Can billions in aid save the Big 3?

As expected, General Motors Corp (NYSE: GM) and Chrysler LLC came with their hats in hand to the federal government seeking an additional $14 billion in additional aid to avoid bankruptcy. More help to the beleaguered industry probably will be needed before the end of the year, particularly if Ford Motor Co. (NYSE:F) seeks government help as well.

General Motors Co., which is struggling with double-digit monthly vehicle sales declines and crushing debt load, also announced that it would slash 47,000 workers (19 percent of its workforce), shutter five plants in North America and cut its line up of brands in half.

"The Pontiac brand will have a much smaller role, if any, in G.M.'s future, and the company also said it would phase out its Saturn brand, which it once hoped would build small cars to counter the best of the Japanese brands," according to The New York Times.

Chrysler, owned by Cerberus Capital Management, is seeking an additional $5 billion in aid. The Auburn Hills, Michigan company lost $8 billion last year and expects to lose $1.1 billion in 2010. With the new loan and the $4 billion it's already received, Chrysler expects to earn $600 million in 2011.

The automaker is slashing 3,000 jobs and cutting three models, including the P.T. Cruiser, which at one time was one of its biggest sellers.

Both companies expect to repay the government by 2012. That may be wishful thinking. GM recently stunned investors when it said total auto sales in the U.S. might fall as low as 9.5 million this year. Both companies again rejected calls for them to file for bankruptcy.

"The great imponderable here is the market," said David Cole, head of the Center for Automotive Research, in an interview. "We just don't know what the ultimate market is going to look like."

Ford is struggling under its debt load and investors argue that it's a matter of time before the automaker joins its competitors on the government dole. That's particularly important given that $39 billion in taxpayer funds may be spent on GM and Chrysler.

Shares of the companies have been pounded as investors bet that equity holders will be wiped out, or come close to it. The companies yesterday were supposed to report their progress in restructuring their companies. Too bad there was not enough to report.

"Most of the low-hanging fruit when it comes to cost cutting is gone," said Rebecca Lindland, an IHS Global Insight Inc. analyst in Lexington, Massachusetts, told Bloomberg News. "You get to the point where you're throwing good money after bad."

Cole rejects such arguments as overly pessimistic. He points out that the automakers are lowering their break-even levels dramatically through their cost cutting.

The problem is that the bad times need to play out more before the good times can start.
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