GM Bankruptcy Clock Ticking Fast

by Dollars and Sense

GM appears likely to follow fellow carmaker Chrysler into bankruptcy court. The company lost $6 billion in the first quarter of the year, with no signs that sales will improve. The company faces a June 1 deadline imposed by the government to drastically reduce its liabilities and expenses, including persuading the United Auto Workers (UAW) to accept stock to cover the company's $20 billion obligation to fund retirees' health benefits, and bondholders to accept pennies on the dollar, again in stock, for $27 billion in current debt. The company must get both the union and 90% of the bondholders to agree to the terms or the government will withhold future loans, driving the company directly into bankruptcy where a judge can impose terms on all parties.

Bankruptcy would also ease the company's plans to slash 2,600 of 6,246 dealerships over the next year.

--d.f.

Labels: auto industry, auto industry loans, bankruptcy, Chrysler, Daniel Fireside, General Motors, GM

 

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5/10/2009 05:18:00 PM 0 comments

 

Workers To Control Chrysler

by Dollars and Sense

The Financial Times is reporting that under a restructuring deal for Chrysler, the United Auto Workers (UAW) will own 55% of the auto company's stock, Italy's Fiat will get 35%, and the remainder will be divvied up between the company's secured lenders and the federal government.

As part of the deal, the reformulated company will cut its contribution to the employee health care fund by half, and Fiat will contribute its "know how" and technology, but no cash.

The worker revolution seems to have come not with a bang but with a whimper.

Labels: auto industry, auto industry loans, Chrysler, UAW

 

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4/28/2009 01:55:00 PM 0 comments

 

Chrysler Headed For Bankruptcy?

by Dollars and Sense

The NYTimes is reporting that the government is preparing a Chapter 11 bankruptcy (reorganization) filing for Chrysler. The filing itself could come as soon as next week.

Union health care and pension benefits would remain protected and a potential deal with Fiat could still be worked out under the filing. A major sticking point, however, will be how to deal with the company's creditors, who hold nearly $7 billion in debt. The government has offered the creditors 22 cents on the dollar and a 5% equity stake. The lenders had earlier proposed receiving 65 cents on the dollar and a 40% equity stake. If no agreement is reached, the matter will likely head to the courts.

From the Times:

The U.A.W., Chrysler and Treasury have reached agreements in principle that would protect workers' benefits, people with knowledge of the negotiations said, and a similar agreement is expected to be reached as soon as this weekend with the Canadian Auto Workers union.

Once Chrysler emerges from bankruptcy protection, it would largely be owned by Fiat, the U.A.W., the Treasury and its lenders, these people said. A bankruptcy filing would likely wipe out existing equity stakeholders, notably Cerberus Capital Management, which took over the carmaker from Daimler in 2007.

Ron Gettelfinger, the U.A.W.'s president, issued a statement on Wednesday saying that the union was "continuing to work toward an agreement that will be in the best interest of Chrysler workers, retirees and the communities where the company does business."

People close to the talks said Wednesday that the U.A.W. had tentatively agreed to accept Chrysler stock to finance half of the company's $10.6 billion obligation to the health care trust. The balance would be paid in cash over the next decade. That money presumably could come from either the Treasury, or from Chrysler's profits, once it emerges from bankruptcy protection.

Chrysler has a $9.3 billion pension shortfall, or 34 percent of its total liability, according to the Pension Benefit Guaranty Corporation. The agency said earlier this month that it would assume $2 billion of the shortfall in the event Chrysler terminates its pension plans.

If that happened, retirees would receive sharply lower benefits than they normally would expect. But Chrysler is not obligated to terminate its pension plans while in bankruptcy, particularly if it received federal assistance to fund them.

It was not clear Thursday where Chrysler would file its bankruptcy case. On Wednesday, Mike Cox, the attorney general of Michigan, urged General Motors and Chrysler to consider filing in the state, rather than Delaware or New York. He said a locally administered case would be more convenient for creditors in Michigan.

Labels: auto industry, auto industry loans, bankruptcy, Chrysler, UAW

 

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4/23/2009 04:49:00 PM 1 comments

 

Auto Parts Suppliers Get $5 Billion Loan

by Dollars and Sense

Beleaguered auto parts suppliers will receive up to $5 in loan government loan guarantees. Parts suppliers usually get paid by car manufacturers 45 days after delivery. The program will guarantee those payments.

Labels: auto industry, auto industry loans

 

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3/19/2009 01:12:00 PM 0 comments

 

Auto Supplier and Six Flags Going Down

by Dollars and Sense

The car won't run and the park is closed.

