WASHINGTON (AP) — General Motors Corp. and Chrysler LLC, two venerable titans of American industry that have major operations in Ohio, will burn through $17.4 billion in government loans in three months and want billions more to stay alive.
The ink is still drying on their new requests for an additional $21.6 billion, but for President Barack Obama’s month-old administration, there are no easy answers.
Give them more money? GM and Chrysler could return seeking more. Let them slip into bankruptcy? Hundreds of thousands of jobs could be lost. Try a government-led bankruptcy? In GM’s case, that might cost up to $100 billion.
“There can’t be a bottomless pit to this. There aren’t the resources to deal with it,” White House press secretary Robert Gibbs said Wednesday as the government began reviewing the automakers’ plans.
“We have to get a sustained path to that restructuring to ensure that there isn’t a constant necessity for continued government intervention and money from the taxpayers,” Gibbs said.
At stake is much more than the future of the PT Cruiser or the Saturn Vue. Jobs at assembly plants, car dealers, parts suppliers and the small businesses that serve them could be at risk in a fatigued economy in which nearly 12 million people are unemployed, including about 600,000 who got pink slips last month.
“This is an entire way of life here,” said Republican Rep. Thaddeus McCotter, who represents a district near the auto industry’s hometown of Detroit. “An entire state is hanging in the balance.”
Even if Obama meets GM and Chrysler’s requests for an additional $14 billion in loans and the companies execute the turnaround plans they released Tuesday, it would come with a painful price: An estimated 50,000 workers worldwide would lose their jobs and five more U.S. plants will be closed.
Any deal requires painful concessions from the United Auto Workers, dealers and debt holders, who are mulling plans to swap two-thirds of their holdings for equity as required by the loan terms set by the Bush administration. Shareholders who have watched GM stock drop as low as $1.70 per share in November will see their stake significantly diluted.
GM shares fell 12 cents, or 5.5 percent, to $2.06 Wednesday as investors digested the company’s prognosis.
GM and Chrysler, which initially received $13.4 billion and $4 billion, respectively, are now asking the government for a total of $39 billion, saying they need more loans due to a U.S. auto market where sales have fallen to depths not seen in more than a quarter century.
Without additional aid, GM said it will run out of money in March.
Ford Motor Co., which borrowed billions from private sources before credit markets tightened, has said it can make it through 2009 without government help.
Obama’s administration first must make the difficult determination of whether it’s worth making the loans to save the companies, Fitch Ratings analyst Mark Oline said Wednesday. If the objective is to keep GM operating, then Obama must pick the least-costly path, Oline said.
Both companies painted bleak pictures of bankruptcy, arguing it would cost the government more to finance than bailing them out. The companies have said there’s no private financing available now, so they would go straight to liquidation unless the government stepped up.
2008, The Associated Press. All Rights Reserved.