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:
•Products. General Motors will ditch some brands. That would cut the amount it has to spend to produce and market those products but wouldn't bring in additional revenue.
GM says it will sell or kill Hummer by the end of this quarter. Saturn will continue to get the current array of products until 2011, then be abandoned or turned over to dealers to operate. If Saab, the Swedish company GM bought in 2000, does not get financial help from its home government, GM will spin it off as an independent company.
Concord, Calif., Hummer dealer Denny Fitzpatrick says he felt this one coming. "It's nice having a closure date. If a brand's dead, then bury it."
Hummer, a line of truck-style SUVs, was doomed when gasoline prices shot up to a record $4.11 last July and eliminated most of the remaining love affair with big, brassy trucks.
Chrysler says this summer it will discontinue the aging PT Cruiser, launched in 2000 as an '01 model. It won't revive the Dodge Durango and Chrysler Aspen SUVs that went out of production when their factory closed in December.
They met the same fate as GM's Hummer brand, though their death also killed fuel-saving hybrid versions of each.
Chrysler is "moving in the right direction," says Colorado Chrysler dealer John Medved. "Chrysler really needs to get rid of the stuff that doesn't sell."
Chrysler has agreed to a possible partnership with Italy's Fiat that would give Chrysler an array of fuel-efficient small cars to sell in the U.S.
•People and production. GM will close 14 U.S. plants, five more than had been announced, and slash 47,000 jobs worldwide, about 23% of its total workforce. Chrysler will cut 3,000 jobs, atop the 32,000 it has shed since 2007.
The United Auto Workers union issued a statement late Tuesday saying the union "has reached tentative understandings with Chrysler, Ford and General Motors on modifications to the 2007 national agreements. The changes will help these companies face the extraordinarily difficult economic climate."
No details were given, but Ford said the UAW concessions on labor costs, benefits and work rules are enough to put it on parity with foreign-based car companies operating in the U.S. — something Congress said it wanted last year when it flayed Detroit CEOs for getting themselves into this predicament.
Still unsettled: whether the UAW will take company stock for part of what the companies owe to the Voluntary Employee Beneficiary Associations (VEBA), a retiree health care trust set up for the union to take over the retiree plan.
•Bankruptcy. The two car companies are in a type of virtual bankruptcy now, but the government is overseeing their reorganization while they continue in business, rather than having a court do it. But the government said the plans had to include a discussion of conventional bankruptcy.
The automakers continue to say their customers would flee if the companies make a bankruptcy filing.
They also say a court-run reorganization would cost the government, which likely would have to fund it to prevent liquidation, more than the loans requested.
GM told the government that bankruptcy could cost up to $100 billion.
Chrysler said it would need $25 billion to finance a bankruptcy. "I want to stress this is not an option we are pursuing," CEO Bob Nardelli said on a conference call.
GM wasn't able to get its bondholders to agree to major concessions — something it could force in a conventional Chapter 11 bankruptcy reorganization — but said it has made progress.
Experts remain skeptical a deal can be reached with the creditors.
"You cannot get that outside of bankruptcy," says lawyer Doug Bernstein, in charge of the banking and bankruptcy rights practice at Plunkett Cooney. "If I am a bondholder, I don't want to be the first one to take any concessions."
Chrysler is a private company. Cerberus Capital Management owns 80.1%, so wouldn't make the same kind of debt swap that GM is attempting. Still, it has debt holders, and some have agreed to take part ownership of the company in return for their debt. Chrysler says that it's reduced its debt by $5 billion.