What's the Future Hold?

Rumors and announcements fly as financial markets flounder

Posted October 27 2008 03:10 PM by Phil Howell_4Wheel Drive Magazine Editor-in-Chief
Filed under: Editorials, Observations, 4Word

Is GM going to merge with Chrysler? What sort of restructuring is Chrysler doing? Is GM going to end a number of historic marques? I'm no expert when it comes to the heady world of industry and high finance. It doesn't take an expert, though, to comment on the rumors and announcements regarding Chrysler, GM and the ongoing crisis in our industry and the world.

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Rumor has it there are many at Chrysler and GM who want (need?) a merger to happen. GM would get rid of a competitor and gain Chrysler's 11 billion cash reserve. Cerberus, Chrysler's 80% owner, would get out of the auto business they unwisely entered at a trying time and gain full ownership of GMAC (they already own 49%), which is due to receive billions in government bailout bucks. This may mean the loss of anywhere from 33,000 to 66,000 jobs and the UAW is understandably alarmed. The word is that GM would axe Chrysler and Dodge, keeping only Jeep and, maybe, Chrysler minivans, moving Jeep into Chevrolet. There's another rumor that Nissan Renault would like to get Dodge, or even become another player to invest in Chrysler if no GM merger happens. Still out there is Tata, the Indian giant that has already purchased Rover and Jaguar and maybe would like Jeep, too. Would GM sell Jeep to them?

An official announcement from Chrysler today says that they will be cutting 25% of their white collar employees. If current corporate policy is followed, this will probably mean that all remaining competent people will be let go or allowed to retire early, leaving only the inexperienced and incompetent to run a company that's already trying to survive in this floundering market.

And this brings us to the underlying problem in the corporate world. Incompetence and irresponsibility runs rampant. Obscenely bloated senior executive salaries, boards that aren't accountable to anyone, and incompetent managers have gutted our corporations to the point that today we're having this financial crisis. The difference between leaders and managers is great (see http://www.thefabricator.com/CEOs/CEOs_Article.cfm?ID=634). While both are necessary and neither like each other, today managers rule and destroy any leaders they find, ensuring that those under them in the corporate hierarchy are no threat. To "improve" the bottom line, thousands of skilled, competent lower-level employees are fired, weakening a company's foundation, when in reality firing just one or two senior managers would effect the same salary reduction and actually streamline productivity and profitability by getting rid of management roadblocks to daily efficiency. Also, why do corporations hire senior executives with proven track records of failure?

This is a time of change. All we can do is watch and pray that things will work out, especially for those thousands who may find themselves in unemployment lines. Let's hope that Jeep will find its way through this mess and continue to produce excellent vehicles, just as it's been doing for almost 70 years.

Reader Comments:

1. Peter Flaherty, President of the National Legal and Policy Center (NLPC), today criticized efforts by Chrysler CEO Robert Nardelli to secure a taxpayer bailout for Chrysler and General Motors. Flaherty said:

"Robert Nardelli walked away from Home Depot with $210 million despite his failures as the company's CEO. Now as Chrysler CEO, he is lobbying for a taxpayer bailout of Chrysler's finance unit, and the carmaker itself.

"Chrysler is not even a public company. It is 80% owned by private equity firm Cerberus. Do billionaires now have a taxpayer guarantee that they are insulated from the marketplace?

"How can we expect Chrysler to rebound as a strong company if it demonstrates the same kind of bad decisions that got it into problems in the first place? Nardelli is the public face of everything that's wrong
with corporate America. Sending this pirate up to Capitol Hill is a ludicrous idea."

NLPC promotes ethics in public life and sponsors the Corporate Integrity Project.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted October 29 2008 04:56 PM

2. And, it continues. Here's the latest as of Friday 31 October:

By Jui Chakravorty Das and Kevin Krolicki

NEW YORK/DETROIT (Reuters) - A deal to merge General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC has hit an impasse after the Bush administration ruled out funding for it, three people with direct knowledge of the talks said.

This puts any merger of the struggling automakers on hold until after the U.S. presidential election, the sources said.

