Cuts Loom at GM and Chrysler

DETROIT -Fear of more plant closures and other cuts that are likely to cost thousands of jobs is spreading through General Motors Corp. and Chrysler LLC as the companies approach a Feb. 17 deadline to show the government they can be viable.
Both companies' plans are presumed to include concessions from bondholders and the United Auto Workers. GM's plan will include shuttering additional factories as well as salaried pay and job cuts, according to people familiar with the plans.
Both GM and Chrysler must prove to the government that they are able to repay the federal loans that are keeping the companies afloat in the worst U.S. auto sales climate in 26 years. GM has received $9.4 billion and expects to get $4 billion more, while Chrysler has received $4 billion and is hoping to get another $3 billion.
That means the automakers will have to make substantial cost cuts. The companies are required to show the government they can achieve "positive net present value," which means that the present value of a company's expected net cash flows exceeds the initial investment in the company.
White-collar workers may not get buyouts or early retirement offers like they have in the past, and pay cuts could go beyond 5 percent, according to the people, who spoke on condition of anonymity because workers have yet to be notified.
GM workers across the country are dreading Feb. 17, the date that some of the plan's details could become public. Many realize that GM has announced the closure of four pickup truck and SUV plants in the past year, but it hasn't shut down a corresponding number of the engine, transmission and parts stamping factories that feed the assembly lines.
GM Vice Chairman Bob Lutz, in an interview with The Associated Press on Monday, wouldn't give details but conceded that GM will have to get smaller in the U.S. before it can grow again.
"It's going to be a smaller company in the U.S.," he said, adding that GM will grow in other parts of the world such as China. "We may have to take a step back in General Motors to find the right-sizing that's going to permit a profitable existence in a much smaller market."
GM and Chrysler must present their plans to the government by Feb. 17, but they do not have to have them completed until March 31, when the government can demand repayment of the loans if it decides the companies can't become viable.
Some of the targets in the loan terms require bondholders to swap part of the companies' debt for equity. The UAW also must make concessions that will reduce labor costs to the level of Japanese automakers' plants in the U.S.
GM is to hold a big meeting of its bondholders as early as this week, while the union has been waiting to see what concessions other parties make before agreeing to anything.
A so-called car-czar will ultimately decide on the companies' viability, but that person has not yet been appointed by the Obama administration. There also has been talk in Washington of extending the auto companies' deadlines.
Industry analysts say more vehicle assembly plants may need to close. Due to an unprecedented drop in U.S. sales, GM is operating some plants on only one shift at slow line speeds, which is not profitable.
Among the assembly plants at risk is the Pontiac, Mich., truck plant, which makes Chevrolet Silverado and GMC Sierra. Analysts say GM has plenty of pickup truck capacity at other factories.
Also at risk is the Orion Township, Mich., plant that makes the Chevrolet Malibu and Pontiac G6. GM has enough capacity to satisfy demand for the midsize cars at its plant in Kansas City, Kan., according to analysts.
"We always worry, especially after the national contract, where there was no future product put out there," said Mike Dunn, bargaining chairman for the UAW local at the Orion Township plant.
Some analysts say Chrysler may also have to close factories due to slumping sales of some models.
GM last year announced it would close pickup truck and SUV plants in Moraine, Ohio; Janesville, Wis.; Oshawa, Ontario; and Toluca, Mexico. But that was before the U.S. auto market shrunk from an annual sales rate of around 16 million vehicles to 13.2 million last year. Analysts and automakers are predicting industrywide sales to drop as low as 10.5 million this year.
Meanwhile, GM closed only one stamping plant near Grand Rapids, Mich., and no engine or transmission factories, especially those that make parts for slower-selling pickups and SUVs.
"They've been putting most of their efforts into cutting back on big production, but they haven't made the corresponding cuts in powertrain production," said Mike Omotoso, senior manager of global powertrain for J.D. Power and Associates.
GM, wary that Delphi Corp.'s financial woes could interrupt parts supplies and further cripple the automaker, is in talks with its former parts arm about taking back some Delphi factories that make key parts for GM vehicles, a person familiar with the negotiations said Monday.
Troy, Mich.-based Delphi has been operating under Chapter 11 bankruptcy protection for more than three years, and like many suppliers is struggling with the shrinking U.S. auto market.
The person, who asked not to be identified because the talks are private, said they have been under way for several weeks and might not lead to any takeover of the plants. GM has the option to take back factories in its 1999 agreement to spin off Delphi as an independent parts supplier.
Delphi plants make thousands of key parts for the Detroit-based GM's vehicles, including its top selling pickup trucks, the Silverado and Sierra.