By Mike Caggeso
And in a separate story yesterday – which underscores that the auto sector's woes are going global – Nissan Motor Corp. (ADR:NSANY) said it would cut 20,000 jobs by the end of 2010 and expects to book a net loss for the year ended March 31, which would be its first loss in 14 years.
But the outlook for Detroit's "Big Three" is clearly worse, right now. From the time U.S. carmakers first approached Congress about obtaining bailout money for the American auto industry, GM and Chrysler have adamantly opposed bankruptcy. Indeed, as far back as their first visit to Washington – when the CEOs caused a firestorm of controversy by flying to the meeting in their corporate jets – the automakers' top executives said the bankruptcy labels would weaken their companies' reputations by pushing potential customers to other brands.
However, the government could force bankruptcy by applying the debtor-in-possession status to the loans, which would make debts owed to the government the top priority, Don Workman, a partner at Baker & Hostetler LLP and bankruptcy expert, told Bloomberg News.
GM and Chrysler have until next Tuesday (Feb 17) to demonstrate progress on their plans – reducing labor costs and showing how they'll begin repaying loans – enacted in order to receive loans from the Troubled Asset Relief Program (TARP).
GM said it plans to close dealerships and continue cutting union retirement benefits. Chrysler's CEO Robert Nardelli previously said the company would try reducing debt, Bloomberg reported.
GM is talking with parts maker and supplier Delphi Corp. (DPHIQ) – which was spun off from GM 10 years ago – about buying back assets, which will shore up GM's supply chain, Reuters reported.
The bottom: The government wants more cost-cutting and income-generating measures from the carmakers. And if GM and Chrysler can't do it themselves, their loans will be yanked.
Nissan Announces 20,000 Job Cuts
Across the Pacific, Nissan said it must cut jobs because of lackluster sales – including its first loss in nearly a decade and a half.
"In every planning scenario we built, our worst assumptions on the state of the global economy have been met or exceeded, with the continuing grip on credit and declining consumer confidence being the most damaging factors," Nissan President and CEO Carlos Ghosn said in a statement. "Looking forward, our priority remains on protecting our free cash flow and taking swift, adequate and impactful actions to improve our business performance."
The 20,000 job cuts equate to 8.5% of Japan's No. 3 automaker, Reuters reported, and is just one of several recovery actions the company outlined in a news release. Others include:
- Launching an average of 10 new vehicles every year from 2009 to 2012.
- Reducing labor costs in line with decreased revenues. Labor costs will be cut 20% in fiscal 2009.
- Eliminate bonus payments to its board of directors for 2008 and reduce board and corporate salaries by 10% starting in March and lasting "until the situation clearly improves."
- Negotiate and hopefully implement a work-sharing scheme for staff workers.
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Nissan to slash 20,000 jobs