TriShield

Congressional Bailout Report: What They Knew Before They Loaned the Money



By Robert Farago
February 8, 2009

TTAC proofreader and Editor Jeff Puthuff has been helping me chase down the Chrysler–Cerberus story, trying to identify the automaker’s secret co-investors. In the midst of that pursuit, Jeff has unearthed this heretofore unreported document:

“U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring” Dec. 3. 2008 (Prepared for Members and Committees of Congress).” The Congressional Research Service (CRS) drafted the report for elected representatives contemplating whether or not to loan Chrysler and GM money to prevent their bankruptcy. The U.S. Senate and House of Representatives eventually failed to create a bill to fund the loans (though not for lack of trying). Then-president Bush stepped in at the eleventh hour and provided $17.4b worth of federal loans, by stretching the provisions of the Troubled Asset Relief Program (TARP). There are some startling—and not so startling—insights.

Widely quoted Center for Automotive (CAR) Research Study Debunked, Rejected

A general criticism of this analysis is that it assumes that the suppliers and all other automakers, aside from the the initially failed company or companies, would see their output drop to zero, and that they would be merely passive observers of an industry collapse. There are many examples in recent years of bankrupt or financially distressed suppliers being supported by their OEM customers, or by other suppliers that acquire parts of the business to gain new contracts or to be able to continue servicing their own contracts from a failed subassembly producer…

While CAR posits, for the sake of analysis, that, in the first year, no auto manufacturing in the United States could survive a major Detroit 3 bankruptcy, in actuality, such an extreme outcome is unlikely. Immediate and radical restructurings among suppliers is a more likely outcome, and other brands would continue to produce.

U.S. Auto Manufacturing Employment Declining Generally, Anyway

Automotive manufacturing employment has also fallen as a share of total employment in manufacturing. While total manufacturing employment has fallen by more than three million jobs since September 2001, employment in motor vehicle manufacturing dropped at an even faster rate, with its share of total manufacturing employment falling from 7.4% to 6.4%. During this period, total automotive sector employment, including services fell from 5.1 million to 4.6 million, while total U.S. employment grew by six million. As a result, automotive employment, including both manufacturing and services, as a share of total U.S. employment, fell from 3.9% to 3.3%.

GM - Chrysler Shotgun Marriage Still An Option

GM’s plan to acquire Chrysler and merge the two companies, which was widely reported in October 2008, was similarly withdrawn when the companies could not find sufficient funds, including proposed federal financial support, for the deal. The plan could still be resurrected as part of a general plan of government financial assistance for the Detroit 3.

Chrysler / GM Chapter 11 Could Increase Consumer Confidence

One might question whether the recent urgent requests for financial assistance do not diminish consumer confidence at least as much as would a bankruptcy filing designed to reorganize the company and lead to financial viability . . . filing under Chapter 11 could boost consumer confidence in the troubled automakers.

Feds Could Back Vehicle Warranties

If Congress finds that concern about warranty coverage is an issue that would doom a reorganization, it could be possible to provide for alternative warranty coverage. This might be funded with premiums paid by automakers, similar to premiums paid by financial institutions to the Federal Deposit Insurance Corporation (FDIC).

Loan Default Risk

However, direct loans from the federal government commit government money more immediately than would loan guarantees. Several have questioned the advisability of extending such loans, fearing that the troubled automakers may be unable to repay them even if the loan terms are very favorable.

Loans Could Leave Federal Government SOL

Under current bankruptcy law, the loans, if unsecured, would enjoy no priority status under 11 U.S.C. § 507. This means that the government potentially could “stand in line” with the other non-priority unsecured creditors and ultimately might receive only a few pennies for each dollar of outstanding loan balance. In the worst case, there might be no funds to divide between these creditors.

Chrysler Pension Plan Funding Unknown

As a privately-held company, Chrysler is not subject to the same SEC reporting requirements as are GM and Ford. Current information about pension plans was not available at the time this CRS report was written.

Loans Less Onerous Than Previous ChryCo Guarantees

By comparison to the broadly defined elements of these plans, the Chrysler loan guarantee legislation of 1980 was far more prescriptive in exchange for a loan guarantee that was worth far less than the $25 billion requested by the Detroit 3 in 2008, even allowing for inflation.

Clearly, the U.S. Congress had enough information to know that providing GM and Chrysler with federal loans was an extremely risky not to say stupid idea. As did President Bush. By making these loans, the president pushed “the Detroit problem” down the line to president-elect Obama.

The bottom line: adding more fuel to Chrysler and GM’s pyre is just as boneheaded now as it was then.

TriShield

GM, Chrysler May Face Bankruptcy to Protect U.S. Debt

By Mike Ramsey and Tiffany Kary

Feb. 9 (Bloomberg) -- General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.

U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements posted on the U.S. Treasury’s Web site. The government has hired a law firm to help establish its place at the front of the line for repayment, two people involved in the work said last week.

If federal officials fail to get a consensual agreement to change their position regarding repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called “debtor in possession” or DIP loan, a lender status that gives the U.S. priority over other creditors, said Don Workman, a partner at Baker & Hostetler LLP.

“They are negotiating to see if they can reach an agreement,” said Workman, a bankruptcy lawyer based in Washington. “If not, they are saying ‘We are pretty darn sure that a bankruptcy judge will allow us’” to be first in line for repayment.

GM rose 5 cents to $2.89 at 11:16 a.m. in New York Stock Exchange composite trading. Chrysler isn’t publicly traded.

Carmaker Opposition

The automakers have dismissed calls to reorganize under bankruptcy protection, saying a Chapter 11 restructuring would scare away buyers and lead to liquidation. They are working toward a Feb. 17 deadline to show progress on a plan put in place as part of the U.S. loans received in December from the Troubled Asset Relief Program. The companies must reduce labor costs and show how they will repay the money by next month.

GM and Chrysler are already trying to restructure out of court by cutting labor costs, reducing debt levels and eliminating dealers. GM is in talks to pare $27.5 billion in unsecured debt to about $9.2 billion in a swap for equity.

The company said it plans to shutter dealers and reduce obligations to a union retiree health fund by half to $10.2 billion in a separate equity swap. Chrysler Chief Executive Officer Robert Nardelli has said his company will also try to cut debt.

Delphi Talks

GM said today it’s in negotiations to take back portions of Delphi Corp., a parts supplier the automaker separated from a decade ago, in order to maintain portions of its supply chain. GM said it’s also considering more plant closures, job eliminations and pay cuts for administrative workers.

