02 Dec 2008
Dec. 2 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC, running out of money to operate, must convince a divided Congress that their plans to shrink are severe enough to ensure repayment of $25 billion in proposed U.S. loans.GM will offer to cut debt, combine U.S. brands and pare costs while Ford will emphasize hastening a shift to cars from trucks, people familiar with the matter said. The United Auto Workers called an emergency meeting in Detroit tomorrow to consider concessions making it less expensive to eliminate jobs, people familiar with that session said.
The automakers are working against a deadline today for the plans after Congress's partisan deadlock last month over how to pay for the loans. The companies also will report November sales today that likely extended a 15 percent slide through October.
"Our expectation is that they go and duly genuflect and appear to be repentant," said Eric Noble, president of Car Lab, an Orange, California-based consulting firm for automakers including GM, Chrysler and Toyota Motor Corp.
The presentations being given to Congress start a countdown to hearings on Dec. 4 and Dec. 5 and a vote on an aid package that may come next week. GM, the biggest U.S. automaker, has said it may be short of cash to pay monthly bills by year's end.
CEOs Rick Wagoner of GM, Alan Mulally of Ford and Robert Nardelli of Chrysler failed to show Congress in November how much they've done in trimming costs and building better cars, said David Cole, chairman for the Center for Automotive Research in Ann Arbor Michigan.
‘Come Prepared'
"Facts, facts, facts," Cole said. "They have to come prepared with details."
Ford may discuss the possible sale of its Volvo unit, which was disclosed yesterday, and its push to build more small cars, said a person familiar with the strategy, who like the others asked not to be identified because the plans aren't public yet.
Chrysler is being "very hawkish" in its outlook for U.S. sales, another person said. The board of the closely held automaker met last night, while GM directors finished a two-day meeting that included consideration of selling brands, people have said.
Spokesmen for GM, Ford and Chrysler declined to comment on the specifics of their plans. The three automakers have asked for a combined $24 billion to $27 billion from Congress.
‘Sustainable Levels'
"They have to bring their market share down to sustainable levels and their capacity down with it," said Jerome York, a former GM director and Chrysler Corp. finance chief who is now an adviser to billionaire Kirk Kerkorian, a Ford shareholder.
The necessary shrinkage by the three U.S. automakers may require $40 billion in loans to pay for restructuring and basic liquidity needs, York said in a Bloomberg Television interview.
York estimated they may need to contract to 32 percent of their home market. The companies held about 47 percent of U.S. sales through October, according to Autodata Corp. in Woodcliff Lake, New Jersey.
"The situation can be likened to a lifeboat with three passengers," Noble said. "One has gangrene from his toes to his bellybutton. That's Chrysler. Another, GM, is a 350-pound man, and there's a 250-pound man, Ford. There's only enough food on board for two thin men. So who should get the food?"
In GM's case, the Detroit-based automaker needs to shed brands including Buick, Pontiac, Saab and Saturn as it no longer can afford to keep developing products for each, Noble said. People familiar with GM's plans said the automaker has studied shedding Saab, Saturn and Pontiac. Hummer is already for sale.
Ford, along with selling Volvo, needs to drop its Mercury brand and focus on improving its main Ford and Lincoln lines, Noble said.
Shares Fall
GM fell 65 cents, or 12 percent, to $4.59 yesterday in New York Stock Exchange composite trading, while Ford declined 14 cents, or 5.2 percent, to $2.55. GM's 82 percent plunge through yesterday was the biggest drop this year among the 30 companies in the Dow Jones Industrial Average.
The automakers will be pitching to a Congress in which Democrats led by House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada are pushing to tap the $700 billion bank-rescue plan while Republicans favor the Energy Department loan program, if any aid at all.
Republican Senators Bob Corker of Tennessee and Richard Shelby of Alabama suggested that the automakers needed deeper restructuring, fewer dealerships and more competitive labor costs or they would end up in trouble again.
James Clyburn, a South Carolina Democrat and House majority whip, said the CEOs of all three companies should be required to step down as a condition of the loans, according to his spokeswoman, Kristie Greco.
Getting Ready
Ford said yesterday that Mulally would drive to Washington for this week's hearings, forgoing the corporate jets that he and his CEO peers used for last month's appearances, and which were attacked by critics as symbols of industry arrogance. A GM spokesman would say only that Wagoner wouldn't fly in a private jet, while Chrysler declined to comment.
With Ford saying it doesn't need immediate help from the government, the Dearborn, Michigan-based automaker is less likely to propose drastic measures and wouldn't be as amenable to government demands, according to researcher Cole.
Cerberus Capital Management LP's Chrysler, similar to GM, needs money now. Unlike GM, the Auburn Hills, Michigan-based automaker has fewer restructuring options to show it is viable, Cole said.
At tomorrow's UAW meeting, union officials will be asked to reopen a 2007 labor agreement, said one person familiar with the forum, who asked not be named because it's private.
The union needs to agree to eliminate the so-called jobs bank program that pays laid off workers as much as 95 percent of their base pay, said Erich Merkle, an automotive analyst with Crowe Horwath LLP in Grand Rapids, Michigan.
"It is just so unpalatable to people outside the industry," he said. "It has to be brought on the table this week."
UAW membership fell 14 percent last year to 464,910, the lowest since the Great Depression, as the U.S.-based automakers paid factory workers to quit or retire early.
