TOPICS > Economy

GM, Chrysler Paint Dire Picture in Plea for More Federal Aid

BY Admin  February 18, 2009 at 10:25 AM EST

Auto Dealership

U.S. automakers, long considered critical elements in the country’s manufacturing lifeblood, have struggled under the weight of both the global economic downturn and aging business models that have lacked the flexibility to keep pace with foreign competitors.

GM and Chrysler received $17.4 billion from the government in emergency bridge loans late last year with the promise that the automakers would pursue restructuring plans. Ford Motor Co. also helped make the case to lawmakers about the dire state of the auto industry, but has thus far not had to take any government funds.

The new aid requests and restructuring documents filed Tuesday were accompanied by plans to cut thousands of jobs and phase out production of certain car models as well as the promise of further union concessions.

GM alone said it would cut 47,000 jobs globally by the end of the year – 19 percent of its work force. It also said it would close five more U.S. factories, although it did not identify them. Chrysler said it will cut 3,000 more jobs and stop producing three vehicle models.

The gloomy reports came as the United Auto Workers union said it had reached tentative “understandings” with GM, Chrysler and Ford on contract changes. Concessions with the union and debt-holders were a condition of the government bailout.

UAW chief Ron Gettelfinger said “discussions are continuing” regarding how to fund the health care trusts that will take on retiree health care expenses.

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 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.

GM’s request includes a credit line of $7.5 billion to be used if the downturn is worse than expected. But the automaker claimed it could be profitable in two years and repay its loans by 2017.

In addition, GM said it expected to be able to borrow up to $6 billion from foreign governments and nearly $8 billion from the Department of Energy. It warned that without $1.5 billion from asset sales in 2009, it would need even more cash, Reuters reported.

“We have a lot of work to do,” GM CEO Rick Wagoner said. “We’re still going at this with a great sense of urgency.”

In its review, GM raised the possibility that its Hummer and Saturn brands could be phased out and said its Swedish-based Saab unit could file bankruptcy this month if a buyer is not found for the spin-off business.

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 GM and Chrylser both explored bankruptcy scenarios as part of the review. GM looked into three bankruptcy scenarios, all of which would cost the government more than $30 billion, GM Chief Operating Officer Fritz Henderson said.

Chrysler said the company would likely have to file for Chapter 11 if it doesn’t get additional loans from the government and new concessions from unions, creditors and dealers. Despite the warning, company officials said in a conference call that they believe a bankruptcy filing is “not necessary” for Chrysler’s survival, the Wall Street Journal reported.

Chrysler will eliminate the Dodge Aspen, Durango and Chrysler PT Cruiser, company president Jim Press said. The company said it will reduce capacity by 100,000 units and cut 3,000 jobs this year.

If Chrysler were forced to liquidate, the government would have to cover pension and other costs and the bailout tab could hit $1,200 per taxpayer, Chrysler CEO Bob Nardelli said.

Treasury Secretary Timothy Geithner, who is expected to lead a new 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.”

“The president’s team will be reviewing these reports closely in the days ahead,” White House spokesman Robert Gibbs said in a statement. “It is clear that going forward, more will be required from everyone involved.”

Other reactions to the reports were mixed.

“I think this is a perilous road,” Alan Lancz, president of investment firm Alan B Lancz & Associates Inc., told Reuters. “This is a situation where we really have to decide whether we are throwing good money after bad.”

But Rep. John Dingell, a Michigan Democrat and strong industry ally, said government “must do whatever is possible” to preserve the auto industry.

“The cost of action will be high, but the cost of inaction will be higher,” Dingell said in a statement.