General Motors’ fourth quarter earnings report is simply breathtaking. Not in a 1960 Corvette kind of way. Think 1961 Corvair.

GM reports losing $9.6 billion at the end of last year. The company lost $30.9 billion for all of 2008. Throw in all of GM’s charges and you are looking at a loss of nearly $85 million a day. It’s a loss of $3,700 for every vehicle GM sold around the world last year. That’s not red ink. That’s the Red Sea.

It was no accident that three hours after GM reported its earnings CEO Rick Wagoner and the rest of GM’s top management went to the Treasury Department for a meeting with President Obama’s Auto Task Force.

“Today’s meeting with the presidential task force on autos was just the beginning of the hard work ahead for GM and the president’s team,” GM said in a statement shortly after the daylong sit-down.

Wagoner has already asked for $16 billion more in government loans to help GM survive what has become the worst crisis in company history.

“They probably need twice that”, says John Wolkonowicz of IHS Global Insight. “But if you compare that to what a government financed structured bankruptcy would cost – about $100 billion for GM – it’s still cheaper than bankruptcy.”

It’s not unreasonable to think that sound’s like a devil’s bargain. But to be fair, GM was gaining some momentum early last year. Granted, the company made bad decisions for years and depended far too long on highly profitable and gas-guzzling SUVs. However, the company was preparing to roll out its strongest product line-up in years. What nobody could predict at GM’s Renaissance Center headquarters was the Dark Ages was just around the bend. Within six months, gas prices skyrocketed to $4.00 a gallon, the credit markets had a nervous breakdown and unemployment shot up 2 percent. Unfortunately for GM, the airbags did not deploy.

Can General Motors be a viable business while hemorrhaging billions every week? It’s the central question in the Detroit drama. Some analysts believe GM can pull a U-turn if it continues to get government help and at meets least three conditions:

• First - GM has to make cars people want to buy.

• Second - GM needs relief from its labor agreements.

• Third - The economy must begin to improve quickly.

GM has already made great improvements in vehicle quality and dependability. Most of its vehicles are just as good as Japanese makes. In the upcoming April auto issue, ConsumerReports gives a number of GM cars and SUVs high marks – including the Cadillac STS, the Buick Enclave and the Chevy Malibu. The electric plug-in Chevy Volt sparks the imagination and the new Chevy Camaro pumps the adrenaline. Another year or two of vehicles like them and GM could gain some traction with Generation X and Y.

GM and the UAW are already deep in negotiations to amend the union’s labor contract. The healthcare entitlements in the contract for GM retirees are simply burying the company. It is horrible that UAW members who have dedicated their lives to GM are now being asked to give back valuable benefits. But the reality is the benefits package would be among the first things torn to shreds by a bankruptcy judge. The UAW leadership knows it. The trick will be convincing the membership.

The third condition that would make GM viable is something beyond their control. Nobody knows how long it will take for the recession to end. The auto industry is on pace to sell 10 million cars and trucks in 2009. Any annual sales rate below 12 million units cannot sustain General Motors, Ford and Chrysler. The most optimistic annual sales estimates the 12 million unit rate is achievable no earlier than 2010.

“So GM needs a bridge over this water to get them to 2010, when the stimulus package kicks in,” says Wolkonowicz. “These auto companies are salvageable. Getting them through this horrible year will prove to be the right decision, but they will need an indeterminate amount of money over and indeterminate amount of time.”

SOURCE: CBS NEWS

WASHINGTON — President Barack Obama said Wednesday he’s prepared “to offer serious help” to Detroit’s auto industry, but only if its executives, workers and suppliers prove they’ll make the difficult changes needed for long-term success.

“My message is,” Obama said, “get me a plan.”

Speaking to the Free Press and reporters from about a dozen other newspapers in a wide-ranging interview, Obama signaled that government may have more aid to offer domestic automakers if they develop plans that detail their proposals to prod sales and make enough profits to sustain themselves in the future against an unmistakable drop in demand.

That could be especially good news for Chrysler LLC, which has said it needs another $3 billion on top of the $17.4 billion loan it and General Motors Corp. were granted in mid-December by President George W. Bush. Obama did not mention either carmaker by name but said he’s “monitoring the progress that is being made.”

Both automakers are required to submit plans to the Treasury Department on Tuesday and, if they are found lacking, the government could call the loans by the end of March, almost certainly triggering a bankruptcy.

It comes as the industry keeps losing jobs. This week, GM said it would cut 10,000 white-collar jobs worldwide, including 3,400 in the United States.

