December 2, 2008

Automakers rush to finish plans for Congress

U.S. automakers rushed to submit restructuring plans demanded by Congress before lawmakers reopen debate on a $25 billion bailout the industry says it needs to survive.

Under fire for fighting fuel standards for years, the Detroit-based automakers are expected to present plans that call for them to build more fuel-efficient cars, ax unpopular brands, cap executive compensation and restructure their agreements with the United Auto Workers union.

Critics have charged that many of the Big Three's financial problems are of their own doing due to their stubborn insistence on building gas-guzzling cars that Americans no longer want, and now can no longer afford.

The automakers' proposals come on the same day they are slated to release November sales results, which are expected to be little changed from a dismal October.

General Motors Corp's board began to review the top U.S. automaker's revamped business plan on Sunday and has been asked to endorse steps that include consideration of dropping or selling the Pontiac, Saab and Saturn brands.

Ford Motor Co, considered in a stronger position to survive on its own because of its cash position, said it would review its options for Volvo and could sell off the Swedish luxury brand.

Chrysler LLC, controlled by Cerberus Capital Management, said its board was meeting to review its plan. Chrysler needs to spell out a plan that would allow it to take a share of the federal funding even as it seeks a partnership with other automakers, analysts said.

"Just as General Motors is too big to fail, Chrysler is too small to survive on its own," said IHS Global Insight analyst Aaron Bragman.

For its part, the UAW is likely to be asked to give up job security guarantees for workers at U.S. plants that close and asked to renegotiate how automakers will pay into a trust fund set to take over retiree health care from 2010.

In addition, GM is almost certain to ask its bondholders to swap some portion of its existing $44 billion debt for a deeply discounted payout and some equity interest in the restructured company, analysts say.

GM, Ford and Chrysler have all declined to discuss their restructuring plans before submitting them.

Analysts say Detroit is gambling that plans that show labor, management, creditors and investors sharing in sacrifices at a time of crisis will win the political support that has so far eluded the companies.

"Going in it was pretty clear that the powers that be in Washington were interested in seeing the automakers come back with plans with more concessions," said Dennis Virag of the Ann Arbor, Michigan-based Automotive Consulting Group. "I think they will get the funding."

But the complicated plans for the automakers hinge on major changes that could take months to complete.

Partly for that reason, the UAW said it supports a two-step process that would see Congress approve emergency funding for the industry this week with a follow-up review next year after President-elect Barack Obama takes office. Continued...

Source: Reuters

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