GM and Chrysler Want Additional $21.6 Billion
Aspen Photos
It’s time to face the music, swallow the bitter pill and not to even consider the chance of eating a slice of the cake that Detroit’s automakers don’t even have in their possession, as General Motors and Chrysler LLC line up at the government trough for yet more cash.
Ford, despite problems it faced earlier this decade and now wallowing amok in a serious sales slump of its own, doesn’t yet need U.S. governmental loans, but the other two members of the Big 3 are back once again after already receiving funding late last year. Now the two automakers are asking for more than they were promised in December, with GM wanting an additional $16.6 billion over and above the $4.6 billion it only received on February 17th, and needing a substantial portion of the new money within weeks in order to stay solvent, according to Advertising Age.
Chrysler appears more reasonable, only requesting an additional $2 billion in additional aid over the $3 billion it already requested for March 1. The Auburn Hills manufacturer received $4 billion in its first installment, January 2nd.
The need for more funding was hardly unexpected even before the first runs of loans went through, and while a number of congressmen expressed their concerns the loans were granted providing that a long list of concessions were met. With this next run of requests, GM and Chrysler are including plans that will dramatically change the face of their brand and model lineups.
The General plans on eliminating two brands, its import fighting Saturn division, which has only come of age in recent years by offering some of the highest quality entry-level models in the industry as well as the only plug-in hybrid in its entire range, and its politically incorrect Hummer brand. The latter will be phased out no later than 2010, while Saturn will be allowed to phase out according to the end of its product life cycle, by around 2011. There is a chance that a buyer will surface for either division, while Saturn dealers may join together to purchase the division off of GM.
The future of the entry-level premium Saab division is also uncertain, with GM Chairman and CEO Rick Wagoner saying that they will “likely have to file for reorganization in Sweden” if a buyer can’t be found, and that General Motors would no longer support the brand, reported Advertising Age.
So, what’s the alternative to not getting US government financing? For GM, it would be Chapter 11 bankruptcy. And while being protected from creditors looks like a good option on the surface, it’s hardly workable according to GM President Fritz Henderson. Henderson estimated that GM would require somewhere between $50 to $60 billion in order to make its way through Chapter 11, a process that can take a very long time. “We’d need to shut down,” he told a press conference media scrum, because “there’s no way we could finance it.” Shutting down the largest workforce in the United States is something the Obama administration would want to avoid like the black plague, as the ramifications of increased government services could potentially be more expensive. What’s more, shutting down GM would result in the early demise of numerous suppliers, a devastating prospect.
Ron Kolka, the senior VP-chief financial officer for Chrysler LLC, told reporters that his company would need between $20 billion and $25 billion to fulfill bankruptcy reorganization under Chapter 11. The same fallout would occur with Chrysler suppliers, although with less overall effect on the US economy due to its smaller footprint.
Unlike GM, Chrysler is not prepared to cut brands, but then again it only has three divisions whereas the General has often been criticized for having too many brands. Previous to this announcement Chrysler LLC stated it would kill off the Dodge Magnum, as well as three Chrysler models, the slow-selling Crossfire, Pacifica and PT Cruiser Convertible, but Chrysler Vice Chairman Jim Press added three more models to the RIP list, including the Dodge Durango, its brand engineered cousin Chrysler Aspen, as well as the regular Chrysler PT Cruiser. The elimination of the Durango and Aspen would also remove two hybrid models from its lineup, the only two hybrids that the Chrysler group currently offers.
So what will the US government do? Don’t expect an immediate response, as White House Press Secretary Robert Gibbs stated that President Barack Obama’s team will be reviewing the latest filings from GM and Chrysler.
“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 going forward,” said Gibbs.
Most expect Obama’s government to bail out GM and Ford to avoid even more complicated problems, and considering the gargantuan secondary sum recently allocated for stimulating the economy compared to the $20-plus billion being asked for, it certainly wouldn’t make sense to let the country’s largest employer shut down.
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