Although Obama declined to discuss details of possible help for the domestic auto industry, he reiterated his belief that a disorderly bankruptcy — one without significant preplanning to ensure that it had as minimal an effect as possible on the interconnected supply chain — could be “disastrous, not just for those states that are very reliant on autos, but for the economy as a whole.”

Late last year, when the automakers went before Congress to lobby for aid, there were estimates that as many as 3 million jobs could be lost nationwide if all three of Detroit’s automakers went belly-up all at once.

Ford Motor Co. is the only domestic automaker not seeking government money, saying it believes it can weather the horrendous sales climate.

In the interview, Obama declined to discuss specifics in the economic stimulus deal that emerged in Congress on Wednesday. He did say the stimulus includes money to help spark new technology — including $2 billion to develop and make the batteries needed for plug-in electric vehicles and hybrids of the future — and as much as $300 million to help convert federal fleets to more fuel-efficient vehicles.

But he said future help for automakers means not only that all the stakeholders “put some skin in the game” and make concessions if necessary but that the plans submitted by auto companies beginning next week take “into account what the auto market is going to look like over the next several years.”

“You know, if a plan is presented to us on 20 million” in annual “sales when we just know that’s not going to happen, then we’re going to have to ask them to go back to the drawing board,” he said.

SOURCE: FREEP.COM

WASHINGTON — The Treasury Department won’t make any decisions on additional aid to automakers or other aspects of the industry until Feb. 17, when restructuring plans are due from General Motors Corp. and Chrysler LLC.

“No decisions will be made on restructuring or anything else until we receive and review the restructuring reports,” and administration 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.”

Treasury has retained two law firms and an investment bank to advise it in its oversight of the restructuring of GM and Chrysler. It has an auto unit within its financial recovery team and plans to add more members soon, the official said.

Both automakers must file restructuring plans by Feb. 17 in connection with their receipt of $17.4 billion in government loans. GM has received $9.4 billion of its $13.4 billion loan and is to receive the remaining $4 billion on Feb. 17. Chrysler has received $4 billion, but is still seeking another $3 billion.

The U.S. Treasury Department hired Cadwalader Wickersham & Taft LLP to review different restructuring possibilities. Cadwalader is working with Sonnenschein Nath & Rosenthal, a Chicago-based law firm. They also retained Rothschild Inc., a New York investment bank.

The Treasury Department is reviewing request for additional aid as well. The Motor Equipment & Manufacturers Association has suggested three different aid proposals that could be worth up to $10.5 billion, while the National Automobile Dealers Association wants the Treasury Department to allocate billions to banks to boost floorplan lending. The suppliers warned that many struggling members need funds before the end of the month.

Both the Treasury and the White House are in communication with suppliers and the auto companies, though no decisions have been made for an expansion of the current policy dealing with the auto industry, the official said.

Treasury Secretary Timothy Geithner and Larry Summers, director of the National Economic Council, are actively engaged “on the issues affecting suppliers, dealers and the industry as a whole.”

Sonnenschein was hired in November by Treasury to work on the auto loan issue, according to a Government Accountability Office report.

The contract was boosted to a total of $1.5 million on Dec. 31.

“Sonnenschein Nath & Rosenthal LLP is representing the Department of the Treasury in ongoing matters related to the 2008-2009 developments within the U.S. automobile industry,” firm spokeswoman Melissa Anderson said.

Sonnenschein partners working for Treasury are Robert McCarthy, Jeffrey Murphy, Aimee Cummo, and Stephen Whelan.

Both GM and Chrysler are working to win concessions from lenders and the United Auto Workers. GM wants to cut its debt by two thirds, exchanging its notes for equity. It also wants to pay for half of the payments it owes to a UAW-run trust fund that takes over responsibility for retiree health care in 2010 with stock.

They must show significant progress on becoming viable by March 31, or the Treasury Department could recall the loans — a move that would force the companies into bankruptcy.

The Treasury Department hasn’t named an auto czar, though Steven Rattner, a partner at the Quadrangle Group in New York, is still the leading candidate.

Stephen Girsky, a longtime auto industry analyst who is president of the private-equity firm Centerbridge Industrial Partners, is a leading candidate to become a key member of an auto restructuring team.

Girsky also is a former General Motors Corp. consultant who has recently advised the UAW on issues including the union’s efforts to obtain federal loans. On Wednesday, he attended a meeting with House Speaker Nancy Pelosi, D-Calif., and members of Congress on auto issues.

On Friday, President Barack Obama named a Centerbridge Partners LLC partner to his Economic Advisory Board, Mark T. Gallogly, who is founder and managing partner.

SOURCE: DETNEWS.COM