The development adds a new element of uncertainty for the embattled U.S. auto industry as Detroit's political allies warn the sector faces a deepening financial crisis that threatens tens of thousands of jobs.

It also opens the door for Cerberus Capital Management, which owns Chrysler, to restart talks with the Nissan-Renault alliance run by Carlos Ghosn. The private equity firm has seen that option as a backstop to an outright acquisition of Chrysler by GM, one of the sources said.

The sources declined to be named as they were not authorized to discuss the private talks. GM and Cerberus declined comment.

This week, Ghosn said he sees any deals among automakers involving a cash element as unlikely unless the cash came from outside, such as from the government.

Discussions with Nissan-Renault (7201.T: Quote, Profile, Research, Stock Buzz) (RENA.PA: Quote, Profile, Research, Stock Buzz) would likely start with consideration of an expanded product-based tie-up building on an existing deal between Chrysler and Nissan, the source familiar with those talks said.

A merged GM-Chrysler would be the largest automaker by sales, but analysts have cautioned it would struggle to turn around the overlapping Detroit-based operations of two firms that have seen mounting losses tied to a global downturn.

Chrysler, which has seen its sales fall 25 percent this year, said it was moving ahead with a cost-cutting plan and with plans for new vehicles, including a plug-in hybrid.

"We are taking the tough but necessary decisions to stabilize the business in the short-term and making the viable long-term business decisions to restructure the company for the future," Chrysler spokeswoman Lori McTavish said.

GM and Cerberus have been in talks since September, according to sources.

GM had approached the U.S. Treasury in recent days about support for the merger through some $10 billion in new funding that would have included taking an ownership stake in the merged company, people familiar with the talks have said.

TREASURY STAYS AWAY

But a Bush administration official said on Thursday the Treasury Department was not negotiating direct aid for the merger.

Instead, the official told Reuters, the administration was working to speed the distribution of $25 billion in low-cost loans for automakers to retool factories, a move that was authorized by Congress last month.

With merger aid off the table, talks about combining GM and Chrysler are on hold until after the November 4 election when the parties hope to sit down with representatives of the new administration, the sources said.

A decision by the Bush administration to provide the government's first funding for the auto sector since the $1.5 billion bailout of Chrysler in 1980 had been widely seen as the merger's best chance for success.

Private investors consulted in the course of the talks have not expressed interest in providing funding for the controversial deal in the absence of government backing, people with knowledge of the talks have said.

In the absence of a deal, Cerberus pushed ahead with a restructuring for GMAC LLC, the money-losing auto finance and mortgage provider in which it owns a 51-percent stake.

The Detroit-based lender said it was in talks with federal regulators about becoming a bank holding company, which would make it easier for it to participate in a $250-billion bank recapitalization plan.

GM shares, down 76 percent since the start of the year, have reacted this week to word of its progress in the merger talks and its lobbying for federal aid. The stock closed down 10 percent on Thursday after the Bush administration official ruled out merger help from the Treasury.

Analysts have challenged the merits of a GM merger with Chrysler. Grant Thornton consultant Kimberly Rodriguez issued a study on Thursday estimating that a GM merger with Chrysler would likely cut jobs for up to 40,000 of Chrysler workers.

Democratic presidential candidate Barack Obama told NBC news in an interview he would meet with Detroit automakers and union representatives if elected.

"My hope is if I'm elected, that I'm immediately meeting with the heads of the Big Three automakers as well as with the United Auto Workers," Obama told NBC. "And to sit down and craft a strategy that puts us on a path for an auto industry that can compete with anybody in the world."

Republican John McCain's campaign has said he favors moving to disburse the $25 billion in low-interest loans already approved for the industry as a first step.

Happy Halloween.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted October 31 2008 09:07 AM

3. It changes again today . . .

DETROIT (Reuters) - Talks on a deal to sell Chrysler LLC to Nissan Motor Co (7201.T: Quote, Profile, Research, Stock Buzz) and Renault SA (RENA.PA: Quote, Profile, Research, Stock Buzz) have halted because the No. 3 U.S. automaker's owner favors a deal with General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), The Detroit News reported on Saturday.

