GM, Chrysler, to Submit Turnaround Plans or Face Debt Recall

by Tina Kells | February 16, 2009 at 01:08 pm

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The automaker bailout watchdogs seem to have more teeth than their Wall Street counterparts as they call on Detroit to submit detailed viable turnaround plans or face a bailout debt recall, Tuesday.

The Big 3 automakers rallied Washington for funds at the end of 2008 were only granted funding after agreeing to submit plans to prove that they can be viable in the long run. That is proving more difficult than was first expected as all three US automakers saw sales plummet in the last quarter of the year.

The two struggling automakers, which received approval for $17.4 billion in federal loans in December ($13.4 billion for GM and $4 billion for Chrysler), are required by the terms of their agreement to show that they can be viable for the long term. Otherwise, the government could recall the loans.
Both companies submitted turnaround plans to Congress in December when they were first seeking federal assistance -- but conditions have gotten considerably worse in just two months.

Auto sales in January were terrible, with the industry reporting a seasonally adjusted annual sales pace, or SAAR, of only 9.5 million cars and light trucks, the worst in 26 years.

Chrylser Vice Chairman Jim Press warned that sales have dropped to unsustainable levels of 10 million per year and that these levels are expected to stay the same, or even get worse, over the next four years. At an annual "10 million market" Press claims it is impossible for any automaker to maintain profitability.

"It would be a mistake to assume that this "10-million market" is an aberration. Instead, we need to accept and come to grips with it," Press said. "Yogi Berra was right when he said, 'The future just ain't what it used to be.'"

Massive restructuring and cost cutting will be needed if any of the Detroit automakers is to be able to submit a viable turnaround plan. This will take major concessions from creditors as well as heady negotiations with the United Auto Workers union to achieve. Washington expects GM to eliminate two-thirds of its debt under the terms of the bailout funding it received.

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