GM, Chrysler Ask for Additional $21.6B, Detail Brands to Be Axed
DETROIT (AdAge.com) -- General Motors Corp. and Chrysler today asked the U.S. government for bigger loans than they requested in December, citing the flailing economy. Both U.S. auto giants were required to file their latest viability and restructuring plans today to apply for the next round of federal loans.
Although GM got its latest loan installation, $4.6 billion, today, the automaker asked for an additional $16.6 billion from the government in its filing. It said it needs another $4.6 billion within weeks and $12 billion more to skirt bankruptcy.
Chrysler Chairman-CEO Bob Nardelli said in a conference call that the automaker is asking for an additional $2 billion in funding on top of the $3 billion already asked for by the next loan installation on March 31 due to the continuing malaise of the market. The automaker received a $4 billion loan on Jan. 2.
Several congressmen expressed concern late last year during loan hearings with Detroit auto executives that they would need to return to the federal trough for more funding.
Brands facing extinction
At least two GM brands are facing extinction. GM told the government in its filing that it expects to decide whether to sell or "phase out" the Hummer brand by March 31, with a final resolution expected no later than 2010. GM President Fritz Henderson said in a separate conference late today that winding down Hummer "would happen relatively quickly."
The death bell is also ringing for Saturn. GM said it plans to phase out Saturn at the end of its current product life cycle, probably the end of 2011, unless Saturn retailers or an investor presents a plan to spin off or buy Saturn Distribution Corp.
GM Chairman-CEO Rick Wagoner also said unless a buyer can be found for Saab, the company will "likely have to file for reorganization in Sweden," and GM will no longer support the brand.
Finding buyers for these brands has been extremely difficult during the industry's worst global slowdown in decades.
Uncle Sam required both automakers to file in their plans how they would handle bankruptcy, although executives at both companies emphasized that bankruptcy is at the bottom of the list of courses of action they would take.
Both companies said they would need tens of billions of dollars as debtors in possession, because under a Chapter 11 bankruptcy scenario they would need to fund operations, including financing for dealers to purchase vehicles wholesale.
'No way' to finance Chapter 11
GM's Mr. Henderson estimated the automaker would need between $50 billion and $60 billion to weave through Chapter 11, which takes a long time. "We'd need to shut down," he said, because "there's no way we could finance it."
Chrysler's Ron Kolka, senior VP-chief financial officer, said in a separate conference call that the company's government filing estimated it would require between $20 billion and $25 billion for Chapter 11 bankruptcy reorganization. Under a Chapter 7 liquidation in bankruptcy court, Mr. Kolka said, there would be about a 25% recovery on liquidated assets.
Chrysler Vice Chairman Jim Press said on top of four car brands already announced -- the Dodge Magnum and Chrysler models Pacifica, Crossfire and PT Cruiser convertible -- the automaker will eliminate three more models: the Dodge Durango and its sibling Chrysler Aspen as well as the Chrysler PT Cruiser.
Chrysler is advertising "Employee Pricing Plus Plus" deals that offer discounts of up to $3,500 on 2009 models and up to $6,000 on '08 Chryslers, Dodges and Jeeps, along with 0% financing and $1,000 bonus cash if financed via Chrysler Financial or a local credit union. That program ends at the end of the month, a spokeswoman said, adding that March ad plans haven't been announced.
Giving too much away
Todd Turner, president of consultant CarConcepts, said Chrysler is giving away too much money on its incentive deals.
Indeed, Chrysler had the highest incentives among the major six automakers last month -- $4,196 per vehicle, according to Edmunds.com. Ford Motor Co. was second-highest, at $3,574 per unit.
Mr. Turner also said GM shouldn't pull ads out of high-profile media properties, because it still has to sell its products. "It's more important than ever before" for GM to move the metal -- something all taxpayers should care about, given that they have a vested interest because of the federal loans, he said.
White House Press Secretary Robert Gibbs said in a statement that President Barack Obama's team will be reviewing the latest filings from GM and Chrysler. "It is clear that, going forward, more will be required from everyone involved -- creditors, suppliers, dealers, labor and auto executives themselves -- to ensure the viability of these companies going forward," he said.