GM, Chrysler to Emerge ‘Leaner, Meaner,’ Says Obama

Time is running out for General Motors Corp. in its fight for survival.
GM, Chrysler to Emerge ‘Leaner, Meaner,’ Says Obama
Jeep products are offered for sale at a Chicago Chrysler dealership. (Scott Olson/Getty Images)
5/25/2009
Updated:
10/1/2015
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Jeep products are offered for sale at a Chicago Chrysler dealership. (Scott Olson/Getty Images)
Time is running out for General Motors Corp. in its fight for survival. The company faces a May 31 deadline for submitting a restructuring plan to the Obama Administration.

But the embattled company received a voice of support, as President Obama said that GM. and Chrysler LLC would come back “leaner, meaner, [and] more competitive,” during an interview over the weekend where he spoke at length about the health of the U.S. auto industry.

“Our auto industry is the foundation for economies all across the Midwest,” Obama said in an interview with C-SPAN, “and ultimately, for the country as a whole.”

Obama also defended the U.S. government’s role in bailing out the Detroit automakers. General Motors last week received an additional $4 billion in cash infusion from the Treasury department.

With the additional funds, GM to date has received $19.4 billion of taxpayer’s money.

“Had we allowed GM or Chrysler simply to liquidate that would have been a huge anti-stimulus on the economy as a whole, and could have dragged us even deeper into recession or even depression,” he said.

The U.S. government projects that 10 million vehicles would be sold this year, but the number of cars needed to replace older vehicles is closer to 14 to 16 million. There’s a substantial market out there for U.S. automakers.

“You are looking at a substantial market that is going to be available for U.S. automakers if they’ve made some good decisions now, and if they are building the kinds of fuel efficient, high performance cars that American consumers are hungry for,” he said.

Bankruptcy in the Cards?

GM faces a deadline of the end of this month to submit a restructuring plan to the Obama Administration, but early indications point to a likely bankruptcy similar to the one Chrysler is experiencing.

So far, GM’s bondholders—or creditors—are opposing the company’s offer of a 10 percent equity stake. GM has about $27 billion in unsecured debt outstanding.

A $1 billion bond payment looms for GM on June 1, which the company has indicated that it would not pay. The creditors face a deadline of May 27 to accept GM’s proposal, or GM may file for bankruptcy protection and attempt to extinguish its obligations.

According to a Reuters report, an unidentified GM bondholder said the creditors committee rejected the GM offer after discovering that the United Auto Workers union would get a 39 percent equity stake—almost four times the stake for bondholders—in exchange for the union’s much smaller $10 billion claim.

The bondholders proposed a counteroffer for a 58 percent stake in the company.

The fortunes of GM’s suppliers and dealer network may tour sour if the company files for bankruptcy. GM has extensive contracts and relationships with thousands of suppliers and dealers—it currently pays Delphi, its biggest supplier, millions of dollars per month to operate under its Chapter 11 bankruptcy reorganization.

But should GM file, Delphi’s lifeline will probably be severed.