GM and Chrysler Will Get $13.4 Billion in U.S. Loans

Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC will get $13.4 billion in initial government loans to keep operating in exchange for a restructuring under a rescue plan announced by President George W. Bush.

A bankruptcy is unlikely to work for the automakers at this time and can’t be allowed, Bush said at the White House.

“These are not ordinary circumstances,” Bush said. “In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action.”

The money will be drawn from the Troubled Asset Relief Program and the automakers will get an additional $4 billion from the fund in February for a total of $17.4 billion in assistance, according to a statement from the Bush administration. The funds would allow GM and Chrysler to keep operating until March.

Winning the assistance is a reprieve for GM, the biggest U.S. automaker, and No. 3 Chrysler after they said they would run out of operating funds as soon as this month. Bush is stepping in after Senate Republicans’ refusal last week to take up a House-approved rescue raised the prospect of a company failure costing millions of jobs.
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Auto Rescue: Bush to Give Low-Interest Loans to Carmakers

The White House has decided to come to the rescue of General Motors and Chrysler by providing them with $17.4 billion in low-interest loans to keep them afloat, ABC News has learned.

The money for the loans will come from the Troubled Asset Relief Program fund, signed into law this fall to bail out the financial industry. The president will provide $13.4 billion in short-term financing in December and January and plans to make another $4 billion available in February, provided it can reach into the second half of the $700 billion TARP fund to do so.

The deal also includes as a non-binding "target" a key provisions, including making work rules and wages competitive with workers at foreign car companies in the U.S.

Chrysler CEO Bob Nardelli issued a statement saying the company was grateful for the helping hand and that, "Chrysler is committed to meeting these requirements."

Pressure had been building for President Bush to act. Chrysler temporarily shut down all of its plants earlier this week to save money, and GM delayed construction on a new plant for the same reason. And House Speaker Nancy Pelosi urged Bush on Thursday to make a decision because the nation's weakened economy could not risk a massive wave of layoffs.

"This is a difficult time for a free-market person," Bush said Thursday. "Under ordinary circumstances, failed entities, failing entities should be allowed to fail. I have concluded these are not ordinary circumstances, for a lot of reasons... We got to the point where if a major institution were to fail, there is great likelihood that there'd be a ripple effect throughout the world, and the average person would be really hurt."

Treasury Secretary Henry Paulson told a business forum in New York Thursday night it was too risky to simply let the automakers fail.

"When you look at the size of this industry and look at all those that it touches in terms of suppliers and dealers… it would seem to be an imprudent risk to take," he said....More

Focus on White House in auto bailout saga

WASHINGTON, Dec 12 (Reuters-By Matt Spetalnick ) - The Bush administration said on Friday it could be willing to provide emergency aid to the teetering U.S. auto industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.

Warning of dire consequences for the recession-hit U.S. economy if the once-mighty automakers collapsed, the White House -- in a reversal of policy -- said it was ready to consider dipping into a $700 billion Wall Street bailout fund to help keep the companies afloat.

'The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry,' White House spokeswoman Dana Perino said.

Democratic leaders and the main U.S. auto workers union appealed to Bush's Republican administration -- now in its final weeks before turning over to Democratic President-elect Barack Obama -- to provide emergency funds after a Senate deal to save Detroit's Big Three collapsed in acrimony late on Thursday.

The failure of the $14 billion bailout plan in Congress sent markets reeling around the world. Shares in Toyota Motor Corp the world's biggest carmaker, lost a tenth of their value, and European automakers also closed sharply lower.

But signs that the White House and U.S. Treasury Department were prepared to mount a last-ditch effort to help the carmakers buoyed Wall Street, and large initial losses were mostly recouped.

Focus on White House in auto bailout saga

WASHINGTON, Dec 12 (Reuters-By Matt Spetalnick ) - The Bush administration said on Friday it could be willing to provide emergency aid to the teetering U.S. auto industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.

Warning of dire consequences for the recession-hit U.S. economy if the once-mighty automakers collapsed, the White House -- in a reversal of policy -- said it was ready to consider dipping into a $700 billion Wall Street bailout fund to help keep the companies afloat.

'The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry,' White House spokeswoman Dana Perino said.

Democratic leaders and the main U.S. auto workers union appealed to Bush's Republican administration -- now in its final weeks before turning over to Democratic President-elect Barack Obama -- to provide emergency funds after a Senate deal to save Detroit's Big Three collapsed in acrimony late on Thursday.

The failure of the $14 billion bailout plan in Congress sent markets reeling around the world. Shares in Toyota Motor Corp the world's biggest carmaker, lost a tenth of their value, and European automakers also closed sharply lower.

