GM, Chrysler need $15 bln in emergency funds

Bloomberg

General Motors and Chrysler told U.S. Congress they need $15 billion just to survive until next month, when President-elect Barack Obama takes office. Democrats pledged to keep them out of bankruptcy without saying how.

U.S. lawmakers face a potential $34 billion bailout tab that is more than a third larger than the industry-aid request they set aside last month. A deepening auto slump also ratchets up the pressure on Congress to act by hastening GM’s rush to the brink of a default it says may come by Dec. 31.

While Obama has said he favors an industry rescue, GM and Chrysler said Tuesday they won’t be operating through January without the money stalled by a deadlock in Congress. Democrats want to use the $700 billion bank-bailout fund, and Republicans favor tapping an Energy Department loan program.

Federal intervention
"I believe that an intervention will happen," House Speaker Nancy Pelosi, a California Democrat, told reporters at a briefing Tuesday as GM, Chrysler and Ford Motor sent their aid requests to Congress. "Everybody is disadvantaged by bankruptcy, including our economy, so that’s not an option."

Still unresolved is how Pelosi and Senate Majority Leader Harry Reid propose to break the impasse with Republicans and President George W. Bush over the source of funds for a rescue. The $25 billion Energy Department loan program to retool factories is no longer enough to cover the three U.S.-based automakers’ needs after a worsening economy forced them to boost their aid requests. November auto sales plunged 37 percent to the lowest annual rate in 26 years.

GM is "in an emergency position," Erich Merkle, an analyst at Crowe Horwath in Grand Rapids, Michigan, said. "They need the cash. They need it very quickly."

The largest U.S. automaker said it must have $4 billion this month and $4 billion more by the end of January to stay in business, while No. 3 Chrysler said it needs $7 billion right away. That’s the first $15 billion.

GM’s total request is $18 billion; Chrysler’s is $7 billion and Ford’s is $9 billion for a credit line it said it may not need to tap.

In exchange, the companies have agreed to slash their payrolls, shrink their dealership rosters and make other changes to ensure they’ll be able to pay the money back. The automaker chiefs will defend the plans at hearings today and tomorrow.

GM is seeking to reduce total debt of $62 billion, including obligations related to a union retiree health-care fund, to about $30 billion, according to the plan. U.S. employment would fall to as little as 45,000 in 2012 from about 96,000 now under the plan, and Detroit-based GM’s main domestic brands would be pared to four from eight.

Chrysler called its request a "bridge loan" to cover immediate expenses. The company, owned by Cerberus Capital Management, said it expects an operating profit next year, while using up $2 billion in cash.

Chrysler also says its plan assumes being awarded $6 billion in government loans for upgrading plants to produce more fuel-efficient vehicles, and it forecast building 500,000 electric vehicles in 2013 after the first one debuts in 2010.

Selling Volvo
Ford’s proposal includes investing about $14 billion in the next seven years to improve vehicle fuel efficiency. The second-largest U.S. automaker also calls for focusing on its namesake brand through efforts such as exploring the sale of its Volvo unit.

Reid, a Nevada Democrat, said he will have legislation on the Senate floor Dec. 8 that can be used as a carmaker bailout measure if an agreement is reached. Pelosi, a California Democrat, stopped short of saying the House would meet, telling colleagues in a notice there was "the possibility" of a session next week.

Commerce Secretary Carlos Gutierrez reiterated the Bush administration’s opposition to using the Troubled Asset Relief Program to pay for an industry bailout.

"The intent of the TARP was to stabilize the system," he said Tuesday.

Representative Sander Levin, a Michigan Democrat, said lawmakers will find a way around the disagreements over funding now that automakers have detailed their needs. "The Big Three have mapped out more clearly what the future will be," Levin said in an interview. "When these reports are analyzed I think the answer will be yes, it should be done, a bridge loan; and therefore it’s up to us to step up to the plate and figure out how it’s done."