GM Tells Government It Won’t Need $2B Loan Installment for March 2009
By Chris Haak
In a very rare bit of good news for GM, the company has told the Obama Administration’s auto task force (the Presidential Task Force on The Auto Industry) today that it will not yet need the $2 billion loan installment that it had originally said in its February 17 viability report to the administration by the end of March. While this is something of a piece of good news, it’s not quite as good as it sounds.
GM attributes its non-need to cost-cutting moves and spending deferrals that are starting to take hold. Basically, most new-vehicle development programs are on hold with the exception of a few high-profile ones (Volt, Cruze) and those already more or less out the door (Camaro), so the “spending deferrals” aren’t much more than slowing investment in new vehicles to a trickle – not a viable long-term strategy by any stretch.
Also, GM made clear that the company will probably still need all of the billions that it requested throughout 2009, but just doesn’t need them in March. In fact, it’s quite likely that GM will need to receive another few billion dollars from the government in April. Aside from navigating through any obstacles set forth by the Presidential Task Force, GM needs to worry about two major negotiating problems.
First, the company must wring meaningful concessions from the UAW. Ford has already successfully done this, but GM has different needs (and a different urgency) than Ford does. Automotive Newsreported that people familiar with both companies’ discussions with the UAW (so, presumably UAW members or leadership) have said that GM was able to wring more concessions from the union than Ford was. Perhaps Ford’s portrayal of itself as the healthy (relatively speaking) US automaker was unhelpful in those discussions. GM apparently has not yet been successful in negotiating with the union to accept company stock as partial payment toward funding the VEBA, which is a key demand of the company’s loan agreement with the Federal government.
General Motors is finding negotiations with bondholders – the entities that own the company’s staggeringly large debt load – to be far more difficult than negotiations with labor have been. The company faces the daunting task of negotiating with individual bondholders, which is proving incredibly difficult. A Chapter 11 filing would certainly have some serious downsides, but one upside would be that conditions could be imposed on the bondholders by a judge in one fell swoop.
Still plenty of bad news to go around for GM, but let’s pause momentarily and give them credit for notneeding a few more billion in March, even if that’s mostly due to cutting product development (such as the 4.5 liter Duramax diesel, among other things) into the bone.
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