Obama’s task force to announce plans for GM, Chrysler on Monday

Obama’s task force to announce plans for GM, Chrysler on Monday

Automotive News | March 28, 2009 – 12:01 am EST


WASHINGTON/DETROIT (Reuters) — President Barack Obama will announce the next steps to help General Motors and Chrysler LLC on Monday, the White House said, amid signs of progress for GM in talks aimed at slashing its debt and cutting costs in response to slack demand.

GM CEO Rick Wagoner was in Washington Friday to meet with the autos task force, led by former investment banker Steve Rattner, which Obama has charged with overseeing emergency lending to the automakers and their suppliers.

A White House spokesman said the panel was in the process of completing about six weeks of closed-door meetings with industry executives, analysts and others with a stake in the survival of the U.S. auto industry.

"Tthey are winding down the decisions that have to be made and putting in place a plan that the president will announce on Monday," White House spokesman Robert Gibbs said.

"The president, I think, will outline what he thinks is the best way forward to achieve viability for the companies in both the short term and the longer term," Gibbs said.

A day earlier, Obama had said GM and Chrysler could expect "some" government aid if they commit to restructuring their businesses.

As part of its effort to slash costs and sell assets, GM has mandated Commerzbank to help find a new investor for its German Opel unit, according to a source.

Shares of GM gained almost 6 percent and have rallied by more than 30 percent over the past 10 trading sessions amid growing confidence that officials will not push the top U.S. automaker into bankruptcy.

Riding out the storm

GM and Chrysler have taken $17.4 billion in emergency funding from the U.S. Treasury and have asked for as much as another $21.6 billion to complete cost-cutting programs and ride out the weakest market for new cars in almost three decades.

U.S. auto suppliers have also won a $5 billion aid package intended to free up liquidity for a cash-strapped sector that analysts had warned was at risk for cascading failures.

Auto sales have been at 27-year lows so far this year and many analysts believe that March sales data, set to be released next Wednesday, will show a further weakening in demand.

Analysts expect March U.S. sales to be just above 9 million vehicles on the annualized basis tracked by the industry, down sharply from a total of 13.2 million in 2008 and below the worst-case scenario levels of demand forecast by GM and Chrysler under their cost-cutting plans just last month.

But Barclays Capital analyst Brian Johnson said the recent statements from the White House "could imply a willingness from the government to support both restructuring plans ‘as is’ instead of pushing for deeper cuts."

Those more painful actions could have included a Chrysler merger or a GM bankruptcy filing in order to push the automakers towards a lower cost structure, he said in a note for clients.

Progress in GM concession talks

The loans for GM and Chrysler approved under the Bush administration set a March 31 deadline for them to prove they can be made viable in order to win new government funding.

As part of that effort, both GM and Chrysler have to win concessions from creditors and from the UAW.

GM’s bailout sets a target of cutting its cash outlays by getting the UAW to accept half of the $20 billion it is owed for a trust fund for retiree health care in GM stock, not cash.

CNBC reported Friday that GM had offered the union $10 billion in preferred stock at 9 percent to settle its health-care claim.

GM had no comment on that reported offer beyond saying the two sides remained in talks.

"We will not respond to speculation," UAW President Ron Gettelfinger said in a statement. "Our union is continuing to work with the task force and the auto companies to find a solution to the many issues we face."

Bargaining with bondholders

Separately, GM has given bondholders holding over $27 billion in its debt a new proposal on terms for exchanging most of that debt into equity, according to a person with direct knowledge of the negotiations.

GM sent a letter to representatives of GM bondholders earlier in the week, according to the person, who asked not to be named because of the confidential nature of the talks.

Bondholders had complained in a letter sent on Sunday to U.S. Treasury Secretary Timothy Geithner that their negotiations on restructuring GM’s debt had been stalled in recent weeks.

While it will be impossible now for GM to meet the terms of the March 31 deadline for the next stage of its restructuring, U.S. officials have made it clear that this will not scuttle further aid, the person familiar with the bondholder talks said.

In Toronto, Chrysler and the Canadian Auto Workers union remained "far apart" in negotiations aimed at a cost-saving deal to help the struggling No. 3 U.S. automaker qualify for aid from the Canadian government.

CAW President Ken Lewenza said negotiations had been "very frustrating and at times confusing" as the two sides appeared to be near a deal only to see it fall apart twice in the last 48 hours.

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