Who didn't see this coming. Let them go into bankruptcy. You can't keep throwing good money after bad. The union doesn't want to offer concessions, then let them go into bankruptcy.
By JOHN D. STOLL and SHARON TERLEP
General Motors Corp., nearing a federally imposed deadline to present a restructuring plan, will offer the government two costly alternatives: commit billions more in bailout money to fund the company's operations, or provide financial backing as part of a bankruptcy filing, said people familiar with GM's thinking.
The competing choices, which highlight GM's rapidly deteriorating operations, present a dilemma for Congress and the Obama administration. If they refuse to provide additional aid to GM on top of the $13.4 billion already committed they risk seeing an industrial icon fall into bankruptcy.
Some experts and members of Congress say bankruptcy reorganization is the surest way for GM to cut costs and become viable. But it could be a politically unpalatable development during a recession that already has thrown millions of workers out of jobs.
Treasury Department officials believe GM needs at least $5 billion more in U.S. loans to keep operating beyond the first quarter, said people familiar with the situation.
The call for additional funds will be a key part of the revitalization plan GM is required to file with the Treasury by Tuesday, though it is unclear whether GM will furnish a dollar amount, said people familiar with the matter. The plan is supposed to describe how the company will become self-sustaining and better compete with foreign rivals.
But it's increasingly unlikely GM will have a finished plan in time. Negotiations with GM's unions and bondholders haven't yet produced commitments to concrete concessions as required by terms of the federal loans; talks are expected to continue over the holiday weekend. People involved in the talks say progress has been slowed by the fact the Obama administration has yet to appoint a "car czar," as envisioned by the bailout program.
GM will argue it needs the additional government funds to stay out of bankruptcy court, people familiar with the matter said. At the same time, the company -- which previously had dismissed suggestions that it might need to file for bankruptcy -- has moved closer to such a prospect.
GM believes government funds would be needed for debtor-in-possession financing should the company seek bankruptcy because such money wouldn't be available from private sources, said people familiar with the situation.
The auto maker eventually may seek permission to extend the March 31 deadline to complete certain restructuring actions by at least several months.
Rick Wagoner, GM's chairman and chief executive, once fiercely opposed a bankruptcy filing, saying it would scare off customers. But his opinion has softened, and he has been influential in shaping the plan for a possible filing, said people involved in the strategy.
GM declined to comment.
GM's board began more seriously considering bankruptcy in November as the company's liquidity headed toward unsustainable levels. In early December, at the board's prompting, Mr. Wagoner hired bankruptcy lawyers and advisers to begin preparing a contingency plan, said people familiar with the matter.
In the months that followed, these bankruptcy experts worked alongside advisers Evercore Partners and Morgan Stanley, both of which previously worked for GM, to develop multiple options for GM's future.
One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company. The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked.
GM received a tax break of around $3 billion as part of President Obama's economic stimulus plan. The break saves GM from having to pay taxes associated with its bailout.
Chrysler LLC is also due to file a viability plan Tuesday. The company is expected to submit two scenarios, one spelling out how it can restructure as an independent company and the other taking into account its tentative alliance with Fiat SpA, people familiar with the matter said.
Chrysler was given $4 billion in U.S. loans after nearly running out of money. The company is looking to Fiat to provide technology for small and midsize cars that Chrysler would build and sell under its own brands. In exchange, the Italian company would take a 35% Chrysler stake.
Other stakes in Chrysler could be parceled out to compensate the UAW and debt holders for cost concessions, leaving majority owner Cerberus Capital Management LP with a dramatically diminished holding, people familiar with the matter said. Cerberus now owns 80.1% of Chrysler, and Daimler AG 19.9%.
But like GM, Chrysler also needs more government help to stay afloat. The company has said it intends to ask for $3 billion in additional loans.
For the past few weeks, Chrysler has been urging dealers to order more vehicles to give the company enough revenue to keep going through the end of March. On Friday, executives said in a conference call that it reached its goal of bringing in 78,000 orders for February, said a dealer who participated in the call.
Chrysler declined to comment on its revamping plan.
GM's viability plan will present a restructuring strategy allowing it to be profitable in each of the regions in which it operates globally, people who have seen the plan said. The plan will include broad restructuring targets, including more than 10 plant closures in North America.
While GM's plan will include updates on talks with unions and bondholders related to concessions, the auto maker is expected to ask for leeway on when it can provide specific details about what cuts the two parties are willing to make.
Negotiations with the United Auto Workers union and a bondholders committee have been slow for several reasons. For one, both expressed frustration over the amount of sacrifice they are being asked to take, compared to other stakeholders such as dealers and even asbestos litigants. And both argued that a car czar is needed to help expedite the talks.
UAW President Ron Gettelfinger has been asking the Obama administration for more time to negotiate with the auto makers. Mr. Gettelfinger, a strong supporter of Mr. Obama's presidential campaign, is also hopeful that the government will take responsibility for some of GM's $47 billion in retiree health care obligations, said people familiar with his thinking.
House Speaker Nancy Pelosi (D., Calif.) and House Financial Services Chairman Barney Frank (D., Mass.) on Friday sent a letter to the chief executives of GM and Chrysler laying out expectations for their viability plans.
The lawmakers asked that the plans demonstrate "a commitment that the sacrifices necessary to turn the industry around will be shared equitably by all stakeholders" and "a demonstrated commitment to restructure your company's debt in a manner that protects the interests of the taxpayers."
