GM And Chrysler Show Their Cards to the Government
By Blake Muntzinger
The deadline for restructuring their businesses was met this evening by both Chrysler and General Motors; General Motors laid out some fairly detailed plans, Chrysler not so much.
Both companies asked for a lot more money than the billions of dollars they asked for previously. GM asked for another $16.6 billion USD, saying market conditions had deteriorated even worse than forecasted a few months ago. Chrysler, much smaller than GM, asked for another $2 billion to supplement the $7 billion it said it needed at the end of 2008. If you’re keeping score, that brings the total amount requested by the two automakers to $39 billion. And, in the documents submitted by both companies, they stated that they may have to ask for more money later.
Further, the two auto manufacturers said that a bankruptcy reorganization for either company would cost a lot more than the money they are asking for currently since the government would have to provide financing in order for a reorganization to occur. If the federal government does nothing and provides no financing for either business continuance or bankruptcy reorganization, then GM and Chrysler would liquidate immediately via bankruptcy, which would result in massive job losses at the manufacturers, their supplier networks and their retail networks.
Both companies state that they expect to start paying back the loans they receive by 2010, but it is difficult to take that statement seriously since neither one knows how much money they will eventually need, or, how long this deep recession will last.
In terms of cost-cutting, General Motors said it would cut another 47,000 workers, shut down five additional plants and pare it’s brands to only four – Chevrolet, GMC, Buick and Cadillac.
GM stated that it would shut down Hummer this year and Saturn by 2011 if no buyers are found soon. A group of Saturn dealers stated late today that they intend to try to buy the brand and then sell cars from other manufacturers (like Chinese and Indian automakers) under the Saturn brand. GM is trying to push Saab off on anyone that will buy it, and Pontiac’s long-term future is very murky.
Chrysler didn’t say much more than this: they are going to cut 3000 positions and pinch production capacity in North America down by 100,000 units. Since they have production capacity of around 2.5 million vehicles annually, that reduction is not meaningful. By the way, Chrysler is forecast to sell under 1 million units in 2009. Maybe they intend to build lots of Fiats in those plants.
All three domestic automakers (Ford, GM, Chrysler) also reached agreement on concessions regarding wages and unemployment benefits, which will also help in restructuring and was part of the government’s requirements for the bailout funds. Ford is not seeking federal aid, but said the UAW concessions would enable it continue going it alone.
So, what is next? Really, I just don’t know.
It is a lot more money, and both companies say they may need more.
Is the government going to give the two companies all the money they want? Some of the money? Let them go under? Will GM get more money and Chrysler goes under? Will they let both companies go under? If that happens, then what happens to the rest of the auto manufacturers on US soil?
The full texts of both plans are available via these links:
Also, some suggested reading: The Baseline Scenario, an excellent economics blog, weighs in on Chrysler (Cerberus) wanting bailout money from the government – read it here: http://baselinescenario.com/2009/02/18/cerberus-chrysler-bailout/
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