The automaker probably will close at least two factories, which according to the Wall Street Journal may include a truck plant in Pontiac, Michigan.

Chrysler will temporarily shut three plants, the company said last week. Those closures will be in Michigan and Canada.

January sales from automakers plunged 55 percent at Chrysler, 49 percent at GM and 40 percent at Ford Motor Co., the second-largest U.S. automaker. Ford has declined bailout funds.

The U.S. government has the option of working out an intercreditor agreement outside of bankruptcy that would give it rights to some collateral ahead of others. Such agreements, often made when money is lent to a company that already has liens on most of its assets, are usually negotiated when the loan is made.

U.S. Law Firm

Cadwalader, Wickersham & Taft LLP is advising the government on how to make sure it gets paid back first, including by way of intercreditor agreements, the people involved with the talks said. The law firm, hired last month, is working for the government with Sonnenschein, Nath & Rosenthal, a Chicago-based firm with capital-markets experience, and Rothschild Inc., an investment bank, the people said.

The issues are “extremely complex,” said Bruce Clark, a credit analyst at Moody’s Investors Service.

The existing loan agreements appear to give the banks a superior position to the government, Clark said.

“The ultimate position of the government could end up being determined by whatever concessions various creditors make, and the determination of a bankruptcy court if it ever gets there,” he said.

When the automakers were lobbying the government for assistance, lawmakers made a point of saying that the government must be assured that if the companies failed, taxpayers wouldn’t lose the investment.

Existing Lenders

Workman, who isn’t involved in the negotiations, said the U.S. couldn’t force its loans to supersede existing secured lenders, so it built in a measure that allowed the debt to be converted to debtor-in-possession financing.

“A carrot and stick approach is spot on,” he said.

As it stands, the government loans fall below existing debt secured by most assets for Auburn Hills, Michigan-based Chrysler and Detroit-based GM. Prior lenders have first position on some assets. The government has first position on assets not already pledged.

Chrysler has $7 billion in loans from a group of banks, including New York-based JPMorgan, Goldman Sachs and Citigroup. It also has $2 billion in loans from owners Cerberus Capital Management LP and Daimler AG. Cerberus owns 80.1 percent of Chrysler. Daimler owns the remainder.

GM has $6 billion in loans secured by assets from lenders including JPMorgan and Citigroup. JPMorgan spokesman Brian Marchiony, Goldman Sachs spokesman Michael Duvally and Citigroup spokeswoman Danielle Romero-Apsilos declined to comment.

Lori McTavish, a spokeswoman for Chrysler, declined to comment beyond confirming the primacy of the bank loans. Treasury spokesman Isaac Baker and GM spokeswoman Renee Rashid-Merem declined to comment. GM Vice Chairman Bob Lutz will retire at the end of 2009, the company said today in a separate statement.

Unless the automakers show by March 31 that they will be able to return to profit and repay the money, the government can demand return of the loans.

TriShield

Retail Sales: 8.5m is the new 11.5m

By Edward Niedermeyer
February 9, 2009

Remember the “worst case sales scenario” in GM’s viability plan? It predicted 11.5m annual sales in the US. Unless a turnaround arrives sometime this year, there’s no chance that sales will hit that number. According to Automotive News [sub], annual sales expectations for 2009 have dropped to 9.8m units. But there’s still a surprising amount of unfounded optimism among Detroit’s spinners and marketing mavens. Specifically, Ford’s execs say that retail sales have “stabilized” over the past four months. Too bad, then, that they’ve stabilized at an abysmal rate of 8.5m units per year. “We’re heartened to see it stabilize — although stabilizing at an awful level,” said Ken Czubay, Ford vice president of U.S. sales and marketing. Heartened? Seriously? But enough of the maudlin posturing. There are scapegoats to blame!

And unsurprisingly, the villain is the same malefactor that was blamed for bringing Detroit to its knees in the first place: the credit market. “People are coming in wanting to buy vehicles, and they are being turned down,” says GM’s executive director of global market and industry analysis Mike DiGiovanni. “We have to break and thaw the credit markets for consumers who want to buy automobiles. We’re seeing some minor thawing occurring, but it is not nearly enough.” This despite billions in TARP money flowing to GMAC and Chrysler Financial. And a host of indicators that show US automakers were in deep excrement before credit markets even began to seize up.

A sense of acceptance has set in. Chrysler’s Jim Press says “we need to recalibrate where the market is and stop dreaming about pent-up demand. Looking at the economy and taking a realistic view of the credit situation, there’s not a lot of reason to think the entire industry is going to have a lot of growth. We want to operate in a conservative manner.” Or, as Stephan Jacoby of the less-exposed Volkswagen Group of America puts it, “right now, we have no sign when the industry can improve, actually.”

http://www.autonews.com/article/2009...902090346/1078

TriShield

GM fights to avoid bankruptcy protection

By Julie MacIntosh and Nicole Bullock in New York and John Reed in Detroit and Bernard Simon in Toronto

Published: February 9 2009 19:37 | Last updated: February 9 2009 23:43

General Motors is working to convince key stakeholders to help it avoid the need to seek bankruptcy protection but, because such an effort would probably require more government money, its most critical task will be addressing the US Treasury’s concerns over the terms of its investment.

GM must present a plan proving its long-term viability to Congress by next Tuesday as a condition of the $13.4bn emergency bridge loan it was granted in December.

Several sets of negotiations are taking place simultaneously. They revolve around GM’s proposal to swap up to two-thirds of its debt for equity, and fresh concessions from the United Auto Workers, including the financing of a new union-administered healthcare fund.

Only advisers to the various parties are currently involved in the talks, which are expected to centre on due diligence issues for the next day or two, one person familiar with the negotiations said.

The US government has the power to either endorse GM’s plans or push it into bankruptcy and the US Treasury’s decision to hire advisers Cadwalader, Wickersham & Taft, Sonnenschein Nath & Rosenthal and Rothschild suggest it may be toughening its stance.

“The government is the biggest stakeholder here,” one person close to the matter said. “Unless they agree the plan is viable and they consent, the debt becomes due.”

If the government gives GM additional funding, the structure and terms of both its old and new investments could come up for debate, including whether taxpayers’ interests should come before those of current debtholders.

The government’s role as stakeholder reduces GM’s options. But it also gives it more weight in negotiations with unions, auto dealers and bondholders.

“The carrot is, this is in everybody’s best interest,” said Don Workman, a bankruptcy lawyer at Baker & Hostetler LLP. “The stick is, they’re saying that if we don’t do this consensually, GM and Chrysler will go into bankruptcy court and the judge will prime you.”

