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White House task force reviewing GM, Chrysler plans

Last update: 11:23 a.m. EST March 7, 2009


WASHINGTON President Barack Obama's auto industry task force completed its initial phase of fact-finding Friday, updating White House officials on restructuring plans by General Motors Corp. (GM
General Motors Corporation

Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers met with members of Obama's cabinet at the White House to go over their review of the plans, an administration official said. The gathering followed several weeks of meetings in which task force members went over the plans with executives at the companies and other stakeholders - suppliers, dealers, creditors, and labor leaders - as well as members of Congress and state and local elected officials.
Earlier Friday, the task force met with representatives of auto dealers and officials at the Sloan Automotive Laboratory at Massachusetts Institute of Technology, the official said.

The task force is to decide by March 31 whether the government should grant more aid to GM and Chrysler, who are already surviving on billions of dollars of government loans and have requested billions more to avoid a bankruptcy filing.

At the White House, meeting participants discussed several aspects of the companies' plans as well as broader industry issues, such as the crisis facing parts suppliers, said the official, who declined to elaborate. They also discussed the next steps the task force would take.

On Monday, Ron Bloom and Steven Rattner, who are advising the administration on the industry, are scheduled to meet with GM and Chrysler executives and top officials at the United Auto Workers union.

Administration officials are still weeks away from making a decision on how to assist the struggling auto makers, according to a Wall Street Journal report. The negotiations with GM and Chrysler are supposed to conclude by March 31, but with so many issues unresolved, people involved with the talks say the effort could slip into April.


Ford executives to discuss the state of the auto industry. A Ford spokesman said the company didn't seek emergency financial assistance at the meeting. Ford says it is positioned to survive the economic downturn.
Chrysler was given $4 billion in U.S. loans in December and has requested an additional $5 billion it said it needs to stay afloat. GM has received $13.4 billion in aid and is seeking up to $16.6 billion more.

LINK:MarketWatch.com: Stock Market Quotes - Business News - Financial News
 

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Obama auto team’s visit lifts hopes

March 9, 2009

Obama auto team’s visit lifts hopes



After weeks of hearing about Detroit’s problems, President Barack Obama’s auto task force — charged with finding a fix for the long-ailing U.S. auto industry — came today to see firsthand what’s wrong and what’s worth saving.

There’s little time left for the team to make decisions.

The task force faces a March 31 deadline to decide whether General Motors Corp. and Chrysler LLC have made enough progress on their turnaround plans to keep the government loans. The automakers, and their teetering suppliers, say they need billions more, within weeks, to stay afloat.

The task force will continue to gather data, but its members will soon turn to winnowing options for the U.S. auto industry, which has been crushed by a plunge in vehicle sales that shows no signs of easing.

“We are working as hard as we can to make sure we fully understand the situation,” said an administration official close to the task force, who spoke on condition of anonymity following the meetings today.

“We also very much recognize the magnitude of the challenge here and want to make sure we are as deliberate in this process as we are focused on the urgency. In the private sector, transactions of this magnitude would take months, and we are trying to do this due diligence and fact gathering as quickly and efficiently as we can.”

With drives in preproduction Chevrolet Volts, a two-hour meeting with UAW President Ron Gettelfinger and a tour of Chrysler’s sprawling Warren truck plant, the four members of the task force had no downtime in their Detroit foray, the first visit to the city for some of them.

Some workers viewed the visit as a positive sign.

“Anytime you can get politicians or anyone in charge to come down to see what’s going on, it’s a good thing,” said Warren truck autoworker Carnell Glenn, 55, of Clinton Township.

“Everybody is trying to be optimistic."

Team knows need is urgent

Today’s visit caps weeks of meetings with industry leaders and experts by the team.

The administration has ruled out a disorderly bankruptcy, but all other options — including a government-funded bankruptcy — remain.

GM and Chrysler have said they need $2 billion and $5 billion, respectively, by the end of the month to stay in business.

GM has asked for as much as $16.6 billion on top of the $13.4 billion it has already received in government loans. Chrysler has already received $4 billion, which would bring its total request to $9 billion.

Aaron Bragman, an industry analyst from IHS Global Insight, said the auto task force will need to take action soon to help auto suppliers, Chrysler and GM avoid insolvency.

“From what I hear, the urgency has not been lost on them,” Bragman said.

If the task force decides that GM and Chrysler have not made enough progress on their turnarounds plans by March 31, the government loans could be called back, and the companies could be allowed to fail.

