GM Races To Avoid Bankruptcy

Deeper Cuts Expected As Ailing Automaker Heeds Obama Administration's Warnings

(CBS/AP)  He doesn't know exactly what the Obama administration wants him to cut, but Fritz Henderson, the new CEO of General Motors Corp., isn't waiting around to find out.

Cut deeper. Work harder. Move faster.

That's how he described the ailing automaker's urgent effort to meet a June 1 deadline to fix its debt-ridden balance sheet, cut billions in costs and take other steps to transform itself into a profitable entity.

It's the same government-imposed race that Chrysler LLC is running, only GM's smaller neighbor has to cover more distance in half the time.

The Auburn Hills, Mich., automaker must make the same cuts as GM, and sign up Fiat Group SpA as a partner, all in 30 days. Fiat's CEO jetted to Detroit for intense negotiations, but if Chrysler doesn't meet the deadline, it's almost certainly destined for the auction house.

For GM, failing to take quick action means surrendering to court supervision in bankruptcy. The company has resisted bankruptcy talk in the past, but Henderson said Tuesday it is now "certainly more probable."

The companies have yet to receive specifics from the task force on how much more they must cut and where, but Henderson is proceeding with deeper cuts and pulling previously announced measures forward.

"We need to reinvent General Motors, and we need to do it in a very, very abbreviated time frame here in 2009 so that we're not spending our time careening from crisis to crisis in the future," he told reporters at GM's headquarters complex in downtown Detroit.

The White House is weighing a plan that would ease GM into a controlled bankruptcy, using taxpayer money to facilitate splitting the auto giant into two companies, the New York Times reported Wednesday.

The proposal would separate GM's liabilities and less desirable assets from its more profitable elements - similar to parts of the government's plan to rescue the banking industry.

There are formidable obstacles to GM's success, though. Even with less demanding hurdles in the government's original loan terms, GM's bondholders have been reluctant to settle their $28 billion for what may be pennies on the dollar. The company still hasn't reached a deal with the United Auto Workers on funding a union-run trust that will take over retiree health care costs.

It's uncertain whether they can work together to compromise on their competing interests, even though failure means they stand to lose a lot more.

It was clear, though, that every scenario will include more pain for just about anyone connected with the companies.

GM said in its February plan it would cut 47,000 jobs worldwide by the end of the year. Presumably those cuts will come sooner.

Henderson said GM also must slash its staggering liabilities - not just the $49 billion in bond debt and secured loans, but also pension obligations and retiree health care costs.

"We need to basically address all of our level of indebtedness, because in fact, what they want is a healthy balance sheet, and that healthy balance sheet needs to address each of these constituencies," he said.

Henderson wouldn't say specifically if pensions or health care would change, but it's likely that GM's 400,000 U.S. retirees and spouses will see benefit cuts, along with its 244,000 active workers.

He said the company probably will close more than the five factories it promised to shutter in its February restructuring plan filed with the government. More buyout and early retirement offers are likely.

If GM doesn't satisfy the government in time, a short bankruptcy would allow the company to wipe out its debt, change contracts and emerge as a healthy business. The government is backing automakers' warranties and has pledged financing for GM.

For Chrysler, however, Mr. Obama's auto task force has decided it has no chance to survive alone, and it would be left to get sold off in pieces. There were signs of progress, however, that a partnership could be arranged.

Fiat CEO Sergio Marchionne flew to Detroit late Monday for talks, and the Italian automaker agreed to reduce its stake in Chrysler from 35 percent to 20 percent in exchange for providing small-car technology, according to a person briefed on the negotiations who was not authorized to speak publicly. Under the new terms, Fiat's share would increase in 5 percent increments every time certain milestones are met, the person said.

At GM, Henderson said the 60 days should be enough time to accomplish its work, but bankruptcy could come before then if GM management and the government determine it won't be able to meet the deadline.

"If it's quite clear that we're not able to accomplish what we need to do in terms of operational restructuring, reduction of debt on the balance sheet and what we need to do to accomplish these broad parameters of having a viable business, this will be a management judgment," Henderson said.

Besides slashing costs, GM must start selling more cars, and the company announced Tuesday its own version of a plan that will make car payments for customers who lose their jobs through no fault of their own. It's called "Total Confidence," and its designed to pull in timid buyers who fear the economy will claim their employment.

