GM, Chrysler in line for more federal aid from The Auto Task Force

Chrysler in line for $500M more; GM weighs fate of Pontiac, GMC

Robert Snell and David Shepardson / The Detroit News

Washington -- The Obama auto task force is preparing to loan General Motors Corp. about $5 billion in additional federal short-term aid, and Chrysler LLC $500 million, an Obama administration official familiar with the matter said Thursday.

The disclosure assigns a dollar amount to the pledge of continued short-term support issued late last month by the administration, after it rejected GM's and Chrysler's restructuring plans and requests for up to $21.6 billion in additional assistance. The official said the decision was expected to be announced next week -- though the precise amounts were still the subject of talks between the government and the automakers.

The White House said Thursday night no decision had been made about how much either automaker will receive. "No decisions have been made on how much working capital GM and Chrysler will be getting," said spokeswoman Amy Brundage.....More

Chrysler Canada News-CAW

Chrysler must slash labour costs to receive gov't funding: industry minister

TORONTO — Chrysler Canada must slash its labour costs to a level competitive with non-unionized plants in Canada, and the pattern established in an earlier deal reached between General Motors Canada and its union isn't good enough, says federal Industry Minister Tony Clement.

Chrysler has said it needs to reduce its hourly labour costs by $19 an hour to be competitive with Toyota and Honda plants in Canada, but the Canadian Auto Workers union has so far insisted that it will stick to the pattern set in its March labour agreement with GM - which reduces that company's costs by about $7 an hour.

But Clement said the CAW will have to give up more to protect Canadian jobs.

"The CAW has to recognize that in order for Chrysler to survive in this country, that Chrysler has to be competitive with the rest of the Canadian market," Clement said at a news conference in Toronto on Thursday.

"If everyone is saying - and they are saying - that Chrysler, in order to be competitive, has to go beyond the pattern in terms of cost reductions and cost competitiveness, I believe the CAW has to have regard for that," he added.

Chrysler has been given until April 30 to negotiate a partnership with Italian automaker Fiat and to reach deals with its workers, bondholders and other stakeholders in order to receive long-term bailout loans from governments in Canada and the U.S.

The company spent several days in intensive labour negotiations with the CAW at the end of March, but those broke off after governments rejected its original restructuring plans.

This week, Fiat CEO Sergio Marchionne said he will walk away from the proposed partnership - widely considered to be Chrysler's last chance to avoid bankruptcy and possibly liquidation - if Chrysler can't reduce its labour costs to a level competitive with German and Japanese assembly plants in both Canada and the United States.

The CAW and Chrysler will head back to the bargaining table Monday, and two people briefed on the United Auto Workers' negotiations told The Associated Press on Thursday the U.S. union has placed talks with General Motors (NYSE:GM) on the back burner as it tries to forge a concession agreement with Chrysler.

Clement said Thursday that if Chrysler is unable to reach a deal with the CAW - and therefore cement its alliance with Fiat - the Canadian government will not provide the company with the emergency loans it has been asking for.

"With April 30 looming very closely on the horizon, the CAW has to do its part," Clement said.

"I know this is difficult. I know this affects real workers and towns and cities across Ontario. This is not an easy thing, but the alternative is, there is no deal in place and if there's no deal in place there will not be long-term funding arrangements with the government of Canada."

The federal and Ontario governments have already lent $250 million to Chrysler Canada at the end of March so it could meet payroll and other immediate obligations. Clement said the government would also have the right to call that loan if a deal isn't reached.

"If you're asking whether I'm willing to funnel Canadian government money and taxpayer money when we do not have an acceptable plan on a go-forward basis, I cannot do that. I don't think that would be responsible," Clement said.

Clement has also said the earlier agreement reached between the CAW and GM doesn't meet the conditions of long-term government loans and has asked the two parties to cut labour costs further.

However, GM CEO Fritz Henderson said the deal does make the company cost competitive and the CAW has refused to re-enter negotiations.

Chrysler said it is working hard to meet the governments' conditions by the April 30 deadline.

"All parties have complete understanding that Chrysler must achieve the necessary concessions and restructuring targets that have been established," the company said in an emailed statement.

"As it moves through this process, the company believes it is important to keep all options open but Chrysler's goal is to reach a conclusion by April 30 that the government deems viable, given the guidelines that have been set."

Clement was in Toronto to unveil a $145-million program called Automotive Partnership Canada, which he said will jump-start the development of higher tech, more environmentally friendly cars.

