Obama Admin. Mulls Auto Bailout Requests
General Motors Corp. and Chrysler LLC, two venerable titans of American industry, will burn through $17.4 billion in government loans in three months and want billions more to stay alive.
The ink is still drying on their new requests for an additional $21.6 billion, but for President Barack Obama's month-old administration, there are no easy answers.
Give them more money? GM and Chrysler could return seeking more. Let them slip into bankruptcy? Hundreds of thousands of jobs could be lost. Try a government-led bankruptcy? In GM's case, that might cost up to $100 billion.
"There can't be a bottomless pit to this. There aren't the resources to deal with it," White House press secretary Robert Gibbs said Wednesday as the government began reviewing the automakers' plans.
"We have to get a sustained path to that restructuring to ensure that there isn't a constant necessity for continued government intervention and money from the taxpayers," Gibbs said.
At stake is much more than the future of the PT Cruiser or the Saturn Vue. Jobs at assembly plants, car dealers, parts suppliers and the small businesses that serve them could be at risk in a fatigued economy in which nearly 12 million people are unemployed, including about 600,000 who got pink slips last month.
"This is an entire way of life here," said Republican Rep. Thaddeus McCotter, who represents a district near the auto industry's hometown of Detroit. "An entire state is hanging in the balance."
Even if Obama meets GM and Chrysler's requests for an additional $14 billion in loans and the companies execute the turnaround plans they released Tuesday, it would come with a painful price: An estimated 50,000 workers worldwide would lose their jobs and five more U.S. plants will be closed.
News of the impending job cuts has many communities that rely on auto manufacturing nervously waiting to find out how they'll be affected.
And despite the billions of dollars in government loans already allocated to prop up GM and Chrysler, the two companies may need more, reports CBS News correspondent Anthony Mason. They have received $17.4 billion so far, but filed plans with the government more than doubling that request to a staggering total of $39 billion.
GM said it could need up to $30 billion from the Treasury Department, up from a previous estimate of $18 billion. That includes $13.4 billion the company has already received. The world's largest automaker said it could run out of money by March without new funds and needs $2 billion next month and another $2.6 billion in April.
"We have a lot of work to do," General Motors Corp. Chairman and Chief Executive Rick Wagoner said. "We're still going at this with a great sense of urgency."
Read highlights of General Motors' and Chrysler's viability plans
GM's request includes a credit line of $7.5 billion to be used if the downturn is more pronounced than expected. But the automaker claimed it could be profitable in two years and repay its loans by 2017.
Any deal requires painful concessions from the United Auto Workers, dealers and debt holders, who are mulling plans to swap two-thirds of their holdings for equity as required by the loan terms set by the Bush administration. Shareholders who have watched GM stock drop as low as $1.70 per share in November will see their stake significantly diluted.
GM shares fell 12 cents, or 5.5 percent, to $2.06 Wednesday as investors digested the company's prognosis.
GM and Chrysler kept working Wednesday to hammer out two issues left conspicuously unfinished in their aid requests - how to fund a union-run health care trust and how to get bondholders to exchange debt for equity.
While the United Auto Workers reached a tentative deal to help the carmakers reduce labor costs, still at issue is whether the union will accept payments to the health care trust as stock instead of cash. Conditions of the government loans ask the union to take up half of what they're owed as an equity position in the companies.
GM, Chrysler and Ford agreed to fund the trusts as part of the landmark 2007 contract reached with the UAW.
The trusts would pay health care bills for about 800,000 UAW retirees, spouses and dependents and move billions in liabilities off the companies' books. GM expects to save about $3 billion a year, while Ford says it will save $1 billion annually.
Ford Motor Co., which borrowed billions from private sources before credit markets tightened, has said it can make it through 2009 without government help.
Obama's administration first must make the difficult determination of whether it's worth making the loans to save the companies, Fitch Ratings analyst Mark Oline said Wednesday. If the objective is to keep GM operating, then Obama must pick the least-costly path, Oline said.
Both companies painted bleak pictures of bankruptcy, arguing it would cost the government more to finance than bailing them out. The companies have said there's no private financing available now, so they would go straight to liquidation unless the government stepped up.
GM said Chapter 11 bankruptcy would cost at least $45 billion, and in one pessimistic scenario, $100 billion. Chrysler CEO Bob Nardelli said his company would need up to $25 billion in financing.
Oline said loans would be cheaper than bankruptcy because of high legal and other costs and the possibility of scaring customers away.
"There are a lot of uncertainties to how much revenues would be damaged in a bankruptcy filing," he said.
Some congressional Republicans have argued for bankruptcy to cut the automakers' labor costs and debts, but Oline said that might not be as necessary, with the UAW agreeing Tuesday to modify their 2007 contracts with GM, Chrysler and Ford.
"The UAW and GM have done a pretty good job of dealing with a lot of those concerns outside of bankruptcy," he said.
The mind-numbing numbers will confront Obama's new autos task force, which is expected to meet this week. The panel will try to squeeze concessions from stakeholders and remake GM and Chrysler into profitable entities.
The automakers' ballooning loan requests come after months of wrangling in Congress over the financial industry bailout, the auto industry's first loan requests, and a $787 billion economic stimulus plan, so opposition is likely.
"While no one in this country wants to see the auto industry fail, we cannot expect American taxpayers to bail out poorly run auto companies forever," said Pat Toomey, a former Pennsylvania GOP congressman who leads the anti-tax group Club for Growth.
GM Chief Operating Officer Fritz Henderson said the Detroit company's restructuring plan is based on conservative projections and is "one that would not require us to do this again."
GM, whose entire request grew to $30 billion, expects to spend $14 billion more than it takes in this year. The company's cash burn, though, is projected to drop to $3.8 billion next year, and it predicts positive cash flow of $6.6 billion in 2012.
"We expect '09 to be another exceptionally challenging year and particularly the first quarter, the first half of the year, as we get our inventories in line and as we add adjust our business," Henderson told industry analysts Wednesday.
But the company said with the restructuring, which calls for 47,000 job cuts, it could turn a profit by 2010 and fully repay its loans by 2017.
Chrysler, whose majority owner is private-equity firm Cerberus Capital Management LP, disclosed that it lost $8 billion last year and expanded its loan request to $9 billion. The company said it would cut 3,000 jobs and shed three models.