Advertisement

Why ads?
Popular at KBB.com
  • Midsize SUV Buyer's Guide
  • Midsize Sedan Buyer's Guide
  • Kelley Blue Book Best Buy Awards of 2015
  • Class of 2015: New Vehicles Ready to Roll

GM & Chrysler: Show Me the Money

By on February 20, 2009 2:13 PM
Share this article

Time is running out for U.S. automakers. Car sales continue to decline and the federal government has required that each manufacturer submit a detailed restructuring plan if they want to continue receiving any sort of government loans. Ford kindly declined, having already borrowed billions of dollars from private creditors before the credit market froze over. The "Detroit Three" have all reached tentative agreements with the United Auto Workers (UAW) on changes to their labor contracts, which could save the manufacturers a large chunk of change. That isn't enough for Chrysler and General Motors, however, who can't survive without some form of federal bailout and have submitted plans to the U.S. Treasury for approval. These plans are aggressive, but necessary, if both companies want to remain in business and be profitable once again.

Chrysler has outlined a plan that would further reduce manufacturing shifts and production capacity in 2009 and would eliminate six-percent of its employees. Chrysler has also cut three additional models from its lineup: the large Dodge Durango SUV and its upscale sibling, the Chrysler Aspen, as well as the once popular Chrysler PT Cruiser. The automaker has promised to cut fixed costs by $700 million, and has already begun by cutting back such creature-comforts as wall clocks (batteries and maintenance estimated at $20,000 per year), snow plows to clear office parking structures (estimated at $350,000 per winter), and a reduction of heating costs by setting office thermostats at 68 degrees Fahrenheit.

The plan that General Motors has laid out features higher reductions in labor, with a pledge to eliminate 47,000 jobs globally in 2009 -- almost 20-percent of its workforce. GM also intends on closing five manufacturing plants and will reduce the number of dealerships by over 50 percent by 2014. The company will also cut 12 nameplates from its lineup by 2012, but a detailed list is yet to come. At least five are known to be Saturn's, however, as GM plans to either sell or phase-out the brand by 2011. Pontiac will continue as a niche brand, offering as few as one or two models at the outset. Other brands that are on the chopping block include Hummer, which GM is attempting to sell, and Saab, which may file for bankruptcy if GM isn't able to get emergency aid from Sweden.

Both companies have already received their last payments of the bailout money promised in December 2008 -- $13.4 billion for General Motors and $4 billion for Chrysler -- but are now seeking more as disappointing sales numbers continue to roll in. General Motors is asking for an additional $16.6 billion -- with an immediate need of $9.1 billion -- and may run out of money as soon as March 2009 if its request isn't fulfilled. If GM is approved for supplementary funds, it hopes to show a profit by 2011 and will begin repayment to the Treasury by 2012, with full repayment by 2017. Chrysler is asking for a supplementary loan of $5 billion and hopes to be in the black again by 2010.

Ultimately, both viability plans and additional loan requests will be reviewed by President Obama and the new auto task force at the Treasury. They will decide how much, if any, new federal funds will be given out, and Obama's spokesman has said that he wouldn't rule out bankruptcy for the Detroit automakers. A bankruptcy by either manufacturer, however, could result in a watershed, with massive job losses in the Midwest for both the automakers and their suppliers, not to mention what might happen to already-hurting creditors and bond holders. If both General Motors and Chrysler can show that they have a feasible restructuring plan and have upheld their end of the bargain by cutting budgets, it may be enough to prevent either from filing Chapter 11.

Share this article