Detroit Bureau on Twitter

Posts Tagged ‘fiat takeover’

Treasury Officials Continue to Pore Over the Books of Chrysler and General Motors

Viability of the companies hinge on assumptions in the recovery plans. Is a Fiat takeover of Chrysler a political issue?

by on Mar.16, 2009

Is there light at the end of the bailout tunnel?

Is there light at the end of the tunnel?

There an old wheeze about the search for a one-handed economist, since the profession is well known for its “on the other hand” predictions that contradict initial ones. The immediate question is whether to grant GM an additional $13 billion and/or Chrysler an additional $5 billion on top of the taxpayer given $13.4 billion at GM, and $4 billion at Chrysler by the imposed deadline of March 31st.

Well, as Treasury hands continue to scrutinize the business plans for signs of life at Chrysler and General Motors, key assumptions in the plan on industry size, share and pricing are being challenged. And the assumptions used will make or break the companies.

These auto loan sums pale when compared the $173 billion already granted to bail out  AIG and its workers and pay them millions in bonuses. But the U.S. government, like the EC, apparently places a higher value on rescuing financial institutions that threaten larger economic instability in its view, than saving any company in the manufacturing business. The increasing populist resentment of such snobbery complicates the politics of bailouts, but appears to make the case for continuing to help the auto companies recover since they are part of the real economy that makes things. The Obama administration is now saying it won’t necessarily adhere to the March deadline, which suggests it might play for more time while doling out additional loans slowly. Republican leaders continue to press for bankruptcy.

Both Chrysler and GM maintain that they are viable businesses and TDB has reported on the public portions of the plans after their February 17th submissions. At that time, TDB noted that GM now forecasts 2009 U.S. industry sales of 10.5 million units, down radically from its previously projected industry sales rates of 12.5-13 million last December. This was part of the reason why its funding requests went up.

Unlike Chrysler’s estimate of a flat market in the 10-11 million range for the next four years, however, GM assumes growth to 11.5-12.0 million or more units annually starting in 2010. GM says it will then achieve breakeven levels in 2011, and have a positive cash flow of more than $6 billion in 2012-2014. Several caveats could change this, including the need for GM to put more money in its pension funds in 2013 – if the financial markets and its investments don’t recover by then.

In an e-mail to Chrysler employees this morning, Bob Nardelli, Chairman of Chrysler, presented an updateon the ongoing negotiations with Treasury officials. Calling the discussions “constructive,” Nardelli said he continued to stress that Chrysler is a “viable business as a stand alone company” and its “future is further enhanced through the proposed global alliance with Fiat.”  Well, what else would or could he say? (more…)