By Mike Caggeso
Running out of cash and in danger of collapse, General Motors Corp. (GM) will try to negotiate for new union work rules and seek to cut debt levels in attempt to boost its chances of securing crucial federal loans.
GM is also considering dropping brands of vehicles and asking to delay a $7 billion payment to a union retiree health fund, people familiar with the plan told Bloomberg.
Last week, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid gave the "Big Three" – GM, Ford Motor Co. (F), and Chrysler LLC – a Dec. 2 deadline to give the government some legitimate reasons why they deserve a $25 billion federal loan.
From there, Congress could vote by Dec. 8 to approve or disapprove the bailout.
Congress' demands stem from the now infamous performance of the Big Three's CEOs – GM's Richard Wagoner, Ford Chief Executive Alan Mulally and Chrysler's Robert Nardelli – last week when they appealed Congress for an industry-wide bailout.
Instead, they were on the receiving end of a public lashing – most notably from Rep. Gary L. Ackerman (D-N.Y.), who lambasted the executives for flying separately in private jets to Washington D.C.
"There's a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands," Ackerman said. "It's almost like seeing a guy show up at the soup kitchen in high-hat and tuxedo… I mean, couldn't you all have downgraded to first class or jet-pooled or something to get here?"
Whether selecting a different mode of transportation would have saved each company 1 cent or $1 million, the bottom line is that they need to cut any costs they can.
So far, GM's been getting the message.
Since Wagoner flew home from Capitol Hill with his tail between his legs, the company returned two of its leased private jets. It stopped running its escalator at 7 p.m. at its headquarters. It stopped buying batteries for hanging wall clocks, eliminated voicemail in plants and consolidated printers and copies. It's now buying cheaper toilet paper and pencils, The Wall Street Journal reported.
The goal is to cut at least $15 billion in costs.
GM reported a $4.2 billion operating loss for the quarter ended Sept. 30, while Ford posted a $2.98 billion operating loss during that same period. Together, the companies burned through a combined $14.6 billion of cash in the third quarter.
Ford chewed through $7.7 billion in cash taking its reserves down to $18.9 billion from $26.6 billion at the end of the second quarter. If the company continues to burn cash at this rate, Ford will run out of money by April 2009.
GM is even worse off. The nation's largest automaker said that the amount of cash it has on hand fell to $16.2 billion at the end of September, down from $21 billion at the end of June.
If any, or all, of Detroit's Big Three fail to acquire the financing they need going forward, the consequences for the U.S. labor market – and for the economy – could be devastating.
All told, the three automakers employ more than 200,000 people and support millions more U.S. workers indirectly through suppliers and dealerships. Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn't count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.
News and Related Story Links:
- Wall Street Journal:
Pencils? Wall Clocks? No Cost Cuts Are Too Small at GM
- Money Morning:
GM, Ford, and Chrysler Chiefs Push for Action in Washington as Congress Debates Another Bailout