For General Motors and Chrysler, it is money time again in Washington. The struggling automakers will present plans to the Treasury Department Tuesday to prove they can be viable. They will also try to persuade officials that the billions of dollars they have already received in taxpayer loans have not been a waste. Chrysler will ask for at least $3 billion more.
At stake are the firms themselves. Both GM and Chrysler have been burning through cash and might be in bankruptcy court were it not for the lifeline the Bush administration extended in December.
But convincing skeptical lawmakers won't be easy. In hearings last year, many blamed car executives for some of the problems. With vehicle sales continuing to fall, auto analysts wonder if there is room for three Detroit-based companies in America's crowded car market.
What's more, the Obama administration's plans to deal with the automakers are changing. A senior administration official said Sunday that President Barack Obama was scrapping the idea of appointing a "car czar" and instead will appoint a presidential task force to direct the restructuring of GM and Chrysler.
Cost-Saving Measures
The GM and Chrysler plans will focus on cost cutting and some of the companies' measures are already public. Last week, GM announced it would slash 10,000 jobs for salaried workers. Earlier, the companies pressured the United Auto Workers to close its "jobs bank."
Laid-off auto workers have spent years in the jobs bank where they get almost full pay, but aren't required to actually work. Some have performed community service, but others have spent time reading and doing crossword puzzles at $28 an hour. With the Detroit companies hemorrhaging cash, the program became a lightening rod for critics.
GM officials say their viability plan will focus on cutting bigger costs. That includes trying to get lenders to take company stock instead of full repayment of loans. That could be tough for many lenders to swallow: GM stock is trading at below $3 a share.
The union is scheduled to take over responsibility for the companies' crushing retiree health care obligations. The automakers were supposed to fund it with money, but they cannot afford it now and will press to give the union an ownership stake in the companies instead. The union does not like the risks associated with that idea, but may not have much choice.
Chrysler: The Weakest Of The Three
Of the two firms, Chrysler may have the tougher time convincing politicians it is sustainable. The scrappy automaker is widely seen as the weakest of the three Detroit companies. Unlike GM, it does not have a global manufacturing footprint and its passenger car lineup — which includes the Chrysler Sebring and Dodge Avenger — is not very successful.
Chrysler will argue that a previously announced deal with Fiat, the Italian carmaker, will bring the sort of small vehicles it needs to the U.S. market and provide global distribution for the vehicles it already builds here.
But many analysts say it will take a year and perhaps much longer to produce Fiats in America.
Stuart Schorr, a Chrysler spokesman, says the company will present a convincing road map, which will include 24 new vehicles. But it is not clear at the moment who would fund the production of all those vehicles. Neither Fiat nor Cerberus Capital Management, Chrysler's owner, wants to put more money into the company.
Kimberly Rodriguez, an analyst with Grant Thornton, the management consulting firm, says patience with Chrysler is ebbing.
"Really, Chrysler, you could say, 'owes' the U.S. taxpayers a solution," Rodriguez said. "There is no more buying of time; we're past that now."
How To Define Viable
Once the Treasury has the viability plans, it will work to implement a cost restructuring with the companies and their various partners, including the union, lenders and parts suppliers.
At the end of March, the government is to determine whether Chrysler and GM are viable. But how it will actually determine and define "viability" is unclear. The terms in the original loan agreements to the car companies had loopholes.
If the Obama administration ultimately decides one of the automakers is not viable, it can call in the loans and the firm would likely be dismantled. But no one looks forward to more big job losses in a deepening recession. And the process of determining the fate of GM and Chrysler is certain to involve some considerable political calculations along with business ones.
With additional reporting from wires
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