Big Three Auto Companies Weighing How to Shed Weight for Gov't Bailout

By Mike Caggeso
Associate Editor
Money Morning

Two days before the chief executives of Detroit’s Big Three – General Motors Corp. (GM), Ford Motor Co. (F), and Chrysler Corp. – march back to Capitol Hill to again petition Congress for a $25 billion bailout, details about each company’s plan to scale back operations are emerging.

Each CEO – GM’s Richard Wagoner, Ford Chief Executive Alan Mulally and Chrysler’s Robert “Bob” Nardelli – left Washington D.C. two weeks ago scolded, and with a clear understanding that the government is expecting each company to shed costs and present forward-looking plans that prove taxpayer money will not be wasted.

Wagoner has been fuzzy on the company’s goal to cut at least $15 billion in costs, but few options have been ruled out.

GM could further reduce its North American workforce. It could eliminate and/or sell one or more of its brands. The primary name on the table is Sweden-based Saab, and the interested buyer is the Swedish government.

Some of its directors say filing for Chapter 11 bankruptcy protection is also an option, though one Wagoner has said is off the table, The Street reported.

So far, GM has asked to delay a $7 billion payment to a union retiree health fund. It 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 also buying cheaper toilet paper and pencils. 

Meanwhile, Ford has pulled back the curtain on nearly all of its plans to hopefully break even by 2011.

In the cost-cutting arena, the company is canceling 2009 bonuses for its managers around the world, as well as all U.S. employees. Mulally would work for $1/year if Ford receives a bailout. Ford will sell its corporate aircraft will continue reducing its dealer and supplier base, estimating it will have 3,790 dealers by end of 2008, Reuters reported.

It’s also weighing the sale its Sweden-based car unit Volvo Car Corp. to Sweden. Despite high safety ratings, Volvo only captured a 0.5% of the market through October, down from 0.8% a year earlier and accounting for 3.7% of Ford’s total sales last year.

Ford is also hatching plans to produce better and more-appealing vehicles. It plans to invest about $14 billion over the next seven years in fuel-efficient technologies and products. And it is planning a line of electric cars, but details on those won’t be revealed until the Detroit Auto Show.

Chrysler has been mum on current cutback plans.

In October, Nardelli ordered a 25% reduction in the Chrysler’s salaried workforce. And the company is close enough to its stated goal of eliminating 5,000 salaried jobs by year’s end – largely facilitated by salaried employees who accepted buyouts and early retirement – that it doesn’t anticipate many more layoffs.

Nardelli was the first of the CEOs to suggest he’d work for $1 a year. He also said that Chrysler’s owner, private equity firm Cerberus Capital Management LP, will pledge to forgo any profits from a Chrysler sale if the car company receives government money, The Detroit Free Press reported.

And in case you were wondering each CEOs travel plans Thursday:

  • GM’s Wagoner will drive a Chevy Malibu hybrid from Detroit to DC.
  • Ford’s Mulally will travel in a Ford Escape Hybrid
  • Chrysler’s Nardelli is keeping his travel plans secret for security reasons, but will ditch the corporate jet.

Emergency Meeting With Union

Before their bigwigs arrive in Washington D.C., the companies will ask United Auto Workers officials to reopen a 2007 labor agreement to further cut costs, a person familiar with the situation told Bloomberg.

According to Bloomberg, GM will seek to stop paying union workers when plants are closed and no work is available, and Ford and Chrysler likely will ask for similar concessions.

“We are at the bargaining table every day working on things to make these companies, to put them in better shape if you will,” UAW President Ron Gettelfinger said in an interview on Bloomberg Television. “Other people need to come in to see what they can do to assist these companies.”

GM said today (Tuesday) that light vehicle sales dropped 41% in November, from 261,273 vehicles a year ago to 153,404.

Ford didn't fare much better, with U.S. sales in November falling 31%. Every line of Ford vehicle posted falling sales, and the company responded by slashing first-quarter North American output for 38% to 430,000 vehicles, Bloomberg reported.

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