GM, Chrysler rush plans

Automakers prepare to submit restructuring proposals to Treasury Department on Tuesday.

Robert Snell, Alisa Priddle and David Shepardson / The Detroit News

General Motors Corp. and Chrysler LLC are scrambling to finish key negotiations and fine-tune restructuring plans that will dramatically transform companies pushed to the brink of bankruptcy late last year.

The automakers have had more than two months to slash costs and prove they can repay up to $17.4 billion in federal loans, despite the worst U.S. auto sales market since the 1980s.

Preparations are expected to continue through the weekend to meet Tuesday's deadline to submit plans to the U.S. Treasury Department and other key government leaders. Unconcluded are key money-saving agreements with the United Auto Workers and bondholders.

But the plans won't necessarily have to be complete. An official in President Barack Obama's administration told The Detroit News the companies would be able to explain if they missed some restructuring targets.

"No decisions will be made on restructuring or anything else until we receive and review the restructuring reports," the official said. "If the companies have determined some of the targets are not possible to meet in a timely fashion, they have the opportunity to explain their circumstances in their presentation."

On the automakers' side, Tuesday's deadline has been likened to an agreement in principal toward them proving their viability March 31. If the plans are approved, both automakers must show significant progress toward becoming viable, or the Treasury could recall the loans.

While the logistics were being sorted out, the automakers were not planning to send anyone to Washington on Tuesday. The reports will be delivered via e-mail and hard copies will be sent to the Treasury, as technically required, and to key officials including the president's economic advisory team and the leadership of the House and Senate. Then a period of dialogue can begin, leading up to the March 31 deadline. GM's plan will include conservative forecasts of vehicle sales and economic growth to demonstrate that the company can be viable even if the economy remains weak. It is expected to offer more concrete details on timing of restructuring moves, including plant closings and job cuts. It also may include additional concessions from the UAW.

Two of the biggest outstanding targets for GM are restructuring payments into a union-run health care trust (VEBA) and convincing bondholders to agree to a complicated debt exchange that would cut the automaker's unsecured debt by two-thirds to $9.2 billion. Sources have told The Detroit News that bondholders want more money than the target outlined in the loan agreement.

A source familiar with the negotiations with the UAW said late Friday: "The talks have temporarily stopped because of the VEBA." UAW talks consist of two main thrusts: concessions on wages, benefits and work rules to bring them more in line with those of foreign automakers with factories in the United States, and the conversion of a portion of the health care trust payment for equity. "We are committed to reaching an agreement and submitting a restructuring plan on the 17th and we will continue to engage our union partners in the process," GM spokesman Tony Sapienza said.

Analyst Aaron Bragman of IHS Global Insight in Troy said he doubts the automakers' restructuring plans will be complete, given the unsettled negotiations with the UAW and bondholders. Besides, the administration isn't ready, Bragman said.

Political leaders added to the deadline pressure Friday when House Speaker Nancy Pelosi, D-Calif., and Rep. Barney Frank, D-Mass., urged both automakers to make "tough decisions."

GM has received $9.4 billion and is expected to receive $4 billion more, while Chrysler has received $4 billion in loans. It wants another $3 billion.

GM's plan included cutting up to 31,000 jobs, shutting nine plants and modifying its 2007 labor contract. GM also wants to sell, shrink or kill half of its eight brands and eliminate 1,750 dealerships.

Chrysler's plan updates restructuring efforts that began in 2007, but calls for cutting a further 100,000 units for a total of 1.3 million units removed by 2012 as well as cutting a further $700,000 in fixed costs, bringing that total to $3.8 billion.

It will show the company can survive on its own if it gets the full $7 billion and will include a second option that shows Chrysler would be more global and more prosperous with an alliance with Fiat SpA.