Separately, GM is negotiating with bankrupt Delphi, its largest supplier, to take over some of Delphi’s manufacturing plants, a person briefed on the talks said.

The move could give GM more flexibility in its negotiations with the United Auto Workers, the labour union.

Bondholders said their talks with GM were ongoing. The company’s long-term bonds were quoted at their low of 13 cents on the dollar. In an indication of the severity of the situation, the same bonds were quoted at around 80 cents a year ago.

TriShield

GM to Offer Two Choices: Bankruptcy or More Aid



By JOHN D. STOLL and SHARON TERLEP
FEBRUARY 14, 2009

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.

GM may close more plants under a restructuring plan it must present to the Treasury by Tuesday. Its Hamtramck, Mich., plant has been idled.
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.

GM's Concessions Talks With UAW CollapseOther 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."

—Deborah Solomon and Jeff McCracken contributed to this article.

http://online.wsj.com/article_email/...TUxODU2Wj.html

TriShield

The UAW Walks



By Robert Farago
February 14, 2009

If you recall, President Bush gave GM some money ($9.4b) and told them to come back later for more ($4b). The second tranche (as the gourmands would says) depending on sorting out the United Auto Workers (UAW), convincing bondholders to swap debt for equity and rationalizing their brand portfolio. Anybody familiar with the UAW, rapacious capitalists (are there any other kind?) and General Motors knew that the chances of ANY of that happening were somewhere between none and the situation going in reverse. And so it hasn’t come to pass. After we learned that GM bondholders aren’t playing ball, Automotive News reports that the UAW has walked away from the ballpark. It seems the union isn’t happy with GM’s insistence that the union accept stock in lieu of cash for the GM-funded Mother of All Health Care Funds (a.k.a. VEBA). Did I say GM-funded? We’re on the hook now. Anyway, why would the UAW step up to the plate? The union would have to accept the idea that GM has a future when they, of all people, know it doesn’t.

The UAW is owed some $20 billion by GM, money pledged to a healthcare trust fund for retirees. It faces demands from the company that it surrender a claim on half of that amount in exchange for stock in a recapitalized GM.

But the union has balked at saddling retired workers with additional risk. GM’s bondholders, who are being asked to write off some $18 billion in debt in exchange for GM stock, have also held out for better terms, people briefed on the talks have said.

So now we’re left with GM’s “secret” admission that Congress faces a stark choice: continue to prop-up a failed enterprise with taxpayer money or throw GM into bankruptcy. Who knew?

As strange as this sounds, I bet they’ll give GM and Chrysler the money. It’s too early in the Obama Administration to **** on illusory rainbows, and there are plenty of people who remain in denial about the parlous state of the Big 2.8 and yes, the U.S. economy.

When the situation doesn’t get any better heading into winter of ’09, when the mood turns from hopeful to resigned, THEN Congress will pull the plug, as part of their new “get tough” gestalt.

TriShield

GM Bondholders Seek to Minimize ‘Free Riders’ in Debt Exchange

By Caroline Salas

Feb. 15 (Bloomberg) -- General Motors Corp. bondholders are working with the automaker to craft a debt exchange that discourages investors from not participating, according to a person with direct knowledge of the discussions.

The talks include giving investors who exchange their debt greater security and more seniority over unsecured bondholders who don’t in an effort to ensure maximum participation and avoid bankruptcy, said the person, who declined to be identified because the negotiations are confidential. Detroit-based GM needs to cut two-thirds of its $27.5 billion in unsecured public debt as required by the U.S. government so it can keep $13.4 billion in aid and skirt bankruptcy. Talks are continuing ahead of a progress report due Feb. 17

Bondholders want to avoid a repeat of their experience with GMAC LLC. Pacific Investment Management Co., manager of the world’s biggest bond fund, reneged on a Dec. 15 agreement to join other creditors in the finance company’s $38 billion debt swap. The value of Pimco’s holdings subsequently soared. The 10- member GM bondholder committee overlaps with the GMAC group.

“There is little incentive not to be a ‘free rider’ holdout on the exchange, as GM is unlikely to be able to offer a coercive deal that makes tendering bondholders better off than non-tendering bondholders in event of a later bankruptcy,” Brian Johnson, an analyst at Barclays Capital in New York, wrote in a report dated Feb. 13.

The government is requiring that GM convince bondholders to accept terms that reduce $27.5 billion in unsecured debt to $9.2 billion in an exchange for equity. About $14.1 billion in debt won’t be affected by the exchange offers.

Most Assets Pledged

“The problem with the debt exchange is that with little equity value in GM, and a highly leveraged company remaining, the bondholders are not receiving significant value for giving up their par claims,” Barclays’ Johnson wrote in the report.

One of the obstacles to coming up with an attractive offer for bondholders is that GM has already pledged most of its assets to existing debt, according to the person.

The bondholder committee, which includes San Mateo, California-based Franklin Resources Inc. and Fidelity Investments of Boston, is also discussing how much of their principal they’re willing to give up, the person said.

A JPMorgan Chase & Co. report on Feb. 11 suggested bondholders should recover 50 cents on the dollar based on the treatment of a retiree health-care fund. The government’s loan terms require GM to get an agreement from the United Auto Workers to cut cash contributions to a union-run retiree health- care fund to $10.2 billion from $20.4 billion in exchange for equity.

Recovery Estimates

Bondholders aren’t just looking at the treatment of that fund in their requests and haven’t asked for a 50-cent recovery, the person said. The UAW union stopped negotiations with GM Feb. 13 after objecting to proposals relating to the retiree health- care fund, a person familiar with the talks said.

GM’s $3 billion of 8.375 percent bonds due in 2033 rose 1 cent on Feb. 13 to 15.8 cents on the dollar, their highest price in almost a month, to yield 53 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. A year ago, the debt traded at about 81 cents.

In December, Newport Beach, California-based Pimco pulled out of an investor group participating in GMAC’s debt swap. While holders led by Dodge & *** accepted as little as 60 cents on the dollar to reduce GMAC’s debt, the bonds Pimco kept soared as much as 83 percent, to 80.5 cents on the dollar, after GMAC won approval to become a federally backed bank.

Pimco resigned from the steering committee of GM bondholders in January.

