General Motors gm and Chrysler, both operating in a state of virtual bankruptcy with the federal government overseeing their restructuring, said Tuesday that they will need an additional $21.6 billion in emergency loans — $5 billion for Chrysler, the rest for GM.
In return, they promised the government, they will slice even more people and plants to cut costs, while still investing to develop and market fuel-efficient vehicles in the next two years that will bring wary buyers back to their showrooms. That would generate the revenue they will need to repay government loans.
The additional loan amounts are detailed in plans the car companies were required to file with the federal government Tuesday to avoid having to immediately repay the $17.4 billion in emergency loans they were granted in December — $4 billion for Chrysler, the rest for GM.
More work is needed, the White House hinted. "It is clear that, going forward, more will be required from everyone involved — creditors, suppliers, dealers, labor and auto executives themselves — to ensure the viability of these companies," White House press secretary Robert Gibbs said Tuesday night.
In the few weeks since they got the first loan deal, the auto market has caved in even further, meaning the staggering car companies now need more federal loan money to stay alive.
"In the 11 weeks since our initial filing, the market has significantly deteriorated, and global volumes have been significantly reduced," requiring a boost in how much help is needed, Rick Wagoner, GM's CEO said.
If the government says yes to the new requests, it would bring the total in emergency loans to $39 billion, more than doubling the price tag for rescuing the Detroit auto business.
Combined with billions of dollars in government relief that foreign car companies are seeking from their governments, the picture is one of an unstable auto industry, closing shop unbelievably fast as a worldwide recession and credit freeze chokes off buyers.
Well before the current collapse, the global auto industry was able to build some 20 million more cars and trucks a year than people were likely to buy. With so much overcapacity, car companies had been forced to offer bigger and bigger profit-killing sales incentives.
In the U.S., that strategy worked so well that sales were at near-record levels from 1999 to 2007. But when financial markets overturned last year and credit all but vanished for car buyers, what had looked like a robust auto market was unmasked as fragile.
Sales fell to a scant 13.2 million in 2008, the lowest level since 1992. GM, Chrysler and Ford Motor all were losing money before the bottom dropped out, and it's unclear whether and how long they could survive if sales remain moribund.
Ford, seeing the gathering storm, mortgaged everything in 2006 — factories, test tracks, offices — to raise cash, and it hasn't yet asked for a federal loan.
But GM and Chrysler say they'll go belly up in the next few months without more help. That would put tens of thousands of people into unemployment lines at a time U.S. unemployment already is a high 7.6%. And it would force the government to foot the bill for the auto workers' pensions.
"It is tremendously important for our economy to have a strong and viable auto industry, and that the cars of tomorrow are built in America for Americans," Gibbs said. The plans address a number of issues: