Auto aid to come with more strings
Auto aid to come with more strings
Obama to announce bailout plan Monday; GM execs briefed as task force works through weekend.
David Shepardson / Detroit News Washington Bureau
WASHINGTON — President Barack Obama will offer his long-awaited assessment of the viability of struggling General Motors Corp. and Chrysler LLC on Monday, when he is expected to say the government will provide additional short-term aid with tough conditions.
The administration’s auto task force met Friday with top GM executives, including CEO Rick Wagoner, Chief Operating Officer Fritz Henderson and Chief Financial Officer Ray Young, to outline some of what the president plans to announce Monday morning in a White House appearance.
The task force plans to work through the weekend to finalize its recommendations.
Friday’s meeting came amid intense talks between GM and its bondholders and the United Auto Workers. After making little progress in recent months to reduce more than $27 billion it owes bondholders, GM made a new proposal late this week. Chrysler, meanwhile, met this week with its bankers in New York.
Under the terms of their $17.4 billion in government loans, GM and Chrysler must reduce their debt by two-thirds and halve the amount they will pay into a UAW fund that assumes responsibility for hourly retiree health care in 2010. The automakers are seeking another $21.6 billion in aid. Ford Motor Co. has not taken government loan money.
CNBC reported Friday that GM was offering bondholders 8 cents in cash, 16 cents in new unsecured debt and new stock in GM. Although the face value of those bonds is $1, they have traded for around 20 cents on the dollar.
CNBC also reported that GM offered the UAW $10 billion in cash over 20 years and $10 billion in preferred stock, with a 9 percent coupon. GM and the UAW declined to comment.
Obama is expected to set a timetable for winning concessions from debt holders and the union — likely weeks not months. The deadline is March 31, but neither GM or Chrysler is expected to meet it. The companies will report that day on the progress they have made in restructuring.
The administration has repeatedly refused to rule out the idea of an orderly bankruptcy for either automaker until they secure the concessions.
Michigan members of Congress said the administration is likely to attach new conditions to a promise of additional aid. The task force also may challenge some assumptions and assessments the automakers have made in their recovery plans — a move that could require the companies to further shrink factory capacity or reduce staff.
Any new conditions could go significantly beyond what the Bush administration imposed under the loan terms.
GM’s stock is up about 30 percent over the past two weeks on a broad expectation that additional aid is forthcoming. It rose 6.2 percent Friday to close at $3.62.
‘The best way forward’
White House spokesman Robert Gibbs said the president on Monday "will outline what he thinks is the best way forward."
Gibbs also reiterated Obama’s sharp criticism of auto management decisions, raising speculation that the administration could at some point force management changes at either company.
at City Hall The president, who leaves for Europe on Tuesday, held two private meetings on the auto industry Thursday, Gibbs said.
Obama said at a town hall forum the same day that his administration would provide struggling automakers "some" additional aid, but with new conditions, noting that the current economic model for domestic automakers is "unsustainable."
Earlier this week, the auto task force met with Chrysler CEO Robert Nardelli, and with officials from Fiat SpA about a proposed plan to sell 35 percent of Chrysler to the Italian automaker. Fiat would have an option to buy another 20 percent for $25 million.
Chrysler would get small car technology, transmissions and other items in the deal, which it values at $8 billion to $10 billion. Fiat said Friday that it would build a small car in the United States by 2011 if the partnership were approved by the Treasury Department.
Fiat CEO Sergio Marchionne said Friday the proposed agreement is likely to change.
Fiat would not put up any cash, nor take on any Chrysler debt, but "there undoubtedly are going to be adjustments made," he told shareholders meeting at Fiat headquarters in Turin.
"Our main objective remains what it was going in: We want to be the industrial partner of Chrysler," Marchionne said after the meeting.
The prospects for a tie-up between Chrysler and Fiat should be known by Tuesday.
The Obama administration’s attempt to rescue GM and Chrysler earned support Friday from Senate Majority Leader Harry Reid, D-Nev., who said the government "should do what it takes within a sense of reasonableness."
"The goal of our helping the automobile industry and doing the other things we’ve done is to keep this country from falling into a depression."