But signs that the White House and U.S. Treasury Department were prepared to mount a last-ditch effort to help the carmakers buoyed Wall Street, and large initial losses were mostly recouped.

Ford tells Congress it may be able to go it alone

WASHINGTON – Ford Motor Co. is asking Congress for a $9 billion "stand-by line of credit" to stabilize its business, but says it doesn't expect to tap it.

Unless one of Detroit's other Big Three auto companies goes bust, Ford expects to have enough money to make it through next year, it said in a plan that projected the firm will break even or turn a pretax profit in 2011.

Detroit's automakers, making a second bid for $25 billion in funding, are presenting Congress with plans Tuesday to restructure their ailing companies and provide assurances that the funding will help them survive and thrive.

General Motors Corp., Ford and Chrysler LLC said they would refinance their companies' debt, cut executive pay, seek concessions from workers and find other ways of reviving their staggering companies.

The Big Three executives also are offering a series of mostly symbolic moves to burnish their images, badly tattered after they arrived in Washington D.C. last month on three separate private jets to plead for a federal lifeline for their struggling companies.

Ford CEO Alan Mulally said he'd work for $1 per year if his firm had to take any government loan money. The company's plan also says it will cancel all management employees' 2009 bonuses, scrap merit increases for its North American salaried employees next year, and sell its five corporate aircraft.

And for this week's round of congressional hearings on the auto bailout, all three company chiefs will skip the lavish travel arrangements. Mulally is coming by car from Detroit for this week's second round of congressional hearings on government help for the Big Three. GM Chief Rick Wagoner will drive a Chevrolet Malibu hybrid sedan for the 520-mile trek from Detroit to Capitol Hill, spokesman Tony Cervone said Tuesday. And Chrysler LLC CEO Robert Nardelli won't travel by corporate jet, but a spokeswoman declined to elaborate on his travel plans, citing security reasons.

The unions were preparing to make sacrifices as well. UAW leaders summoned local union leaders from across the country to an emergency meeting Wednesday in Detroit to discuss concessions the union could make to help auto companies get government loans.

U.S. automakers are struggling to stay afloat heading into 2009 under the weight of an economic meltdown, the worst auto sales in decades and a tight credit market. General Motors, Ford and Chrysler went through nearly $18 billion in cash reserves during the last quarter, and GM and Chrysler have said they could collapse in weeks.

Top executives from the Big Three failed last month to convince a skeptical Congress that they were worthy of $25 billion in loans. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., ordered them to outline major changes, including the elimination of lavish executive pay packages and assurances that taxpayers would be reimbursed for the loans.

All three companies are filing separate plans. Congressional hearings are planned for Thursday and Friday.

"I believe the industry will make a compelling case for bridge loans that will allow the companies to return to firm financial footing," said Sen. Carl Levin, D-Mich.

GM will outline efforts to negotiate swapping some of the company's debt for equity stakes in the automaker, either shares or warrants for them, said two people briefed on the company's plan.

With eight separate brands, GM will also discuss efforts to shed brands but it would prefer to sell them instead of shutting down Pontiac, Saturn or Saab, said one of the people briefed on the plan. Killing off brands, like GM did with Oldsmobile in 2004, would require cash the company doesn't have, the person said. The people briefed on GM's preparations didn't want to be identified because the plan hadn't been completed.

Some members of Congress have urged the Big Three executives to take major pay cuts as part of the deal. Chrysler's Nardelli said he would work for $1 a year, and a similar commitment is expected from GM's Wagoner.

Chrysler is expected to outline changes that would include a swap of debt in the company for equity stakes and reductions in some vehicle models, according to a person who was briefed on the plan. The person spoke on condition of anonymity because the discussions were private.

Cash stockpiles at GM and Chrysler are dangerously close to the minimum amount required to run the companies, meaning they could have trouble paying all their bills by the end of the year.

GM, according to its quarterly report filed with the Securities and Exchange Commission, owes creditors $45 billion and it must pay more than $7.5 billion early in 2010 to a United Auto Workers trust fund that will take over retiree health care payments.

Ford owes more than $26 billion, with $6.3 billion due to its UAW trust fund at the end of 2009. Chrysler, a private company, does not have to open its books, but its CEO, Nardelli, has said it would be difficult for the company to make it without federal aid. All three likely are negotiating with the UAW for delays in payments to the trusts.

The companies are expected to seek other concessions from the United Auto Workers, including the elimination of the much-maligned jobs bank in which laid-off workers keep receiving most of their pay.

Alan Reuther, the UAW's legislative director, declined to say on Monday what kinds of concessions the union might take but said "we realize that all stakeholders need to come to the table to do what's necessary to ensure the viability of the companies. We're prepared to do our part."

