Thursday, December 4, 2008

GM, Chrysler reportedly consider accepting pre-arranged bankruptcy to secure govt. funds

Thu. December 04, 2008; Posted: 05:02 AM

(RTTNews) - Automakers General Motors Corp. (GM | Quote | Chart | News | PowerRating) and Chrysler LLC are considering accepting a pre-arranged bankruptcy as the last resort of getting a multi billion-dollar bailout from the government, media reported Thursday. The firms have warned that bankruptcy would lead to liquidation, as customers deserted the companies.

As part of a renewed bid to win backing from the government, GM has requested $18 billion in federal loans, $6 billion more than its estimates a few weeks ago, reports said. Certain sources said that of the $18 billion, the company has asked for up to $12 billion in bridge loans and an additional credit line of $6 billion to enable it to weather the worst economic crisis. The company also said it needs an emergency fund of $4 billion to stay afloat till the year-end.

Sources said that the total bailout package requested by GM and Chrysler along with Ford Motor Co. (F | Quote | Chart | News | PowerRating) reaches $34 billion, larger than the $25 billion Energy Department loan program the White House previously supported to finance more fuel-efficient cars. The chief executives of the three companies are scheduled to testify at congressional hearings on Thursday and Friday on their requests for the federal assistance.

GM plans to begin repaying the loans as early as 2011 and fully repay it by 2012. The company has also requested for the creation of a Federal Oversight Board to oversee the loans and restructuring plan.

GM's plan calls for higher production of fuel-efficient vehicles and energy-saving technologies, rationalization of brands, models and retail outlets, reduced wage and benefit costs, significant capital structure restructuring and further consolidation in manufacturing operations. GM also plans to close 9 additional plants by 2012, taking the number of North American production facilities to 38 from 47 currently.

Further, the company intends to significantly reduce its current debt, and said it would reduce the number of U.S. employees to between 65,000 and 75,000 by 2012, compared with 96,000 now. In addition, the company's Chief Executive Officer Rick Wagoner would reduce his salary to $1 per year, and GM's board members would receive retainer of $1 for the year, according to the plan.

Although GM's immediate need for cash raised speculation that the company may file for bankruptcy protection, GM President Frederick Henderson reportedly said in a conference call that the company is not considering bankruptcy as an option. The company is focusing solely on securing help from the federal government and "there is not a Plan B," he said. Upon completion of the restructuring actions, the company expects to operate profitably at industry volumes between 12.5 and 13 million vehicles.

Meanwhile, Chrysler is reportedly seeking $7 billion before the end of the month to avoid running short of operating cash in the first quarter of next year. The company said it was counting on receiving $6 billion of low-cost funding from the Department of Energy and has factored the loans into its business plan running until 2012. Chrysler's chief executive officer Bob Nardelli already receives an annual salary of $1 and gets no health care, insurance or similar benefits from the company. Chrysler expects begin repayment of the federal loans in 2012.

Based on the business plan submitted by Ford to the U.S. Congress, the company is seeking up to $9 billion in bridge financing from the federal government in case the current economic crisis worsens or there is a bankruptcy of a major competitor. Ford has confirmed its decision to transform its North American automotive business through aggressive restructuring actions and the introduction of more high-quality, safe and fuel-efficient vehicles. The company said it does not expect a liquidity crisis in 2009, except in the case that one of its domestic competitors goes bankrupt or a more severe economic downturn further cripples automotive sales and create additional cash challenges.

Ford also reiterated that it is canceling all bonuses to be paid in 2009 for all management employees worldwide and foregoing bonuses for all employees in North America. The company also will not pay merit increases for North America salaried employees in 2009.

Media also reported that the three automakers are meeting with the leaders of the United Auto Workers union, or UAW, to debate on cost savings that could be wrung from the union contracts. UAW President Ron Gettelfinger has said that he was open to all options, including reopening the deals. Gettelfinger said the union will consider changes to the 2007 labor contract with the Big Three, including the delay of automakers' payments into a multibillion-dollar union-administered health care fund.

Meanwhile, GM and Ford continue to report sharp decline in their monthly vehicle sales. For the month of November, GM reported a 41.3% drop in U.S. vehicle sales, mainly due to a significant drop in the market's retail demand and continuing economic uncertainty that has negatively impacted consumer confidence. The company sold 154,877 vehicles in the U.S. in November, down from 263,654 vehicles sold in the same month last year. Total car sales for November were down 44.1% year-over-year to 58,786 units, while total truck sales slipped 39.4% to 96,091 units.

Ford reported a 30.6% drop in November U.S. sales, hurt by a weakening economy and tight credit conditions.

GM closed Wednesday's trading at $4.90, up $0.05, on a volume of 28.28 million shares.

F rose $0.15 and ended Wednesday's trading at $2.85, on a volume of 152.25 million shares.

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