TriShield

GM Bondholders Double Negative on Debt for Equity Swap

By Robert Farago
February 15, 2009

Back when TTAC spied GM’s slide into bankruptcy with our little editorial eye, we never imagined that it would be such a convoluted process. On one hand, GM’s slow mo train wreck has provided plenty of grist for our mill. On the other, there’s only so much Firesign Theater a carmudgeon can take before he or she wants to play the Eagles “How Long” at top volume and be done with it. Still, ours is to question why. So why are reporters covering the GM bondholders debt for equity swap– or lack thereof– resorting to double negatives? ”General Motors Corp. bondholders are working with the automaker to craft a debt exchange that discourages investors from not participating, according to a person with direct knowledge of the discussions.” I’m gonna take a flyer here: is that same as forcing them to participate? So what stick has Bloomberg unearthed/used common sense to suggest?

The talks include giving investors who exchange their debt greater security and more seniority over unsecured bondholders who don’t in an effort to ensure maximum participation and avoid bankruptcy.

Translation: the GM bondholder committee doesn’t want any “free riders:” bondholders who hold out from the swap, who later kick ***. There is history here…

In December, Newport Beach, California-based Pimco pulled out of an investor group participating in GMAC’s debt swap. While holders led by Dodge & *** accepted as little as 60 cents on the dollar to reduce GMAC’s debt, the bonds Pimco kept soared as much as 83 percent, to 80.5 cents on the dollar, after GMAC won approval to become a federally backed bank.

[Quick digression: there should be a criminal investigation into that deal. PIMCO pulled out of the GMAC swap just hours before the Fed granted GMAC a waiver so it could become a bank. Just before the U.S. Treasury dumped $6b of your hard-earned tax dollars into the sub-prime purveyors to keep them afloat. If that doesn't not pass the smell test, nothing does. Or doesn't.]

The GM bondholders are scared shitless of Pimco, who resigned from the steering committee of GM bondholders in January, claiming “we don’t work well with others.” On the other hand, why should they play ball and prop-up GM?

“There is little incentive not to be a ‘free rider’ holdout on the exchange, as GM is unlikely to be able to offer a coercive deal that makes tendering bondholders better off than non-tendering bondholders in event of a later bankruptcy,” Brian Johnson, an analyst at Barclays Capital in New York, wrote in a report dated Feb. 13.

So much for that then. But instead of leaving it at that Bloomies wants to offer its readers a piercing glimpse into the obvious, dressed-up as inside information.

One of the obstacles to coming up with an attractive offer for bondholders is that GM has already pledged most of its assets to existing debt, according to the person.

Ya think?

TriShield

Bankruptcy not out of the question for GM, White House aide says

Gordon Trowbridge / Detroit News Washington Bureau
Sunday, February 15, 2009

WASHINGTON -- A top White House adviser on Sunday refused to rule out bankruptcy for General Motors as the deadline for the domestic carmakers' restructuring plans looms this week.

"We're going to need a restructuring of these companies. How that restructuring comes about is going to have to be determined," said David Axelrod, a senior adviser to President Obama, said on NBC's "Meet the Press."

Axelrod's comments came in response to questions about a Wall Street Journal report on Saturday that GM will offer two options when it files its federal restructuring plan on Tuesday: A continued infusion of federal aid to keep the company in business, or a government-financed bankruptcy.

The plan is a condition of the more than $13 billion federal loan GM received in December. The plan must outline how the company will return to competitiveness; the government has the option of recalling the loan and essentially forcing a bankruptcy by the end of March if Obama administration officials do not believe the company is making adequate progress.

Chrysler LLC must also submit a plan to justify its own federal bailout money; Ford Motor Co. has not yet asked for aid, but could if its business prospects continue to slip.

Axelrod's comments continue a pattern of administration comments on the issue: refusing to address the bankruptcy issue directly, either to embrace it or to rule it out. In a roundtable discussion with The Detroit News and other regional newspapers this week, Obama also did not directly address bankruptcy.

Michigan lawmakers have forcefully opposed bankruptcy, saying the companies would be unlikely to emerge from a bankruptcy because car buyers would refuse to consider products from a bankrupt company. Any bankruptcy would almost certainly still involve a massive federal financial commitment, because private capital markets are unlikely to provide the financing that would be necessary.

"We need an auto industry in this country," Axelrod said Sunday. "We have an interest in seeing the auto industry survive. But it's going to take a real restructuring."

http://www.detnews.com/apps/pbcs.dll...902150315/1148

TriShield

Obama faces tough decisions on US auto industry

Feb 15 08:21 PM US/Eastern
By TOM KRISHER and KEN THOMAS

WASHINGTON (AP) - The Obama administration faces difficult choices on the fate of the U.S. auto industry, weighing the cost of pouring billions more into struggling companies against possible bankruptcies that could undermine plans to jump-start the economy.

General Motors Corp. and Chrysler LLC are racing against a Tuesday deadline to submit plans to the government to show how they can repay billions in government loans and return to viability despite a sharp decline in auto sales.

The terms of the federal loans set "targets" for concessions, largely from debt-holders and the United Auto Workers union, but concession talks have made little progress with just a couple days left before the initial deadline.

Negotiations between GM and the UAW broke off Friday night but resumed Sunday, still focusing on exchanging the company's cash payments into a union-run retiree health care trust for GM stock, according to a person briefed on the talks who didn't want to be identified because the bargaining is private.

GM and UAW officials declined comment.

GM and Chrysler don't need to have everything nailed down for Tuesday's progress reports, but the companies are expected to detail concessions along with plant closures, the potential elimination of brands and thousands of job cuts.

After Tuesday there will be several weeks of intense negotiations ahead of a March 31 deadline for the final versions of the plans.

Detroit-based GM and Auburn Hills, Mich.-based Chrysler are living off a combined $13.4 billion in government loans. If they don't receive concessions by March 31, they face the prospect of having the loans pulled, followed by bankruptcy proceedings.
Any bankruptcy would be particularly painful with some economists predicting the country could lose 2 million to 3 million jobs this year and the unemployment rate, now 7.6 percent, could swell past 9 percent by the spring of 2010.

In network interviews Sunday, White House senior adviser David Axelrod didn't respond directly when asked if the U.S. economy could withstand a GM bankruptcy. Nor did he directly address a question about whether the Obama administration would let GM go into bankruptcy.

"I'm not going to prejudge anything. I think that there is going to have to be a restructuring of those companies. I'm not going to get into the mode of how that happens. We'll wait and see what they have to say on Tuesday," he told "Fox News Sunday."
Executives at the two automakers have said bankruptcy is not an option because consumers would not buy cars from a company that might go out of business.

