Reports: GM Teetering on Edge of Bankruptcy

Auditors raise specter of Chapter 11: Detroit Free Press

General Motors Corp.’s auditors have raised “substantial doubt” about the troubled automaker’s ability to continue operations, and the company said it may have to seek bankruptcy protection if it can’t execute a huge restructuring plan.

The automaker revealed the concerns today in an annual report filed with the U.S. Securities and Exchange Commission.

GM’s 20-year global plan unraveling: Detroit News

A stunning reversal, it would mark the unwinding of a 20-year strategy conceived by retired Chairman Jack Smith and leveraged by his successors into strong market positions in China, Russia, Europe and Latin America. Now, it’s all in danger of coming apart, driven by sheer financial necessity and not strategic design.

One possible result, I’m told, is that government negotiators in Germany, Spain and the United Kingdom would insist that a GM Europe recapitalized with their taxpayer money — possibly to be called “Opel Vauxhall Europa” after GM’s two European brands — be aligned with but financially walled off from GM in the United States.

‘Substantial Doubt’: BBC

“The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern,” auditors for Deloitte & Touche wrote in the annual report.

The auditors’ remarks reflect comments already made by the firm about its dire difficulties.

Auditors raise doubts about GM as ‘going concern’: New York Times

G.M.’s president and chief operating officer, Frederick A. Henderson, received compensation worth $1.7 million in 2008, a 76 percent reduction. Mr. Henderson agreed to cut his base salary by 30 percent in 2009 to $1.3 million.

G.M. said it could be forced to file for bankruptcy protection in a number of situations, including failure to receive more federal aid, failure to exact concessions from bondholders and the United Automobile Workers union, and further deterioration of an already dismal new-vehicle market in the United States.

A “going concern” letter can be a bargaining tool for a company in discussions with its unions and other stakeholders who may resist concessions without proof of a company’s distress.

As U.S. Auto Sales Slide Further, GM Looks for Double Dip Bailout at EU, Honda, Toyota Look for Loans

GM Goes Begging From EU: Financial Times

General Motors said on Tuesday that its European arm could run out of money by as early as next month, putting up to 300,000 jobs on the continent at risk.

Fritz Henderson, the struggling Detroit carmaker’s chief operating officer, said that GM would face a liquidity crunch “early in the second quarter” if emergency funds from European countries did not materialise.

Honda may be looking for Japanese government loans: Bloomberg

Honda Motor Co., suffering from a 38 percent plunge in U.S. auto sales in February, may ask to borrow money from Japan’s government to lend to U.S. car buyers.

The amount of the loans and timing of the request to the state-owned Japan Bank for International Cooperation haven’t yet been determined, spokeswoman Akemi Ando said by phone today.

Toyota Wants a Govt Loan. Let the Outrage Begin: BusinessWeek

In yet another sign that Toyota Motor Corp. is run by human beings, the company’s finance unit is asking the Japanese government for a $2 billion loan, writes my colleague, Ian Rowley. Toyota blames tight credit in the U.S. for its newfound borrowing needs. For all its strength, Toyota is not immune.

But here’s my question: Will we see outrage among Japanese voters and some media as a company hoarding $20 billion in cash asks for government money? My guess is no. The Japanese government and Central Bank have a long history of intervening on behalf of their home companies. The Central Bank has kept the yen weak for years to boost exports of cars, electronic goods and other items to the U.S. So loaning a few billion bob to Toyota won’t raise a hackle in Japan.

Auto sales still in the tank in February: New York Times

Sales for the month were down 53 percent at General Motors, 48 percent at the Ford Motor Company, 44 percent at Chrysler, 40 percent at Toyota and 38 percent at Honda.

G.M. and Ford both said the steep declines would force even more production cuts at their plants. The companies expect their second-quarter production schedules to be at least one-third lower than in the same period in 2008.

Strickland Makes Right Call on Importance of Auto Industry Supply Chain

Yesterday, Gov. Ted Strickland looked great and sounded all the right themes on CBS’ Face the Nation.  Of all the governors on the panel, he was the only one to say anything remotely newsworthy.  In Ohio and Michigan we understand the U.S. auto manufacturing is not only the Big Three, it’s the quarter of a million Americans working making parts and supplies for GM, Ford and Chrysler.  In Ohio, the number of people employed in the auto parts industry alone is over 97,000. (MEMA)

In answering questions regarding what are the largest problems in Ohio, Strickland told CBS’ Bob Schieffer that unemployment and foreclosures were huge issues, and continued about the importance of the auto industry – domestically and foreign-owned:

SCHIEFFER: What if one of the auto companies goes under?  How will that impact out in your state?

