Big Three Seek $34 Billion Aid

Daily News Article   —   Posted on December 3, 2008

(by John D. Stoll, Matthew Dolan, Jeffrey McCracken and Josh Mitchell, WallStreetJournal.com) – Detroit’s Big Three auto makers presented turnaround plans to Congress on Tuesday that indicate both General Motors Corp. and Chrysler LLC could collapse by the end of the month unless they get billions of dollars in emergency government loans.

As part of a renewed bid for a bailout, GM said it needs an immediate injection of $4 billion to stay afloat until the end of the year, a fact it hadn’t before disclosed. In total, the company said it needs $18 billion in loans — $6 billion more than it said it would need just two weeks ago.

Chrysler’s 14-page summary of its presentation to Congress requests $7 billion, and it said it needs the funds by Dec. 31. Chrysler also wants $6 billion from a Department of Energy program aimed at promoting fuel-efficient vehicles.

Ford Motor Co. seeks a $9 billion line of credit from the government, though it adds it may not need to tap it. In addition, Ford wants $5 billion from the Energy Department program.

All three makers said they will consolidate operations and accelerate production of higher-mileage vehicles. In addition, GM and Ford plan to trim their brands.

The urgent call for help comes as lawmakers have begun reaching out to Wall Street experts to explore how the government could help the companies prepare bankruptcy filings that would take them in and out of Chapter 11 protection quickly, with much of the financing and other restructuring measures worked out with creditors in advance, people familiar with the matter said.

In the past several days, congressional representatives have met with bankers and bankruptcy experts to discuss the possibility of a so-called prearranged bankruptcy for either GM or Chrysler, these people said.

One idea that emerged from the talks would have the U.S. government put up as much as $40 billion to fund reorganizations under bankruptcy for GM and Chrysler, these people said.

Both companies have said they don’t see bankruptcy as a viable option for any auto maker. They believe customers would stop buying cars and the company would be forced to liquidate.

But bankers and other financial experts are telling lawmakers that bankruptcy is the best option for creating smaller but viable U.S. car companies.

“I think GM is eminently re-organizable,” said Durc Savini, managing director at Miller Buckfire & Co., a New York investment banking firm that advised on the bankruptcies at auto suppliers Dana Corp. and Dura Automotive Inc. He said he recently talked with staff members for three House and Senate members to discuss a bankruptcy at one or all of the Detroit makers.

Mr. Savini said he told the staffers a bankruptcy could work, but would likely require government money and concessions from workers, vendors, management and debtholders.

In a conference call with reporters, GM President Frederick “Fritz” Henderson said bankruptcy is not a viable option and the company is focusing solely on securing help from Washington. “There is not a Plan B,” he said.

The United Auto Workers union is expressing a different view. At a meeting Tuesday in Detroit, top UAW officials told worker representatives that GM could be forced into a Chapter 11 filing before Christmas if the company fails to get government funding in coming days, people familiar with the matter said.

The three companies presented their requests for help as they were hit by another batch of bad news. U.S. new-vehicle sales fell 37% in November to 746,789, according to Autodata Inc. It was the first time in decades that monthly sales fell below 800,000. The closely watched seasonally adjusted annualized sales rate was 10.18 million vehicles, a worse-than-expected drop from October’s 10.8 million

GM’s sales fell 41%, Ford’s 30% and Chrysler’s 47%. Foreign auto makers were hit hard, too. Toyota Motor Corp.’s U.S. sales fell 34% and Honda Motor Co.’s 31%.

The Big Three last month appealed to Congress for $25 billion in low-cost loans to carry them through the downturn in the economy and one of the worst auto sales slumps in decades. But lawmakers were unconvinced that the three had clear restructuring plans to return to profitability and told them to come back by Dec. 2 with more details on how they would use taxpayer funds to “become viable.”

House Speaker Nancy Pelosi (D., Calif.) said Tuesday she hoped to help the industry, but suggested much will depend on the assessments made of the industry plans. “We want to see a commitment to the future,” she said. “We want to see a restructuring of their approach, that they have a new business model, a new business plan.”

In what could be a boost to Detroit’s hopes, Ms. Pelosi said bankruptcy isn’t an option for the companies because such reorganization would take too long. Senate Majority Leader Harry Reid (D., Nev.) said that if Democrats decided to proceed with a bailout, legislation could come as soon as Monday.

In its 33-page presentation, Ford said it doesn’t need federal funds immediately but asked for the $9 billion credit line in case the recession is longer and deeper than expected. It estimated it will break even or return to profitability by 2011 and added it would accelerate the development of hybrid and battery-powered vehicles, cut the number of dealers selling its products, and retool plants to make small cars in the U.S. it can sell profitably.

In a phone interview while riding in a Ford Escape hybrid to Washington, where the chief executives of the Big Three will testify starting Thursday, Ford CEO Alan Mulally suggested the UAW may have to make concessions to help the companies recover and persuade Congress to approve aid. “All of the elements” of the UAW labor contract should be re-examined to keep the U.S. auto industry competitive, he said.
[fewer cars]

Ford appears to be in better shape than GM and Chrysler, in large part because it mortgaged almost all of its assets in 2006 to raise $24.5 billion.

In the document it submitted to Congress, Chrysler, controlled by private-equity firm Cerberus Capital Management LP, said it is on track to end the year with just $2.5 billion in cash, and that it is due to pay out $11.6 billion for parts, wages, and other costs between Jan. 1 and March 31. It seeks a “bridge loan” of $7 billion to “ensure the long-term viability of the company.”

In a concession to receive the loan, Cerberus will tell Congress it is willing to convert its debt in Chrysler to equity, said an executive familiar with its thinking.

In his testimony this week, Chrysler CEO Robert Nardelli plans to call on the auto makers and federal government to create “an independent joint venture” to develop improved energy technology, such as batteries for electric and hybrid vehicles, a Chrysler executive said.

In GM’s conference call Tuesday, Mr. Henderson said GM is seeking $12 billion in loans and an additional credit line of $6 billion.

In return, GM would be open to giving taxpayers warrants for company stock, a senior position among its creditors, and a promise to pay the money back around 2012. Mr. Henderson said GM believes its North American operations can break even by that year.

GM plans to begin discussions this week with bondholders and the UAW in an attempt to cut its debt by $30 billion, or by about half. It will ask investors to swap debt for equity, and aim to restructure GM’s obligations to a UAW health-care trust set to begin paying retiree benefits in 2010.

GM told Congress it is considering selling its Saab and Saturn divisions, and may trim its lineup to about 40 models from 60.
-Monica Langley contributed to this article.

Write to John D. Stoll at john.stoll@wsj.com, Matthew Dolan at matthew.dolan@wsj.com, Jeffrey McCracken at jeff.mccracken@wsj.com and Josh Mitchell at joshua.mitchell@dowjones.com.

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