"How that restructuring comes is something that has to be determined," Axelrod said. "But it's going to be something that's going to require sacrifice not just from the auto workers but also from creditors, from shareholders and the executives who run the company. And everyone's going to have to get together here to build companies that can compete in the future."

Harley Shaiken, a University of California-Berkeley labor economist who has studied the automakers, doesn't think the Obama administration would run the risk of bankruptcies given its efforts to create jobs.

"We're clearly on the edge of that abyss right now. Going over it would do irreparable damage not simply to the auto industry but to the manufacturing base in this country," Shaiken said.

Under the GM and Chrysler loan terms, both companies have "targets" to reduce debt and labor costs. One target says the automakers need to convert half of their payments into a health care trust fund for retirees in stock rather than cash, reducing their debt. Another requires the companies to reduce their unsecured debt by two-thirds by persuading investors to swap the debt for equity in the companies.

In 2007 contract talks, the union agreed to take on retiree health care to help the companies remove billions in liabilities from their books. But the contracts only require the company to pay the union 60 percent of the liability, Shaiken said. If half those payments come in risky stock, the trust fund may not have enough money, he said.

According to others briefed on the talks, bargaining has shifted to Ford Motor Co., the healthiest of the Detroit Three and the only one not receiving government loans. Ford is seeking the same concessions as GM and Chrysler so it's not placed at a disadvantage.

Another complication is that Obama has not yet appointed an overseer of the plans—a so-called "auto czar"—and many industry officials have said the lack of an administration point-person has slowed the discussions. Steven Rattner, a private equity investor, and Stephen Girsky, a veteran auto industry analyst, have been mentioned as leading contenders to be part of an Obama auto team.

Sen. Carl Levin, D-Mich., said Thursday that he did not expect the reports Tuesday to provide "very specific information because there's no car czar. I do think there will be an outline of directions."

Axelrod wouldn't say whether the administration would offer the auto industry more bailout money. GM already has borrowed $9.4 billion to stay in business, and it would receive an addition $4 billion if the Treasury Department approves its viability plan. Chrysler wants $3 billion more on top of the $4 billion it has already borrowed.

"We need to see what it is that they come up with this week," he said.

http://www.breitbart.com/article.php...show_article=1

IFRYRCE

iTrader: (3)

**** the biased media, I can't even read those articles without wanting to puke.

"despite a host of indicators that show GM was deep in excrement before the credit crisis"
What garbage, their product now and before this thing was better than its ever been in their century-long history. How is that "deep in ****"? Why is the American media so full of jap-biased wannabe tree-hugging prius-driving-with-a-carbon-footprint-bigger-than-a-H2 liberal ********? The only indicator that GM was deep in **** before the credit thing is the untrue garbage that people like that guy are putting out. Maybe if they actually did any research for their articles and reported on the facts people would be more willing to buy from the big three.
I understand in any situation like this nobody, especially the media is going to be happy, their job is to report on the bad. But GM IS still selling more cars than any other company in the world, so it's not like their beloved imports are doing much better, they just have bigger cash reserves in part because of all the money our government loves to throw at them. All I want is a little fairness in the media, is that too much to ask for? I'm not even looking for fairness in Road and Track or Car and Driver yet, just the news media.

Ehh, won't happen.

88blackgt

if you think GM was floating through the clouds in the 90s you're delusional; lets be realistic here.

TriShield

Obama Is Said to Drop Plan for ‘Car Czar’ to Fix Detroit

By BILL VLASIC
Published: February 15, 2009

DETROIT — President Obama has dropped the idea of appointing a single, powerful “car czar” to oversee the revamping of General Motors and Chrysler and will instead keep the politically delicate task in the hands of his most senior economic advisers, a top administration official said Sunday night.

Mr. Obama is designating the Treasury secretary, Timothy F. Geithner, and the chairman of the National Economic Council, Lawrence H. Summers, to oversee a presidential panel on the auto industry. Mr. Geithner will also supervise the $17.4 billion in loan agreements already in place with G.M. and Chrysler, said the official, who insisted on anonymity.

The official also said that Ron Bloom, a restructuring expert who has advised the labor unions in the troubled steel and airline industries, would be named a senior adviser to Treasury on the auto crisis.

The unexpected shift comes as G.M. and Chrysler race to complete broad restructuring plans they must file with the Treasury by Tuesday. The companies’ plans are required to show progress in cutting long-term costs as a condition for keeping their loans.

The administration official said the president was reserving for himself any decision on the viability of G.M. and Chrysler, both of which came close to bankruptcy before receiving federal aid two months ago.

One of President Obama’s top advisers said Sunday that the administration had not ruled out a government-backed bankruptcy as a means to overhaul the automakers.

“We’re going to need a restructuring of these companies,” the adviser, David Axelrod, said on “Meet the Press” on NBC. He added that a turnaround of the companies would “require sacrifice not just from the auto workers but also from creditors, from shareholders and the executives who run the company.”

The automakers had been expecting the appointment of a car czar to break the logjam of negotiations with the United Auto Workers over the finances of a retiree health care trust, and with bondholders about reducing the companies’ debt.

Mr. Bloom is known for bringing his Wall Street experience as an investment banker to an advisory role as the “in-house” banker for the steel workers’ union. With the auto union locking horns with bondholders in the G.M. revamping deliberations, Mr. Bloom appears to bring credibility with both the union and the debtors. Mr. Bloom could not be reached for comment Sunday night.

Another senior administration official said that Mr. Obama had considered appointing a car czar, and among those considered for the job was the private equity executive Steven Rattner. It was not clear why the administration changed course or whether Mr. Rattner would have a role on the task force.

The panel, called the Presidential Task Force on Autos, will draw officials from several agencies including the departments of Treasury, labor, transportation, commerce and energy, according to the administration official.

Many members of the task force have already been working closely with G.M. and Chrysler on the viability plans they are preparing for the government.

G.M. and Chrysler are both expected to request more loans to stay solvent during what is shaping up as another miserable year for auto sales.

Chrysler’s chairman, Robert L. Nardelli, has said his company needs another $3 billion in addition to the $4 billion loan it received in January.

G.M. originally asked for $18 billion in aid in December. G.M. has borrowed $9.4 billion so far and is scheduled to receive another $4 billion, if the Treasury is satisfied with its revamping plan.

G.M. said in a statement that it welcomed the new task force and that it looked forward to sharing its plan “to restore our company to viability and to meet the requirements of its loan agreements.”

Representatives of Chrysler could not be reached for comment on Sunday night.

