Feds to take hands-on role in GM, Chrysler restructuring

Monday, March 30, 2009

Feds to take hands-on role in GM, Chrysler restructuring

David Shepardson / Detroit News Washington Bureau

Washington — The Obama administration will take a much more hands-on role in the restructuring of General Motors Corp. and Chrysler LLC, providing both with short-term aid but insisting on and overseeing immediate dramatic changes.

The administration has set strict timetables for GM and Chrysler to complete restructuring and if required changes are not made is likely to force the automakers into bankruptcy in the coming months.

The companies are likely to go even further in cutting staff and closing plants in order to prove their viability.

The administration’s auto task force agreed to provide Chrysler with short-term aid for the next 30 days as the automaker works to complete a tie-up with Itay’s Fiat SpA and said it would consider loaning the partnership up to $6 billion if a deal can be finalized.

But it warned that if Chrysler and Fiat cannot come to terms on a partnership, the Auburn Hills automaker would not get any more taxpayer money — a move that would likely force the company’s liquidation.

At GM, the Obama auto team forced out CEO Rick Wagoner, and named GM board member Kent Kresa as interim chairman and GM Chief Operating Officer Fritz Henderson interim chief executive officer. The task force also disclosed that the automaker planned to replace a majority of its board of directors in the coming months. The Obama auto team said it would give GM unspecified working capital for 60 days as the automaker continues to restructure.

The government raised the possibility that a bankruptcy filing may be GM or Chrysler’s "best chance at success" — but emphasized that it would be a short-term "surgical" bankruptcy and would be undertaken with the government’s support.

"Unlike a liquidation, where a company is broken up and sold off, or a conventional bankruptcy, where a company can get mired in litigation for several years, a structured bankruptcy process — if needed here — would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities," the government said in a fact sheet outlining the task force’s findings.

The Obama auto task force said neither GM nor Chrysler had submitted a restructuring plan that outlined a credible path to viability. The group also found that Chrysler was not viable as a stand-alone company. But the task force reiterated it had no plans to take away the $17.4 billion in government loans the automakers have already received.

The task force said that "GM is embarking on a process with the goal of replacing a majority of the board over the coming months. When complete, these changes will bring fresh thinking and new vision to the company." Over the next 60 days, "the administration team, consisting of Treasury officials as well as private sector auto industry and restructuring experts retained by the administration, will work closely with the company."

The Obama administration believes GM has made little or no progress with its bondholders.

The task force said GM’s plan to close, shrink or sell four of its eight brands didn’t go far enough. "GM has retained too many unprofitable nameplates that tarnish its brands, distract the focus of its management team, demand increasingly scarce marketing dollars and are a lingering drag on consumer perception, market share and margin," the fact sheet said.

It also disclosed that Chrysler plans to close two assembly plants and five engine plants by 2014 and reduce its structural costs by 29 percent by the end of this year from 2007. Chrysler’s total salaried headcount will fall 60 percent by 2010 over its 2000 level, the government said.

Chrysler will close two more assembly plants in North America by 2014, with the most likely candidates in the United States and perhaps the company’s large rear-drive sedan plant in Brampton, Ontario.

The automaker planned to close some engine plants as it phases our four old V-6 engine families and replaces them with the new Phoenix engine, but the plan now calls for five engine plants to close, which is more than the original plan called for, a person familiar with the plans said.

Chrysler spokeswoman Shawn Morgan would not identify any plants to be closed or give a more definite timeframe.

Chrysler’s deal with Fiat has been restructured, a government official said, to reduce its initial ownership stake down from 35 percent. Fiat wouldn’t be able to obtain a majority of Chrysler until the new $6 billion in government loans were repaid, the official said. The fact sheet also notes that there are guarantees of U.S. employment in the plan.

"After extensive consultation with the administration, (Fiat) has committed to building new fuel efficient cars and engines in U.S. factories," the fact sheet said.

To allay concerns from consumers who may be reluctant to buy vehicles from the troubled companies, the Obama auto task force is creating a government program, partially funded by GM and Chrysler, to guarantee the vehicle warranties for GM and Chrysler buyers to ensure confidence. That program would only go into effect if either company failed.

The tough medicine in the plan shocked Michigan members of Congress. President Barack Obama held a 30-minute conference call Sunday night with Michigan’s two senators and its two senior House members. Michigan members held conference calls late into the night trying to figure out a response but held off at the White House’s request.

Rep. Thaddeus McCotter, R-Livonia, said the announcement "sends a very ominous signal that this administration believes the existing viability plans aren’t painful enough."

"What is their definition of ‘significant restructuring?’ How many more jobs must be lost? How big a hit do the retirees have to take?"

McCotter complained that there was a double-standard in forcing Wagoner to step aside while allowing bank CEOs whose companies have received billions in aid to remain in place.

The government’s critiques of both automakers’ plans said they were overly optimistic in their assumptions and left little room for error.

"Even slight swings in (GM’s) assumptions produce significant and ongoing negative cash flows," the government said. "For example, a 1 percent share miss in overall global sales, all else being equal, in 2014 would lead to a $2 billion cash flow reduction in that year."

The Obama administration is also appointing a director of Auto Recovery. Edward Montgomery, a top labor economist and former deputy labor secretary, will serve in a new position as director of recovery for Auto Workers and Communities, with a goal of working "to leverage all resources of government to support the workers, communities and regions that rely on the American auto industry."

Obama will outline his vision for the U.S. auto industry’s restructuring at 11 a.m. today in the White House Grand Foyer, a day before the deadline for the presidential task force’s review of the viability plans that GM and Chrysler submitted on Feb. 17.

"We think we can have a successful U.S. auto industry," Obama said in an interview broadcast Sunday morning on CBS’s news show "Face the Nation." "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 and mean and competitive than it currently is.

"And that’s going to mean a set of sacrifices from all parties — management, labor, shareholders, creditors, suppliers, dealers," Obama said. "Everybody’s going to have to come to the table."

Share
Seniority Lists
Recent Posts!
Bargaining Committee

Chairman
Mike Herron
President
Tim Stannard
Zone at Large – 1st
Danny Taylor
Zone at Large – 2nd
Mark Wilkerson
Committeepersons
Joe McClure
Chad Poynor
Steve Roberts
Derek Lewis
Bill Cundiff
Kirk Zebbs
Don Numinen
Jay Minella
Danny Bragg
Chris Hill
Rashad Thomas
Keith Oswald
Chris Brown

1853 Officers

President
Tim Stannard
Chairman
Mike Herron
Vice President
Darrell DeJean
Financial Secretary
Mark Wunderlin
Recording Secretary
Peggy Mullins
Trustee (3)
Jay Lowe
Dave Clements
Dave Spare
Sgt. at Arms
David C Spare
Guide
Ashley Holloway
E-Board at Large (2)
David Ryder
Steve Roberts
GM Unit Chair
Mike Herron
Leadec Unit Chair
Larry Poole
Ryder Unit Chair
Patrick Linck
AFV Unit Chair
Neil Osborne
Retiree Chair
Mike Martinez

Get Text Alerts



asdasdsd

*Standard text messaging rates may apply from your carrier