Will GM’s cuts be enough?

Automaker considers axing Pontiac, Saturn, Hummer, Saab

A local car dealer said he expects Congress to approve loans to avoid the failure of an automaker.

STAFF AND WIRE REPORT

WASHINGTON — General Motors Corp. will take a hacksaw to itself as part of a plea to Congress for part of $25 billion in aid, pledging billions of dollars in cuts across its North American business from reworking its debt to shedding up to four U.S. brands.

What it cannot do is guarantee that the pain will be enough.

While Congress will begin scrutinizing plans from GM, Ford Motor Co. and Chrysler LLC this week, lawmakers facing deep divides over paying for aid may offer a temporary fix, giving Detroit automakers just enough cash to get through February and prove they can negotiate the cuts they’ve promised.

Such a deal also would allow the Obama administration to take a larger hand in crafting the aid plan, reshuffling the priorities automakers will present this week. Already, some key Democrats are calling on Detroit to make political sacrifices part of its plan — such as dropping opposition to state rules on greenhouse gases from vehicles.

“The Big Three all understand the levers they have,” said Kriss Andrews, co-leader of BBK’s North American automotive restructuring practice. “They all understand that, unfortunately, they’re going to have to push labor for more ... in terms of paring down product lines, if not brands and platforms. They’ve done a good job of peeling that back, but they’re going to have to do more of that.

“Frankly, I don’t think there’s going to be an area that will go untouched.”

Chuck Eddy, a local car dealer, said he’s waiting for word on whether he will return to Washington to lobby for federal loans to automakers.

Eddy was one of the dealers that Chrysler sent to Washington two weeks ago to demonstrate how the collapse of an automaker would affect Main Street.

Eddy said he’s been told that a few dealers may be headed back to Washington late this week or next week. He said he expects to be part of the group because he is the Chrysler chairman on the industry relations committee of the National Automobile Dealers Association.

He said he expects Congress to approve the loans because the failure of an automaker would lead to the closing of many businesses, including suppliers, dealers and retailers.

“Everybody better have their fingers crossed and be praying. If we don’t get the money, we all are going down,” he said.

Eddy and his father operate Bob & Chuck Eddy Chrysler Dodge Jeep in Austintown.

Though Congress, the Bush administration and President-elect Barack Obama have united in calling for tough conditions as part of any auto industry rescue, the basic divide over where the money may come from remains. Democrats favor taking $25 billion from the $700 billion financial industry bailout; Republicans and the Bush administration want to tap $25 billion in retooling loans, a move House Speaker Nancy Pelosi, D-Calif., has compared to paying bills with a child’s college fund.

The short-term idea that some Democrats are considering would approve just enough in loans for the automakers to get through February. The enlarged Democratic majority in Congress and the Obama administration then would seek proof that the automakers were making progress on their business plans before delivering additional help.

Pelosi and Senate Majority Leader Harry Reid, D-Nev., have pledged to bring Congress back into session next week to vote on a plan after this week’s hearings. The chief executives are expected to present their case to the Senate Banking, Housing and Urban Affairs Committee on Thursday and the House Financial Services Committee on Friday.

But the tone will be far different from the widely criticized pitch the chief executives made two weeks ago — from the travel by means other than corporate jet to the details offered.

With Ford considered the healthiest of the three, and privately owned Chrysler’s health shrouded in secrecy, much of the focus will fall on GM, which has said it could reach minimum levels of cash needed to sustain operations by the end of the year. Should its auditors decide that GM may not meet the standard of a “going concern,” the company could set off triggers in its loan agreements by February, causing at least $6 billion in debt to come due immediately.

In his last visit to Capitol Hill, GM Chairman Rick Wagoner’s explanation of how the company would use the government loan took one page of an 11-page presentation, with seven bullet points offering no specific numbers. GM’s new presentation on how it will use up to $12 billion of the $25 billion pool could run close to 100 pages for lawmakers, with a shorter summary for public viewing.

That plan will include several steps, such as lower executive pay, renegotiated debt payments, elimination of up to four brands and new concessions from the United Auto Workers, according to people familiar with the plan. While GM could make many such cuts on its own, renegotiating contracts with the UAW, bondholders and dealers could take months.

GM is studying eliminating brands, with Pontiac and Saab joining Hummer as targets, the Detroit Free Press has reported. Bloomberg reported that Saturn also could be eliminated.

GM already has pledged to make $20 billion in cost cuts through next year, although $5 billion of those rely on selling assets such as the Hummer brand or borrowing money, neither of which GM can count on in the near future. Yet with U.S. auto sales expected to remain depressed through 2010, several analysts have said GM’s present plan doesn’t go far enough.

JPMorgan analyst Himanshu Patel estimated last week that GM likely would need an additional $4.2 billion in cost cuts just to end its cash consumption by 2010. Patel said $2.6 billion could come from a 26 percent cut in the pay and benefits of UAW hourly workers.

Deutsche Bank analyst Rod Lache said last week that GM might need $20 billion next year from the government to make the necessary cuts in its business and cover its losses. Ford has said it could seek as much as $8 billion but also has said it may not need the money; Chrysler is seeking $7 billion.