GM and Chrysler parts supplier American Axle appears headed for bankruptcy. The company's stock traded at $30 a share in 2007, but is now worth only pennies and will soon be delisted by the NYSE.

Although the auto companies have received billions in federal bailout funds, parts suppliers have not, although proposals are floating around to include them in future plans. American Axle slashed 3,000 workers last year while losing $118 million.

Theme park operator Six Flags Inc seems next in line for bankruptcy protection. The company appears unable to meet future payments to investors and creditors after a report that the company lost over $200 million in the final quarter of 2008.

Labels: auto industry, auto industry loans, bankruptcy, Chrysler, GM, Six Flags

 

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3/13/2009 12:47:00 PM 0 comments

 

Citi and GM Deathwatch

by Dollars and Sense

Citibank has now joined the ranks of the penny stocks. In 2006 the stock was trading at $55.70 and the company had a market capitalization of $277.2 billion. Today, the stock is trading at under $1 per share and the market cap is $5 billion. However, the US government has already lent the company $45 billion, so the actual value of the company is probably far less (i.e. negative).

Bank of America isn't doing much better.

On the auto front, auditors for GM are debating whether to continue to portray the carmaker as a "going concern." This determination will factor heavily in the company's ability to access more loans from the government or whether it will be headed straight for bankruptcy. GM stock is trading just below a lofty $2 mark.

Labels: auto industry, auto industry loans, bad bank, Citibank, Citigroup, GM

 

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3/05/2009 03:36:00 PM 0 comments

 

G.M. Loses $9.6 Billion

by Dollars and Sense

Just posted to the New York Times website. Sorry if this ruins tomorrow morning's paper for you. It probably won't be such a good day for Rick Wagoner either, and he's probably ruining lots of UAW members' days too.

DETROIT—The chief executive of General Motors met with government overseers on Thursday to explain the carmaker's financial situation, hours after G.M. reported a $9.6 billion south-quarter loss and said it was rapidly spending its cash reserves.

The G.M. chief, Rick Wagoner, is expected to ask for more assistance as he sits down with the auto industry task force created by President Obama. The panel, led by Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, the White House economic adviser, will oversee the restructuring at G.M. and Chrysler.

Even as the meeting unfolds, G.M. finances were reaching a crucial point. The company said Thursday that its cash reserves were down to $14 billion at the end of 2008, including $4 billion it had borrowed from the government that month. G.M. spent $19.2 billion of its cash reserves in 2008. It spent $6.2 billion of the reserves—$2 billion a month—in the fourth quarter alone.

Since then, G.M. has borrowed $9.6 billion more, but the company expects to go through that money quickly, and says more aid is necessary to remain solvent.

"The economic situation is having a dramatic impact on our industry, on General Motors," G.M.'s chief financial officer, Ray Young, said on a conference call Thursday. "We're still forecasting a cash flow burn of $14 billion in '09, so we will need some additional funding support."

The company has said that it needed a minimum of $11 billion to $14 billion in reserves to finance operations, but the estimates were made before the recent drop in auto sales and cuts by G.M. in response.

G.M. lost $30.9 billion, or $53.32 a share, in 2008. For the fourth quarter, it lost $9.6 billion, or $15.71 a share, as its global sales fell 26 percent.

In 2007, the company lost $43.3 billion, a record, mostly the result of a noncash accounting charge; it adjusted the figure higher by $4.6 billion on Thursday.

The losses, though, are unlikely to shake investors, who have already realized the automaker's perilous state. G.M. said last week that it might need as much as $30 billion to complete the restructuring plan that it has submitted to the Treasury Department.

Read the rest of the article.

Labels: auto industry, auto industry loans, bailout, financial crisis, General Motors, Rick Wagoner

 

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2/26/2009 01:49:00 PM 0 comments

 

UAW Reaches Deal With Ford

by Dollars and Sense

From the wires. Ford hasn't received bailout money, but pressed the union for concessions because they didn't want to be disadvantaged if the union made concessions with Chrysler and GM. The deal still needs to be ratified by the union.

DETROIT – The United Auto Workers and Ford Motor Co. said Monday they agreed to let the automaker change how it pays for a health care trust fund for retired workers, a deal that could serve as the model for cash-starved General Motors Corp. and Chrysler LLC.

Ford said the agreement allows it to make payments to the union-managed trust with up to 50 percent of company stock instead of cash. Having the UAW take equity frees up cash for operations.

"We will consider each payment when it is due and use our discretion in determining whether cash or stock makes sense at the time, balancing our liquidity needs and preserving shareholder value," said Ford spokesman Mark Truby in a written statement.