Citing sources familiar with the situation, the newspaper said no further talks have been scheduled between private equity firm Cerberus Capital Management LP CBS.UL, which sees a deal with No. 1 U.S. automaker GM as financially more advantageous and better for the struggling U.S. auto industry.

In an earlier report, The Detroit News said the Nissan-Renault alliance had proposed buying 20 percent of Chrysler.

A spokesman for Cerberus declined to comment.

Earlier this week Nissan-Renault Chief Executive Carlos Ghosn dismissed reports of merger talks with Chrysler as speculation, adding that it did not make sense to risk cash in the current economic environment to form a strategic alliance.

GM and Chrysler have been in talks on a possible merger, but according to sources any deal will have to wait until after the U.S. presidential elections on Nov 4 as the Bush administration ruled out providing government funding for it.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted November 1 2008 09:10 PM

4. By Jeff Green and Mike Ramsey

Nov. 7 (Bloomberg) -- General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall "significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.

The largest U.S. automaker reported a $4.2 billion third- quarter operating loss and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.

"GM is making a pretty direct plea for help,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. "The message is, `we've done all the things we can do, and we need help.' And if we don't get help, fill in the blank.''

The drain on cash reflected the strain of GM's dwindling U.S. sales, which slumped 21 percent in the quarter as the credit freeze deepened. Chief Executive Officer Rick Wagoner and the CEOs of Ford Motor Co. and Chrysler met yesterday with U.S. House and Senate leaders as the automakers seek $50 billion in new government aid, a person familiar with the proposal said.

GM's use of $6.9 billion in cash last quarter pushed its reserves closer to the $11 billion minimum that the automaker says it needs to pay its bills.

Today's outlook was the bleakest yet from the automaker, which has lost almost $73 billion since the end of 2004. As recently as Oct. 24, GM had said bankruptcy ``is not an option.''

Shares Decline

GM fell 67 cents, or 14 percent, to $4.13 at 12:28 p.m. in New York Stock Exchange composite trading. The shares tumbled 81 percent this year before today.

While GM didn't specify any prospective partners in saying merger discussions were being halted, the biggest U.S. automaker had been in negotiations on a tie-up with Chrysler, according to people familiar with the plans.

Consideration of a strategic acquisition was ``set aside'' to focus on ``immediate liquidity challenges,'' Detroit-based GM said.

The per-share loss was wider than the average estimate on an adjusted basis of $3.94, based on 10 analysts surveyed by Bloomberg.

Including a non-cash, $4.9 billion one-time gain related to unloading retiree medical bills, GM had a net loss of $2.5 billion, compared with a $38.9 billion year-earlier loss on a tax-accounting charge.

GM's $3 billion of 8.375 percent bonds due in 2033 tumbled about 4 cents to 24.4 cents on the dollar as of 11:46 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 34 percent, or about 30 percentage points more than similar- maturity Treasuries, Trace data show.

Liquidity Plan

GM said it is trying to increase liquidity by $20 billion by the end of next year, an increase from a July 15 plan for $15 billion.

Capital spending is being trimmed in 2009 by $2.4 billion to $4.8 billion by rescheduling the debut of some vehicle programs in North America and Europe by three months to a year. GM will also save $1.5 billion by cutting advertising and dealer promotion support and by reducing production starting next quarter.

GM will further pare engineering and cut back on discretionary expenses, including travel, consulting and unscheduled overtime. Working-capital spending will be reduced by $500 million by lowering reserves of parts and inventory, the company said. GM also said it will try to slash 30 percent of salaried-workforce expenses, up from a goal of 20 percent.

GM delayed the scheduled earnings release from 10:30 a.m. to 11:18 a.m. because of a wording changed needed in the release, said Julie Gibson, a spokeswoman.

GMAC LLC, the auto lender 49 percent owned by GM, said Nov. 4 it had a record $2.5 billion loss as borrowers from its mortgage unit fell behind on their loans. The Detroit-based finance company said its Residential Capital home-loan division may not survive the housing crisis.