The administration official who disclosed the change in Mr. Obama’s plans for oversight of the auto industry said the group would review the companies’ submissions for a week or two before responding publicly. Until then, the auto makers are expected to continue talks with the union and other stakeholders.

On Sunday afternoon, G.M. and the U.A.W. resumed discussions in Detroit about reducing the company’s labor costs, a person with direct knowledge of the talks said. This person, who spoke on condition of anonymity because the discussions are private, characterized the talks Sunday evening as “intense” but did not indicate that an agreement was imminent.

The U.A.W. had walked away from the bargaining table late Friday as the two sides clashed over how to cover retiree health care costs.

U.A.W. leaders in December agreed to help the automakers by delaying when the companies are required to make multibillion-dollar payments into a new trust fund designed to pay for retiree health coverage.

The Ford Motor Company is not taking federal aid, and therefore does not need to submit plans for approval. But Ford, which lost $14.6 billion in 2008, the most in its history, is expected to ask the U.A.W. for whatever concessions are granted to G.M. and Chrysler.

Both G.M. and Chrysler are likely to outline deep cuts in jobs, plants and models in their restructuring plans. One G.M. executive said the automaker is proposing a much smaller company with fewer brands and far fewer people.

G.M. and Chrysler recently extended buyout and early retirement offers to nearly all of their 90,600 hourly workers as they try to eliminate factory jobs and replace older workers making about $28 an hour with new hires who can be paid half as much.

G.M. announced plans last week to cut 10,000 white-collar jobs worldwide, including 3,400 in the United States. It said that salaries for those who remain on staff would be cut by as much as 10 percent through at least the end of 2009.

Over all, automakers are expected to sell between 10 million and 11 million vehicles in the United States this year, far below the 16.2 million they sold in 2007. G.M. said last week that the two-year drop is roughly equal to the capacity of 24 assembly plants.

TriShield

UAW Members Get Free Lawyers– And They Ain’t Giving Them Up for You

By Robert Farago
February 16, 2009

The United Auto Workers (UAW) contracts are facing unprecedented public scrutiny. It could have something to with the fact that it’s now OUR money the automakers are pissing away– sorry, “lavishing upon” union members. Or it could be that the normally passive– sorry, “pro middle class” MSM’s smells blood in the union boss’ water. In any event, here’s one for working class heroes: unlimited free legal advice. The Freep: “Established in 1978, the UAW Legal Services Plan provides ‘personal legal services,’ to about 725k workers, spouses and retirees from several companies, according to the program’s Web site. It is the largest pre-paid legal services program in the country. Before I give the jumpers the inside dope (in a non Michael Phelps kinda way), you wanna guess how much 290 attorneys cost the Big 2.8 et al.? Seriously, you gotta guess. ‘Cause the Freep doesn’t even estimate the cost. Blood boiling? Ready for the jump then…

Three out of four autoworkers have used the legal services for a variety of purposes. In 2008, the letter said, that included:

Bankruptcy assistance: 9,392 UAW members, including 2,938 Ford members.

Divorce assistance: 6,899 members, including 1,924 Ford members.

Foreclosure assistance: 2,973, including 821 Ford members.

Real estate: 27,000, including 6,265 Ford members.

Now you could argue that the automakers agreed to this, let’s say, $100m boondoggle. So it’s not the union’s “fault” the shyster service exists. OK, sure, BUT– the UAW is “fighting to keep free legal services for its members.” That’s not what I’d call “shared sacrifice.” In fact, I’d say it’s a scam. Disagree? Sue me.

TriShield

White House Grants GM $4b Bailout Loan Ahead of Viability Plan

Tue Feb 17, 2009 1:21am GMT

WASHINGTON, Feb 16 (Reuters) - The U.S. government will release $4 billion in additional aid to General Motors Corp on Tuesday as planned, a White House aide said on Monday, ahead of the deadline for the automaker to submit a new survival plan.

The aide said GM's smaller rival Chrysler LLC's request for additional aid would be treated as a new request and dealt with separately.

GM is seeking concessions from the United Auto Workers union and creditors under the terms of its $13.4 billion federal bailout. It must submit a restructuring plan to U.S. officials on Tuesday showing how it can cut costs and pay back the loans.

President Barack Obama has decided to launch a government task force for restructuring the U.S. auto industry instead of naming a "car czar" with sweeping powers.

He is appointing Treasury Secretary Timothy Geithner as his "designee" for overseeing auto bailout loans and as co-head of the new high-level panel together with White House economic adviser Lawrence Summers, a senior administration official said on Sunday.

To date, GM has received $9.4 billion in federal aid that has allowed it to stay in operation since the start of the year. It is widely expected to seek additional assistance with the restructuring plan due Tuesday.

Chrysler, controlled by Cerberus Capital Management, has been granted $4 billion in federal and is seeking an additional $3 billion.

TriShield

GM Europe unions seek spin-off of Opel, Saab

16 Feb 2009

FRANKFURT (Reuters) - General Motors Corp's European labor leaders called on Monday for a spin-off of the Opel/Vauxhall brand rather than face what they called potentially fatal cost-cutting in Europe by the stricken U.S. carmaker.

"The spin-off of Opel/Vauxhall ... and the spin-off of (Swedish brand) Saab is the only reasonable and feasible option for General Motors which would not destroy the European operations and its European assets and could avoid lawsuits," a statement on the labor force's website said.

GM, recipient of a bailout from Washington, has a Tuesday deadline to present a plan to the U.S. government on how it plans to remain viable.

The workers' statement, signed by the heads of the company's European Employee Forum, said GM management had show main elements of the plan called Project Renaissance to selected analysts last week.

"The current plan could include for the Opel/Vauxhall brand and the GM/Opel/Vauxhall subsidiaries mass dismissals and probably several plant closures. This would have disastrous consequences for the GM brands and companies in Europe and will finish them off," the statement said.

"Moreover, the plan is not viable taking in consideration the needed loans guaranteed by European governments and the existing legally binding contracts on the European and national level."

The statement did not make clear whether European labor representatives had actually seen the plan and the labor leaders were not immediately available for comment.

TriShield

Union Talks Seen as Key as G.M. Makes Case for Funds

By BILL VLASIC and NICK BUNKLEY
Published: February 16, 2009

DETROIT — With its access to a government lifeline possibly at risk, General Motors executives were locked in intense negotiations Monday with leaders of the United Automobile Workers over ways to cut its vast bills for retiree health care.

