February 17, 2009 in Business, City

GM, Chrysler finalize road maps

Restructuring plans, due in D.C. today, would cut jobs, production
Kendra Marr Washington Post
 

WASHINGTON – General Motors and Chrysler raced to save their place in the American auto industry Monday, putting the final touches on plans to curb production, cut jobs and pare brands in hopes of securing billions of dollars in additional federal aid.

The plans they are scheduled to submit today to the Obama administration call for a broad restructuring of their operations at a time the industry is suffering one of its steepest declines in decades. But as detailed as the plans are, they are more of a starting point than an end.

In recent weeks, union leaders and bondholders have sparred with the companies over who should make concessions first. All sides remained in negotiations late Monday night.

GM’s efforts to sell Hummer and Saab have yet to secure buyers, and Chrysler’s goal of fashioning an alliance with Italian automaker Fiat remains uncertain enough that it is drawing up an alternative plan that assumes the partnership won’t happen.

Efforts to reduce the number of dealerships have been met with resistance, as local ownership groups lobby their state legislatures for laws making it more expensive to close them.

Adding to the disarray, the Obama administration announced this weekend that it would not name a “car czar” to oversee the restructuring plans but instead rely on a team of government officials. Treasury Secretary Timothy Geithner and Lawrence Summers, director of the National Economic Council, will oversee the panel.

The White House has made it increasingly clear in recent days that it intends to be a partner in the industry’s restructuring and has declined to rule out the possibility that the companies may have to do so under bankruptcy protection.

“We have to ensure that the cars of tomorrow are built here by Americans, for Americans,” White House press secretary Robert Gibbs told reporters Monday.

More than ever, the companies will require federal assistance to manage the transition. The government has already agreed to give GM $13.4 billion in federal loans, $4 billion of which will be handed over this month if the Treasury is satisfied with GM’s restructuring plan. But as sales continue to slump, GM has inched closer to its worst-case scenario, in which it needs a total of $18 billion to survive, said people familiar with the matter who spoke on condition of anonymity because the details are not public.

Chrysler has already received $4 billion, and James Press, the company’s vice chairman and president, said he planned to seek $3 billion more to ride out the economic downturn.

Although the plans are a milestone for the industry, they aren’t the beginning of the restructuring process. Over the past decade, Detroit’s automakers have been shrinking operations to compete with their more agile foreign rivals and battle declining sales.

GM has halved its work force since employment peaked at nearly 200,000 workers in 2000.

It has slashed 40 percent of its models, focusing on smaller cars and so-called crossover vehicles, and streamlined its distribution network, cutting 1,000 dealers. Since 2005, the company has reduced annual structural costs by $10 billion.

Chrysler has completed the majority of its downsizing since it began an aggressive restructuring campaign two years ago. The company has cut $3 billion in fixed costs, reduced manufacturing capacity by one-third, trimmed its work force by about 32,000 employees and discontinued four unprofitable models.

The United Auto Workers has also made important concessions, agreeing to create a health care trust that would shift the multibillion-dollar burden of retiree benefits away from the automakers. A recent collective bargaining agreement also reduced new-hire wages.

The automakers’ new plans aim to accelerate their transformation. Using their original December viability plans as blueprints, they have begun to cement the details of their cost-cutting. Last month, both automakers ended their “jobs banks,” a program that paid furloughed workers.

Then last week, GM announced plans to cut 10,000 white-collar jobs worldwide, including 3,400 in the United States. Salaries for the remaining staff will be temporarily cut as much as 10 percent through the end of 2009.

GM is seeking further concessions from the UAW, and negotiations continued late Monday night. Under the Bush administration, the Treasury sought to reduce UAW compensation to levels competitive with foreign manufacturers.

Another key issue in the talks is whether a portion of a pending company payment to the union-run health care trust fund could be made in company stock rather than cash.

In recent weeks, both GM and Chrysler have offered their workers a range of early retirement and buyout offers, which could help close the gap. For example, GM offered employees a $25,000 voucher for a new GM car or truck and $20,000 in cash; about 22,000 of its employees were eligible.

If enough people accept such offers, the automakers could significantly lower their average wages – most current workers earn $28 an hour, but new hires start at $14.

“These companies are doing what companies in bankruptcy do to avoid bankruptcy,” said Gregg Lemos-Stein, an analyst with Standard & Poor’s.

The restructuring efforts extend beyond GM and Chrysler. Ford is also suffering from falling sales and is burning through its cash, though it has yet to ask for government help. Last week, auto parts suppliers, struggling with their own losses as vehicle sales decline, requested their own multibillion-dollar government bailout.

Obama’s auto industry task force will include Ron Bloom, a restructuring expert and former vice president of investment bank Lazard Freres who has advised the United Steelworkers union, and Diana Farrell, the president’s deputy economic adviser who has worked for McKinsey and Goldman Sachs.

Some analysts said an oversight team, versus a single car czar, could help the union in its negotiations.

“A panel … means there will be more White House influence on what’s being done,” said Gary N. Chaison, professor of industrial relations at Clark University in Worcester, Mass.

“The UAW will have more protections in rewriting their collective agreement.”


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