GMAC is 51 percent owned by group led by Cerberus Capital Management LP, owner of Chrysler.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted November 7 2008 11:07 AM

5. General Motors (GM) will take “every action we possibly can” to avoid bankruptcy, president and chief executive Rick Wagoner said on Friday after warning that the US automaker could run out of cash in the first half of next year.

“We’re convinced the consequences of a bankruptcy would be dire and extend far beyond General Motors and therefore we are going to take every action we possibly can to avoid it,” Wagoner said in a conference call. “We need to find a way to get through this and that is really our focus.”

For the third quarter, GM announced a loss of US$2.5 billion and said it had burnt through another US$6.9 billion in cash during the three-month period. The company warned that its estimated liquidity during the remainder of this year “will approach the minimum amount necessary to operate its business.

“Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount,” the company said in a statement giving its starkest warning yet.

To survive, it said it would need “significantly” improved market conditions — highly unlikely in the current economic climate — or help from the government, suppliers or other investors.

Wagoner said one example of a way to help avoid bankruptcy was a request that he and other automakers made on Thursday for US$25 billion in loan guarantees from the federal government.

“We’ve asked for funding support to address” the impact of the credit crisis on the automotive sector “in the spirit that significant funding support went into the financial sector,” he said.

Asked about whether a sale of GM was a possibility, Wagoner said: “That option hadn’t come up, but I would say we’re going to continue to scheme any ideas we can.”

While GM said it would do everything it could to cut costs and raise revenue by advancing the sales of assets, the automaker said on Friday it had suspended takeover talks with Chrysler.

“GM has recently explored the possibility of a strategic acquisition that it believed would generate significant cost reduction synergies and substantially strengthen GM’s financial position in the medium and long term, while being neutral or modestly positive to cash flow even in the near term,” the company said, without naming Chrysler.

“While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside,” GM said.

Chrysler reiterated on Friday that it “neither confirms nor discloses” the nature of its private business meetings.

In a statement after the GM announcement, the No. 3 US automaker said it continued to focus on profitability in the challenging economic and market conditions.

“As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability,” Chrysler said.

Separately, embattled US automaker Ford Motor Co warned of tough times ahead as it reported heavy financial losses and plans to slash an additional 10 percent from its salaried North American worker costs.

“We now believe the global economic and industry slowdown will now be broader, deeper and longer than previously expected,” Ford president and chief executive Alan Mulally said in a conference call.

Mulally said he expected demand to weaken further next year before recovering in 2010.

He said Ford would continue to trim costs and production in response to weakening demand, although it does not currently have plans to close additional factories. Ford was able to narrow its net third-quarter loss to US$129 million from US$380 million in the third quarter of last year through major cost-cutting measures, including wiping US$2 billion in health care costs from its books as a result of a recent labor agreement, the No. 2 US automaker said in a statement.

But its revenues fell by nearly US$10 billion to US$41.1 billion in the third quarter as sales plummeted.

The company burned through US$7.7 billion in cash to keep its operations going in the third quarter and said it was looking for new sources of financing to help maintain its operations. It now has just US$18.9 billion remaining in its cash reserves and access to a line of credit of US$10.7 billion.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted November 11 2008 05:33 PM

6. WASHINGTON -- Two of Detroit's Big Three auto makers are on the verge of collapse, industry executives told a Senate panel Tuesday, urging emergency assistance from the government to avert what they said would be an economic catastrophe.

The dismal outlook of the domestic automobile industry became gloomier as Chrysler LLC chief executive Robert Nardelli disclosed that his company was in danger of running out of money without financial help. Until Tuesday, the focus in Washington has largely been on the troubles of General Motors Corp., which is facing increasing speculation that it will be forced to seek bankruptcy protection as early as next year.

"Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations in the ordinary course," Mr. Nardelli said in prepared testimony before the Senate Banking Committee.

He made the statement during the first of several highly anticipated hearings in Congress this week on the auto industry. He joined executives of Detroit rivals GM and Ford Motor Co. in calling for $25 billion in emergency loans to help the auto makers survive the economic downturn.