G.M. will file what is expected to be the largest restructuring plan of its 100-year history on Tuesday, a step it must take to justify its use of a $13.4 billion loan package from the federal government.

The plan will outline in considerable detail, over as many as 900 pages, how G.M. will further cut its work force, shutter more factories in North America and reduce its lineup of brands to just four, from eight, according to executives knowledgeable about its contents. The remaining core brands will be Chevrolet, Cadillac, GMC and Buick.

But G.M.’s plan to shrink its way to profitability will not mean much without an agreement with the U.A.W.

On Monday, G.M. pressed union leaders in a meeting in Detroit for a deal on financing what was the centerpiece of the 2007 U.A.W. contract — a perpetual, G.M.-financed trust to cover health care costs of hundreds of thousands of retired hourly workers and their surviving spouses.

Both sides were hopeful that either an agreement, or at least significant progress, might be achieved by the time G.M. submitted its plan, according to three people familiar with the substance of the negotiations.

Talks are also continuing between the U.A.W. and Ford Motor and Chrysler. But the focus of negotiations has been with G.M., which has to address how a company that lost more than $20 billion last year can afford $5 billion a year in medical bills.

In its overall plan, G.M. needs to show President Obama’s new cabinet-level task force that it can substantially reduce costs and make a convincing case about its long-term viability by a March 31 deadline.

The company has already extended buyout offers to its entire United States unionized work force to reduce their ranks by another 20,000 jobs. It has also announced a 14 percent reduction in salaried workers around the world, leaving many of its white-collar workers in Detroit with limited prospects.

The plan will also probably include revisions in executive compensation and targets for cutting dealers and brands like Saturn and Pontiac.

Details of the plan have been closely guarded. G.M.’s board met Monday to review its contents, which will not be completed possibly until Tuesday, according to one G.M. official who asked not to be identified because of confidentiality agreements.

Chrysler was also said to be in the final stages of completing its plan on Monday, which will include further cuts in its manufacturing operations in the United States and more details on its strategy to rebuild its product lineup with a network of foreign alliances.

The plan was still under discussion late Monday with officials at Cerberus Capital Management, owner of an 80 percent stake, according to a person with knowledge of the situation.

The White House press secretary said Monday that the Obama administration was “anxious” to see the plans, but shared no timetable on when the president’s task force would comment.

“We’re anxious to take a look at the plans, understanding that it is extremely important to have a strong and viable auto industry,” the press secretary, Robert Gibbs, told reporters aboard Air Force One. “Obviously that is going to require some restructuring to ensure its viability.”

On Monday, the president designated the Treasury secretary, Timothy F. Geithner, and the chairman of the National Economic Council, Lawrence H. Summers, to oversee the task force on the auto industry.

The move surprised executives at G.M. and Chrysler, who were expecting the appointment of a “car czar” who would play an active part in negotiations between G.M. and Chrysler and their unions and lenders.

The task force is not likely to complete any review of the plans for at least a week or 10 days, according to an administration official who spoke on condition of anonymity. The president expects negotiations between G.M. and the U.A.W. and others to continue without pause for the plan’s submission, the official said.

Talks between G.M. and its bondholders have cooled while the automaker considers the framework of an agreement offered by the bondholders to reduce G.M.’s debt to $9 billion, from $28 billion.

The U.A.W. talks, however, have been constant since Saturday, when Ron Gettelfinger, the union’s president, at one point cut off discussions with G.M. — only to drive across town to take up the topic of retiree health care with Ford.

Ford has not received government loans, so it is significant that the U.A.W. appears to believe it must address retiree health care at all three Detroit auto companies simultaneously.

G.M. has the most at stake with the U.A.W. Its future obligations for retiree health care are estimated at $47 billion, and by next year it is required by its contract to contribute more than $10 billion to the trust set up in 2007.

The company, which nearly ran out of money before receiving the first $9.4 billion of its $13.4 billion in late December, is pressing the U.A.W. to accept stock for as much as 50 percent of its next contribution to the trust, according to two people knowledgeable about the discussions.

Mr. Gettelfinger, for his part, is trying to protect one of the jewels of the U.A.W. contract, which is essentially health care for life for anyone who worked on the assembly line and their surviving spouses. G.M. has already canceled health care for more than 100,000 of its salaried retirees.

“The U.A.W. at this point understands that it can very well turn into the villain of this whole thing by insisting that its workers receive health care benefits that few workers do,” said Gary N. Chaison, a labor expert at Clark University in Worcester, Mass.

U.A.W. members are bracing for bad news, and worrying that their health care plan will be sacrificed to keep G.M. from going bankrupt.

“Where does it all stop?” said Mike Green, president of U.A.W. Local No. 652, which represents workers in Lansing, Mich. “It would be devastating. Our typical person works between 30 and 40 years. They did their part. Why should they have it taken away with the sweep of a pen?”

TriShield

Chrysler asks govt for $5 billion more in loans



Feb 17, 4:54 PM (ET)
By TOM KRISHER and KEN THOMAS

DETROIT (AP) - Chrysler LLC on Tuesday told the U.S. government it needs even more taxpayer money to survive. General Motors is expected to do the same. Acknowledging that industry conditions are worse than expected when it made the case in December for a government bailout, Chrysler requested an additional $5 billion in government loans. It originally said it would need $3 billion more. The company had previously received $4 billion from the Treasury Department.

General Motors Corp. (GM) is expected shortly to release the details of its own restructuring plan and follow that up with a news conference at 6:30 p.m. GM has received $13.4 billion in government loans - $4 billion of that on Tuesday.

To prove they can survive as viable companies, both Chrysler and GM need to sharply reduce costs. To that end, Chrysler said it will cut 3,000 more jobs and stop producing three vehicle models. GM has previously outlined reductions to both its hourly and salaried work force and has said it plans to cut back to four vehicle brands from eight.

Both companies are required to reach concessions with the United Auto Workers union and debt holders. While no final deal was reached ahead of the government-imposed 5 p.m. deadline for the restructuring plans, GM was said to be close to an agreement on labor concessions and Chrysler said concessions have been fundamentally agreed upon. The progress in the GM talks was according to a person briefed on the negotiations who asked not to be named because GM's plan hasn't been submitted.

GM executives have said the company only has to show substantial progress by the deadline, with the whole plan finalized by March 31.

The plans still have to be vetted by Treasury and the new autos task force announced by the Obama administration Sunday night.

The news came on a day when President Barack Obama signed into law a massive economic recovery plan. Signs that the recession is deepening were more immediate for investors, however, and they dumped stocks and pushed oil prices sharply lower.