The program, which was initially announced in the Conservative government's 2008 budget, is also designed to help the struggling auto sector conserve jobs and rebuild.

Clement said the investment will be used to stimulate research and development in alternative fuels, next-generation manufacturing, advanced power trains and lighter or more sustainable materials.

UAW focusing on talks with Chrysler

DETROIT – The United Auto Workers union has placed concession talks with General Motors Corp. on the back burner as it tries to reach a deal with Chrysler LLC before an April 30 government deadline, two people briefed on the negotiations said Thursday.

The decision likely means that any deal with Chrysler will set the pattern for concessions granted to GM as both companies try to show the government they have cut costs enough to get more government loans.

The people, who spoke on condition of anonymity because the talks are private, said the union is focusing on Chrysler because its government deadline to cut labor costs and swap debt for equity is just two weeks away.

Chrysler also has to ink an alliance deal with Fiat Group SpA by April 30 to get more government aid. Without further help, Chrysler likely would be auctioned off in pieces under bankruptcy court supervision.

GM's government deadline is June 1, but the Obama administration said it will provide bankruptcy financing if the company can't successfully restructure outside of court.

GM spokeswoman Sherrie Childers Arb and UAW spokeswoman Christine Moroski would not comment on the negotiations. Chrysler spokeswoman Shawn Morgan would not comment beyond a statement that the company has a goal is to reach a conclusion by April 30.

The Canadian Auto Workers union has said that it plans to resume negotiations with Chrysler on Monday after Fiat CEO Sergio Marchionne said the Italian automaker will walk away from the proposed tie-up unless Chrysler's unions agree to major cost cuts.

Canadian Industry Minister Tony Clement said Thursday that the CAW must make significant concessions to ensure Chrysler survives. Without a deal in the next two weeks, the Canadian government will also shut down its support for the troubled automaker, Clement said.

Chrysler, GM and Ford Motor Co. all reached concession deals with the UAW in February to limit overtime, cut lump-sum cash bonuses and eliminate cost-of-living pay increases. The union also agreed to suspend the jobs bank in which laid-off workers are paid most of their wages.

Workers at Ford, which is not receiving government aid, ratified their deal, but the GM and Chrysler agreements were never presented to union members because they got hung up on funding for a union-run trust that will take over retiree health care expenses next year.

Then, the Obama administration said last month that the cuts outlined in GM and Chrysler's viability plans didn't go far enough, and the union would have to give up more. Just how much more has not been stated publicly.

GM has received $13.4 billion in government loans and may need more money this month as it tries to survive the worst auto sales downturn in 27 years. Chrysler has received $4 billion and may also need more funding to stay alive until its deadline.

The government said it will lend Chrysler up to $6 billion more if it completes a deal with Fiat and gains concessions from unions and debtholders.

But creditors that hold $6.9 billion in Chrysler debt — mostly banks and hedge funds — have rejected an offer from the Treasury Department to erase the debt for $1 billion. They are preparing a counteroffer that likely will include more cash and an equity stake in the company.

A committee representing the holders of $28 billion in GM bonds is awaiting an offer from the company that aims to slash its unsecured debt by at least two-thirds.

Associated Press Writer Rob Gillies in Toronto contributed to this report.

Fiat CEO: Concessions or no alliance with Chrysler

The latest Chrysler News-

Santiago Esparza / The Detroit News

Fiat Group SpA CEO Sergio Marchionne is ready to walk away from a proposed alliance with beleaguered Chrysler LLC if the automaker's union workers do not agree to concessions that would put their pay on the same scale as workers at U.S. plants owned by foreign car companies.

In a story posted today on The Toronto Globe and Mail's Web site, Marchionne said not getting concessions from the UAW and CAW are a breaking point for talks.

"Absolutely we are prepared to walk," he said in the story. "There is no doubt in my mind. We cannot commit to this organization unless we see light at the end of the tunnel." ....More

Will The Auto Task Force Have A Sit On Chrysler's New Board?

Chrysler and potential partner Fiat are discussing a new management and board for the U.S. automaker under a proposed alliance that could see Fiat take a stake in Chrysler, Automotive News reported on Monday.

Chrysler is racing to complete a partnership with the Italian automaker by April 30, with the Obama administration warning the alternative would be bankruptcy.

The two automakers are discussing a new seven-member board for Chrysler that would include representatives from Fiat and possibly President Barack Obama’s automotive task force overseeing the restructuring of the auto industry, Automotive News reported, citing sources close to the negotiations.

