More aid expected, but GM likely will miss restructuring deadline

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The internet is ablaze with news and speculation about the next round of auto bailouts. Comments from Michigan Senators Carl Levin and Deborah Stabenow only added fuel the fire. Levin said President Barack Obama's auto task force will announce more aid for U.S. automakers within a week and possibly in a few days. Stabenow echoed the same message, and added that aid would come with conditions including "downsizing" and continued restructuring efforts.

Now the big news is that that General Motors Corporation (GM) is likely to miss its March 31 restructuring deadline. It looks like GM faces three big problems:
  • Only 7,600 U.S. factory workers volunteered to leave the company under a buyout program. GM had hoped for more volunteers. GM has negotiated an agreement with the United Auto Workers union to trim 10,000 more positions by October.
  • About $20 billion in health benefits for retirees must be restructured. The UAW wants to use a similar model as the one it reached with Ford Motor Company (F), but GM said it needs more cuts. The UAW won't negotiate more cuts until bondholders, who hold $27 billion in unsecured debt, offer deeper concessions.
  • GM must cut its unsecured debt by two-thirds under the terms of its government loans. This cut is expected to be a debt-for-equity exchange. GM made a new offer to the committee representing the bondholders this week, but the Journal reported that the two sides are no closer to an agreement.
These three major stumbling blocks could push GM's restructuring efforts past the March 31 deadline set by the U.S. Treasury Department. But people briefed on the matter told The Wall StreertJournal that Obama's auto-industry task force appears willing to extend that deadline another 30 days.

The March 31 deadline was set by the Bush administration when it gave GM and Chrysler $13.4 billion in emergency loans. The two companies have asked for as much as $22 billion in additional funding. The auto industry task force is expected to address the additional aid by March 31.

Last week, the task force agreed to $5 billion in aid to auto-parts suppliers. This week, it worked on reviving auto sales and looked at the merits of an alliance between Chrysler and Italian automaker Fiat SpA, the Journal reported.

Next week, we'll likely get word about the next round of auto bailouts, as Levin and Stabenow have said. The big question that needs to be asked is whether more bailout aid is warranted or should GM and Chrysler face bankruptcy.

Lita Epstein has written more than 25 books including "Reading Financial Reports for Dummies."
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