STRICKLAND: Hugely — hugely. And it will not only impact the Big Three; it will impact all auto
companies, including Honda and Toyota and all the others, because they have the same supply network.
And this supply chain is very fragile, and if it starts to collapse, it could have a cascading effect that could, quite frankly, cripple an industry that has been so vital to the economy of our entire nation for so long. So it’s very important that the auto industry get the help it needs to survive.

And I’ve had officials from the Honda corporation come to me, say to me, Governor, we’re not usually in
the business of advocating for our competitors, but it is so important that the auto industry and the Big
Three be preserved.

Otherwise, the economy of this country will suffer perhaps irreparable harm, and we just cannot let that
happen.

Governor Strickland’s fears are also dealt with by the Economist in the Feb. 19th edition.  In an article with the subhead, GM and Chrysler Say the Need Help, So Do Their Suppliers, the author says there are three large problems facing President Obama’s new U.S. Auto Industry Task Force, including, “The third is what help should be given to the car-parts industry, which receives far less attention than its famous customers, but which is facing acute problems of its own.”

One of the hallmarks of our current economic crisis is the constant unwinding of problem after problem.  Too many foreclosures turned into failed mortgage backed securities turned into uncapitalized credit default swaps.  In the case of the auto industry, failure of one or more of the Big Three turns into parts suppliers belly up turns into problems for the foreign-owned U.S. car plants.

Ohio Sunday Papers – It’s the Economy and Education with a smattering of Fisher, Brunner

• Editorial: Lawmakers must stop Strickland from killing charter schools – The Plain Dealer
• Editorial: Governor needs to tweek how he pays for education reform – Akron Beacon Journal
• Editorial: No Stimulus for Teardown – Toledo Blade
• Op-Ed, William Hershey: Ohio Dems Face Likely ‘Family Fued’ – Dayton Daily News
• Op-Ed, Thomas Suddes: Will Ohio House Dems Hold Together on Budget? – The Plain Dealer
• Op-Ed, Joe Hallett: Governor Sinned a Bit in Securing Manna from Washington – Columbus Dispatch
• Welfare rolls soaring in Ohio – Columbus Dispatch
• Toledo aid agencies fear what’s over horizon – Toledo Blade
• Late bill payments cost state – Columbus Dispatch
• Big repairs needed for U.S. automakers – Toledo Blade
• How would you spend $500 million taxpayer dollars? – The Plain Dealer
• Dems’ fight a cost of success – Cincinnati Enquirer
• Op-Ed, Dennis Willard: Race crucial for Fisher, Brunner – Akron Beacon Journal
• Brunner: Senate bid not a conflict – Columubus Dispatch
• Ohio tries to clean up payday lending one more time – The Plain Dealer
• Op-Ed, Jonathan Riskind: Obama’s economic plans leave some edgy, angry – Columbus Dispatch
• Development board’s City Center planning only quasi-public – Columbus Dispatch
• Farmland disappearing – Columbus Dispatch
• Preservationists hope to see some stimulus – Columbus Dispatch
• Ohio businesses must file sales taxes electronically for first time this year – The Plain Dealer
• Ohio officials OK new workers compensation program – Dayton Daily News\
• KELLY PAVLIK COVERAGE – The Youngstown Vindicator

Full Text: GM & Chrysler Restructuring Plans as Submitted to U.S. Treasury Dept. Feb. 17

The following two documents were required by GM and Chrysler under terms of federal government loans totaling $18 billion made in December.  With these plans, the two automakers are asking for an additional $30 billion in loans to avoid bankruptcy.  Decisions on further federal assistance will be made by a federal task force led by Secretary of the Treasury Timothy Geithner and Chairman of the President’s National Economic Council Larry Summers.

General Motors Restructuring Plan Submitted to U.S. Dept. of the Treasury (Click for PDF)

Chrysler LLC Restructuring Plan Submitted to U.S. Dept. of the Treasury (Click for PDF)

Statement of Treasury Secretary Timothy Geithner:

“I have received restructuring reports from both General Motors and Chrysler, and they have been posted on the Treasury website. NEC Director Summers and I will be convening the President’s Task Force on Autos later this week to analyze the companies’ plans and to solicit the full range of input from across the Administration on the restructuring necessary for these companies to achieve viability.”

GM, Chrysler To Ask Treasury for More Money Today

Unknown how much more above the government’s previous commitment GM will ask for, but Bloomberg is reporting Chrysler will ask for an additional $3 billion.

