Facing outright bankruptcy, US car majors General Motors and Chrysler have together asked the Obama administration for an additional $22 billion - nearly double their original estimate – just to stay afloat beyond next month. The two companies have already received $17.4 billion in government handouts.
Both General Motors and Chrysler Corp lodged viability plans with the US Treasury Department on Tuesday which involved massive layoffs and discontinuation of brands. They warned that the downturn in the US was more severe than they had predicted in December, when they first received government funds.
The automakers faced a Tuesday deadline to report progress in revamping their operations as a condition of the billions in loans granted so far. They now have until 31 March to prove to the government they can be commercially viable.
The biggest US auto maker, Ford Motor Co, has not yet asked for federal funds, but is reported to have borrowed billions from private sources. It says it can survive without government funding through 2009.
Chrysler, the smallest of the big three, requested $5 billion in addition to the $4 billion in government aid it has already received, saying it expected the brutal downturn in the US market to run another three years. It is in talks with Fiat about a strategic shareholding, but no deal has been reached.
GM, which has already received $13.4 billion, says it will close five more plants in the US and pare its workforce by 20,000 out of 92,000 currently employed in America, while shedding another 27,000 workers in other countries. It has also put the Hummer and Saab brands on the market and plans to phase out its Saturn brand, while Pontiac will be integrated into the Chevy-GMC line-up.
The three car makers say there is progress in talks with the United Auto Workers Union on bringing wage levels in line with those of foreign manufacturers like Toyota, but how the $20 billion worth of obligations to provide for retiree health care remains a stumbling block.
GM said its own analysis of the costs and risks of filing for bankruptcy - the alternative to a bail-out - would require more than $100 billion. Its requests include $9.1 billion in new loans and a $7.5 billion credit line.
The White House has not ruled out a government-managed bankruptcy for the automakers, but says a "strong and viable" US automobile industry was important for the country.
House Speaker Nancy Pelosi said she was hopeful the plans would help lead to the "transformation of our domestic automobile industry into a viable, technologically advanced and globally competitive manufacturing force".
Meanwhile, the United Auto Workers union said it has reached a tentative agreement with Chrysler, GM and Ford on modifications to labour contracts.
GM's survival plan also calls for the cutting of 47,000 jobs and the closing of five more US factories. Chrysler said it will cut 3,000 more jobs while also cutting out models.
Chrysler president and vice-chairman Jim Press said yesterday that the company would eliminate the Chrysler Aspen, Dodge Durango and Chrysler PT Cruiser. GM plans to cut back to four vehicle brands from eight, and intends to scrap Saturn unless it's able to sell or spin off the division.
But the big question is whether the US Congress is prepared to provide more funds for GM and Chrysler, with no guarantees they will survive the sharp downturn. US car sales are down about 40 per cent from their peak in 2005, recording the lowest per head sales rate in 50 years.