The administration official said the team would act in agreement with the loans, but declined to identify a more specific timetable for presenting any plan.

And though the task force’s visit did not include parts suppliers, who have warned of an imminent wave of bankruptcies, the official said the suppliers’ problems were “something we’re very aware of, and we’re going to have at the front of our minds as we move forward.”

GM called the day’s visit a “constructive glimpse” at the company’s workers, their efforts and “the technology of solutions that are behind the pages of our viability plan.”

“We were pleased to host the task force so they could experience firsthand the new products and technologies that are an integral part of GM’s near- and long-term competitiveness,” GM said in a statement, adding that it would provide any other help to task force members “as they move quickly to address their critical tasks.”

What the group saw and did

Today’s visit to Detroit was a whirlwind day for he four members of the task force who made the trip, including lead advisers Steven Rattner, a Wall Street financier, and Ron Bloom, a former investment banker and adviser to the United Steelworkers.

It began with a meeting at UAW’s Solidarity House headquarters, with Gettelfinger and other officials. The UAW has agreed to contract changes at GM and Chrysler to cut costs, but the union is still in talks on altering its retiree health care trusts, a key part of their turnaround plans.

About noon, the team arrived at GM’s Warren Tech Center for a visit that lasted about three hours.

GM encouraged task force members to get in one of two preproduction Chevrolet Volts, an electric-drive vehicle scheduled for sale next year, and a fuel-cell Chevrolet Equinox, a person familiar with the efforts said.

They had lunch, met with GM Chief Executive Rick Wagoner and discussed with GM executives the company’s long-term plans before heading to Chrysler’s nearby Warren truck plant.

Bloom pulled up to the plant where the Dodge Ram is built in a silver Jeep Grand Cherokee, where Chrysler Chief Financial Officer Ron Kolka greeted the members. The team then met with Chrysler CEO Bob Nardelli and co-Presidents Jim Press and Tom LaSorda, touring the facility and reviewing current and future products, including plans for electric vehicles.

“We look forward to continuing our dialogue,” Chrysler said in a statement following the two-hour meeting.

Oscar Mendez, a 15-year Chrysler worker, said he was glad they visited his plant.

“Hopefully, they take into consideration … the people that build the trucks here and their families,” said Mendez, 36, of Lincoln Park.

LINK:Obama auto team’s visit lifts hopes | Freep.com | Detroit Free Press
 

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Statement regarding presidential task force visit

Statement regarding presidential task force visit

Posted Tuesday, Mar 10, 2009, 2:56 pm in Employee News

Company officials released the following statement yesterday to the media following their meetings with the Presidential Task Force on the Auto Industry:

“Chrysler LLC was pleased to meet today with the Presidential Task Force on the Auto Industry here at our manufacturing plant in Warren, Mich. Warren Truck Assembly Plant is home to 2,600 Chrysler employees and produces Dodge pickup trucks, including one of the company’s best-known products, the Dodge Ram, winner of Car and Drivers’ 2009 truck comparison.


“We can confirm that on behalf of Chrysler LLC, the meeting was attended by Chairman and CEO Robert Nardelli, Vice Chairman and President Tom LaSorda, Vice Chairman and President Jim Press and Chief Financial Officer Ron Kolka. In addition to meeting, the group toured the assembly plant and reviewed Chrysler’s current and future products, including electric and hybrid vehicles.

“Beyond this, we are not commenting on the details of our meetings with the Presidential Task Force.

“We’re fully engaged with the Presidential Task Force on the Auto Industry, the U.S. Treasury and the White House during this process of ensuring the industry’s viability going forward. We look forward to continuing our dialogue.”
 

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Railroad Bailout May Offer a Model

March 16, 2009
Railroad Bailout May Offer a Model for Detroit


As General Motors and Chrysler struggle to remain solvent, the railroad bailout of a generation ago could offer a template to the Obama administration — one in which the federal government would run the auto companies until they are back on their feet.

That was a different age, of course. Congress was very much on board, supervising the reorganization of the bankrupt Northeastern railroads and then forming Conrail, in 1976, to run them. The auto companies, in contrast, are being pushed by the White House and Congress to reorganize themselves and remain private corporations, owned by shareholders.

Conrail presided over huge cutbacks in rail operations, leaving the railroad system with much less track and roughly half the number of employees. By 1981, it was turning a profit hauling freight, and eventually its operations were sold back to privately operated lines.

