Across General Motors Corp. and Chrysler LLC there are fears of more plant closures and job cuts as the companies approach the February 17 deadline to show government they have viability capabilities.
Both companies' plans are presumed to include concessions from bondholders and the United Auto Workers. GM's plan will include closing down additional factories as well as salaried pay and job cuts, according to people familiar with the plans.
Both GM and Chrysler must prove to the government that they are able to repay the federal loans that are keeping the companies afloat in the worst U.S. auto sales climate in 26 years. GM has received $9.4 billion and expects to get $4 billion more, while Chrysler has received $4 billion and is hoping to get another $3 billion.
In order to successfully accomplish this, the automakers will have to make substantial cost cuts. The companies are required to show the government they can achieve a positive net present value, which means that the present value of a company's expected net cash flows exceeds the initial investment in the company.
White-collar workers may expect pay cuts could go beyond 5 percent they would also not get buyouts or early retirement offers like they have in the past, according to the people, who spoke on condition of anonymity because workers have yet to be notified, the Associated Press reported.
As the February 17 deadline approaches, GM workers across the country are becoming tenser as on this date, some of the company's plans are expected to become public.
Many realize that GM has announced the closure of four pickup truck and SUV plants in the past year, but it hasn't shut down a corresponding number of the engine, transmission and parts stamping factories that feed the assembly lines.
GM Vice Chairman Bob Lutz, in an interview with The Associated Press on Monday, wouldn't give details but conceded that GM will have to get smaller in the U.S. before it can grow again.
It's going to be a smaller company in the U.S., he said, adding that GM will grow in other parts of the world such as China. We may have to take a step back in General Motors to find the right-sizing that's going to permit a profitable existence in a much smaller market.
The plans are due to be presented to government by February 17, both companies are required to present on this date. The plans however do not have to be completed until March 31. This is the date when the government can demand repayment of the loans if it decides the companies can't become viable.
On Monday GM shares fell 1 cent to $2.83.