President Barack Obama's auto task force reportedly believes that there is viable future for ailing automakers General Motors Corp. (GM) and Chrysler LLC and would rather recommend additional assistance for the auto companies than let them fall into bankruptcy.
GM had said on March 5 that its auditors, Deloitte & Touche LLP, have raised substantial doubts about the company's ability to continue as a going concern, citing GM's recurring losses from operations, stockholders' deficit and inability to generate sufficient cash flow to meet obligations.
Citing comments from the members of the task force, the Wall Street Journal said any attempt at rescuing the companies would require sacrifices from the companies' managements, unions and GM's bondholders. GM's bondholders hold about $27 billion in unsecured GM debt, and in June, the company will owe them $1 billion on convertible debt that will be due. The team is also expected to lay out a firm timeline for action.
GM and Chrysler received $17.4 billion in loans in December 2008 and were asked to present plans of long-term viability by February. Till date, GM has received $13.4 billion in federal loans from the U.S. Treasury, as part of the Troubled Asset Relief Program, and is seeking another $16.6 billion. Chrysler has obtained $4 billion and seeks an additional $5 billion. The government is prepared to pay the amount, though not immediately, said the WSJ report.
While GM suggests additional job cuts numbering about 47,000 and the elimination of certain brands, Chrysler's options are continuing as a standalone company or teaming up with Fiat SpA of Italy. The two automakers have a March 31 deadline to show the U.S. government that they can become profitable and be allowed to keep the money.
It was reported earlier in the week that both companies, along with Ford Motor Co. (F), might get 10,100 United Auto Workers union members to accept buyouts after the elimination this year of benefits related to job security and unemployment pay.
Steven Rattner, the Treasury's chief auto adviser, recently said in a Bloomberg television interview that both GM and Chrysler may need considerably more fund than they have requested from the Fed. The current aid request from the two automakers depends on them achieving plans that are somewhat ambitious, he said in the interview.
Rattner also said that Chrysler's proposal to give Italian carmaker Fiat a 35% stake is a worthy idea to consider. The bondholders are looking to the government to help them solve their problem, but the government cannot solve everybody's problems, and we need for the bondholders to become part of this in a constructive way, he had added.
Wednesday, the task force had a meeting with officials from Chrysler and Fiat and told them that it is still interested in seeing an alliance between the two companies, the WSJ report said. Chief auto adviser Rattner reports to Treasury Secretary Timothy Geithner and Lawrence Summers, the chief White House economic adviser.
GM closed Wednesday's regular trade at $2.99, down $0.21 or 6.56%, on 14.70 million shares. For the past year, the stock traded in the range of $1.27-$24.24.
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