• GM, Chrysler push for more U.S. aid after mistakes – Bloomberg

BusinessWeek: You Won’t Fix the U.S. Auto Industry on the Back of the UAW

2. Some southern Republicans think this is all the UAW’s fault. Not so. Wages are pretty competitive. The JOBS bank (that paid layoff clause that everyone hates) is on its way out. The union does need to give on its rigid work rules and its gold-plated healthcare deal. But you don’t save Detroit solely on the UAW’s back.

That quote is number two on a six-item list of things for our two new Car Czars, Timothy Geithner and Larry Summers, to consider as they set up a task force to help the U.S. auto industry help itself.  The article is online at BusinessWeek.

Does anyone else feel that Messrs. Geithner’s and Summers’ plates are already too full?  The Big Three Automakers are the industrial driver in most aspects of the once mighty, now pathetic U.S. manufacturing market.  In terms of GDP, what do you think has supplanted industry – which creates real, three dimensional value?  My armchair economist’s view is that is has been financial services, health care and government.

Now ask yourself, what is the root cause of or at the very least, one of the two or three root causes of our current economic predicament? Financial Services …  Who in the Administration are the two most in the tank and a part of that financial services, unregulated slop bucket for the investment class?  Messrs. Geithner and Summers.

The auto industry – and American workers all the way down the supply chain – are either going to be royally screwed by these two, or, perhaps we’ll finally see some of the economic and public policy brilliance we’ve heard so much about but hasn’t been on display yet for President Barack Obama.

Ohio Sunday Papers – February 15

• Celeste, (Chris), exploring U.S. Senate run – The Plain Dealer
• Part of Strickland’s school funding formula involves judgement calls – Columbus Dispatch
• Plan calls for judging teachers on results – Columbus Dispatch
• Editorial: School Funding – Evidence of Confusion – Akron Beacon Journal
• State’s use of stimulus: Plodding or on Pace? – Columbus Dispatch

• Economists: This recession deeper than ‘83 – Dayton Daily News
• Op-Ed, Thomas Suddes: Ohio Legislature = Boys Town - The Plain Dealer
• GM, Chrysler labor talks slow – The Plain Dealer
• Steamed about heating bills – Toledo Blade
• Surprise: Pryce becoming a lobbyist – Columbus Dispatch
• Ohio Turnpike toll plan takes from other states – Toledo Blade
• Food inspection complex, has holes – Columbus Dispatch
• Payday lenders use loophole to continue high interest rates – The Plain Dealer
• Health agencies brace for cuts – Columbus Dispatch
• Editorial: Improve Democracy – Columbus Dispatch
• Op-Ed, Roger Geiger: Secret ballots must remain in union elections – Toledo Blade
• Op-Ed, Joe Hallett: High School buddies solve economic mess – Columbus Dispatch

Obama Action Will Please Environmentalists, Peak Oil Advocates

Action that President Barack Obama will take Monday to allow California and other states to require stricter tailpipe emissions and automobile fuel efficiency standards shouldn’t just please environmentalists.

If you’re concerned about Peak Oil and the United States’ dependence on foreign oil, this is also a win for energy conservation. This could be a market force that Detroit cannot ignore, pushing fuel efficiency farther faster. Conservation isn’t everything, but for a society so totally unprepared, it’s one span in the bridge to the energy future.

The New York Times is reporting tonight that President Barack Obama will reverse Bush Administration environmental policy tomorrow and allow California and other states to mandate their stricter rules.

California Gov. Arnold Schwarzenegger had requested and been denied by the U.S. Environmental Protection Agency in 2007 a waiver to set California automobile emission standards higher than federal guidelines.  The Bush Administration told California and several other states that 2007 increases in federal fuel efficiency guidelines for cars and light trucks made their efforts moot and that a national patchwork of differing emissions laws would be untenable.

This is a win not only for environmentalists but also those concerned about the Peak Oil crisis and America’s continued over reliance on fossil fuels.  The stricter standards set by states will be a market force that the Big Three and other automakers will not be able to ignore.  According to the Times’ reporting, California’s action alone could have a great effect on fuel efficiency in the nation’s car and truck fleet:

The California law, which was originally meant to take effect in the 2009 model year, requires automakers to cut emissions by nearly a third by 2016, four years ahead of the federal timetable. The result would be an increase in fuel efficiency in the American car and light truck fleet to roughly 35 miles per gallon from the current average of 27.

In order to deal with the strategic, economic and societal changes which will brought on by a world where oil is harder to find and harder to extract, the U.S. and other nations will need to build bridges to the next energy economy.  Actions such as the one Obama will take on Monday will make it easier to build the “conservation” span of our nation’s bridge.

