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.
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I was discouraged to see this:
http://www.laht.com/article.asp?CategoryId=12396&ArticleId=320909
General Motors to Invest $1 Billion in Brazil Operations
SAO PAULO — General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.
According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the government and will be used to "complete the renovation of the line of products up to 2012."
"It wouldn't be logical to withdraw the investment from where we're growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil.
…
America’s Fortune 50 Oligarchy is sacrificing the economy in order to save their own a**es. They are following the insanely corrupt Japanese model, but we are not Japan.
It’s too bad the next congressional election is not this fall because it would serve as a release valve for the anger that is building across the land.
The bankers are getting huge bonusses for having screwed enormous quantities of cash from the feds.
Why shouldn’t the other magnates of industry do the same?
I am not criticising GM or Chrysler for this; I am criticising US politicos for being venal and stupid.
FT reports that Greenspan says nationalization of banks may be the least bad solution to the financial crisis. http://view.ed4.net/v/OZMCDD/HHH8W/3FN0UD/NFRAM/
So,
By even agreeing to provide federal money for the big 3, they have basically removed every incentive for bondholders and the UAW to negotiate in good faith, as these parties know that Uncle Same will come to save them.
The feds should have taken the approach from the outset, that if they are going to give money to the big three, it was as part of a managed bankruptcy process
The plans are available on the Treasury website:
http://treasury.gov/press/releases/tg31.htm
Ok, What do you hope to achieve from UAW concessions? They are not the largest cost factor and indeed are the smallest.
The closing of plants and facilities, the elimination of carlines, the standarization of platforms and parts, the elimination of distributors, etc. make up 60% of the cost of the company, burden is 30%, and you figure out the rest. Whacking labor went out of importance about the sixties. You are lusting for the wrong blood.
Yves:
Instead of rushing to the presses and enflaming the masses, why not wait for the truth and give us a good analysis like I know you can do. What is here is an investment in sensationalism
run75441,
I appreciate your comment on labor costs, it is one that isn’t made often enough.
However, regarding your second comment, this blog is a very much underpaid hobby. I really cannot justify the time I put into it, and since this does not produce a meaningful income, it isn’t reasonable to expect me to provide detailed analysis on every major news story I post about. This blog provides (as far as I can tell) far more commentary than most. But you are not going to get it on every post. That isn’t and has never been what is on offer here.
Not that I agree with any of these bailouts, but at least the Us government gets some preferred shares in the bailout of the banks. But in the case of GM and worse still Chrysler, can someone please explain why the shareholders of GM and Chrysler (ie Cerberus etc and the limited partners in their respective PE funds) continue to receive these gifts from taxpayers, what does the taxpayers get in return?
>> But you are not going to get it on every post. That isn't and has never been what is on offer here.
WHAT???? WHAT THE HE11 ARE WE PAYING YOU FOR???
Seriously, “thank you”. Love your work.
:-)
“But in the case of GM and worse still Chrysler, can someone please explain why the shareholders of GM and Chrysler (ie Cerberus etc and the limited partners in their respective PE funds) continue to receive these gifts from taxpayers, what does the taxpayers get in return?”
The privilege of being able to buy their products, heh, heh.
So much for Lary Summers being a tough SOB. He didn’t fight the bondholders for the taxpayers.
In other news, Greenspan says nationalization of US banks may be inevitable. http://view.ed4.net/v/OZMCDD/HHH8W/3FN0UD/NFRAM/
Yves:
After the commentary on Black earlier, other commentaries, and seeing you on the news and listening; my expectations for you certainly are higher than for others. I apologize for the whining.
The crowds seem to follow the blood and the blood letting without any realization it is their blood they are spilling and saturating the ground. Manufacturing is my livelihood and I understand the costs of it too well. Lynching the union, salaried ranks, and retirees for pension and healthcare costs that resulted from the companies over forecasting returns and removing the funds has caused much of the issue today. A burden to manufacturing and self imposed out of greed.
When I am not over at Angry Bear reading Bruce, Robert, Spencer, Robert, Stormy, DOLB; I come over here to see what you have to say. I am happy you have made this a hobby to share with us who may get a chance to bump shoulder with your intellect.
Thank you for sharing with us.
anon:
Private company. They donot have to open their books except in private. It is unlikely you will see much if they do sit down with Gethner.
