The Technician

It’s no surprise to the Kettering University community that the car industry is in some serious trouble. General Motors submitted a restructuring plan on April 27^th to the Government for even more continued support with loans. Then on April 30^th Chrysler filed for Chapter 11 Bankruptcy Protection after creditors refused Chryslers plan to reduce its debt.

General Motors restructuring plan includes getting rid of the Saturn, Hummer, Saab, and Pontiac brands by selling them off or stopping production. This leaves GM with a core of Buick, Cadillac, and Chevrolet. With only 3 brands GM would be able to better focus with fewer models in its lineup, more along the lines of Toyota with its’ Scion, Lexus and Toyota brands. There are some crucial steps in the restructuring plan for GM to avoid bankruptcy. According to the Wall Street Journal, GM would like for “90% of public bondholders to agree to take equity in exchange for their debt”. Many see this as unlikely because it would need bondholders to agree to give up $27 billion owed in debt for a 10% stake in the ailing company. The government would get over 50% of the company in exchange for $10 billion and the UAW would get 39% along with $10 billion cash in exchange for $20 billion it owes to the UAW for a health benefits trust. Common shareholders would end up with 1% in the company.

Along with the change in ownership, GM has plans to cut 47,000 hourly and salaried jobs worldwide as well as reducing the number of dealerships by 42%. The number of plants in the US by the end of the year will be reduced to 34 from 47.

Chrysler filed for bankruptcy protection after its creditors refused an offer to reduce $7 billion of its debt. The large banks which held a majority of the debt agreed to the deal but the smaller hedge funds refused the deal which would give them a fraction of what they were owed. It will now be left up to a bankruptcy court to decide how to sort through the issue with this debt.

Chrysler will stop production at all its plants until the company comes out of bankruptcy which The White House has said may take 30 to 60 days. As with GM’s restructuring plan, Chrysler will also see a change in ownership. The UAW will own 55%, the US government will own 8%, the Canadian government will own 2%, and Fiat will own 20% to start and could own up to 35% if some benchmarks are met. With the deal Chrysler would have access to Fiat’s small car technology, an area where Chrysler greatly falls behind the other automakers.

The issue with these two automakers spread beyond its own employee’s. MSNBC reported that at least 3 Detroit-area plants shut down on April 30^th because suppliers stopped shipping parts after hearing of the bankruptcy. Suppliers of Chrysler and GM, which also employ many of Kettering’s co-ops, may have to resort to even more drastic measures to respond to the reduced and stoppages of production.

Ford, the loan automaker that has been able to stay out of the headlines, took out an $18 billion loan in 2006 that has helped it to survive without government intervention or bankruptcy fears. This has proved to be a smart move as consumers may show that they are unwilling to buy cars from a bankrupt car company.

Citation

Associated Press (2009). Chrysler files for bankruptcy protection.Retrieved May 4,

2009, from MSNBC web site: http://www.msnbc.msn.com/id/30489906//

Bary, Andrew (2009). Don’t Chase the GM Rally. Retrieved May 4, 2009, from The

Wall Street Journal Online web site:

http://online.barrons.com/article/SB124084981971559725.html?mod=BOLFeed.