Debts May Roadblock Auto Bailout

Automakers, Set To Beg Congress For A Handout, Have Billions In Debt To Contend With

(AP)  They'll park some corporate jets, cut executive pay and serve up concessions from the United Auto Workers, but Ford Motor Co., General Motors Corp. and perhaps Chrysler LLC also will have to address massive debts to persuade a skeptical Congress to loan them money.

As the CEOs of all three companies prepare for a return trip to Washington this week seeking $25 billion in government loans to help them survive a worldwide economic slump, their debt likely will be scrutinized as Congress decides if they can once again become viable with help from the government.

GM alone spent $847 million on debt payments in the first nine months of the year.

"There's no guarantee these guys will make it" even with government help, said Rep. Jeb Hensarling, R-Texas, one of Detroit's critics who advocates letting them go into bankruptcy. "It's also why we have bankruptcy courts, so these businesses get reorganized and the resources are used in a better way ultimately to benefit our society."

Automakers argue that bankruptcy isn't an option, maintaining that no one will buy a car from a company that may not be around for the life of the vehicle. With sales at their lowest point in 25 years and no other options to borrow more cash, GM and Chrysler say government help is essential.

Cash stockpiles at GM and Chrysler are dangerously close to the minimum amount required to run the company, meaning they could have trouble paying all their bills by the end of the year. Ford, although burning cash at an alarming rate, borrowed more than $20 billion last year and says it can last at least through 2010.

GM, according to its quarterly report filed with the Securities and Exchange Commission, already owes creditors a staggering $45 billion, plus 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, Robert 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 answer to the debt problem may lie in another component of the plans that GM, Ford and Chrysler will deliver to Congress on Tuesday. CEOs from all three companies, plus UAW President Ron Gettelfinger, will appear again before the Senate Banking Committee Thursday and the House Financial Services Committee on Friday.

Two people briefed on GM's plan say the automaker will at least make an effort to negotiate swapping some of its debt for equity, either shares or warrants to buy them. Chrysler also is likely to include a similar provision, a person briefed on its plan said Monday.

None of the people wanted to be identified because the plans haven't been delivered to Congress.

But industry analysts say it makes sense for bondholders and other creditors to gamble on equity in the company with part of their GM debt in order to keep the automaker out of bankruptcy protection.

"There will have to be concessions made by debtholders," said Kevin Tynan, an auto industry analyst with Argus Research in New York. "The argument can be made that if not, there's a good chance you're not going to get anything back anyhow."

GM bonds already are trading at 20 to 30 cents on the dollar, so bondholders wouldn't be giving up that much, Tynan said.

A complicating factor is that bond rating agencies may further downgrade GM's credit if debt is exchanged for equity, said Standard & Poor's Credit Analyst Gregg Lemos Stein.

GM, he said, is now at a low CCC-plus, but if it swapped a large amount of debt for equity, Standard & Poors would view that as "tantamount to default" and give it an SD rating for "selective default," Lemos Stein said.

Critics say that with such huge debt payments, the Detroit Three will have less money for research than their foreign competitors, so they'll fall behind and eventually end up in trouble again.

GM and the other automakers argue that if they can get through the sales slump, and credit loosens so more people can buy vehicles, the companies will start making money as buyers return to showrooms in droves.

With revenue coming in, GM would restructure its debt, preserving funds for research on next-generation fuel-efficient products such as the Chevrolet Volt rechargeable electric car or the Chevrolet Cruze compact, said GM spokeswoman Renee Rashid-Merem.

"At the end of the day it's about prioritizing, and making sure your research and development dollars are spent on those things that are providing you a competitive advantage," she said.

But GM's filing with the SEC expresses doubt about its ability to pay for everything.

"If we continue to operate at or close to the minimum cash levels necessary to support our regular business operations, we may be forced to further curtail capital spending, research and development and other programs that are important to the future success of our business," the filing said.

GM also is likely to tell Congress about efforts to shed brands, although it would prefer to sell them rather than shutting down Pontiac, Saturn or Saab, said one of the people briefed on the plan. Shutting them down would require cash the company doesn't have, the person said.

On Monday, Ford announced that it was looking into the sale of its Volvo brand to raise cash.

Some members of Congress have urged the Big Three executives to take major pay cuts as part of the deal. Nardelli said he would work for $1 a year, and a similar commitment is expected from Wagoner. It was unclear if Mulally will take a similar cut.

That might not be enough for some lawmakers. Rep. James Clyburn, D-S.C., the Democratic Whip, told reporters Monday in Columbia, S.C., that the three CEOs should quit.