Nationalize GM, fire all management, produce low cost Green vehicles that will free up income for Americans.
Do the same with energy costs.
This is where the crisis is taking us; lower cost of life. If we fight it we’ll crash. If we go with it, we land.
“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.”
I wonder how much of that 30 billion dollars is intended for debt service to the bondholders?
“I wonder how much of that 30 billion dollars is intended for debt service to the bondholders?”
Summers/Geithner don’t care about the car companies or their employees or suppliers. They want to print money, and give it to their rich buddies that own junky debt of any kind, corporate junk bonds, ABS, etc, etc.
I read this plan as uncle SAM becoming GM’s only banker. NRA, anyone? Really, not such a bad thing. That will easily buy GM 2-3 years of life.
GM wants to cuts its US workforce more. Something like 20,000 in the US. It will probably be more like 50 or 60. Looking at the plan, they want to cut the number of facilities from 28 to 23, and are assuming 11m annualized car sales. All highly optimistic.
But again, if you see this as GM turning all it debt over, taking a government loan, and probably getting a health care buyout in 1-2 years, it is actually not that bad. Now they just have to sell some cars.
I'm coming up with a plan and although this may be off topic here, WTF.
My plan essentially starts somewhere around the top, with the removal of the current Treasury Secretary. From there, we bring in Interpol and IMF to work with a special team from DOJ and FBI to coordinate a sting operation, which will result in the arrest of every CEO and CFO involved in international investment banking. From this point of arrest, "we" begin to use the mechanisms of financial terrorist laws to hold these crooks in jail, without being charged, but, "we" will suggest they have been arrested on suspicion of fraudulent activity related to financial terrorism. From there, "we" dust off the Enron Files and The Martha Stewart Files, and then we hunt around for a few copies of The Patriot Act and a few copies of Sarbanes-Oxley Act, and then start going over: Terrorism, Money Laundering and the USA PATRIOT Act and give a copy to each lawyer and legal firm, then we make a few more copies and arrest a few people from ratings agencies, audit firms, accounting firms, a few regulators and a handful of people from The Bush Coup, maybe find a few Congressmen and then begin an intense process of plea bargaining, which will start dominos like this falling:
In the wake of the Enron collapse, Texans are once again in a liquidation frame of mind. In January, Linda Lay, the wife of Enron's former chairman, Kenneth Lay, appeared on the "Today" show and wept as she described how she and her family had lost everything. At that point, the Lays had put homes in Galveston and Aspen up for sale, and were living together in a Houston high-rise.
>> Ok, so, you have CEO's, CFO's and various people related in this conspiracy and the collusion, and then we have the wealthy families in tears, and at some point, "we" find some cooperation and some information that helps pin the rap on specific terrorists and then "we" prosecute them and do this in front of a Congressional Committee that is formed as an independent Watergate-like Commission shooting indictments all over the joint in a hail of shotgun like blasts, which have legal teeth and sting like a motherf'er — these invitations to be interviewed would nail as many government and private people involved in this conspiracy, e.g, anyone at SEC, The Fed, Treasury, Congress, Executive, etc … and of course don't forget The FASB, who will be questioned by this group of IRS forensic experts that will be linked up with bounty hunters like Harry Markopolos, who will be given opportunities to investigate all the books of the bankers, including private bank accounts, including those offshore. That gives me an idea, time to close down tax dodging in Bermuda and all those cool places that are out of US jurisdiction — not anymore baby, your out of business and no more tax havens anywhere around the globe, that is, unless you want your bank vaporized by The Death Star Laser beam (I'm thinking sharks there for some reason).
Ok, that was fun … but, dude, "we" need to restore confidence in the financial system and do so by going after These Enron-like crooks that have failed to re-state earnings, who have lied, who have laundered money, who have offered false and misleading testimony and information, obstructed justice, and tons of crap like that, which at the very least, is at least as much as Martha Stewart got busted for — so I say to you, My Fellow Americans, if justice is blind and if Lady Liberty is also blind, isn't this a matter of the blind leading the blind and We The People are being moved along to places we may not want to go — and if that is the case and we have no idea where we are going, is it any wonder we are lost in the darkness? I know I am, and once I get this plan figured out I'm gonna give it to someone that can see the light. Can you say Amen?
@Yves Smith said…
run75441,
I appreciate your comment on labor costs, it is one that isn’t made often enough…….Good old Dr Wall St, feel good drug eh[?]