Five years after Conrail’s creation, Ronald Reagan became president and gave government takeovers a bad name by popularizing the view that government was inept in the marketplace. The Obama administration, respectful of this continuing view, wants the automakers to stand on their own, with only temporary federal loans to get them through the hard times.

“The ideological debate already in progress,” said Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School of Business, “is whether government should actually direct the auto companies, stepping into management, or passively give them more loans, and then get out of the way.”

The railroad failures in the Northeast, vividly evident in the 1970 bankruptcy of the Penn Central network, endangered an industry that President Gerald Ford and Congress considered vital to the nation’s well-being. The American-owned automakers are similarly regarded as vital; if not all three, then at least General Motors and Ford. Automaking in this country might not survive, this argument goes, without American companies at its core.

Their footprint in manufacturing is huge. Even now, no other industrial sector, except perhaps pharmaceuticals, spends more on research than the Big Three, according to the Center for Automotive Research in Ann Arbor, Mich. The automakers are also the principal customers for the nation’s 6,000 independent auto parts makers.

“The hit to the parts makers if one or two of the Big Three disappeared would be so great that Toyota and Honda would have difficulty operating here, and they have said so publicly,” said Sean McAlinden, the center’s chief economist.

The Obama administration’s reaction, so far, has been to appoint a task force that is sorting out the viability of G.M. and Chrysler. The goal of the task force is to determine whether the automakers’ plans for survival — even the best laid plans — justify the risk of billions more in bridge loans, on top of the $17.4 billion already lent. The goal is to keep the companies alive, and out of bankruptcy, until auto sales climb back to a level that would permit them to survive on their own.

For that to happen, vehicle sales nationwide would have to reach at least 12.5 million to 13 million a year, G.M. said in the survival plan that it submitted to support its case for more federal loans. Ford and Chrysler offer similar estimates. The annualized sales rate in February, in contrast, was only nine million. And months may pass before that rate climbs back to 12.5 million or 13 million — a pace associated with upturns in the economy or milder recessions than this one.

Whatever the dangers of persistently weak sales, “the task force does not seem to be going in the direction of running the auto companies, even though that might be a fine idea,” said Dan Luria, research director for the Michigan Manufacturing Technology Center, who has spoken with some of the 21 task force members.

None has spoken publicly yet. But there are eerie similarities in the unwinding of the railroads in the 1970s and the American-owned automakers today.

Hurricane Agnes, sweeping through the Northeast in 1972, did roughly the same damage to the railroads as the devastating recession is doing today to the auto industry. The hurricane flooded hundreds of miles of track, precipitating more bankruptcies among already weakened railroad companies operating lines from Boston west to Chicago and St. Louis.

The biggest bankruptcy was in 1970, when Penn Central went under, leaving lenders, mainly banks, holding $100 million in suddenly worthless commercial paper. In what turned out to be a preview for today, the Federal Reserve pumped reserves into the damaged banks, just as it is doing now on a broader basis.

More to the point, if the auto companies declared bankruptcy, shedding their debts, then Washington would be under pressure to cover a shortfall of more than $30 billion in retiree benefits, mainly for health care.

The Obama task force itself has a rough parallel in the railroad crisis. Congress created a similar commission in 1973, on the heels of Agnes, to lay out a course of action that would make the railroads workable in their competition with truckers for freight. About 12,000 miles of underused track were abandoned, the work force was cut to 50,000 from 100,000, and unprofitable passenger services were jettisoned.

The American auto companies are similarly slimming down, but ad hoc in response to a recession that has destroyed their sales. Factories have been closed, car models dropped and 235,000 auto workers have lost their jobs in the last year, or 25 percent of those making vehicles and parts.

Pay is also shrinking. With the tacit agreement of the United Automobile Workers, wage rates are gradually being cut to the levels paid by the foreign auto companies assembling vehicles here, in nonunion plants.

“The U.A.W. realized that bailout money would not be provided unless it brought wages and even benefits into line with those of the transplants,” said Harry Katz, a labor economist and dean of Cornell’s School of Industrial and Labor Relations. “That was the standard that moderate Democrats accepted.”

Despite the cost cutting, the American auto companies may need federal loans for many months to stay afloat. Faced with that same situation in the 1970s, Congress created Conrail to run bankrupt freight lines in the Northeast and Midwest.