The company, Henderson said, counted on revenue for too long from trucks and sport utility vehicles. Now, every vehicle has to turn a profit. That means unprofitable cars and trucks could get the ax, and soon.

"The view is everything's got to pay rent in our product portfolio," he said.

GM also has to jettison unprofitable brands, including iconic Hummer. A decision on closing or selling was supposed to be revealed Tuesday, but GM is still talking with potential buyers. Henderson said an announcement will come within weeks.

GM is alive today only because of $13.4 billion in government loans, and Henderson wouldn't reveal how much more money the century-old company will need to get through the 60 days. The Treasury Department has not told the company how much money it will get to sustain itself, but Henderson said he doesn't expect a dollar more than necessary.

"We submit reports to them weekly in terms of our cash, both in the U.S. and on a global basis," he said. "They know exactly where we are and exactly what we are doing."

Henderson, officially named CEO by the GM board on Sunday, said he isn't worried that the government will fire him like it did his predecessor, longtime CEO Rick Wagoner.

"They've asked me to do the job. I'm not going to really worry about how long that's going to be," he said. "I figure if we get our job done, which is where I'm going to focus my attention, it's going to be OK. And if they want to replace me they can do it."

[sjc_1]

It looks more like they are racing towards bankruptcy. They can do very little in 60 days but talk with a few groups that they have already talked with. You can not make people cooperate. If they want to be unreasonable they will.

[sjc_1]

Dude, we get enough commercial junk on the web as it is. Give it a rest or take it somewhere else.

[1Jolat]

Whether GM files for bankruptcy or not, just remember that if you are going to buy a car, you need to visit www.kardawg.com before you shop. They're not selling anything, it's free information.

[sjc_1]

"What is a good result for a failing company?"

Not to fail. If they stay in business, but are tied down in a bad deal with Fiat, that is not a good result. They may get a bad deal because the government told them they only have 30 days. When you set a dead line Fiat knows that and knows you have to make the deal now. They have the upper hand.

[RayRyan9]

I have "Total Confidence" that GM is a piece of sh...

[actornaught]

I like the part (not) where the neocons STILL blame the middle class worker, the real victim, for the constantly higher cost of healthcare. Even business is now getting onboard with universal healthcare. The neo-conned don't know whether to crapp or go blind....

[WITHINMEANS]

"Chrysler doesn't meet the deadline, it's almost certainly destined for the auction house. "

This is not a position of strength for negotiations. Fiat knows that they have to make a deal, thus they have the upper hand. I guess this will focus on a result, but it may not be a good one.
Posted by sjc_1 at 8:52 AM : Apr 1, 2009

What is a good result for a failing company?

[credibility2]

It's being reported that the new CEO at GM makes something like $1.3M. And, I hope taxpayer bailout money isn't going to be used for the new car buying gimmick of lose your job and we'll pay for your car loan for "x" amount of months. Why should taxpayers also have to pay for someone's car loan since they lost their job? Here's a suggestion: don't buy a new car if you think you might lose your job.

[cheetah-man7]

"GM Races To Avoid Bankruptcy".....

Time to put on those track shoes and pray that they can even begin to catch up! Race? A race for what? to see how many billions they can squander ? While they're at it.... how about having those fat, lazy, and greedy UAW members run ALONG GM, instead of against them?

[notjunior]

Blah, blah, blah. Same old retoric. We hear, over and over, from CEO's as well as our elected officials "... we need to do something... we oughta put a bell on the cat's neck..." What happend to the sentiment expressed in "... I think more a what a man does than what he says..." If people are saying "We've had enough!" , take heed. DO SOMETHING! Remember, the public can stop buying you "product", their pruchase power expressed as dollars as well as votes.

[notjunior]

Blah, blah, blah. This song has been sung too often witout feeling. Who was it who said"... I think more of a man's actions than the words he speaks...". Show me something or sit down. I have this same sentiment for all those "elected officials" and their chest pounding. Show me!

[kphx]

Planned obsolescence. What a grea concept ...

[sjc_1]

"Chrysler doesn't meet the deadline, it's almost certainly destined for the auction house. "

This is not a position of strength for negotiations. Fiat knows that they have to make a deal, thus they have the upper hand. I guess this will focus on a result, but it may not be a good one.