Tuesday, December 2, 2008

GM, Ford Prepare for Congress

GM, Ford Prepare for Congress

General Motors' (GM) board was meeting on Dec. 1 to review a plan that management hopes will persuade Congress to lend the company about $12 billion in public funds. Collectively, Detroit wants $25 billion in bridge loans. The plan includes moves that will cut executive pay, narrow the cost gap vs. Japanese carmakers, and review several of its brands for sale or cuts.

Sources say GM will tell Congress (BusinessWeek.com, 11/20/08) that it plans to reopen the labor agreement to negotiate a deal with the United Auto Workers that would narrow that cost gap. GM will also make a case that it is pushing hard to improve the fuel economy of its lineup. And it is looking at different strategic options for as many as four brands—Saab, Saturn, Hummer, and Pontiac. If any of them go away, namely Saturn or Pontiac, it would be done by slowly phasing them out over several years.

GM is trying to work out a sale of Saab, BusinessWeek has learned. For several months, GM has been shopping the brand to Chinese, Indian, and Russian carmakers, as well as to the Swedish government, sources familiar with the talks said. Saab Managing Director Jan Ake Jonsson and GM-Europe President Carl-Peter Forster have been leading the efforts to find a buyer, or at least get someone to take the company off GM's hands.

Taking a Loss

Meanwhile, Ford (F) said it is also willing to sell Swedish carmaker Volvo to raise cash while the company asks the U.S. government for a loan. Ford has been trying to sell Volvo for more than a year. It has even rejected an offer, says one industry source, from a Chinese automaker. Ford has wanted as much as $3 billion to $5 billion for Volvo, which it purchased from an independent holding company in 1999 for $6.4 billion. But both GM and Ford may now have to settle for a deal that pays them little in exchange for a majority stake by the Swedish government.

Part of the problem for both automakers is that members of Congress who are opposed to or reluctant to granting government loans to the automakers said in last month's Capitol Hill hearings that they were against any of the money going to overseas operations or jobs. As long as both Saab and Volvo are wholly owned and losing money (BusinessWeek.com, 5/6/08), the companies cannot make that promise.

Volvo will have about 18,000 employees by yearend, and it lost $458 million in the third quarter alone, as its sales declined 24%, to $2.9 billion.

In a statement issued on Monday, the Swedish government said it was willing to consider its options and was talking to the carmakers. "The Swedish government has to be worried about this," says David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "In the case of Saab, they won't want to lose that facility in Trollhattan [Sweden]."

GM has about 5,000 employees in Sweden, most of whom work in the Saab factory in Trollhattan, where the 9-3 and 9-5 models are built. GM has shelved plans to build the 9-5 at its plant in Russelsheim, Germany, since the brand's future is under review.

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