Ford, like its Detroit and foreign competitors, is seeing a huge drop in sales as consumers shy away from purchasing new cars during a recession. However, the company has not asked for low-interest government loans. General Motors and Chrysler have asked for a total of $39 billion, and have received $17.4 billion so far.

Under terms of the government loans, the Treasury Department set targets for Chrysler and GM to exchange half their cash payments to the trusts, called voluntary employee beneficiary associations, or VEBAs, for equity in the companies. Money freed up by supporting the VEBA with equity would potentially pare down GM's and Chrysler's borrowings from the government.

For Ford, which isn't receiving government aid but is trying to cut costs, the agreement announced Monday is another in a series of concessions from auto workers.

Terms of previous deals were not announced, but they were expected to eliminate the jobs bank in which laid-off workers get most of their pay, as well as lift work rules and make other changes that the government loan terms set out. The goal is for the companies' labor costs to be competitive with Japanese rivals that have U.S. factories.

The UAW, meanwhile, said the health care trust deal helps save jobs, as a failure to help the auto companies cut costs could lead to a bankruptcy filing and massive layoffs.

Although Ford was not required to renegotiate terms of its VEBA with the UAW, the company entered talks with the union, and said it would not be "disadvantaged" as GM and Chrysler sought concessions.

The VEBAs were established as part of the landmark 2007 contract reached with the UAW. The trusts would pay health care bills for about 800,000 UAW retirees, spouses and dependents and move billions in liabilities off the companies' books. GM expects to save about $3 billion a year, while Ford says it will save $1 billion annually.
Ford owes $6.3 billion to its VEBA at the end of this year. GM has to pay roughly $20 billion into its health care trust, while Chrysler must pay around $9.9 billion.

The UAW's willingness to strike a deal with Ford first is significant, because it shows the union is acknowledging the challenges Ford is facing, said Hal Stack, director of the Labor Studies Center at Wayne State University in Detroit.

"The question is whether they make a similar agreement with GM and Chrysler," he said. "It adds a certain element of risk to the equation for the UAW at a time when most people are nervous about any (financial) risk."

The agreement between Ford and the UAW, along with other previously agreed to concessions, must be ratified by union members. The UAW is expected to meet with heads of its local branches this week. The change to the health care trust also requires court approval.

Full story here.

Labels: auto industry, auto industry loans, Chrysler, ford, GM, UAW

 

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2/24/2009 04:42:00 PM 0 comments

 

More Bailout Billions for Chrysler

by Dollars and Sense

Chrysler's lending unit just received an additional $1.5 billion loan from the Treasury Department.

Chrysler has previously received emergency loans of $4 billion.

Labels: auto industry, auto industry loans, Chrysler

 

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1/16/2009 02:28:00 PM 0 comments

 

More GM Loan Fine Print: UAW Can't Strike

by Dollars and Sense

Yesterday we reported that newly disclosed details of the Bush emergency loan to GM included clauses forcing the automaker to seek massive concessions from their main union, the UAW, including pegging wages and working conditions to those at non-union U.S. plants.

One major clause that we didn't mention, however, was that the UAW and its affiliated locals are prohibited from engaging in any strike or work stoppage. If the unions take either type of action, the government can recall the loans and force the company into bankruptcy.

The terms of the government loans extends through December 29, 2011. The UAW has a "no-strike" clause in its current contract that extends though September 2011. However, local unions have different timetables for negotiating their contracts. If the UAW was forced to reopen its contract to make concessions, the no-strike clause could be set aside.

The union is reportedly pushing its allies in Congress to reopen the terms of the loan agreement once the Obama administration takes office.

Labels: auto industry, auto industry loans, bailout, GM, labor organizing, UAW

 

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1/13/2009 02:04:00 PM 1 comments

 

GM Borrows, UAW Pays

by Dollars and Sense

GM CEO Rick Wagoner says that the $13.4 billion in U.S. government loans it has received should get the company through the end of March, but it may be back asking for additional help after that.

Under the terms of the Bush-approved bailout, the automaker can only receive additional funds if it has shown that it can get tough concessions from bondholders and the United Auto Workers (UAW).

The union made major concessions in 2007, however the Bush loan deal requires GM to get the union to agree to renegotiate a promised $21 billion company contribution to a retiree trust fund that will be the UAW, and also to force the union to agree to accept wage and work conditions equal to those at non-union plants.

The union has raised loud objections to the terms of the loan, and a bill being pushed by Democrats in the House would strip the loan of these forced concessions.

Labels: auto industry, auto industry loans, GM, labor organizing, UAW

 

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1/12/2009 03:17:00 PM 0 comments