Chrysler seeks $5 billion more in government aid

DETROIT Tue Feb 17, 2009 6:41pm EST

1 of 4. The Chrysler logo is seen at the North American International Auto Show in Detroit, Michigan January 13, 2009.

Credit: Reuters/Rebecca Cook

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DETROIT (Reuters) - Chrysler LLC said it needs $5 billion more in U.S. government aid and General Motors Corp was also expected to ask for more help on Tuesday, as the global auto market deteriorates, threatening their survival.

The two Detroit automakers faced a deadline on Tuesday to submit restructuring plans to the U.S. Treasury to cut their debt and labor costs.

Chrysler, the No. 3 U.S. automaker, has already taken $4 billion in U.S. government loans, and it had previously asked for an additional $3 billion, for a total of $7 billion. But Tuesday's request boosted the prospective total to $9 billion.

GM shares fell more than 14 percent on Tuesday, and analysts said the recent showdown between GM, its bondholders and the United Auto Workers union underscored the heightened risk of bankruptcy for the top U.S. automaker.

Talks between the UAW and GM were expected to continue right up until the afternoon deadline for the embattled automaker to submit its survival plan to U.S. President Barack Obama's administration.

The White House did not rule out a government-managed bankruptcy for the automakers but said a "strong and viable" U.S. automobile industry was very important for the country.

"I wouldn't preclude policy choices, particularly since we haven't seen details on what they think is ultimately going to be most helpful for them," White House spokesman Robert Gibbs told reporters when pressed on whether the administration would close the door on a government-backed bankruptcy.

Tuesday is deadline for both GM and Chrysler, majority-owned by Cerberus Capital, to submit their restructuring plans under the terms of the $17.4 billion bailout that has kept both automakers in business this year.

GM's plan is expected to have 90 pages, with up to 900 pages of additional material and appendix, said a person briefed on the early version of the plan, which was sent to the GM board on Monday.

Once the plans have been submitted, the companies have until March 31 to prove to the government that they can be commercially viable.

Without a framework deal on how to cut GM's crippling debt load, analysts have said the government would confront a political and economic dilemma in the coming days.

Bankruptcy for GM could cost tens of thousands of jobs and topple suppliers and dealers just as the White House is focused on trying to pull the economy from the brink of a deeper recession.

But expanded aid for GM could cost taxpayers billions of dollars more and risk a backlash by voters wary of the mounting costs of bailing out troubled banks, finance companies and automakers.

Analysts expect GM will need an additional $5 billion in the coming weeks -- on top of the $13.4 billion it has already received -- and more beyond that. Chrysler wants a further $3 billion in aid, beyond the $4 billion it has already received, to fund a turnaround and clinch an alliance with Italy's Fiat.

GM and the UAW made progress over the weekend in talks on labor concessions, and GM bondholders submitted proposals to cut $28 billion in debt through an exchange for equity.

Both sets of discussions are crucial to GM's effort to use federal funding to restructure without having to file for bankruptcy protection.

Without final deals in place, GM will be forced to signal a readiness to use a government-financed bankruptcy process in a final bid to win concessions to slash costs and debt, analysts said.

Until now, GM Chief Executive Rick Wagoner and other executives had held to a line that a bankruptcy filing would spin out of control into a liquidation because it would scare off car buyers.

But senior executives are now somewhat more open to the prospect of a government-financed bankruptcy if it can be done quickly and if contracts with creditors, the UAW and suppliers can be rewritten, a person involved in the talks has said.

Earlier, Chrysler's former owner, Germany's Daimler, posted a fourth-quarter loss as it wrote down the value of a $1.5 billion loan to the struggling U.S. automaker. Daimler previously wrote off the full value of its 19.9 percent stake in Chrysler.

AGGRESSIVE COST-CUTTING

The restructuring blueprints from GM and Chrysler will outline plans by both companies to shed capacity and cut jobs as the U.S. auto market sags to its lowest level in almost three decades.

"They will be fairly aggressive. It's not going to be a minimal effort," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.

GM's Opel and Saab brands braced for news of the survival plan, which is expected to incorporate wide-ranging changes to the automaker's European operations.

Options on the table for Opel and GM's Swedish unit Saab include securing loan guarantees from Berlin and Stockholm and spinning off the two businesses as independent entities -- a scenario favored by GM Europe's labor leaders.

Saab could also be sold or closed down, analysts said, though Swedish Industry Ministry Secretary Joran Hagglund told Reuters he was confident GM would not leave Saab unprotected.

Efforts by GM to unload assets to raise cash have gone slowly since the automaker announced plans to raise between $2 billion and $3 billion from such steps last summer.

China's Sichuan Auto Industry Group Co on Tuesday denied a report that it was interested in buying Hummer.

($1=.7908 euro)

(Additional reporting by Victoria Klesty, Angelika Gruber, Love Liman, Gilles Castonguay; Writing by John Stonestreet; Editing by Patrick Fitzgibbons, Matthew Lewis and John Wallace)

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