GM and Chrysler ready survival plans

DETROIT (Reuters) - General Motors Corp and Chrysler LLC raced to finish restructuring plans demanded by the U.S. government, but the survival blueprints are expected to fall short of delivering final deals to cut debt and labor costs.

GM shares fell more than 14 percent on Tuesday, and analysts said the recent showdown between GM, its bondholders and the United Auto Workers union underscored the heightened risk of bankruptcy for the top U.S. automaker.

Talks between the UAW and GM were expected to continue right up until the afternoon deadline for the embattled automaker to submit its survival plan to U.S. President Barack Obama's administration.

Tuesday is deadline for both GM and Chrysler, majority-owned by Cerberus Capital, to submit their restructuring plans under the terms of the $17.4 billion bailout that has kept both automakers in business this year.

GM's plan is expected to have 90 pages, with up to 900 pages of additional material and appendix, said a person briefed on the early version of the plan, which was sent to the GM board on Monday.

Once the plans have been submitted, the companies have until March 31 to prove to the government that they can be commercially viable.

Without a framework deal on how to cut GM's crippling debt load, analysts have said the government would confront a political and economic dilemma in the coming days.

Bankruptcy for GM could cost tens of thousands of jobs and topple suppliers and dealers just as the White House is focused on trying to pull the economy from the brink of a deeper recession.

But expanded aid for GM could cost taxpayers billions of dollars more and risk a backlash by voters wary of the mounting costs of bailing out troubled banks, finance companies and automakers.

Analysts expect GM will need an additional $5 billion in the coming weeks -- on top of the $13.4 billion it has already received -- and more beyond that. Chrysler wants a further $3 billion in aid, beyond the $4 billion it has already received, to fund a turnaround and clinch an alliance with Italy's Fiat.

GM and the UAW made progress over the weekend in talks on labor concessions, and GM 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 federal funding to restructure without having to file for bankruptcy protection.

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 car buyers.

But senior executives are now somewhat more open to the prospect of a government-financed bankruptcy if it can be done quickly and if contracts with creditors, the UAW and suppliers can be rewritten, a person involved in the talks has said.

Pressed on whether a government-managed bankruptcy may be needed to deal with the problems of GM and Chrysler, White House spokesman Robert Gibbs said he would not prejudge what measures might be needed.

"To have a strong and viable auto industry is tremendously important for the future," he said.

Earlier, Chrysler's former owner, Germany's Daimler, posted a fourth-quarter loss as it wrote down the value of a $1.5 billion loan to the struggling U.S. automaker. Daimler previously wrote off the full value of its 19.9 percent stake in Chrysler.

AGGRESSIVE COST-CUTTING

The restructuring blueprints from GM and Chrysler will outline plans by both companies to shed capacity and cut jobs 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.

GM's Opel and Saab brands braced for news of the survival plan, which is 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 would not leave Saab unprotected.

Efforts by GM to unload assets to raise cash have gone slowly 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 that it was interested in buying Hummer.

Chrysler's restructuring plan is expected to make a case that the No. 3 U.S. automaker can survive on its own, but few details are likely on how its alliance with Fiat would work, a person familiar with the preparation of the plan said.

($1=.7908 euro)

(Additional reporting by Victoria Klesty, Angelika Gruber, Love Liman, Gilles Castonguay; Writing by John Stonestreet; Editing by Patrick Fitzgibbons, Matthew Lewis and John Wallace)