Banking Committee Chairman Christopher Dodd told the executives that the industry was "seeking treatment for wounds that were largely self-inflicted.'' Still, he said, "hundreds of thousands would lose their jobs'' if the companies were allowed to collapse.

The executives defended the management of their beleaguered companies, saying their need for emergency government support stems from the economic crisis, not poor decision-making.

They sought to combat widespread criticism that they haven't done enough to restructure their companies and invest in modern, fuel-efficient vehicles. Their testimony came as Democrats pushed a proposal to rush $25 billion in aid to the auto makers. Republican opposition threatened to kill that plan.

"This is about much more than just Detroit," GM Chairman and Chief Executive Richard Wagoner said in prepared remarks, arguing a failure of a domestic auto maker would have ripple effects throughout the economy. "It's about saving the U.S. economy from a catastrophic collapse."

Mr. Wagoner said a precipitous drop in vehicle sales threatened the company's survival.

Also scheduled to testify was Ron Gettelfinger, head of the United Auto Workers union.

The auto makers are burning through cash reserves as vehicle sales plummet, and some analysts fear that GM could be forced to seek bankruptcy protection without government intervention.

Mr. Mulally said that while his company is not in as much danger as GM, a collapse of its rival would be felt by Ford's operations "within days, if not hours." He said the auto industry is unique in that competing manufacturers are served by the same parts suppliers.

"A collapse of one of our competitors here would have a ripple effect across all auto makers, suppliers and dealers," Mr. Mulally said in prepare testimony, saying millions of jobs could be lost.

Much of the executives' testimony was devoted to outlining steps the companies have taken to reduce costs and to develop smaller, fuel-efficient vehicles.

Ford, for example, has closed 17 plants and cut 51,000 jobs in recent years, Mr. Mulally testified.

"Few companies in the history of our country have restructured more aggressively," Mr. Mulally said in prepared testimony.

Mr. Wagoner said that through negotiations with the UAW and other cost-cutting movies, the company has reduced structural costs by $9 billion, or 23 percent, since 2005.

"We've moved aggressively in recent years to position GM for long-term success, and we were well on the road to turning our North American business around" before the economic crisis, Mr. Wagoner said.

The loans being pushed by Democrats would be for 10 years, starting at an interest rate of 5 percent, and would be provided under the government's $700 billion financial rescue plan. But Republican opposition threatened to kill that proposal, possibly forcing the companies to wait until next year when Democrats will have larger majorities in Congress and Barack Obama takes office.

By Josh Mitchell

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted November 18 2008 03:40 PM

7. I'm not in favor of bailouts, but . . .

The government is giving away 700B of our tax revenue to Wall Street, insurance giants such as AIG and banks. The bank bailouts are supposedly to stem the tide of foreclosures. The banks are taking the cash, but no one I've heard of has received a call from their mortgage holder saying, "Good news! We aren't foreclosing on you now because of the government bailout funds we received." No, the banks are still foreclosing and holding on to the bailout cash.

If those sphincters at AIG can go on tropical vacations and receive $250,000.00 holiday bonuses with our money, why can't the government save jobs and give our auto industry some help - a fraction of what's being doled out to Wall Street?

So, you hate GM, Ford, and Chrysler automobiles and say, "The auto makers brought this on themselves."? Yes, bad management has caused this, but can you think of a Corporation today that isn't infected with bad managers? Consider what will happen when millions (yes, millions) of North American jobs are lost. A conservative estimate says that for every Chrysler, Ford, and GM worker that's fired, 10 others in the North American job force will also lose their jobs. I think that's conservative. We will be devastated if the Big Three go under.

Get rid of the current management and take some of the 700B away from AIG and others and give the Big Three the 25B they're asking for.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted November 21 2008 09:26 AM

8. I read a newspaper feature today that told about how our lawmakers are playing tough with automakers and forcing them to jump through hoops in order to get any help. Why do our automakers have to do this when Wall Street gets whatever they want, no questions asked, with no oversight required? As an added insult, those WS scum take the money and spend billions of those dollars on pleasure! Why aren't Wall Street, banks, and insurance companies being held under the microscope?

