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GM, Chrysler ask for $61b in US survival aid
GM and Chrysler ask for more cash as the US market flat-lines
18 Feb 2009
By IAN PORTER
GENERAL Motors and Chrysler have upped their total aid requests to $US39 billion ($A61b) in US government loans and loan guarantees as they struggle to stave off bankruptcy.
The latest plea from the Detroit two – outlined in submissions to the US treasury – raises the asking price for survival by $US13 billion ($A20b) over previous requests.
GM's wishlist totals $US30 billion ($A47b), while Chrysler is seeking $US9 billion ($A14b).
Outlining GM’s plan for survival, chairman and CEO Rick Wagoner said GM would shut more US plants, while Saab, Saturn and Hummer brands had essentially been listed for sale or closure. No mention was made of GM Holden.
In addition, GM was planning to cut its US product range from 40 to 36 models and slash the number of dealers in the US from 6200 to 4700 in 2012 and 4100 in 2014.
Left: Chrysler CEO Bob Nardelli.
In his submission to the US treasury, Chrysler chairman and CEO Robert Nardelli said the company would cut production capacity by a further 100,000 units and retrench a further 3000 workers, bringing the total reductions to 1.3 million units and 35,000 workers.
Mr Wagoner said GM had increased the number of plants it would close from the nine targeted in its December submission to 14 now, reducing the US total from 47 last year to 33 by 2012.
GM has already outlined plans to reduce its salaried and hourly workforce from 96,500 last year to 65,000 by 2012.
Both Mr Wagoner and Mr Nardelli said further financial assistance would be required because the US vehicle market was continuing to track close to the worst-case assumptions put forward when they first requested federal assistance in December.
Mr Wagoner said forecasts now indicated the 2009 market would be around 9.5 million cars and trucks, increasing to 11.5 million in 2010. The market has consistently been running around 16 million units in recent years.
“Under the new lower downside scenario, GM would require further Federal funding estimated at about $US7.5 billion ($A11.72b), which would bring the total Government support to the $US30 billion ($A47b) range by 2011.” The company has already received $US13.4 billion of the $US18 billion requested in December, but Mr Wagoner said that, at that time, he believed the company would be able to roll over a $US4 billion revolving loan from banks.
He now believes that will not be possible so the original total sought has been raised to $US22.5 billion ($A35b), while the extra $US7.5 billion ($A11.72b) will raise the total to $US30 billion ($A47b).
Chrysler originally received $US4 billion of the $US7 billion it requested, so it is still asking for the last $US3 billion of that initial request, plus another $US2 billion because of the poor US market demand.
Mr Wagoner said the weaker sales outlook forced GM to cut deeper in this second version of its recovery plan.
“In the 11 weeks since our initial plan was filed with Congress, the condition of the US and global economies and the us auto industry have significantly deteriorated,’’ he said at a press conference after meeting Treasury officials.
“Outlook for 2009 is now what our downside scenario was in our December submission and our global volumes have been significantly reduced to the downside scenario, particularly in ’09 and ’10,” he said.
This means GM has had to cut costs again to achieve a break-even position in the smaller market that has been forecast.
Mr Wagoner said the new plan would see GM become profitable on a sustainable basis “within 24 months”.
US treasury asked both companies to include in their submissions case studies looking at what would happen if the companies were declared bankrupt.
GM chief operating officer Fritz Henderson said bankruptcy would greatly increase the amount of support the company would need.
He said GM had looked at two scenarios: the first where the bankruptcy was done with the consent of all stakeholders, and the second a traditional bankruptcy.
“In any scenario, there would be no debt financing available to a company of GM’s size on a private basis, so the only possible source of debtor financing would be the US Treasury.
“Otherwise the company could not operate and we would need to shut down.” "If you look at the incremental financing requirements associated with the more rapid program, it would require $US9 billion more than if we did it out of court.
"The second alternative would require between $US20 billion and $US30 billion more.
"Finally, if you go to the traditional Chapter 11 process, which takes a long time, the additional financing requirement for the US Government was $US50 billion to $US60 billion more.
"If you tally up the incremental requirements from foreign Governments which would likely be required, the size of the incremental financing in order to operate GM at peak while in a Chapter 11 process, would be close to $US100 billion.” Mr Henderson the financing costs would be so much greater because bankruptcy proceedings would lead to a sharp deterioration in revenues and margins.
“The experience of bankruptcy in this industry suggests that sales fall off a cliff.”
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