By TOM KRISHER and KEN THOMAS
The Associated Press
DETROIT – The Obama administration is likely to impose deeper concessions on Chrysler LLC and General Motors Corp. in exchange for additional federal loans, a person briefed on the government’s plan said Friday.
The concessions could go beyond the requirements imposed by the Bush administration when it agreed to loan the automakers money last year, said the person, who asked not to be identified because the government’s plans have not been revealed.
Both automakers are operating on a total of $17.4 billion in government loans, trying to weather the worst auto sales downturn in 27 years. In addition, GM is seeking another $16.6 billion, while Chrysler wants $5 billion more.
The term sheets that came with the first loans require extensive restructuring, including executive pay cuts and labor costs that match Japanese automakers. Both companies also must persuade the United Auto Workers to take equity in exchange for half of the payments the companies must make to union-run trust funds that will take over retiree health care costs starting next year. And they must get debtholders to swap equity for two-thirds of the companies’ debt.
More extensive terms?
“There may be more extensive conditions than were laid out initially in the term sheets,” the person said.
Both companies face a Tuesday deadline to turn in finished restructuring plans to the government, but neither company is likely to have everything done. Neither GM nor Chrysler have deals with the union on the trust funding or concessions from their debtholders, although talks are continuing.
President Barack Obama made clear Thursday that the companies would face having to make tough concessions for additional aid, but it was unclear if that meant concessions beyond the initial loan terms.
The president said if the companies were “not willing to make the changes and the restructurings that are necessary, then I’m not willing to have taxpayer money chase after bad money.”
He said the current business model for the U.S. auto industry was unsustainable and various industry stakeholders – suppliers, unions, creditors, dealers – would need to make concessions.
A task force created by Obama has been meeting with industry officials and reviewing restructuring plans submitted by the companies to revitalize the industry through shared sacrifices.
The government can recall its loans to GM and Chrysler if they fail to sign deals for debt restructuring and other concessions from stakeholders, including the UAW, by March 31. But the administration has not indicated it plans to do so.
GM owes roughly $28 billion to bondholders, while Chrysler owes about $7 billion in first- and second-term debt, mainly to banks. GM owes roughly $20 billion to its retiree health care trust, while Chrysler owes $10.6 billion.
Bondholders have been reluctant to go along with the cuts, saying they’re being required to sacrifice more than other parties, but they have been holding discussions about the changes.
The union has agreed to other terms of the loans, including work rule changes and reducing total hourly labor costs at U.S factories to a level comparable with Japanese automakers.