Come on, Congress! Give some help where it's needed (North American automakers) and take away the "help" from the slime that caused this mess in the first place!

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted November 26 2008 01:17 PM

9. By Lori Montgomery and Paul Kane
Washington Post

WASHINGTON - The House last night approved an emergency plan to prevent the collapse of the domestic auto industry, but the measure faces serious opposition in the Senate, where Republicans are rebelling against a White House-brokered deal to speed $14 billion to cash-starved General Motors Corp. and Chrysler LLC.
After battling through the weekend to reach a compromise with congressional Democrats, the White House dispatched chief of staff Joshua Bolten yesterday to sell the plan to restive Republican senators. But many GOP lawmakers emerged from a combative luncheon with Bolten unconvinced the plan would compel Detroit automakers to make the painful changes necessary to restore them to profitability.

After mostly partisan debate, the House voted 237-170 to approve the measure. But with Sen. Richard C. Shelby (R., Ala.) and other conservatives threatening to block consideration of it, even some Republican advocates of the bailout said it was unlikely to attract sufficient GOP support to win approval in the closely divided Senate.

"I don't think the votes are there on our side of the aisle," said Sen. George V. Voinovich (R., Ohio), a stalwart champion of the auto industry. "Some effort needs to be made to respond to the concerns of my colleagues."

At the heart of the conflict is a debate over how to best help the Big Three automakers not only survive the deepening recession but also rid themselves of a legacy of debt, high production costs, and plush worker benefits that have left them unable to compete with their more nimble foreign competitors.

GM, Chrysler and Ford Motor Co. have already moved to streamline costs; along with the United Auto Workers union, they have offered to make additional concessions. But many Republicans think the automakers' problems could be more efficiently resolved by a bankruptcy court with legal power to dissolve existing contracts than by a presidentially appointed "car czar" whose actions could be swayed by Washington politics.

"If we don't have the forced restructuring plans in place, many of us don't believe that American car companies will come out of this in a competitive position and the taxpayers' money will be wasted," said Sen. John Ensign (R., Nev.).

Democrats have resisted forced restructuring, arguing that under the Bush administration it could amount to open season on the UAW. They also sympathize with the automakers' argument that bankruptcy proceedings would scare off potential buyers.

"People buying cars want to know that they'll continue to have a relationship with an entity that can service the cars," House Financial Services Committee Chairman Barney Frank (D., Mass.), the chief House negotiator on the package, said during House debate.

White House press secretary Dana Perino said in a statement: "Many Republicans and Democrats agree that a disorderly bankruptcy could be fatal to U.S. automakers and have devastating impacts on jobs, families and our economy."

GM thanked the House for its support and encouraged the Senate "to act soon so that we can continue at full speed on the restructuring and advanced technologies plans that will form a stronger, more viable GM."

The measure would speed up to $14 billion in emergency loans to the Detroit automakers, enough to keep GM and Chrysler in business through the end of March. Ford has also requested access to a federal line of credit but has said it does not expect to need any money immediately.

In exchange for the cash, the automakers would be required to give the government warrants for stock worth 20 percent of the value of the loans.

The companies also would have to submit to the authority of a car czar, who would seek to "facilitate an agreement" for long-term viability in talks with the automakers, their employees and retirees, their unions, creditors, suppliers, dealers and shareholders.

Bush would have to appoint the czar within days. Kaplan said administration officials had been in talks with President-elect Barack Obama about that appointment, raising the possibility that a compromise candidate might be named.

If the talks failed to produce a plan to cut costs and achieve financial viability by March 31, the car czar would be required to revoke the loans and submit a new restructuring plan that could include the option of Chapter 11 bankruptcy protection. If a company failed to progress toward those goals, it would be barred from receiving additional government assistance.

The measure contains various taxpayer protections, including audits by the Government Accountability Office and government veto power over transactions worth more than $100 million, a provision intended to block investment overseas. The companies also would be barred from paying dividends to shareholders or bonuses to top executives while the loans were outstanding, and would have to sell their corporate jets.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted December 11 2008 01:47 PM

10. By Roger Runningen and John Hughes

President George W. Bush said he’s “considering all options” for a bailout of General Motors Corp. and Chrysler LLC, and he promised to move quickly.

