GM seeks up to $16 billion more in U.S. assistance

February 17, 2009 - 4:53 pm ET
UPDATED: 2/17/09 9:25 p.m. EST

DETROIT -- GM asked the federal government today for as much as $16.6
billion in additional federal aid to help it survive. Without the new
funding, the automaker could run out of money sometime in March.

Under the plan submitted to the U.S. Treasury Department, GM loans and
lines of credit would total $30 billion.

GM would also cut 47,000 jobs globally by year end and close five U.S.
plants by 2012. It raised the possibility of killing the Saturn brand when
production of its current models ends in 2012.

GM received the last installment of a previously approved $13.4
billion loan today, but is requesting another $4.6 billion to meet its Dec.
2 request of $18 billion. It then will ask for $4.5 billion to help it repay
a revolving line of credit coming due in the fall of 2011.

GM also is seeking a $7.5 billion revolving line of credit to help it
if auto sales worsen later this year or next year. GM plans to start
repaying the loans in 2012.

The proposals are contained in a restructuring plan made public by GM
today. Both GM and Chrysler LLC were required to deliver plans to the
Treasury Department today. Chrysler is asking for an additional $2 billion
in loans.

GM, Chrysler and Ford Motor Co. today also said they reached new
tentative labor agreements with the UAW. The deals, still subject to worker
ratification, are expected to lower labor costs further from the 2007
contract agreement.

Projections deteriorate

GM said that it was seeking increased bailout aid because the
automotive market has deteriorated more severely than it anticipated. On
Dec. 2, when it submitted its initial restructuring plan, GM projected that
it would have a 20.5 percent share of U.S. industry sales ranging from 10.5
million to 12 million units this year.

In the new plan, GM's downside volume for 2009 in the Dec. 2 plan –
10.5 million units – is now its baseline assumption. The downside now is 9.5
million units. GM has also reduced its 2009 U.S. share projection to 20.0
percent.

GM's January U.S. sales gave little cause for optimism. The automaker
was down 48.9 percent year-over-year, with a 19.5 percent market share. The
industry-wide light vehicle annualized selling rate in January was 9.8
million vehicles, the lowest since August 1982.

Debt-for-equity negotiations continue

The plans fall short of the government's original requirements in some
regards. Although the UAW announced late today that it had reached agreement
on concessions with the Detroit 3, GM still is negotiating with bondholders.

Under terms of loan agreements approved by the Bush administration in
December, the plans must show how the companies will become viable for the
long-term and be able to repay federal loans.

GM CEO Rick Wagoner said additional government support might be
required in 2013 or 2014 if the automaker has to make further contributions
to its pension fund, which is now underfunded.

He also said GM continues to "believe bankruptcy would be a highly
risky and highly costly process" and the "best bet remains to restructure
outside of bankruptcy court."

GM's plan outlines how the company proposes to achieve a "sustainable
return to profitability" within the next 24 months, sources familiar with
the plan say.

Saturn could phase out

GM plans to continue to supply current product to Saturn through 2012.
But absent an alternative to fix the brand, GM expects to phase it out.

Hummer, which GM has had for sale since June, has attracted several
interested parties. GM expects to make a decision on what to do with Hummer
by the end of the first quarter, the sources say.

GM is in talks with the Swedish government and several other parties
about Saab's future. Without funding help from the Swedish government, Saab
would have to file for reorganization, the sources say.

Of the 47,000 jobs to be cut this year, 37,000 will be hourly
positions.

Among other things, GM was told to get bondholders to accept stock in
exchange for debt, and the companies were advised to trim worker
compensation to the level of the U.S. plants of import brands, or explain
how comparable savings would be achieved.

The new agreements with the UAW are meant to address those concerns.

The Obama administration has yet to indicate whether it is sticking
with the terms and conditions set by the Bush administration or planning to
change them.

The automakers' loan agreements with the government provide that a
presidential designee will certify by March 31 if the companies have met the
restructuring criteria. If not, the loans are to be recalled immediately.

That deadline can be pushed back a month.

President Barack Obama had indicated he would name a so-called car
czar to serve as designee, but the administration said over the weekend that
it had changed course.

Obama forms task force

Instead, Treasury Secretary Timothy Geithner will serve as the
designee. He also will co-chair with Obama's chief economics adviser, Larry
Summers, a task force that will evaluate the plans.

One relatively new name in the mix is Ron Bloom, an official of the
United Steelworkers Union and former investment banker, known for brokering
turnaround deals for struggling companies.

He will be an adviser to the Treasury Department on overhauling the
auto industry.

Ford Motor Co. has said it may need loans if the economy grows
significantly worse. Ford said today the new UAW agreement could help it
avoid asking for federal aid.

Suppliers, facing a possible wave in bankruptcies stemming from the
auto sales collapse, have requested $18.5 billion in aid.