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23 February 2024

Chrysler and GM seek $22bn in extra US loans

Chrysler and GM have requested an additional $21.6 billion in US government loans on Tuesday. (AFP) 

General Motors and Chrysler went cap-in-hand to the US government on Tuesday, calling for $21.6 billion (Dh79.5 billion) in additions US government loans to stave off bankruptcy and win extra time for restructuring.

Both companies insisted they would be able to repay the loans as they presented long-term viability plans to the US Treasury, one of the conditions of a $17.4-billion government bailout approved in December.

"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," White House spokesman Robert Gibbs said in a statement.

General Motors said it will be cutting 47,000 jobs worldwide, closing plants, killing brands, slashing production and revamping its product offerings in order to return to "sustainable profitability in 24 months."

"These are the kind of actions we need to take to survive the current industry crisis, and position GM for sustainability and success," said GM Chairman and CEO Rick Wagoner.

The largest US automaker said it could require a further $16.6 billion in US government loans by 2011 in addition to the $13.4 billion approved in December.

Its plan also depends upon receiving six billion dollars in funding support from the governments of Canada, Germany, the United Kingdom, Sweden, and Thailand "to provide liquidity specifically for GM's operations in these countries," the automaker said.

GM warned that the cost of doing nothing would be even higher: it estimated the cost of restructuring through bankruptcy at $100 billion and said up to three million US jobs could be lost if it were to fail.

Chrysler meanwhile called for an additional $5 billion from the US government bailout loan program, as the industry, one of the key pillars of the US economy, reshapes in the wake of a global collapse in auto sales.

"We believe the requested working capital loan is the least-costly alternative and will help provide an important stimulus to the US economy and deliver positive results for American taxpayers," Chrysler chairman Bob Nardelli said.

"An orderly restructuring outside of bankruptcy, together with the completion of our standalone viability plan, enhanced by a strategic alliance with Fiat, is the best option."

Chrysler said it plans to discontinue three vehicle models, cut production by 100,000 vehicles a year, eliminate 3,000 jobs and reduce fixed costs by $700 million.

Earlier, the Detroit Three automakers, which also includes Ford, reached a "tentative" agreement with the United Auto Workers (UAW) union to help reduce labor costs.

The union said the deal will allow the Detroit automakers to modify their 2007 labor contracts but did not provide any details.

"The changes will help these companies face the extraordinarily difficult economic climate in which they operate," union president Ron Gettelfinger said in a statement.

Administration officials are expected to study the auto industry plans for several weeks before deciding a course of action.

The final plan will serve as a basis for the Treasury's decision, due by March 31, on whether to extend the loans or call them in and comply with some requests to allow the companies to collapse.

But Chrysler's request for additional funds could be hampered by its recently announced alliance with Italy's Fiat, though it insists no US taxpayer funds would go to Fiat.

Ford meanwhile insists it has sufficient cash reserves to survive the downturn without federal aid, despite a $5.9-billion loss in the fourth quarter of 2008.

Analysts forecast total auto sales will come in at between 10 million and 11 million units this year, which would be the industry's worst performance since World War II after adjusting for population growth.