24 Nov 2008
Nov. 24 (Bloomberg) -- General Motors Corp., in danger of running out of cash this year, will seek to negotiate a cut in debt levels and new union work rules to help boost its chances of winning federal loans, people familiar with the plan said.The largest U.S. automaker also may ask to delay a $7 billion payment to a union retiree health fund, drop more brands and rework an accord with GMAC LLC to prove it can survive and repay the government, said the people, who asked not to be named because the details haven't been presented to Congress.
Chief Executive Officer Rick Wagoner is under a Dec. 2 deadline set by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to show how he'll reshape operations as a condition of a $25 billion industry rescue. Congress may vote on the package on Dec. 8.
Directors are scheduled to meet by phone today, Nov. 26 and Nov. 28, and then gather Nov. 30 and Dec. 1 to review the plan, the people said. GM expects to produce a 10- to 12-page public report for a Dec. 5 congressional hearing and an 80-page semi- private report with background material, the people said.
Besides courting a skeptical Congress, Wagoner would have to persuade debt holders to go along with paring GM's debt and the United Auto Workers to amend its 2007 labor contract. The debt and union accords likely won't be done by Dec. 2, the people said.
2-Day Grilling
Lawmakers grilled Wagoner over two days of testimony last week before deadlocking over how to let GM, Ford Motor Co. and Chrysler LLC tap $25 billion in low-interest borrowing amid U.S. sales that may slump next year to the lowest since 1991.
Pelosi and Reid agreed to a second lame-duck congressional session and instructed Wagoner and fellow CEOs Alan Mulally of Ford and Robert Nardelli of Chrysler to prepare specifics on how they'll navigate past the crisis.
While Republican critics such as Senator Richard Shelby from Alabama have said the auto chiefs were "arrogant" last week and that management changes might be needed, neither the government nor GM's board has signaled Wagoner will need to leave to get an agreement, people said.
GM now has $43 billion in debt, and will need to reduce that total significantly, even after a government loan that may be $12 billion, the people said. Analysts have said any increase in GM's debt load will make it uncompetitive.
Bonds Tumble
GM's 8.375 percent bonds due in July 2033 fell 1.8 cents to 17 cents on the dollar Nov. 21, the lowest price ever, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield rose to 49 percent.
After burning through $6.9 billion in cash last quarter, GM said Nov. 7 that it had $16.2 billion as of Sept. 30, raising the prospect of falling short by year's end of the $11 billion minimum needed to pay monthly bills. GM has said a bankruptcy filing would be a "disaster."
The plan to be presented to Congress may call for rescheduling the cash payment due in 2010 to the UAW trust fund for medical retirees' bills, possibly to allow the government debt to be repaid first, the people said.
Such a move would require the consent of the UAW, as would GM's bid to adjust work rules such as the so-called jobs bank that determines how long union workers are paid when factories are idled or closed. Changes to the health fund also would need approval in federal court.
UAW's Role
While UAW President Ron Gettelfinger testified last week in favor of federal loans for the industry, he has said previously he expects GM and the other automakers to make the trust-fund payments as required under the union's 2007 labor contracts.
The UAW is "at the bargaining table every day working on things to make these companies, to put them in better shape," Gettelfinger said in a Nov. 21 interview on Bloomberg Television's "Political Capital with Al Hunt."
GM, which is already marketing the Hummer unit to prospective buyers, will examine the viability of its 7 remaining U.S. brands and the geographic distribution of its 6,468 U.S. dealers to cut overlap and boost the profits of its franchise system, the people said.
GM also will work with Cerberus Capital Management LP, which owns the 51 percent of GMAC that GM doesn't control, to ensure the success of the lender's plan to convert to a bank-holding company and gain access to the $700 billion bailout fund for the U.S. financial system, the people said. GMAC needs to improve to assist GM with auto loans, they said.
Debt Agreements
The automaker expects to comply with agreements that federal debt be senior to other borrowing and that the government gain equity and oversight into GM, Ford and Chrysler in exchange for aid, the people said.
Investors have pummeled GM shares on concern that the automaker may collapse, driving down the stock 88 percent this year for the worst plunge among the 30 companies in the Dow Jones Industrial Average. GM gained 18 cents to $3.06 on Nov. 21 in New York Stock Exchange composite trading.
"My expectation is we're going to see something," House Majority Leader Steny Hoyer, a Maryland Democrat, said yesterday on "Fox News Sunday" about the prospects for automakers presenting a survival plan to Congress next month.
"What we need is to show how they're going to be accountable and secondly how they're going to be viable in the long term," Hoyer said. "Those are the two key questions they have to answer."