GM is likely to seek more money, at least up to the $18 billion that it requested from Congress in December under its worst-case scenario projections. That scenario has arrived with U.S. sales at a 26-year low and auto sales dropping in other parts of the world, a person briefed on GM's plan said.

The plan will stick with GM's public strategy of trying to remain viable and avoiding Chapter 11 bankruptcy protection, said the person, who spoke on condition of anonymity because the plan has not been finalized.

GM's plan will discuss cost savings from labor concessions and additional plant closures, but the locations of those plants will not be revealed, another person briefed on the plan said Monday. The number of factories to be closed wasn't available.

TriShield

GM needs up to $30 billion in aid to avoid failure



Tuesday February 17, 2009, 6:11 pm EST
By Kevin Krolicki

DETROIT (Reuters) - General Motors Corp said on Tuesday it could need a total of up to $30 billion in U.S. government aid -- more than doubling its original aid -- and would run out of cash as soon as March without new federal funding.

The request for additional aid from the top U.S. automaker came in a restructuring plan GM submitted to U.S. officials on Tuesday.

The GM restructuring plan of more than 100 pages was posted on the U.S. Treasury Web site.

The request came on the same afternoon that No. 3 U.S. automaker Chrysler requested an additional $5 billion from the current $4 billion in U.S. government aid, saying it expected the brutal downturn in the U.S. market to run another three years.

GM also said it had not reached deals with bondholders and its major union to reduce some $47 billion in debt but would work to reach those agreements by the end of March.

In response to signs of a prolonged slump in demand for new cars and trucks, the automaker also said it would step up cost-cutting, reducing its global workforce by 47,000 jobs this year and cutting five additional U.S. plants by 2012.

In addition, GM said it would cut its U.S. workforce by another 20,000 jobs by 2012 with most of those reductions coming earlier.

GM has been kept afloat since the start of the year with $13.4 billion in loans from the U.S. Treasury. Its expanded aid request for up to $30 billion includes a $7.5 billion credit line in the event that the autos market remains depressed.

Critics of the bailout of GM and its smaller rival Chrysler LLC have urged the government to consider financing a court-supervised restructuring for the two ailing automakers in bankruptcy.

GM said its own analysis of the costs and risks of a bankruptcy filing would require more than $100 billion in financing that could have to be provided by the U.S. government.

GM requested an unprecedented U.S. government bailout in December and had pegged its funding need then at up to $18 billion.

But the automaker has faced a deep slide in sales outside its long-slumping home market in the weeks since and GM said its revised restructuring plan would take aim at loss-making overseas units as well.

GM also said it would plan to phase out its Saturn brand by the end of 2011 and make a decision on whether to sell or just wind down its Hummer SUV brand by the end of the current quarter.

TriShield

GM Cuts Wagoner’s Pay, Auditors Give ‘Going Concern’

By Jeff Green and Mike Ramsey

March 5 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner, working for $1 this year to keep U.S. government loans, had his total compensation cut to $5.4 million last year from $14.1 million in 2007 as the company said auditors question its ability to continue as a going concern.

Wagoner’s compensation included a salary of $2.1 million and he wasn’t paid a bonus, the Detroit-based automaker said in a regulatory filing today. The largest U.S. automaker lost $30.9 billion last year, the second biggest shortfall in the company’s 100-year history. GM shares fell 15 percent, the most this year.

“There’s no new news here,” Chief Financial Officer Ray Young said in an interview. “We talked about this last Thursday. We fully contemplated this situation in our Feb. 17 submission to Treasury. I’m surprised by the reaction.”

GM is cutting executive pay and will eliminate 47,000 jobs this year as part of a restructuring required to keep $13.4 billion in U.S. loans. Wagoner, 56, needs to convince the U.S. Treasury to lend the carmaker as much as $16.6 billion more to survive. GM is also closing or selling its Saturn, Saab and Hummer brands and seeking $6 billion in aid outside the U.S.

Because of GM’s reliance on government aid, auditors gave the company a so-called “going concern” ruling, meaning there’s substantial doubt about the automaker’s ability to survive, according to the filing. GM said it renegotiated terms with its lenders to avoid violating loan conditions with the designation.

‘Blatantly Obvious’

“It’s telling you what you knew all along,” Harlan Platt, a finance professor at Northeastern University in Boston, said of the auditors’ ruling. “They issued what was obvious, blatantly obvious, in November.”

The ruling doesn’t make a GM bankruptcy filing more likely, Platt said.

GM fell 34 cents to $1.86 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have fallen 92 percent in the 12 months.

The company has been in contact daily with representatives of President Barack Obama’s autos task force and is focused on executing the viability plan it proposed last month, Young said. He had no comment on talks to cut labor and debt costs.

“It’s a regulatory requirement for us to file this statement,” he said. “Other than that, nothing has changed today versus last week or last month.”

The drop in February U.S. auto sales is consistent with GM’s prediction that auto sales would fall below a 10 million annualized rate in this year’s first half, Young said. GM is monitoring the effect of tax cuts, the Obama stimulus package and housing support to determine whether those will result in a second-half improvement as anticipated, he said.

‘Not Unexpected’

The automaker said in a statement that the auditors’ ruling “was not unexpected” given the company’s public comments about its access to funding dating to the end of last year.

“Once global automotive sales recover and GM’s restructuring actions generate the anticipated savings and benefits, the company is expected to again be able to fund its own operating requirements,” according to the statement.

GM reiterated in its regulatory filing that if it’s unable to restructure successfully and has to file for bankruptcy without government support, it may have to liquidate under Chapter 7 protection because of the lack of private debtor-in- possession funding. GM has said bankruptcy is more expensive than its current request for U.S. aid.

“The language that the auditors have used is pretty standard language,” said Jon Woods, a partner in accounting firm Plante & Moran PLLC in Southfield, Michigan. “It says they are not in a position to convince themselves that GM will be able to continue as a going concern. Given the problems in the company and the industry, that shouldn’t surprise anybody.”

Saturn Adviser

GM retained Stephen Girsky, president of Centerbridge Partners LLC, to advise the company and dealers on the spinoff or sale of its Saturn division, said Steven Janisse, a spokesman for the automaker.

The company also said it could see a significant loss that may exceed $1 billion on the separation of its Saab unit.

Saab, based in Trollhaettan, Sweden, filed for protection from creditors Feb. 20 after GM said it will cut ties by the end of the year and failed to win an agreement for aid from Sweden.