President Barack Obama will announce the next steps to help General Motors Corp and Chrysler on Monday, the White House said, amid signs of progress for GM in talks aimed at slashing its debt and cutting costs in response to slack demand.
GM Chief Executive Rick Wagoner was in Washington on Friday to meet with the autos task force, led by former investment banker Steve Rattner, which Obama has charged with overseeing emergency lending to the automakers and their suppliers.
Shares of GM gained almost 6% and have rallied by more than 30% over the past 10 trading sessions amid growing confidence that officials will not push the top US automaker into bankruptcy.
A White House spokesman said the panel was in the process wrapping up about six weeks of closed-door meetings that have included industry executives, analysts and others with a stake in the survival of the US auto industry.
“The president’s autos task force is meeting today. I think they are winding down the decisions that have to be made and putting in place a plan that the president will announce on Monday,” White House spokesman Robert Gibbs said. “The president, I think, will outline what he thinks is the best way forward to achieve viability for the companies in both the short term and the longer term,” Gibbs said.
GM and Chrysler have taken $17.4 billion in emergency funding from the US Treasury and have asked for another $22 billion to complete cost-cutting programs and ride out the weakest market for new cars in almost three decades.
US auto suppliers have also won a $5 billion aid package intended to free up liquidity for a cash-strapped sector that analysts had warned was at risk for cascading failures.
The New York Times reported on Friday that the Obama administration was likely to give more aid to the embattled automakers while also setting a short-term deadline for the companies to reach deals to cut their debt with creditors and the United Auto Workers union.
Quoting unnamed people familiar with the talks, the newspaper said the autos task force was likely to recommend more aid for the automakers while also saying that an eventual bankruptcy remains a risk for either company.
However, many observers of the emerging autos bailout under the Obama administration have concluded that a bankruptcy has become an increasingly remote risk.
Barclays Capital analyst Brian Johnson said the recent statements from the White House “could imply a willingness from the government to support both restructuring plans ‘as is’ instead of pushing for deeper cuts.”
Those more painful actions could have included a Chrysler merger or a GM bankruptcy filing in order to push the automakers towards a lower cost structure, he said in a note for clients.
Auto sales have been at 27-year lows so far this year and many analysts believe that March sales data, set to be released next Wednesday, will show a further weakening in demand.
GM CONCESSION TALKS PROGRESS
The loans for GM and Chrysler approved under the Bush administration set a March 31 deadline for them to prove they can be made viable in order to win new government funding.
As part of that effort, both GM and Chrysler have to win concessions from creditors and from the UAW. GM’s bailout sets a target of cutting its cash outlays by getting the UAW to accept half of the $20 billion it is owed for a trust fund for retiree healthcare in GM stock, not cash.
CNBC reported on Friday that GM had offered the union $10 billion in preferred stock at 9% to settle its health-care claim. GM had no comment on that reported offer but said the two sides remained in talks.
“We will not respond to speculation,” UAW President Ron Gettelfinger said in a statement. “Our union is continuing to work with the task force and the auto companies to find a solution to the many issues we face.”
Separately, GM has given bondholders holding over $27 billion in its debt a new proposal on terms for exchanging most of that debt into equity, according to a person with direct knowledge of the negotiations. GM sent a letter to representatives of GM bondholders earlier in the week, according to the person who asked not to be named because of the confidential nature of the talks.
Bondholders had complained in a letter sent on Sunday to US Treasury Secretary Timothy Geithner that their negotiations on restructuring GM’s debt in recent weeks had been stalled in recent weeks.
In Toronto, Chrysler and the Canadian Auto Workers union remained “far apart” in negotiations aimed at a cost-saving deal to help the struggling No. 3 US automaker qualify for aid from the Canadian government.
CAW President Ken Lewenza said negotiations had been “very frustrating and at times confusing” as the two sides appeared to be near a deal only to see it fall apart twice in the last 48 hours. (Reuters)