WORLD> America
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WORLD> America
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GM cuts output, jets as US demands turnaround plans
(Agencies)
Updated: 2008-11-22 10:52 "Can the US automakers provide a convincing plan?" Deutsche Bank analyst Rod Lache asked in a note to clients. "Based on the risks involved, we are not willing to place strong odds on the potential for a bailout before January." That could leave the decision on whether and how to save Detroit with the administration of President-elect Barack Obama, who supports a bailout hinging on industry reform. A spokesman for Obama's transition team said on Friday the incoming administration was not exploring the possibility of having the government support a prepackaged bankruptcy filing for the automakers. Some analysts have urged that as a way for GM and Chrysler to shed excess production capacity, brands, workers and dealers. "The problem people see with giving them money is what control is there over it ... no idea whether the dollars would be sufficient to prevent the companies' failure and where the money would go," said Robbin Itkin, a bankruptcy lawyer with Steptoe & Johnson in Los Angeles. A bankruptcy reorganization would provide a controlled way of monitoring money loaned to automakers, he said.
"To make them viable again requires that automakers make decisions that are very unpalatable to a lot of people," said Erich Merkle, a consultant at Crowe Horwath. The path to viability "basically is going to be firing their constituents and cutting back the retiree benefits their constituents rely on," he said. "The money will come. I'm very confident it will come, but will it come before one of them files for bankruptcy or after?" Deutsche Bank's Lache said a successful restructuring for GM would mean "shrinking to a defendable core" by cutting weaker brands and closing factories. It will mean lower wages for UAW-represented workers and restructuring GM's balance sheet by forcing creditors to swap out of secured debt at as little as 25 cents on the dollar plus stock warrants, he said. Citibank analyst Itay Michaeli said GM would have to race to come up with a new restructuring plan that could include changes to payments into a health care trust negotiated with the UAW and possibly a debt exchange for creditors. "The burden of proof may not be so simple for GM, in our view," Michaeli said of the requirement that GM show it can be a viable company. PLANES, CARS AND POLITICS The debate over an auto industry bailout has been marked by partisan politics, but lawmakers from both sides have been united in their criticism of the industry. A lightning rod for controversy during testimony by the Detroit CEOs this week was their flying to Washington in corporate jets. GM spokesman Tom Wilkinson said GM had decided before the hearings to return two of its leased jets because of travel cutbacks. In September, GM returned another two of seven jets it had been using, he said. GM CEO Rick Wagoner and Ford CEO Alan Mulally are required by their companies to fly by private aircraft for security. Chrysler, owned by private equity firm Cerberus Capital Management LLC, is not required to disclose the policy for Bob Nardelli. Late on Friday, Ford said it was exploring options for saving money on its corporate air travel, including selling the jets it owns. Ford, which has sold four airplanes and reduced its use of corporate aircraft by about half since 2005, owns five planes. Three are used for executive travel and two primarily for marketing teams. GM also said late on Friday that it would forego an annual holiday media party and instead make donations to charity. |
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