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GM, Chrysler seek nearly $22 billion more from U.S.

General Motors asks for up to $16.6 billion in loans, Chrysler $5 billion. In return, the automakers say, they'll slash jobs and vehicle lines.

February 18, 2009|Ken Bensinger and Jim Puzzanghera

LOS ANGELES AND WASHINGTON — General Motors Corp. and Chrysler said Tuesday that they needed nearly $22 billion more in government loans to avoid financial ruin, further darkening a day of global financial turmoil.

The struggling Detroit automakers said in business plans submitted to the Treasury Department that they needed a total of $39 billion in taxpayer-funded loans by 2012 -- and perhaps billions more in following years -- to help them survive plunging auto sales amid the global recession.

The requests now must be reviewed by the Obama administration, which faces the prospect that the auto industry could continue to seek bailout money for years to come.

The plans, aimed at showing how the automakers would remain viable with government loans, came as President Obama signed into law the $787-billion stimulus package aimed at halting the U.S. economy's downward spiral and save 3.5 million jobs.

But fresh doubts about the health of the banking industry and the ability of the stimulus to turn things around helped send markets reeling worldwide Tuesday.

The Dow Jones industrial average of blue-chip stocks fell nearly 300 points, or 3.8%, leaving it less than a point above the five-year low it set in November. In Asia, Europe and Latin America, stock indexes tumbled as much as 5% over similar concerns.

The automakers' restructuring plans, submitted after U.S. markets closed, were required under terms of the initial agreement approved by former President George W. Bush to issue $17.4 billion in loans to the automakers.

The companies said they would institute cost reductions and structural overhauls -- cutting thousands more jobs, eliminating brands and selling assets -- but they hinged their success on greater access to federal financial support.

The additional loans represent a small percentage of the remaining financial rescue fund approved last fall, said Rep. Sander M. Levin (D-Mich.), who noted that some banks also have needed more money than initially anticipated because of the worsening recession.

"They're serious and sobering," Levin said of the companies' plans. "But do we want to penalize realism? I don't think so."

A panel of top Obama economic advisors, including Treasury Secretary Timothy F. Geithner and National Economic Council Chairman Lawrence H. Summers, will start reviewing the plans this week and determine by March 31 whether they ensure long-term viability.

The government is not obligated to lend the carmakers any more money and could require immediate repayment of the existing loans, a demand that would probably trigger bankruptcy filings for both companies.

"It is clear that . . . more will be required from everyone involved -- creditors, suppliers, dealers, labor and auto executives themselves -- to ensure the viability of these companies going forward," White House Press Secretary Robert Gibbs said Tuesday evening.

Obama administration officials did not say how much more money the government would be willing to lend to boost the U.S. auto industry, which has suffered huge losses and declining cash positions as sales have plummeted.

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Sacrifices

Through the first nine months of last year, GM lost $21 billion and in November said that without government aid, it would no longer be able to pay suppliers.

To stay afloat, GM said, it would cut an additional 47,000 jobs this year, reduce half of its vehicle brands in the U.S. and cut the number of models it sells by a quarter. Chrysler said it would eliminate 3,000 employees, cut production by 100,000 units and kill three models.

To accomplish all that, GM said it would need up to $30 billion in loans by 2011, including the $13.4 billion it already had received. Chrysler said it would need a total of $9 billion, including $4 billion it received in early January.

Ford Motor Co. has not requested federal aid, though it has left open that possibility should market conditions decline further.

Loans would most likely continue to come from the $700-billion financial rescue fund passed by Congress last fall.

Industry analysts were skeptical that the plans, even if fully funded by the government, would be sufficient to ensure the survival of the two automakers.

"The most important issue is not what the automakers are going to do to cut costs, but rather what the government is going to do to stimulate car sales," said Jeremy Anwyl, chief executive of auto research Web site Edmunds.com.

"No automaker is viable under the current market conditions."

Both carmakers said they faced insolvency without further federal aid and that the alternative -- bankruptcy -- could cost taxpayers considerably more.

"We're talking about a cost of $60 to $70 per tax filer for a $9-billion bailout," said Chrysler CEO Robert Nardelli. But a complete closure and sale of the company in pieces "would probably cost the people on the order of $1,200 apiece."

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