"If I had my way, all three of those guys would be in the unemployment line and I think that ought to be one of the conditions for us doing this," Clyburn said. "We need to have new leadership."

Commerce Secretary Carlos Gutierrez said in an interview Monday that the plans need to address some of the key structural issues facing the industry, such as costs, debt, dealer network costs and product lines.

"There needs to be a path to viabilty," Gutierrez said.

[jschmidt27]

http://www.kudlowsmoneypolitics.blogspot.com/
I had a chance to talk to Nobel Prize-winning economist Robert Mundell about all things economic. What is to be done? I asked him.

Mundell, you may remember, was a leading supply-sider in the Reagan revolution. He argued for low marginal tax rates to spur the economy and a stable dollar to eliminate inflation. Bob Mundell also is the father of the euro. He is plainly an incredibly brilliant and distinguished man.

The dinner was put together by the indefatigable hard-money analyst Judy Shelton, a pretty smart gal herself. Our spouses were there along with some friends.

So here%u2019s Mundell%u2019s latest take on a pro-recovery, fiscal-monetary, growth mix. First, he%u2019d like to see a complete corporate tax holiday for one year. He then favors corporate tax reform that would drop the current top rate from 35 percent to 15 or 20 percent. He believes this would generate badly needed business investment and job-creation to fight recession.

[cariboubarbi]

Why these dumbassses still have their jobs is beyond understanding.

[cariboubarbi]

Why does an executive that drove a multibillion dollar business into the ground still have a job much less a corporate jet or even a roof over his head?

These guys should be living under a bridge.

[jschmidt27]

http://ibdeditorials.com/IBDArticles.aspx?id=313027333411197
Here at IBD, we''ve done more than a dozen pieces %u2014 most recently, in yesterday''s paper %u2014 detailing how rewrites of the Community Reinvestment Act in 1995 under President Clinton, along with major regulatory changes pushed by the White House in the late 1990s, created the boom in subprime lending, the surge in exotic and highly risky mortgage-backed securities, and the housing boom whose government-fed excesses led to inevitable collapse.


Bush''s first budget, written in 2001 %u2014 seven years ago %u2014 called runaway subprime lending by the government-sponsored enterprises Fannie Mae and Freddie Mac "a potential problem" and warned of "strong repercussions in financial markets."

In 2003, Bush''s Treasury secretary, John Snow, proposed what the New York Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." Did Democrats in Congress welcome it? Hardly.

"I do not think we are facing any kind of a crisis," declared Rep. Barney Frank, D-Mass., in a response typical of those who viewed Fannie and Freddie as a party patronage machine that the GOP was trying to dismantle. "If it ain''t broke, don''t fix it," added Sen. Thomas Carper, D-Del.

[jschmidt27]

Iwashungry- sorry the Progressive wasn;t covering the Democrats responsibility for the mess. But if you research the IBD article independently you''d find what it says is true

[edward1975-2009]

Let these mismanaged companies exhaust all avenues before asking for taxpayers monies. And the government should require them to do just that. Had they made these cuts and concessions before, they probably would not be where they are today. What a shame these execs will have to travel on domestic flights, poor little fellas.

[lmartink]

These bozos don''t have to travel with the likes of us. GM only got rid of 2 of its 5 corporate jets. Until they get it, and figure out they need to be talking to us, and not our elected officials they should get nothing. They are still pushing to sell big gas-guzzling Slugbus SUVs, for crying out loud.

[tallinson]

I am ecstatic. Couldn''t happen to "nicer" guys! Those sheisters at GM screwed me with, not one, but TWO of their garbage diesels and then, when I had trouble with them, told me, in essence to go flake off. THERE IS A GOD, AFTER ALL. I LOVE it.

[jcortney1]

You guys are missing the point. Who gets hurt if they are forced into the can? It''s not top management, it''s all the folks that worked and have worked for them and their suppliers. The bankruptcy will end pensions and legacy healthcare, force millions on to the unemployment rolls and create far more foreclosures than the subprime fiasco.

Sure, there''s been excesses and poor management but it pales in comparison to the outright theft to the wall street folks and no one seems to bat an eyelash over that.

[jcortney1]

You guys are missing the point. Who gets hurt if they are forced into the can? It''s not top management, it''s all the folks that worked and have worked for them and their suppliers. The bankruptcy will end pensions and legacy healthcare, force millions on to the unemployment rolls and create far more foreclosures than the subprime fiasco.

Sure, there''s been excesses and poor management but it pales in comparison to the outright theft to the wall street folks and no one seems to bat an eyelash over that.

