GM and Chrysler ready survival plans
DETROIT/STUTTGART (Reuters) - General Motors Corp and Chrysler LLC raced to finish restructuring plans for the U.S. government that will outline aggressive cost-cutting, but are expected to stop short of delivering final deals to cut debt and labor costs.
Shares of GM fell more than 11 percent on Tuesday and analysts said the recent showdown between GM, its bondholders and the United Auto Workers (UAW) union underscored the heightened risk of bankruptcy for the top U.S. automaker.
GM and the UAW remained locked at midday in Detroit in negotiations, which were expected to run right up until the afternoon when the embattled automaker is slated to submit its survival plan to U.S. President Barack Obama's administration.
GM and the UAW made progress over the weekend in talks on labor concessions, and its bondholders submitted proposals to cut $28 billion in debt through an exchange for equity.
Both sets of discussions are crucial to GM's effort to use $13.4 billion in federal funding to restructure without having to file for bankruptcy protection.
But without final deals in place, GM will be forced to signal a readiness to use a government-financed bankruptcy process in a final bid to win concessions to slash costs and debt, analysts said.
Until now, GM Chief Executive Rick Wagoner and other executives had held to a line that a bankruptcy filing would spin out of control into a liquidation because it would scare off remaining car shoppers.
But the company's senior leadership is now open to the prospect of a government-financed bankruptcy if that can be done quickly to rewrite contracts with creditors, the UAW and suppliers, a person involved in the talks has said.
A similar change in thinking appears to have taken hold inside the Obama administration, an analyst said.
"We sense some senior administration officials have evolved to the view that the risk to GM's revenues of a government-funded Chapter 11 bankruptcy is probably now lessened though still significant," JP Morgan analyst Himanshu Patel said on Tuesday.
While the struggling U.S. automakers put the finishing touches to blueprints showing how they aim to pay back billions of dollars of government loans, Chrysler's German ex-owner Daimler said its remaining 19.9 percent stake in the Detroit-based manufacturer had forced it to post a steep fourth-quarter loss.
COST-CUTTING IN FOCUS
The restructuring blueprints from GM and Chrysler will outline plans by both automakers to shed capacity and cut jobs in hopes of returning to profitability as the U.S. auto market sags to its lowest level in almost three decades.
"They will be fairly aggressive. It's not going to be a minimal effort," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.
Wagoner was expected to hold a press conference later on Tuesday to discuss the automaker's plan.
GM's Opel and Saab brands also braced for news of the survival plan that is also expected to incorporate wide-ranging changes to the automaker's European operations.
Options on the table for Opel and GM's Swedish unit Saab include securing loan guarantees from Berlin and Stockholm and spinning off the two businesses as independent entities -- a scenario favored by GM Europe's labor leaders.
Saab could also be sold or closed down, analysts said, though Swedish Industry Ministry secretary Joran Hagglund told Reuters he was confident GM will not leave Saab unprotected.
Efforts by GM to unload assets to raise cash have been slow-going since the automaker announced plans to raise between $2 billion and $3 billion from such steps last summer.
China's Sichuan Auto Industry Group Co on Tuesday denied a report it was interested in buying Hummer.
In Milan, Fiat, which last month agreed to take a 35 percent stake in Chrysler after warning in December it was too small to survive the brutal industry downturn as a stand-alone company, denied a news report it was considering a 2 billion euro ($2.53 billion) rights issue.
Despite the denial, Fiat shares remained under pressure, trading down 7.22 percent at 3.98 euros at 9 a.m. EST compared with an intraday low of 3.91.
Chrysler's restructuring plan is expected to make a case that the No. 3 U.S. automaker can survive on its own, but give few details on how its alliance with Fiat would work, a person on the preparation of the plan said.
Chrysler has received $4 billion in U.S. aid and is seeking another $3 billion.
($1=.7908 euro)
(Additional reporting by Victoria Klesty, Angelika Gruber, Love Liman, Gilles Castonguay; Writing by John Stonestreet; Editing by Patrick Fitzgibbons and Matthew Lewis)