The UAW leaders subsequently disclosed plans for the Wednesday meeting, where they will discuss the possibility of restructuring a multibillion-dollar union-administered health care fund so that the automakers can delay payments, according to a person familiar with the matter.

They also plan to discuss eliminating the jobs bank.

The companies are resisting calls for bankruptcy. The executives said last month that bankruptcy cannot be an option because no one would buy a car from an automaker that may not survive the life of the vehicle

UAW faces deeper cuts to clinch auto rescue

UAW faces deeper cuts to clinch auto rescue
November 26, 2008

DETROIT (Reuters) -- The union contract hailed as the deal to save Detroit automakers a year ago is in danger of coming undone in the face of the industry's push to secure the federal bailout it now sees as its best bet to survive.

The centerpiece of the historic UAW contract, the creation of a trust to take over the estimated $80 billion retiree health care liability of the Detroit 3, seems certain to be re-examined as General Motors and its rivals seek government aid to survive a brutal downturn in car sales.

UAW President Ron Gettelfinger said the creation of that Voluntary Employee Beneficiary Association -- or VEBA -- trust would safeguard retiree health care for 80 years.

Wall Street analysts, meanwhile, hailed the deal as a game-changer for Detroit, one that could level the playing field with competitors led by Toyota Motor Corp.

But with GM running short of cash and pleading for a share of a $25 billion federal bailout, the UAW faces increasing pressure to accept concessions that would rewrite provisions for funding the VEBA even before it takes effect from 2010.

Those are likely to include a more limited payout for the VEBA health care trust, which could imply reduced benefits for future retirees. The union will also face pressure to abandon a "jobs bank" program that pays wages to laid-off workers.

"They have got to make some adjustments to the VEBA, because there is no way they can afford to make those payments," said Erich Merkle, a Crowe Horwath consultant.

A UAW spokesman was not available for comment.

With automakers seeking a rescue and sales at 25-year lows, analysts expect GM, Ford Motor Co. and Chrysler LLC to present revised restructuring plans designed to show executives, creditors and factory workers accepting new sacrifices.

Cutting or eliminating the "jobs bank" where idle workers may receive nearly full pay and benefits for up to two years, and deferring or reducing payments to the VEBA are two avenues of likely union concessions, analysts said.

"After the federal government, this is a most likely source of liquidity to help tide them over," Fitch Ratings managing director Mark Oline said of the VEBA.

Gettelfinger has said broad changes to the VEBA are not being considered, but analysts believe the union would be willing to make some compromises.

TRICKY

GM, Ford and Chrysler collectively have pledged about $48 billion to the VEBA fund through transfers of current trusts and future payments to cover a share of the liabilities.

"I don't think the UAW is going to be a challenge here," IHS Global Insight analyst Aaron Bragman said. "You will see them come back with even more concessions, because they realize the alternative is that they are all out of a job."

In July, the UAW allowed GM to defer $1.7 billion of payments for the VEBA for two years -- in exchange for a note paying 9 percent interest.

The fact the union and the automakers have had a federal court certify the VEBA agreement could make changes difficult, but not impossible. The deal would be "tricky to renegotiate, but that doesn't mean it is off-limits," Standard & Poor's credit analyst Gregg Lemos Stein said.

"In this environment, we don't think it would be an insurmountable challenge," he said.

S&P expects GM and Chrysler to run short of cash by early in 2009 without a market improvement it does not expect, or external support. Ford has until mid to late 2009.

WHITHER THE JOBS BANK?

While the jobs bank has been a lightning rod for controversy and seized as a symbol of Detroit's excess, the 2007 contract sharply curtailed the program. The Detroit-based companies are also not the only ones to pay idled workers.

Both Toyota Motor Corp. and Honda Motor Co. have retained idled U.S. workers during plant closures this year -- Toyota at its Texas truck plant and Honda in Alabama and Ohio.

"I think the jobs bank for sure has to go," Merkle said. "Even if it didn't cost them anything, there is a problem of political appearances, and it's very hard for anyone outside the auto industry to understand."

JP Morgan analyst Himanshu Patel expects "shared sacrifice" to be a major theme, whether part of an immediate bailout of the U.S. auto industry or a more comprehensive plan that takes shape under the Obama administration.

"Such multi-party concession deals take months, not weeks, to negotiate," Patel said in a note to clients.

Setting up GM to operate profitably in a much weaker U.S. market will require UAW concessions on the VEBA, jobs bank and a cut in wages and benefits for active workers, Patel said.

Gregg Shotwell, now a GM retiree and a persistent critic of the UAW leadership as a union member, said he expected the jobs bank to be eliminated and VEBA reduced. He believes UAW workers are resigned to the changes.

"We warned that the VEBA was not bankruptcy-proof and now it is looking shaky, and I'm one of these guys depending on the VEBA," Shotwell said.