General Motors and Chrysler Face Job Cuts and Cost Reduction Amid Government Loan Repayment Deadline

Strategic Insights -

Both General Motors Corp. and Chrysler LLC are racing against a February 17 deadline to convince the government that they can be viable by the end of March, a feat that will likely require thousands of jobs to be cut and billions of dollars in cost reductions. The automakers have received a total of $13.4 billion in federal loans and are expected to receive more, but they must show that their expected net cash flows will exceed the initial investment.

Key Takeaways:

  • General Motors plans to include shuttering additional factories, salaried pay and job cuts in its plan to prove viability to the government.
  • Chrysler's plan is also expected to include concessions from bondholders and the United Auto Workers, but details are not yet available.
  • Both companies are required to show the government that they can achieve "positive net present value," which means that the present value of their expected net cash flows exceeds the initial investment in the company.
  • White-collar workers may not receive buyouts or early retirement offers like they have in the past, and pay cuts could go beyond 5 percent.
  • GM has already announced the closure of four pickup truck and SUV plants in the past year, but none of the corresponding engine, transmission, and parts stamping factories that feed the assembly lines have been closed.
  • GM Vice Chairman Bob Lutz admitted that the company will have to get smaller in the U.S. before it can grow again, and plans to grow in other parts of the world such as China.
  • The government can demand repayment of the loans if it decides the companies cannot become viable by March 31, when the companies must present their plans.

Statistics:

  • $13.4 billion: Total federal loans received by General Motors and Chrysler.
  • $9.4 billion: Amount received by General Motors in federal loans.
  • $9 billion: Amount expected to be received by General Motors in additional federal loans.
  • $4 billion: Amount received by Chrysler in federal loans.
  • $3 billion: Amount expected to be received by Chrysler in additional federal loans.
  • 26 years: Duration of the worst U.S. auto sales climate.
  • 2/17: Deadline for General Motors and Chrysler to present their plans to the government.
  • 3/31: Deadline for the government to demand repayment of the loans if it decides the companies cannot become viable.

Sources:

  • Byline: Associated Press DETROIT.
  • White-collar workers may not receive buyouts or early retirement offers like they have in the past, and pay cuts could go beyond 5 percent, according to the people, who spoke on condition of anonymity because workers have yet to be notified.
  • GM Vice Chairman Bob Lutz, in an interview with The Associated Press on Monday, wouldn't give details but conceded that GM will have to get smaller in the U.S. before it can grow again.