On Tuesday, both General Motors and Chrysler LLC appeared before the U.S. Treasury Department to submit their restructuring plans for future viability. Unfortunately, despite the fact that a federal loan award to both companies earlier suggested the two Detroit auto makers would be able to salvage the wreckage of their respective companies, the outlook still looks bleak. Painting much costlier pictures than were originally presented during the first round of loan agreements in December, both Chrysler and GM have tacked a significant addendum onto their originally requested sums, claiming such a increases are absolutely necessary in order to stave off bankruptcy. Unwilling to part with any more cash than they already have, the U.S. Treasury Department has tentatively refused the desperate plea, ordering the automakers to fulfill the basic tenants of their long-term viability plan by March 31st. Should they fall short of their projected goals, the Treasury Department reserves the right to call in the loans already issued, thereby forcing the automakers to file for Chapter 11.
Snaring the Treasury in a Catch-22, both automakers were quick to note that forcing total liquidation would ultimately cost the government twice as much as the $49 billion being requested. Individually, Chrysler claims a traditional bankruptcy would immediately place 40,000 employees out of work and leave behind approximately $7 billion in outstanding debt owed to suppliers, guaranteeing the Treasury would only recoup about 3% of the $4 billion loan already granted. GM estimated a similar fate would cost the government a staggering $86 billion.
“We believe that Chrysler LLC will be viable based on the updated assumptions contained in this submission, and that an orderly restructuring outside of bankruptcy, together with the completion of our standalone viability plan, enhanced by a strategic alliance with Fiat, is the best option for Chrysler employees, our unions, dealers, suppliers and customers,” spoke Chrysler CEO Bob Nardelli earnestly. “Today, our people are eager to re-establish Chrysler as an iconic American company and, in the process, repay the U.S. government and taxpayers for their faith in our future. We believe the requested working capital loan is the least-costly alternative and will help provide an important stimulus to the U.S. economy and deliver positive results for American taxpayers.” Added GM CEO Rick Wagoner, “Our viability plan requires significant sacrifices from all GM stakeholders: management, employees, unions, suppliers, dealers, investors and bondholders…but these are the kind of actions we need to take to survive the current industry crisis, and position GM for sustainability and success. This plan, in effect, signifies the reinvention of General Motors for the 21st century. We are working non-stop to put this plan into action, and we greatly appreciate the support and encouragement we continue to receive as we take these important steps toward viability. ”
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