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.

[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.

[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

[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.

[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.

[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!

[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!

[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!"

[whiskyrokr]

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

[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

[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.

[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.

[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.

[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?

[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''?

[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.

[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....

[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!

[downtowner97]

Put them on trial like they did with Tucker.

[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.

[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.