meanwhile, will remain in operation through the end of 2011. GM said it's open to the possibility of a plan from retailers or investors that would allow a spin-off or sale of Saturn.

The CAW is urging Canadian governments and the auto industry to develop a plan that addresses the industry's structural problems and which provides for a long-term solution. CAW President Ken Lewenza says: Hundreds of thousands of jobs in Canada depend on a vibrant domestic auto industry.