Five years later, the government-run company earned its first profit. In time Conrail disappeared, its operations sold to commercial railroads that dominate freight traffic today across the country and do so profitably.

But there is a difference. Railroads, regulated for decades, had come to be viewed as public utilities, and federal ownership was not unimaginable, said John McArthur, dean emeritus of the Harvard Business School and a Penn Central bankruptcy trustee.

“Discussions about the American railroad system and its shortcomings went on all through the first half of the 20th century,” he said, “and when the crisis came, there was a consensus how to proceed. Today, our society has yet to decide whether we want government-owned auto companies.”

LINK:http://www.nytimes.com/2009/03/16/business/16rail.html?ref=us
 

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Fiat: Help Repay Billions?

Fiat proposes deal to help rescue Chrysler

4:00AM Saturday Mar 14, 2009

The chief executive of Fiat Group SpA told the Obama Administration that the Italian carmaker could revive Chrysler LLC and help it repay billions in government loans.

Fiat CEO Sergio Marchionne said the Administration's auto task force was receptive to a proposed partnership that would give Fiat a 35 per cent stake in the struggling United States carmaker in exchange for new technology but no cash.


"We can add value," Marchionne told reporters after the 2 hour meeting with the auto panel at the Treasury Department. "That's the real issue and it's a necessary ingredient of the revival of Chrysler."

General Motors and Chrysler have received US$17.4 billion ($34 billion) in federal loans and requested an additional $21.6 billion last month. The Government is trying to revamp the companies by March 31 and has been meeting stakeholders as it tries to find a way to resurrect the companies.

Chrysler contends the alliance with Fiat would help both auto manufacturers. Fiat could provide Chrysler with a broad array of fuel-efficient small and mid-size cars, something Chrysler lacks, and give Chrysler access to foreign markets.

Fiat's Marchionne has been seeking a US partner to bring Fiat's successful update of the 500 minicar and its sporty Alfa Romeo brand to the United States.

Fiat met Steve Rattner and Ron Bloom, top advisers to Treasury Secretary Timothy Geithner, and other government officials.

Marchionne said the panel "wanted to know what the industrial alliance will look like and what it will look like after we're finished.

"I think they were intelligently critical of all things that were relevant ... and rightly so. They're looking at taxpayers' funding," he said.

Some members of Congress have questioned whether the Government should save a company with a significant foreign stake in a major US automaker.

Marchionne said "nothing is going to be taken out of the US and the main objective is to repay every single dollar of taxpayer funding before anyone gets anything".

Meanwhile, Senate Republican leader John Boehner doesn't support handing over more federal money to keep GM afloat unless the carmaker develops a viable long-term business model and can pay back government loans.

"Anything short of that is just throwing good money after bad," Boehner said on CBS television's Face the Nation.

As part of the deal that provided US$17.4 billion in federal aid to GM and Chrysler LLC, the companies must seek changes in their contracts with the United Auto Workers labour union (UAW) by March 31. The car companies must bring their labour costs in line with those of foreign competitors' plants in the US.

Although Ford Motor Co has not sought federal assistance, it has reached an agreement with the UAW to freeze wages and make other concessions.

While Boehner said he hopes that GM will not have to turn to bankruptcy, Republican Senators John McCain of Arizona and Richard Shelby of Alabama said they want the carmaker to seek bankruptcy protection, which would allow for reorganisation.

"I think the best thing that could probably happen to General Motors, in my view, is they go into Chapter 11, they reorganise, they renegotiate their union management contracts and come out of it a stronger, better, leaner and a more competitive automotive industry," McCain said on Fox News Sunday.

Shelby, appearing on ABC's This Week, said Chrysler and Ford, as well as GM, belong in Chapter 11 and then could get federal money as part of the process of reorganisation.

Boehner said GM's survival will depend on employees, stockholders and others with a financial interest in the company agreeing on a plan for the future.

"It's an important institution in our country. It impacts hundreds of thousands of jobs. But they have to do the serious work that they've avoided doing over the last 30 years if they're going to survive," he said.

Chapter 11 of the US Bankruptcy Code frees a company from the threat of creditors' lawsuits while it reorganises its finances under a court-approved plan. The company's reorganisation plan must be accepted by a majority of its creditors. Unless the court rules otherwise, the debtor remains in control of the business and its assets.

LINK:Fiat proposes deal to help rescue Chrysler - Motoring - NZ Herald News
 
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