One question remains — will the Big Three automakers fight this in court? Probably, but they should be shamed out of the courthouse.  U.S. taxpayers are keeping two out of three of them afloat.  They should be discouraged from using our cash to fight our government …

Ohio Sunday Papers | January 18, 2009 | Ohio Tuskegee Airman, Kevin Boyce, Casinos, Strickland, Ohio Economy, Cuyahoga Corruption, Fingerhut, OCSEA, Hobson, Voinovich, Taxes

• Toledo Tuskegee Airman savors inauguration – Toledo Blade
• State Treasurer fought obstacles on way to success – Dayton Daily News
• Op-Ed, Thomas Suddes: Don’t bet on Casino cure for budget woes – The Plain Dealer
• Editorial: Don’t just give it away – Columbus Dispatch
• Op-Ed, Joe Hallett: Voinovich look back – Columbus Dispatch
• Op-Ed, Dennis Willard: Tax Overhaul Needs Revisit - Akron Beacon Journal
• Demise of big city Republicans hurts GOP – Dayton Daily News
• Valley car dealers keep close watch on economy – Youngstown Vindicator
• Strickland working through clemency decisions – Columbus Dispatch
• Dark days for retail – Columbus Dispatch
• Prisons, drugs: A daily war – Columbus Dispatch
• FBI looking at Cleveland suburb – Associated Press
• Hobson to join Vorys, Sater – Columbus Dispatch
• U.S. Supreme Court to review Ohio case – Columbus Dispatch
• $1 billion in worker givebacks sought by state – Columbus Dispatch
• Editorial: Fingerhut clear about higher-ed priorities – Youngstown Vindicator
• State employees stunned by concession requests – The Plain Dealer

Numbers of the Day: U.S. Auto Sales Dismal December, Down Overall in 2008

Text: President Bush Statement on Whitehouse Bailout Deal with U.S. Automakers | December 19, 2008

(Source: White House Press Office)

 

9:01 A.M. EST

THE PRESIDENT: Good morning. For years, America’s automakers have faced serious challenges — burdensome costs, a shrinking share of the market, and declining profits. In recent months, the global financial crisis has made these challenges even more severe. Now some U.S. auto executives say that their companies are nearing collapse — and that the only way they can buy time to restructure is with help from the federal government.

 

This is a difficult situation that involves fundamental questions about the proper role of government. On the one hand, government has a responsibility not to undermine the private enterprise system. On the other hand, government has a responsibility to safeguard the broader health and stability of our economy. Read more

Fact Sheet: White House Auto Bailout Plan, December 19

(Source: White House Press Office)
 

Fact Sheet: Plan To Stabilize Financial System Is Limited In Size, Scope, And Duration

The Federal Government Is Acting Swiftly To Preserve Our System Of Free Market Capitalism And Return Our Nation To A Path Of Prosperity, Job Creation, And Long-Term Economic Growth

On October 17, 2008, President Bush visited the United States Chamber of Commerce and discussed the actions that the Federal Government has taken in response to the financial crisis. The President explained that the government took swift action to protect the financial security of the American people. One important element, the equity purchase program, is designed with strong protections to ensure the government’s involvement is limited in size, limited in scope, and limited in duration:

• The government’s involvement is limited in size. The government’s investment is capped for any individual firm that chooses to participate in this voluntary program, so that private investors retain control.
• The government’s involvement is limited in scope. The government will not exercise control over any private firm. The shares owned by the government will have voting rights that can be used only to protect the taxpayer’s investment – not to direct the firm’s operations.
• The government’s involvement is limited in duration. This program includes provisions to encourage banks to buy back their shares from the government when the markets stabilize and they can raise money from private investors. Read more

WSJ: Automakers Get $17.4 Billion from White House

Finally.

Wall Street Journal Article sketches in some detail.  GM and Chrysler will have to prove financial viability in March or the loans will be “called.”

Transcript: President George W. Bush at American Enterprise Institute, Includes Q&A | December 18, 2008

(Source: White House Press Office)

10:44 A.M. EST

MR. DeMUTH: Mr. President, what’s on your mind this morning?

THE PRESIDENT: First, thanking you for being the leader that you’ve been, and thanking AEI for generating good thought. People in the public arena need to have support for philosophy — and that’s what you provide, so I appreciate all your hard work.

I thought I’d share some thoughts about the presidency — you could call it “reflections by a guy who’s headed out of town.” (Laughter.) And then I’d be glad to answer questions — and foreign policy, if you want to. Read more

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