[jcortney1]

You guys are missing the point. Who gets hurt if they are forced into the can? It''s not top management, it''s all the folks that worked and have worked for them and their suppliers. The bankruptcy will end pensions and legacy healthcare, force millions on to the unemployment rolls and create far more foreclosures than the subprime fiasco.

Sure, there''s been excesses and poor management but it pales in comparison to the outright theft to the wall street folks and no one seems to bat an eyelash over that.

[lmartink]

Have you looked at the commercials on TV from some of our Big Idiot Corporations? Nothing has changed. It''s the same old story. How good they are. How green they are. What they can do for you. Buy their junk and your lives will be transformed.

It''s all hogwash. Joseph Goebbels, Hitler''s Propaganda Minister, would look upon them and be very proud.

Don''t the corporations and their sleazy executives know that Americans have become very akeptical?

If they, and the automakers want our money for bailouts, then they better start talking to us, and tell the truth for once.

[downtowner97]

The piston climbs in the cylinder, pushing out exhaust gases, then as it reaches its arc, a the exhaust valve closes, the intake valve opens, and the piston draws in a mixture of gasoline and air, just like a syringe drawing up a dose of heroin. The valves close, the piston compresses the volatile mixture, then BOOM!, the fuel/air mixture explodes, moving pushing the piston down, forcing the car forward several inches, and the cycle begins again.

We''re all convinced that this is the best way to get around, and that we need to keep moving ourselves this way forever, no matter how many people have to die to keep bringing us that precious gasoline. The big three auto makers love making internal combustion engines. They see no need to try anything else.

We need to abandon the entire technology and do something else. This just isn''t working!

[jschmidt27]

iwas hungry- gramm-leach-billey- Billey was a Democrat. The bill was supported by Clinton and his then Sec of Treasury Rubin. Barney Frank did prevent regulation of Fannie while taking campaign contributions from them. So it is all true. Unlike what Pelosi ranted about. The Dems watch it all happen and did nothing and if I were a betting man I''d say it was to make the Republicans look worse for the election.The Dems will never escape their responsibility for this.

[mrmeatspin]

fire the management and fire the union workers..

keep the name..keep the assests..

hire new managment..rehire workers without union ties..
pump out good cars

problem solved in about 5 years

[jschmidt27]

mr.meat- if you hire all the management and workers, who can you hire that knows how to build a car or run a company?

[edward1975-2009]

jcortney1: There isn''t a sane person who thinks any of these bailouts are good or will work. You can''t continue throwing good money after bad. And the business practices of Wall St. and Detroit, should not be rewarded with any taxpayer monies. If this Congress had one ounce of integrity, they would let the chips fall where they may, and let a few of these CEO''s jump off a few ledges. But to punish taxpayers for the greed of these execs is just wrong, on any level.

[ocasanas]

Finally a picture of the three BIG SOMETHING were they aren''t smiling anymore. Perhaps they know something that we don''t know. :-)

[faletinme]

Funny, it seems that only the union-infested car makers are begging in Washington. It''ll be entertaining to watch union officials explain to the membership why it was in their interest to bleed their ex-employers dry for all these years.

I do smile when I think about Jimmy the $125k/yr high-school-dropout-lugnut-tightner trying to apply his manual skills elsewhere.

Hey, aren''t those unions all democrat? Now that is priceless! I think I''ll drive a Honda rather than shoddy union-made products.

[harp1963]

A close relative of mine works on the estate for a American family that is well into the top of the top 1%. I have glimpsed into this world and these people are pigs feeding on the hard work of struggling Americans. I would rather spend my life homeless then like these pigs prior to standing before Jesus.

[incog-nito]

We need to abandon the entire technology and do something else. This just isn''''t working!

Posted by downtowner97 at 11:32 PM : Dec 01, 2008

The fact is, we will do something else when the oil runs out and it''s no longer economically feasible to drive a combustion-engine vehicle. Until then, nothing will change. That''s just the way things, and people, are.

[jerr11]

The Bush admin is one huge Santa operation.

First they gave away billions to Halliburton in a phony war.

Then they gave away 600 billion to the drug companies in a phony medicare drug plan (with no price negotiations!)

Then it was the 700 phony bailout otherwise known as the giveaway to the banks.

Now it''s billions more for the auto companies.

It''s Merry Christmas, folks!

It''s Uncle Sam with money to give away.

Who''s picking up the tab for this neocon spending spree?

So far over 8 FRIGGING TRILLION!

Our kids and grandkids!

Heckuva job, Bush!

Mission Accomplished!!

[edward1975-2009]

Jerr11: Certainly you jest. Congress holds the purse strings and passes law. Right disgust, wrong target. Congress has failed and don''t hold your breathe thinking it''s about to get better. It isn''t.

