Bankruptcy option looms as Bush weighs auto aid
DETROIT/WASHINGTON (Reuters) - The White House said on Thursday it is considering the option of an "orderly" bankruptcy as it weighs aid for U.S. automakers and Chrysler LLC prepared to shut down all of its 30 factories for a month.
The move by the Bush administration injected a new note of uncertainty into the politically charged discussions of a bailout for the U.S. automakers that is reaching a conclusion after more than a month of wrangling.
Both Chrysler and General Motors Corp denied earlier on Thursday that merger talks between the two had restarted.
Also, the outlook for a near-term recovery in global auto demand dimmed as Europe saw a record fall in truck sales and an industry group warned that Japanese car sales likely to be the worst in at least three decades next year.
Reflecting the pressure, Toyota Motor Corp may report its first-ever operating loss in the current year ending March 31 as a result of plunging sales and the strength of the yen, the first such loss since it began releasing results in 1940, the Nikkei financial daily reported.
U.S. President George W. Bush is weighing the option of a managed bankruptcy in the U.S. auto industry as it works out details of an aid package that is close to being finalized, the White House said.
In an interview with the American Enterprise Institute, Bush said he was worried about the impact a "disorderly bankruptcy" might have on financial markets and whether or not U.S. automakers can become viable.
The news came as Chrysler geared up to shut down all its factories for a month, starting Friday, as it struggles to survive a deep plunge in vehicle demand that has put a massive strain on its liquidity.
Chrysler, which is seen as the weakest of the three Detroit automakers, has said it needs federal aid to survive into 2009. GM has also requested billions of dollars in immediate help to forestall potential failure.
Ford Motor Co wants a line of credit rather than immediate cash, to guard against a further downturn in its business or a failure of a competitor.
The White House, which has repeatedly said it wants to help only those automakers that have long-term viability, said the administration was taking into account Chrysler's decision on shutdowns.
There is an "orderly way to do bankruptcies that provides for more of a soft landing," White House spokeswoman Dana Perino said. "That would be one of the options. I'm not saying that is necessarily what would be announced."
In a prepackaged or managed bankruptcy, concessions and financing are arranged before a court filing to accelerate and simplify a restructuring.
Meanwhile, both Chrysler and GM said they had not reopened merger talks with Chrysler's parent Cerberus Capital Management, denying a report in The Wall Street Journal that talks had been revived.
GM and Cerberus suspended talks in late October. GM had pushed for up to $10 billion in U.S. government aid to support an acquisition of Chrysler, according to sources with knowledge of the talks. The discussions were dropped when no financing was immediately available.
GM's troubles also deepened as its former finance arm GMAC, which funds most of GM dealers' wholesale vehicle purchases, appealed to existing bondholders to participate in a debt exchange program that would facilitate the company achieving bank holding company status.
GMAC has said being a bank holding company is the only option for its viability and has extended the deadline for its debt exchange offer to December 26.
Barclays Capital analyst Brian Johnson said that if GMAC were to fail. GM would potentially need an additional $9 billion to $13 billion to support wholesale vehicle purchases by its dealers.
GM shares closed down 71 cents, or 16.3 percent, at $3.66 in regular trading on the New York Stock Exchange. Ford shares ended down 30 cents, or 9.6 percent, at $2.84, also on the NYSE.
GLOBAL WOES
Globally, various governments were considering aid for distressed automakers.
The European Commission, as well as individual governments, have pledged support packages to help their carmakers, with France's president, Nicolas Sarkozy, saying on Monday he would consider new forms of assistance, such as loans or guarantees.
The Russian government will also discuss support for its struggling domestic car producers on Friday.
In Japan, the head of the Japan Automobile Manufacturers Association (JAMA) said that it was very difficult to gauge where the bottom is for the global car market.
Announcing its outlook for 2009, the industry group said it expected Japanese demand for new vehicles to fall below 5 million for the first time in 31 years -- the fifth straight year of decline.
For a graphic on Japanese auto demand, click:
https://customers.reuters.com/d/graphics/JP_AUTS1208.gif
JAMA also predicted U.S. light vehicle demand to fall around 6 percent, to 12.5 million units next year, the lowest level since 1991, from an estimated 13.3 million in 2008.
Goldman Sachs also issued a gloomy forecast, cutting its global automotive production and sales growth forecasts to 7 percent from 9 percent for 2009.
The warnings came after Honda Motor Co forecast on Wednesday a six-month operating loss of 190 billion yen ($2.2 billion), sending its shares down 3.5 percent on Thursday.
Adding to the sector's woes, November European truck sales, seen as a barometer for the economy, fell a record 30.8 percent, industry association ACEA said on Thursday.
Meanwhile, Europe's largest carmaker, Volkswagen AG, was expected to hold a meeting with managers later on Thursday. Local media said the company could discuss details of growth targets.
In the United Kingdom, business minister Peter Mandelson said late on Wednesday the government was in talks with the owners of Jaguar Land Rover but would not support or run failed companies.
"I don't have an open cheque book," he said.
($1 = 87.73 yen)
(Writing by Poornima Gupta. Additional reporting by Soyoung Kim, Jui Chakravorty, Jeremy Pelofsky, Kevin Krolicki, Matt Falloon and Amiteshwar Singh; Editing by Patrick Fitzgibbons, Matthew Lewis and Tim Dobbyn)