General Motors announced yesterday they need $2 billion in immediate funding, and up to $30 billion in the long run, in order to fend off bankruptcy and possibly become profitable within two years.. The statement was released as GM submitted their 100-page viability plan to the U.S. Treasury.
In addition, GM expects to cut out 47,000 jobs this year from all of their global operations, and 20,000 U.S. jobs over the next three years. They would also shutter 14 U.S. plants over that time period. GM's plan is contingent on concessions from unionized labor, retirees, bondholders, and other stakeholders, many of which have not been agreed upon.
The General's viability plan was a requirement of loan conditions set out when the company took a U.S.-backed bailout loan at the end of 2008.
To date, GM has received $13.4 billion in loan money. This figure is included in the $30 billion total. Executives say they need $2 billion by March, $2.6 billion in April, up to $7.5 billion more if the market stays in a slump, and an additional line of credit.
“GM’s plan is comprehensive, responsive and achievable. It is based on conservative assumptions and is flexible enough to adapt to changing circumstances such as those we’ve seen since Dec. 2. We have a lot of work in front of us but we’re confident that our plan will result in a sustainable and profitable General Motors,” said General Motors CEO Rick Wagoner.
Chrysler was also required to submit their own plan to the Treasury. Their plan calls for another $5 billion in government-backed loans, in addition to the $4 billion already received. Chrysler says that if it is forced into bankrupcy, the overall cost could reach $25 billion, including 300,000 jobs lost, and the collapse of their 3,000+ dealers.
The doomsday scenario for GM is also bankruptcy, which could be triggered by the U.S. government immediately calling in the loans that GM has already received. Wagoner says it could cost $100 billion to shore up the company's bottom line and get it out of a court mandated restructuring.
However, that scenario might be keeping Wagoner's view of what it would take to keep GM the conglomerate that it is.
Buyers have already stepped forward to express interest in purchasing Hummer and Saab, while Saturn is believed to be on the auction block as well. Other GM labels, like Opel, and possibly Cadillac, could likely be sold off to add an influx of cash to the company. Ford used this reasoning when they sold off Jaguar, Land Rover, and Aston Martin over the last two years. Ford has not taken a bailout loan from the U.S. government.
If granted the additional funding, GM says they could return to profitability in two years.
Unfortunately for GM, their is also a substantial political risk involved. The administration of new U.S. President Barack Obama has the final say on granting GM their influx of cash. For Obama, this could prove lethal to his popularity, as Americans grow more and more weary of seeing their money given out in huge lump sums. If Obama gives out the money, GM could return to profitability around the time when campaigning begins for the 2012 elections.
On the other hand, GM could go bankrupt during the campaigns, which would make many Americans question Obama's leadership on the issue. The government has said they will make a decision after having the opportunity to read through the filings.