[jerr11]

Posted by Edward1975 at 01:05 AM : Dec 02, 2008


It was Truman who said "the buck stops here."

With Bush, the buck stops everywhere except at his desk.

But what can you expect from a guy who went to Alabama to defend the country against the Vietcongs?

[sandy777-2009]

Let them all go bankrupt. Taxpayers should not be responsible for the survival of their companies. It would be wasted taxpayers dollars to bailout these companies and taxpayers would never see their money returned.

It''s outrageous to bailout banks instead of helping main street first. Taxpayers on main street need the help more.

[gccintl]

Dump the bloodsucking, lazy-*** unions that demand $75/hr for taking coffee breaks. Fire the entire senior management. Bring in real management from Germany and Japan (feel the irony there!)

If they don''t want to do what it takes to become competitive, then let ''em burn. Toyota, Honda and VW will become the Big 3.

[downtowner97]

Put them on trial like they did with Tucker.

[spinproof]

Roadblock: Debts May Prevent Auto Bailout

Technically the Auto Industry should dance to the same music as ordinary Americans, i.e. what is the Auto Industries "Credit Score?" and be treated accordingly. If the Auto Industry has good credit and managed its assets well but just happened to fall on hard times then a bail out is in order, but if the Auto Industry mismanaged their assets and have a bad credit score as a result then the Auto Industry does not qualify for a loan or bailout and should reorganize under bankruptcy! If the Auto Industry has failed to manage its assets properly and have a bad credit score as a result, money for a bailout will only delay the inevitable and the Auto Industry will end up with the same result, needing more bailout money. The Auto Industry should be held to the same standards as ordinary Americans who don''t have a bailout option!

[hissteps4u]

Let them go bust I should not be responciable for a Trust fund bailout nor should we save them from the enivitable demise. They say bankruptcy is not an Option but I disagree it is a viable oiption and if they fail so be it... WE can no longer allow companies who are not self sufficient to hang around and burden us with their debt and other problems

AIG should have been allowed to fail

FORD and the rest of them can file Bankruptcy and reorganize and build some of those cars they know most people want and do it cheaper and more efficiently if they wanted to.

To H-E-L-L with the Trust fund for the Retired Employees they will loose out lots of folks will but in the end we will all be better off for the change

Let them Fail.org....

[oneworldusa]

Posted by spinproof at 02:25 AM : Dec 02, 2008

- I have thought the same. Companies judge us/individuals on credit ''scores'' but when they go through bad times, it''s a ''reorganization.'' I''ve decided not so support companies using bankruptcy (or bailouts) as a crutch for at least 7 years. They lay us off so their corporate fluffies can have jets and country club memberships and if we have great credit but a small blip due to a job loss, we are treated as incompetents. The middle class will rise above. The economy will adjust itself to our needs, finally.

[ubrew12]

Debts May Prevent Auto Bailout

I''m sorry:

Who''s debt? The debt of the automakers? Or the debt of the gov''t that will pretend to ''bail them out''?

[billpl-2009]

I don''t get it

the low demand for economy cars wasn''t their fault
the rise in employee healthcare costs wasn''t their fault
the rise in gas prices wasn''t their fault
the mortgage crisis wasn''t their fault
the recession wasn''t their fault

what exactly are all you people blaming these guys of anyway?

oh and BTW Mercedes Benz (one very well run company) couldn''t make Chrysler work either..or maybe you''re going to blame them too?

[perk235]

Debts May Prevent Auto Bailout
I''''m sorry: Who''''s debt? The debt of the automakers? Or the debt of the gov''''t that will pretend to ''''bail them out''''?
Posted by ubrew12 at 02:52 AM : Dec 02, 2008
---------------

Yes, we are a credit card government. But we have to be to rely on consumers for GDP, move manufacturing overseas, and wage 2 wars.

When people argue that the taxpayers (our children/grandchildren) will maybe make money on loans as bailouts, they forget to subtract the interest on the money we are borrowing for the bailout.

[daisyjingles]

We must do something to save the manufacturing sector of our economy. If we have another war, we want to be able to manufacture planes an jeeps etc by ourselves. We don''t want to have to outsource such manufacturing jobs. Who wants to pay China for warplanes we need... possibly against China. It would be a securiy nightmare.

[grandesign]

"A complicating factor is that bond rating agencies may further downgrade GM''s credit if debt is exchanged for equity, said Standard & Poor''s Credit Analyst Gregg Lemos Stein."