<CITE class=tagline>—Deborah Solomon and Jeff McCracken contributed to this article.</CITE>
By JOHN D. STOLL and SHARON TERLEP
General Motors Corp., nearing a federally imposed deadline to present a restructuring plan, will offer the government two costly alternatives: commit billions more in bailout money to fund the company's operations, or provide financial backing as part of a bankruptcy filing, said people familiar with GM's thinking.
The competing choices, which highlight GM's rapidly deteriorating operations, present a dilemma for Congress and the Obama administration. If they refuse to provide additional aid to GM on top of the $13.4 billion already committed they risk seeing an industrial icon fall into bankruptcy.
Some experts and members of Congress say bankruptcy reorganization is the surest way for GM to cut costs and become viable. But it could be a politically unpalatable development during a recession that already has thrown millions of workers out of jobs.
Treasury Department officials believe GM needs at least $5 billion more in U.S. loans to keep operating beyond the first quarter, said people familiar with the situation.
The call for additional funds will be a key part of the revitalization plan GM is required to file with the Treasury by Tuesday, though it is unclear whether GM will furnish a dollar amount, said people familiar with the matter. The plan is supposed to describe how the company will become self-sustaining and better compete with foreign rivals.
But it's increasingly unlikely GM will have a finished plan in time. Negotiations with GM's unions and bondholders haven't yet produced commitments to concrete concessions as required by terms of the federal loans; talks are expected to continue over the holiday weekend. People involved in the talks say progress has been slowed by the fact the Obama administration has yet to appoint a "car czar," as envisioned by the bailout program.
GM will argue it needs the additional government funds to stay out of bankruptcy court, people familiar with the matter said. At the same time, the company -- which previously had dismissed suggestions that it might need to file for bankruptcy -- has moved closer to such a prospect.
GM believes government funds would be needed for debtor-in-possession financing should the company seek bankruptcy because such money wouldn't be available from private sources, said people familiar with the situation.
The auto maker eventually may seek permission to extend the March 31 deadline to complete certain restructuring actions by at least several months.
Rick Wagoner, GM's chairman and chief executive, once fiercely opposed a bankruptcy filing, saying it would scare off customers. But his opinion has softened, and he has been influential in shaping the plan for a possible filing, said people involved in the strategy.
GM declined to comment.
GM's board began more seriously considering bankruptcy in November as the company's liquidity headed toward unsustainable levels. In early December, at the board's prompting, Mr. Wagoner hired bankruptcy lawyers and advisers to begin preparing a contingency plan, said people familiar with the matter.
In the months that followed, these bankruptcy experts worked alongside advisers Evercore Partners and Morgan Stanley, both of which previously worked for GM, to develop multiple options for GM's future.
One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company. The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked.
GM received a tax break of around $3 billion as part of President Obama's economic stimulus plan. The break saves GM from having to pay taxes associated with its bailout.
Chrysler LLC is also due to file a viability plan Tuesday. The company is expected to submit two scenarios, one spelling out how it can restructure as an independent company and the other taking into account its tentative alliance with Fiat SpA, people familiar with the matter said.
Chrysler was given $4 billion in U.S. loans after nearly running out of money. The company is looking to Fiat to provide technology for small and midsize cars that Chrysler would build and sell under its own brands. In exchange, the Italian company would take a 35% Chrysler stake.
Other stakes in Chrysler could be parceled out to compensate the UAW and debt holders for cost concessions, leaving majority owner Cerberus Capital Management LP with a dramatically diminished holding, people familiar with the matter said. Cerberus now owns 80.1% of Chrysler, and Daimler AG 19.9%.
But like GM, Chrysler also needs more government help to stay afloat. The company has said it intends to ask for $3 billion in additional loans.
For the past few weeks, Chrysler has been urging dealers to order more vehicles to give the company enough revenue to keep going through the end of March. On Friday, executives said in a conference call that it reached its goal of bringing in 78,000 orders for February, said a dealer who participated in the call.
Chrysler declined to comment on its revamping plan.
GM's viability plan will present a restructuring strategy allowing it to be profitable in each of the regions in which it operates globally, people who have seen the plan said. The plan will include broad restructuring targets, including more than 10 plant closures in North America.
While GM's plan will include updates on talks with unions and bondholders related to concessions, the auto maker is expected to ask for leeway on when it can provide specific details about what cuts the two parties are willing to make.
Negotiations with the United Auto Workers union and a bondholders committee have been slow for several reasons. For one, both expressed frustration over the amount of sacrifice they are being asked to take, compared to other stakeholders such as dealers and even asbestos litigants. And both argued that a car czar is needed to help expedite the talks.
UAW President Ron Gettelfinger has been asking the Obama administration for more time to negotiate with the auto makers. Mr. Gettelfinger, a strong supporter of Mr. Obama's presidential campaign, is also hopeful that the government will take responsibility for some of GM's $47 billion in retiree health care obligations, said people familiar with his thinking.
House Speaker Nancy Pelosi (D., Calif.) and House Financial Services Chairman Barney Frank (D., Mass.) on Friday sent a letter to the chief executives of GM and Chrysler laying out expectations for their viability plans.
The lawmakers asked that the plans demonstrate "a commitment that the sacrifices necessary to turn the industry around will be shared equitably by all stakeholders" and "a demonstrated commitment to restructure your company's debt in a manner that protects the interests of the taxpayers."
<CITE class=tagline>—Deborah Solomon and Jeff McCracken contributed to this article.</CITE>