——-
In the wake of the Enron collapse, Texans are once again in a liquidation frame of mind. In January, Linda Lay, the wife of Enron’s former chairman, Kenneth Lay, appeared on the “Today” show and wept as she described how she and her family had lost everything. At that point, the Lays had put homes in Galveston and Aspen up for sale, and were living together in a Houston high-rise.
Miami Cocanie stimulus package, it worked for them we just need to go global, damm thats why were in this shit, to begin with.
skippy….got a line, got a hose, rarrrrrw……make money…..chicks and good times.
The Chrysler plan is a bigger document and seems to present 3 options. Stand Alone where it gets a lot of bailout money, in a strategic partnership with Fiat in which case it will be using a lot of the Fiat technology or an orderly wind down.
The GM plan reducing the number of factories from 38 to 33 by 2012, reducing salaried headcount from 29k to 26k and hourly from 62k to 46k. Worst case scenario planned for is sales will rise from 9.5 million in 2009 to 14.5 million in 2012. Holden is viable as is, Canadian operations will need complete restructuring, Saab needs agreement from Swedish government, Announcement to be made in March about German government partnership. New manufacturing no longer feasible without support from the government of Thailand. Saturn and Hummer to be spun off. Reduce the number of car types from 31 in 2008 to 25 in 2012. Dealers to be cut from 6246 to 4700 mainly Multi, Saturn, Saab and Hummer.
Reading between the lines I would say the Chrysler plan is probably realistic with sales not expected to pick up any time soon, but the threat to congress is that if they don’t continue to bailout Chrysler on a large scale then a lot of technical and design jobs will be going to Italy.
Looking at the GM proposal then I am not sure they have met the conditions set by congress and are still looking at things through rose tinted spectacles somewhat. I have a hunch that GM may be thinking about becoming a US only manufacturer, cutting adrift all its foreign subsidiaries. To me this is worrying because GM US is a weak competitor compared to GM Australia, Brazil or Europe. It is also interesting that they are favouring the marks they are over Saturn which in some respects utilizes the synergies they are hoping to achieve. Salaried headcount reduction looks like making the company even more top heavy, and plant closures look slow to happen. Whereas Chrysler and Ford look to have been restructuring over the past year, GM looks to have had its head buried in the sand.
If Bush was still in power I would not be surprised to see GM denied any more money until a lot more work had been done on the plan. In contrast I expect to see them get the money especially if they can convince the politicians they are protecting US jobs to the detriment of foreign jobs. Long term then GM the rest of the world will survive while GM US gets slowly squashed as a non global player.
Compared to the banks and AIG, the black hole for the autos is peanuts. Perspective: The taxpayer spent in 2008 almost as much in bonus payments alone ($10.8bn) for these bankrupt banks as for the bridge loans to GM and Chrysler ($17bn) and the AIG bail-out costs ($150bn) are almost 10x the autos loans. No, this is not an anti-bonus rant, just monetary perspective. (An aside on bonuses and dividends: would they have been paid after a Chapter 11 filing?)
So far the Detroit 3 have at least tried (some may say half-heartedly but still there has been the semblance of an attempt) to present a plan for viability and to present a public policy case for an intervention (3mn jobs, $100bn in bankruptcy costs alone to the US Treasury, etc.). Neither can be said on behalf of the big banks. Where is the rehabilitation plan for Citi or BofA? Where is the public policy case justifying the use of taxpayer funds for their continued existence rather than subjecting them to the same legal rules as any other bank, i.e., FDIC seizure and simple liquidation? (Indeed Wall Street has been urging a dismantling of Citi—aka self-liquidation–for years.) Self-serving FUD has been the only answer to either question.
d4winds – Agreed. I have not owned a Detroit auto in 2 decades and I despise our not so slight lean toward socialism, but if we can keep shoveling money down the wall street/insurance/banking hole the politicos better come up with something for a section of the economy that produces tangible goods.
These automotive industry bailouts are in contravention of World Trade Organization tenets.
It seems there are contractual failings everywhere one turns nowadays. Not the least of which is the (implied) Social Contract in America of moral, honest behavior.
Is it immoral, dishonest, or un-American to take care of one’s neighbors?
Not in the America I grew up in.
Stop paying them to make crappy cars. Start bribing them to go away!