But the debt market is still waiting for the next shoe to drop. If the Credit Default Swaps worth $50 Trillion are called in, how will Standard & Poors be able to rate any type of debt? As long as the huge underlying current of American debt remains off the collective balance sheet--is there any way to accurately assess risk? The auto companies would wager tax dollars of a bailout that the financial stability necessary to finance new car purchases is just around the corner. When in reality, most financial institutions are afraid of what''s just around the corner.

Congress should make a law that winds down the Credit Default Swaps'' market, convert it to some other debt instruments, and/or writes it off the collective American balance sheet. The Financial markets can then be properly rated for risk and we can get this all behind us.

[raskal_2]

A couple of generations ago there was a dramatic shift from farming to industry and it resulted in a depression based on greed and margin buys. Now our world is seeing another shift in technology and greed and margin buying is rearing it''s ugly little head. Are you really surprised? Let it die and lets move on

[whiskyrokr]

I''m with republic76. GREED,GREED,GREED. Let them fail.

[jediservant]

"GM and the other automakers argue that if they can get through the sales slump, and credit loosens so more people can buy vehicles, the companies will start making money as buyers return to showrooms in droves."

The Auto industry still does not get it. We are not buying cars because loans are not available, it is because they are not producing the cars that Americans want to buy.

Read my lips, "we want clean cars that do not run on petroleum!"

[hunterdon6]

The big 3 kept making big suv''s because they were making alot of money on them. Small cars made no money. We went thru the gas crisis in the 70''s, and they did not change their ways. Another gas crisis in the 80''s, another in the 90''s, and the most recent one and the big three still insisted on making big suv''s. Now that people are buying small cars with good gas mileage, they really don''t have much to offer. The big 3 outsourced to make more money, sent the plants to Mexico to make more money, layed people off to make more money. And with all of these lost jobs, who did they expect could afford to buy their cars? There will always be a demand for cars, if they can''t make what the public wants, let them fail!

[rixmix98]

With such rampant incompetence running these companies, how can we even CONSIDER giving them a bailout?

Giving these idiots money is like giving a junkie drugs and telling him, "Use them wisely, and don''''t abuse them."

To hell with them - let them go bankrupt.

Posted by IwasHungry68 at 10:34 PM : Dec 01, 2008



My thoughts exactly!

[whatmeworry7]

The Big 3 needed to get their heads out of their ($#*&$) years ago. The conversation on fuel efficient vehicles has been going on for 25 years or more. Greed and corruption has been going on for the same time with the corporations and government alike. Now they want the people that they steal from to bail them out. If the government bails the big three out; thats not change and shame on the government. What has happened to government "For the people and By the people"? The big 3 need new management with new ideas and the government needs to listen to the people or the people can find someone else who will listen. The Good Ole Boy Club in Washington needs to be broken up anyway.

[luvcomments]

Decades ago, several people came up with products and ways to stretch mileage of all these automobiles. Some were loony-tunes but several were proven. The auto makers had a tizzy and squelched and stepped on these guys..... likely with help and muscle from their good buddies, the oil execs. What goes around, comes around. Let them go belly up. I think all these outfits, the banks, the mortgage companies, etc. should all go belly up. Someone else will step over the corpses and immediately form new banks and auto companies and mortgage companies. It''s the American way.

[staplesla]

These bailouts are a joke. We''ve already given away $2 trillion but haven''t fixed the underlying problem which started this - housing. We must stop rewarding poorly managed companies with bailouts that have no oversight. All these execs seem to care about is vacationing with our money.

I hear it argued that we must save the automakers to save jobs. But the total number of jobs provided by automakers and is only 846,000 positions. Yes this sounds big, but Walmart alone has 1.4 million employees. And furthermore, the automakers stated auto sales will be down to 9-10 million annually (from the 15 million last year). That to me says job losses/consolidation regardless of whether they get the money. And furthermore, they stated this money will only get them through March. Why are we not investing in our roads, alternative forms of energy, etc?....each which would create millions of jobs.

Any bailout should be spent on fixing the housing crisis or it won''t matter if GM/Ford/Chrysler survive. If you can''t afford your mortgage payment, you surely aren''t going to buy a car.

If we don''t stop this bailout, this will set a precedent for the airlines to be next, then hotels/travel industry, then restaurants, etc. It''s got to stop. We should be investing in the sectors of this country that will actually grow our GDP and us as a company.

Contact Congress and tell them to vote no.
http://www.visi.com/juan/congress

[valendug]

Chrysler has been bailed out once in 1980. Nothing has changed there at all. These automakers should be forced to sell off all of their subsidiaries and other businesses first to raise the cash. Chrysler shouldn''t even be considered for their second bailout.