Bush, in an interview airing today on CNN, said he felt an obligation to “make sure the economy doesn’t collapse,” creating bigger difficulties for President-elect Barack Obama, who takes office Jan. 20. He gave no hint as to when a decision would be made.

“I have abandoned free-market principles to save the free- market system,” Bush said. The U.S. is “in a huge recession,” he said.

GM and Chrysler are seeking $14 billion in emergency federal aid to keep operating through the first quarter of next year. Without an infusion of cash, the largest U.S. automaker and No. 3 Chrysler may be only weeks from insolvency.

The U.S. Treasury may adopt a plan that would let a car czar or the Treasury secretary force the companies into bankruptcy if they fail to show they can survive without government aid, said Senator Carl Levin, a Michigan Democrat.

GM and Chrysler would be required to submit proposals by March 31 showing how they would restructure to return to viability or lose U.S. support, Levin told reporters in Detroit yesterday. The Treasury plan would resemble a measure passed by the U.S. House last week and rejected by the Senate.

“The power rests in the hands of either the czar or the Secretary of the Treasury to force bankruptcy by March 31,” Levin said.

Under the approach the administration is likely to use, Treasury Secretary Henry Paulson and his successor would “in effect” be the car czar because the Treasury Department would oversee the aid, Levin said.

No Decision Today

The administration isn’t likely to reach a decision on aid until later this week, with tomorrow being the earliest, said a government official who spoke on condition of anonymity.

“Concessions are going to have to be made,” White House spokeswoman Dana Perino said today. “I don’t think that there’s any possible way” loans would be approved unless companies and labor unions agree to changes, she said.

GM rose 17 cents, or 4.2 percent, to $4.25 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have tumbled 83 percent this year.

Paulson said today in an interview with CNBC that his department is working on tapping the Troubled Asset Relief Program to finance an auto-industry rescue. Companies receiving assistance must show a “path to viability,” he said.

Prepackaged Bankruptcy

The likeliest U.S. aid package will be loans and a so- called prepackaged bankruptcy to get the automakers through to 2009, Moody’s Investors Service said in a note today. There’s only a one-in-four probability the U.S. will bail out the automakers with no bankruptcy, analyst J. Bruce Clark said.

The Bush administration agreed Dec. 12 to consider options including use of the TARP after Senate Republicans refused to take up the plan passed by the House on Dec. 10. Senate Republicans sought more specific automaker conditions, such as pay in line with foreign manufacturers’ operations in the U.S.

GM spokesman Greg Martin declined to comment on the possible terms of a bailout. “I will say that as other options for aid are considered, our commitment to an aggressive restructuring plan remains unchanged,” he said in an e-mailed statement.

Levin said he believes there is $15 billion left in the TARP fund to aid automakers’ operations.

‘Financial Peril’

Republican U.S. Representatives Jeb Hensarling of Texas and Tom Price of Georgia joined 20 colleagues in a letter to Bush today urging him not to use that money for automakers. “Taxpayers cannot afford to save every company facing financial peril,” they wrote.

Seven Republican senators sent Bush a similar letter. “We do not believe any amount of money will succeed in saving these companies” absent restructuring, said the letter signed by senators including James DeMint of South Carolina and Jeff Sessions of Alabama.

The automakers’ global plight was illustrated today when European car sales recorded the biggest monthly decline since 1999. GM’s deliveries on the continent fell 39 percent in November and Chrysler vehicle sales plunged 56 percent, the European Automobile Manufacturers’ Association said. Total deliveries dropped 26 percent.

Ford Motor *** which isn’t seeking short-term U.S. aid, said in a statement it “fully supports and appreciates” the administration effort to aid automakers.

Ford fell 5 cents to $3.13 in NYSE trading.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted December 17 2008 12:35 PM

11. I still don't understand why banks, insurance companies, and Wall Street get billions for which they don't have to account, yet the automakers have trouble getting a short-term LOAN!

