Smart Motorist

Chrysler's alliance with Fiat, finalized this month, creates a fresh start for the company and for tens of thousands of workers. A restructuring process is also underway at General Motors and is on track to proceed quickly.

It's coming down to the wire for General Motors. With GM rapidly burning through its cash reserves due to hefty losses amid an historic slump in auto sales, President Obama said the Treasury Department would give the automaker the cash it needs to continue operations on the condition that GM restructure its debt or file for bankruptcy by June 1.

The automaker set a May 26 deadline for its bondholders to reach a restructuring agreement. GM chief executive officer Fritz Henderson has repeatedly said that the difficulty in inking a deal makes a bankruptcy filing for the automaker "probable."

GM and Treasury officials, encouraged by Chrysler's progress in court over the past few weeks, believe that GM could emerge from bankruptcy in as little as 30 days. But the drive for an expedited bankruptcy could be challenged by GM's investors and dealers. GM's offer of a 10% stake in the restructured company would have left bondholders with cents on the dollar of what they are owed.

The Chrysler case may influence the reorganization of General Motors Corp., which plans a similar quick sale of its best assets. Chrysler and Detroit-based General Motors have taken around $25 billion in federal bailout loans and want about $40 billion more to complete their reorganizations.

Chrysler is seeking approval in bankruptcy court to sell most of its assets for $2 billion to a group led by Turin, Italy-based Fiat SpA that includes a United Auto Workers union benefit trust and the U.S. and Canadian governments.

Ford Motor Co., the only U.S. automaker to forgo federal aid, plans to sell 8 percent notes due in 2014 in its first dollar-denominated benchmark offering in 13 months, according to a person familiar with the transaction.

The debt may yield 13 percent, said the person, who declined to be identified because terms aren’t set. A benchmark offering is typically at least $500 million. The sale may occur as soon as today, the person said.

Ford is taking advantage of loosening credit markets to bolster its cash hoard as it grabs market share from U.S. rivals Chrysler LLC and General Motors Corp., said Kingman Penniman, president of high-yield research firm KDP Investment Advisors in Montpelier, Vermont. The company could avoid U.S. aid because it borrowed $23 billion in late 2006 before credit markets froze. Chrysler filed for bankruptcy protection in April, and GM may follow June 1, according to people familiar with its plans.

“They’ve been very, very successful and adept at getting the money when the money is available,” Penniman said today in a telephone interview. “That’s basically why Ford is not a Chrysler or GM.”

The rapid turnarounds at GM and Chrysler are being accomplished with government involvement and because a majority of industry stakeholders agreed, in advance, to painful sacrifices.

More important, taxpayers -- who are providing billions of dollars to preserve a critical U.S. manufacturing sector -- now have a right to ask: How will this be different than previous attempts at restructuring?

Here's how:

Company creditors -- the U.S. government, bankers, bondholders and the trust funds for United Auto Workers retirees -- have agreed to swap debt for equity at Chrysler and GM, eliminating billions in liabilities. This will free up funds to reinvest in the businesses and make private investment more attractive.

The companies will also reduce their operations, achieving significant cost reductions at a severe human cost. In addition to lost jobs and tax revenue from closed plants, suppliers and dealerships, there will be broad impact in affected communities, ranging from farmers who once raised cattle to provide leather for automobile seats to lost sales, jobs and income at family-owned restaurants and groceries near closed facilities.

The companies will realize additional savings as a result of the labor agreements ratified by UAW members this year, which come on top of concessions made in 2005, 2007 and 2008. Workers have accepted frozen and reduced wages; retirees living on fixed incomes will pay higher health-care costs.

While making necessary sacrifices, the restructured domestic auto industry is now in a position to respond to critical environmental concerns. As part of new UAW agreements, GM and Chrysler committed to produce new small cars in the United States. Chrysler's alliance with Fiat will bring new fuel-efficient technologies here; Ford is producing industry-leading hybrids, and GM will soon introduce the Chevy Volt, the first mass-market electric-powered car.

These green technologies will help companies meet the rigorous national standard for fuel economy and greenhouse gas emissions put forward by President Obama. The new standard will reduce U.S. dependence on foreign oil and help combat climate change.

Domestic automakers are ready to compete. But fair competition requires a level playing field, which does not yet exist in the global auto industry.

Toyota, Honda, Nissan and other Japanese automakers, for example, sold an astounding 94 percent of all passenger cars in Japan in 2008. Korean automakers control 96 percent of auto sales in their home country. By contrast, Chrysler, Ford and GM have a combined share of less than 50 percent of the U.S. auto market.

The scarcity of U.S. vehicle sales in Asia did not come about because hardly anybody in Korea or Japan wants a Chevy, a Ford or a Jeep. It happened because Korea and Japan protect their home-country auto markets with currency manipulation and non-tariff trade barriers. The result is an artificially high price for U.S.-made vehicles overseas and a hidden subsidy worth thousands of dollars per vehicle on cars and trucks imported into the United States.

American auto workers have no interest in a trade war or in erecting a protectionist wall around the U.S. market. But other countries should treat U.S. products fairly, and hidden subsidies should be brought into the open -- and removed. We certainly don't need new trade deals, like the U.S.-Korea Free Trade Agreement negotiated by President George W. Bush, that allow unfair trading practices to continue.

Finally, while our new labor contracts will eliminate billions in health-care costs for U.S. car companies, the fractured U.S. health-care system is beyond repair by any one industry. Every other industrialized country has a universal health-care system that provides quality care at a much lower cost than here in the United States.

The United States spends more than $6,400 per person per year on health care, even though millions have no health insurance. In Germany, where everyone is covered, it's less than $3,300 a person; in Japan, under $2,400. There's no evidence that citizens of these advanced industrialized nations receive lower-quality care as a result of these more cost-effective expenditures.

Excess health-care costs are a burden on every U.S. employer. Comprehensive national health-care reform has never been more urgent -- both for the sake of the uninsured and to reduce costs for U.S. companies.

American auto workers have made changes in our workplaces and in our industry. Now it's time for Washington to do the same, with changed policies on trade and health care that will create a level playing field for U.S. manufacturers.

Almost all of this article has been written by Ron Gettelfinger who is the president of the United Auto Workers; published in the washington post.

Ref.:
http://www.washingtonpost.com/
http://www.bloomberg.com
http://money.cnn.com