GM, Chrysler near emergency loan deal

GM, Chrysler near emergency loan deal

Detroit/Washington: General Motors Corp and Chrysler are close to securing emergency loans as part of a US government aid package that would demand sweeping restructuring at the troubled automakers, according to sources familiar with the talks.

Bridge loans to carry the companies for several months could be announced as early as Friday said the sources, who were not authorized to publicly discuss the negotiations.

That would stave off the prospect of an “orderly" bankruptcy, one option being considered by the US government after more than a month of wrangling.

The aid package being spearheaded by the White House would demand that both automakers restructure by seeking new concessions from unions and creditors, two people briefed on the talks said.

Both GM and Chrysler have been forced to idle plants and lay off thousands of workers across North America as they try to shore up cash and have warned they could face bankruptcy without federal assistance.

No automakers have been spared in the brutal global sales slump, and Japan’s Toyota Motor Corp could report its first annual parent-only operating loss since the company was founded more than 70 years ago, Japanese media reported on Friday.

Toyota shares fell 2% in Tokyo ahead of a year-end news conference on Monday, where the world’s biggest carmaker is expected to revise down its profit forecasts. Toyota last posted an operating loss in its first year of operation in 1937/38.

A Toyota spokeswoman declined to comment on the reports.

Automakers everywhere are under huge pressure to cut costs as a global recession and tight credit strangle demand, and Japanese carmakers are feeling the extra pinch from a weak dollar/yen, now trading around ¥89.

US automakers are burning through dwindling cash reserves, raising the prospect of a bankruptcy that would cause massive disruption to the entire industry, add to growing jobless lines and deepen a global economic slowdown.

In a pair of interviews on Thursday, US President George W Bush said he was concerned about the impact a “disorderly bankruptcy" might have on markets and the economy.

Treasury Secretary Henry Paulson offered mixed signals on the prospect of a bailout.

Chrysler question

One remaining uncertainty is where an emergency federal bridge loan would leave Chrysler, widely considered the weakest of the big three US automakers.

Chrysler Chief Executive Bob Nardelli said last month the privately held automaker needs both taxpayer-backed loans and an alliance with one or more automakers to survive.

More recently, Nardelli has said the automaker could restructure to emerge as a stand-alone competitor, but most analysts are sceptical of that because of Chrysler’s heavy reliance on the deeply depressed US market and its inability to fund new vehicle development programs.

Cerberus Capital Management, the private equity firm that bought 80% of Chrysler from Daimler AG, has retained advisors to study a range of options for the No. 3 US automaker, including selling off its most valuable assets, including its Jeep brand and its minivan line.

From Friday, the No. 3 US automaker will be shutting all 30 of its plants for at least a month in order to keep inventories of unsold vehicles from building further.

Bankruptcy threat

Both GM and Chrysler have said a bankruptcy filing is not an option they would chose because of the risk that it would drive more consumers away from their brands.

The Detroit-based automakers have also said a bankruptcy filing by one could topple suppliers and endanger the remaining two companies because of the overlap in their key parts suppliers.

Ford Motor Co is not seeking emergency loans but has asked the government to consider standby credits it could draw on if its own position worsens more than expected in 2009 or if Chrysler or GM were to fail.

Both GM and Chrysler have been hard hit by the sudden tightening of credit since September, a development that has made it harder for their dealers to carry inventory and for consumers to find financing.

GM’s sales in the US market dropped 41% in November and are down 22% so far this year, while Chrysler sales have dropped 28%.