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted December 17 2008 01:38 PM

12. Finally!

The federal government will help Detroit's ailing automakers survive at least another few months by offering $17.4 billion in rescue loans in exchange for concessions from carmakers and their workers.

The government will have the option of becoming a stockholder in the companies, much as it has with major banks, in effect partially nationalizing the industry.

At the same time, Treasury Secretary Henry Paulson said Congress should release the last half of the $700 billion from the Wall Street rescue fund that it approved in October to bail out huge financial institutions.

Tapping the fund for the auto industry essentially exhausts the first $350 billion of the fund, he said.

President Bush said Friday that a bankruptcy was unlikely to work for the auto industry at this time because it would deal "an unacceptably painful blow to hardworking Americans" across the economy.

Automakers will get $13.4 billion of the money this month and the next, $9.4 billion for General Motors Corp. and $4 billion for Chrysler LLC. An additional $4 billion will be made available to the companies later. Ford Motor Co. has said it does not need immediate help.

Bush said the loans will be called back if the companies are not viable by March 31.

"The time to make hard decisions to become viable is now, or the only option will be bankruptcy," Bush said. "The automakers and unions must understand what is at stake and make hard decisions necessary to reform."

Bush's plan is designed to keep the auto industry running in the short term, passing the longer-range problem on to the incoming administration of President-elect Barack Obama.

Obama hailed Bush's decision as "a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers."

Obama called on the auto companies to bring all their stakeholders together, including labor, dealers, creditors and suppliers, to make the hard choices necessary to achieve long-term viability.

"The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it," he said in a statement.

The White House package is the lifeline desperately sought by U.S. automakers, who warned they were running out of money as the economy fell deeper into recession, car loans became scarce and consumers stopped shopping for cars.

The carmakers have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plans for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories -- many for the entire month of January -- to cut vehicle production.

Bush said the auto manufacturers have faced serious challenges for many years: burdensome costs, a shrinking share of the market and plunging profits.

"In recent months, the global financial crisis has made these challenges even more severe," he said.

The president said that on the one hand, the government has a responsibility not to undermine the private enterprise system, yet on the other hand, it must safeguard the broader health and stability of the U.S. economy.

"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," he said.

"Under ordinary economic circumstances, I would say this is the price that failed companies must pay," the president said. "And I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances.

"In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action."

General Motors and Chrysler thanked the administration for its help Friday morning.

In a statement, Chrysler CEO Bob Nardelli said the initial rejection of capital will help the company get through its cash crisis and help eventually return to profitability. He said Chrysler was committed to meeting the conditions set by Bush in exchange for the money.

General Motors said in a statement that Bush's decision will help "preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us."

GM added that the loan will allow the company to accelerate the completion of its restructuring plan and lead to a "leaner, stronger General Motors."

Not everyone was pleased with the auto rescue plan. Sen. John McCain was among several Republican lawmakers who decried Bush's decision.

"I regret the president's decision to give away over $17 billion to the domestic automakers. I find it unacceptable that we would leave the American taxpayer with a tab of tens of billions of dollars while failing to receive any serious concessions from the industry," McCain said in a statement.

"It is deeply disappointing that the administration has chosen to use taxpayer dollars to delay the inevitable need to fundamentally restructure these companies," U.S. Rep. Tom Price, R-GA, said in a statement.

"By bailing out automakers without real reform or long-term solutions, we are only protracting uncertainty and putting billions of tax dollars at grave risk."

Price said the it is now clear that the creation of the $700 billion rescue fund was a mistake because it has placed a crushing burden of debt on the country while failing to stabilize the financial markets.

"Americans are sick and tired of working hard only to have their tax dollars sent to prop up failing enterprises," he said, suggesting the Chapter 11 bankruptcy would have been a better solution. "As it has always been, the best solution for any troubled company is to enter the tried and true reorganization process already afforded by law."

The Associated Press and FOX Business Network's Peter Barnes contributed to this.

Phil Howell_4Wheel Drive Magazine Editor-in-Chief - Posted December 19 2008 11:25 AM