Automaker Aid Hinges on Restructuring

Robalini's Note: This past week Obama has really shown his hand. After handing Wall Street bankers a massive looting opportunity with the toxic asset program, he demands yet more layoffs for auto workers at the Big Three...

http://online.wsj.com/article/SB123834886343966829.html

MARCH 29, 2009
Automaker Aid Hinges on Restructuring, Obama Says
By NEIL KING JR.

WASHINGTON -- President Barack Obama is prepared to give struggling U.S. automakers billions more in aid, but only if all sides show that they are ready to make sacrifices to assure the companies have a viable future.

Speaking the day before he announces his first assessment of the fates of General Motors Corp. and Chrysler LLC, Mr. Obama said on CBS's "Face the Nation" Sunday that he intends to lay out "a set of sacrifices from all parties involved -- management, labor, shareholders, creditors, suppliers, dealers."

The industry, he said, must "take serious restructuring steps now in order to preserve a brighter future down the road." The two companies "are not there yet," he added.

The president's auto task force has spent more than a month digging into the restructuring plans of GM and Chrysler while trying to assess when the steep plunge in car sales might end. The two companies received a total of $17.4 billion in government loans in December, and have requested another $22 billion to keep them going through this year. Of that, GM is seeking $16.6 billion more, while Chrysler has asked for $5 billion more.

On Monday, President Obama will lay out the administration's interim conclusions on the companies' viability and the many steps that need to be taken to return the companies to health. The president is likely to hold off on granting new loans to preserve leverage in ongoing negotiations, particularly with the thousands of bondholders who hold a total of about $28 billion in GM debt.

The government is pressuring the bondholders to agree to an equity swap that would reduce GM's debt load by two-thirds.

Analysts said GM likely has enough cash on hand to weather at least another month before its need for more government aid becomes urgent. Chrysler, which is owned by Cerberus Capital Management, may need another infusion of cash sooner. Ford Motor Co. has not sought federal assistance.

Both GM and Chrysler are negotiating with the United Autoworkers union to accept a range of cost-cutting measures, including a greatly reduced workforce, lower wages, and a revamped health-care fund for retirees.

The U.S. auto industry, hardly robust to start with, has been reeling from a plunge in car sales over the last six months. Sales in February were down about 40% over the same month last year. The drop has sent shock waves through the hundreds of smaller parts companies that supply the big auto makers. To keep the sector afloat, the administration recently announced a $5 billion financing facility to help suppliers cover their expenses.

`We think we can have a successful U.S. auto industry," President Obama said on Sunday. "But it's got to be one that's realistically designed to weather this storm and to emerge—at the other end—much more lean, mean, and competitive than it currently is.''

Treasury Secretary Timothy Geithner, who is nominally in charge of overseeing the auto bailout, on Sunday said the government was prepared to lend more money "if we believe it's going to provide the basis for a stronger industry in the future that's not going to rely on government support."

The administration is not expected on Monday to deliver a comprehensive blueprint for where the industry needs to go in the months and years ahead. Instead, administration officials said, the announcement will lay out the parameters of an overall deal, including some firm deadlines. The administration is expected to hold out the threat of having the companies enter into Chapter 11 bankruptcy restructuring if certain tough compromises are not made over the next month.

The original December loans were given under the agreement that all sides would strike a compromise deal by March 31, but the administration is taking advantage of a clause allowing all sides another month to negotiate.

"It was unrealistic to renegotiate a new labor agreement and the unsecured debt in so short a time," said Sean McAlinden, chief economist with the Ann Arbor, Mich.-based Center for Automotive Research. "That has never happened before."

GM and Chrysler are meant to submit by Tuesday assessments of where their restructuring efforts are heading. In February, both companies put forward plans for paring back their operations, reducing their workforces and eliminating vehicle models. Chrysler is mulling a potential alliance with Italy's Fiat SpA.

Write to Neil King Jr. at neil.king@wsj.com