As the economy weakens, big ticket items like cars are particularly hard hit. And GM’s offer of 0% financing, which lead to a brief flurry of buying, apparently wasn’t enough to offset the trend of broad-based consumer retrenchment.
There is a bit of disparity in reporting. The Wall Street Journal tells us GM now says it needs an additional $16.6 billion and warns it could run out of cash next month. Chrysler is seeking a comparatively modest extra $2 billion. (on top of its original ask of $7 billion). But the New York Times puts the additional cash request for GM at $12 billion. And why the difference? The increase cited by the WSJ is in how much the total package sought is ($30 billion) versus the amount borrowed already ($13.4 billion). The Times, by contrast, is defining the increase as the increase in the total amount requested.
From the Wall Street Journal:
The largest U.S. auto maker, surviving on $13.4 billion in emergency loans granted in recent months, laid out a plan to close more factories, eliminate thousands of dealerships and slash 47,000 jobs this year around the world.
GM, however, said it failed to strike critical deals with the United Auto Workers union and bondholders to reduce labor costs and shrink its $47 billion debt load. Negotiations with both parties are expected to continue.
Meanwhile, Chrysler LLC is seeking an additional $2 billion in federal funds on top of the $7 billion bailout it requested in December as part of the viability plan submitted to the Treasury Department on Tuesday afternoon.
Chrysler, which cited an “unprecedented decline in the automotive sector” since December, said it expects to remain viable and conduct an orderly restructuring outside of bankruptcy.
Chairman and Chief Executive Robert L. Nardelli said the company’s standalone viability plan, enhanced by a strategic alliance with Fiat SpA, is the best option for Chrysler employees, unions, dealers, suppliers and customers. The company so far has accepted $4 billion of its original $7 billion request…..
GM, in a 100-plus page report submitted to the U.S. Treasury, argues that bankruptcy would still be more costly and drawn out than a government-funded restructuring. The auto maker said a traditional bankruptcy could cost as much as $100 billion, attributing much of that cost to lost revenue.
Instead, GM proposes an accelerated downsizing that involves cuts deeper than those outlined in December. Steps include shuttering 14 factories by 2012 rather than nine, eliminating 47,000 hourly and salaried jobs this year globally, and closing its Hummer truck brand this year and Saturn in 2011 if no alternatives arise.
From the New York Times:
General Motors told the federal government Tuesday that it needed to increase its loan request to $30 billion, $12 billion more than it had initially sought in order to avoid a bankruptcy filing.
G.M said that it needed $4.6 billion within weeks from loans previously requested from the government as well as $12 billion on top of that because of a deepening slump in vehicle sales.
In addition, the nation’s largest automaker said it planned to cut 47,000 jobs out of a total of 244,000 around the world by the end of the year. About 20,000 of the job losses will come in the United States, as well as five more plant closings beyond those previously announced.
Based on its filing, G.M. appears to be in danger of running out of money by the end of March without another infusion from the Treasury Department. The dire forecast was included in G.M.’s broad restructuring plan delivered as part of the terms of the government’s loan package to the ailing auto maker. A smaller rival, Chrysler, was also required to file a restructuring package.
In its plan, Chrysler also increased its loan request to the federal government by $2 billion. The company, which received $4 billion in December, originally planned to seek $3 billion in April. But it said Tuesday that the vehicle market had deteriorated so dramatically that a total of $9 billion was needed.
As expected, G.M.’s plan drastically scaled back global operations, with a goal of bringing the company to a break-even point by next year.
Note the Times article is written as if they have a copy of the plan, while the Journal does not give that impression.