Chrysler's new deal-Different owners and Marchionne-led management team

Article from the Automotive News-

Different owners, a new board of directors and maybe a Marchionne-led management team

TURIN, Italy — As Chrysler LLC negotiates an alliance with Fiat S.p.A. that would satisfy the Obama administration, sources say the companies are discussing a revised ownership structure, a new board and possibly a different management team for Chrysler.

Among the options being discussed is a direct role in Chrysler's operations for Fiat CEO Sergio Marchionne — possibly even the chief executive's job.

Sources close to the merger negotiations say that after completing the deal, the plan is to elect a seven-member Chrysler board that would include representatives from Fiat and possibly President Barack Obama's automotive task force.

But the companies face major obstacles in getting the deal done. The ownership of the future Chrysler is still subject to complex negotiations involving Cerberus Capital Management LP, Daimler AG, the UAW and the big banks that hold Chrysler's debt.

A person familiar with the negotiations said the new management structure would divide the roles of CEO and chairman between two executives. The job of Chrysler chairman would be held by an American, the source said.

Since 2007, Chrysler's chairman and CEO jobs have been held by Bob Nardelli, appointed by Cerberus.

On March 30, Obama gave Chrysler and Fiat until the end of April to prove their alliance is workable. The government then would grant Chrysler up to $6 billion in additional loans. Chrysler already has received $4 billion.

Obama impressed

Marchionne (mar-kee-OHN'-nay) — the energetic, chain-smoking architect of Fiat's turnaround — has led the Italian automaker since 2004. In his March 30 speech about the auto industry, Obama praised Marchionne and described Fiat as a company where "the current management team has executed an impressive turnaround."

Another source familiar with the negotiations said Obama's task force may even dictate that Marchionne be directly involved in running Chrysler.

It's unclear whether Marchionne would try to exert hands-on control of Chrysler in the style of Carlos Ghosn, the CEO of Renault and Nissan. But there is evidence that he might try. The 56-year-old executive already spends several days each month in the United States, usually at the offices of Fiat's Case New Holland subsidiary in suburban Chicago.

Every other Friday evening, Marchionne boards a chartered overnight flight, snatching a few hours of sleep and arriving Saturday morning in Chicago. After two days working in America, he catches the red-eye return flight on Sunday.

Marchionne, who speaks accent-free English, holds both Italian and Canadian citizenships and earned university degrees in Toronto and Windsor, Ontario. He spent a decade working in Canada.

Asked about possible changes, Chrysler spokesman Todd Goyer issued a statement: "Chrysler has no management changes to announce. The job of Chrysler's current management team is to get the company on a solid foundation moving forward."

Obstacles remain

Speaking last week at the New York auto show, Chrysler co-President Jim Press said he is optimistic that Fiat and Chrysler can meet the government's requirements and form an alliance.

But he cautioned that Chrysler is preparing for bankruptcy if the alliance does not work out. "We've got to be prepared to take care of the equity and the assets," he said.

Besides the negotiations over the ownership of the future automaker, Chrysler negotiators are in talks with UAW officials about reducing Chrysler's $10.6 billion obligation to the union's health care trust.

The Treasury Department also is negotiating with the major banks holding $6.9 billion in Chrysler debt, according to a Bloomberg News Service report. Bloomberg said the four largest lenders are JPMorgan Chase & Co., Citigroup, Goldman Sachs Group and Morgan Stanley.

Cerberus has offered to give up its stake in Chrysler. Cerberus Chairman Stephen Feinberg is involved in the negotiations. Cerberus also must iron out a dispute in its effort to acquire Daimler's 19.9 percent stake in Chrysler. Cerberus aims to consolidate its ownership as part of the overall plan to restructure the company.

Speaking at a shareholder meeting last week in Berlin, Daimler CEO Dieter Zetsche said Cerberus was making "unacceptable" demands in negotiations to acquire the remainder of Daimler's stake.

The two sides have been wrangling since November over a Cerberus request to acquire Daimler's stake. Daimler sold majority ownership of Chrysler to Cerberus in 2007.

Government Auto Task Force May Split Up Chrysler's Equity

Instead of Cerberus Capital Management and Daimler AG holding 80.1% and 19.9%, respectively, of Chrysler LLC, there will be a larger cast.

Under the latest scenario proposed by the U.S. government, Fiat SpA will have the largest block of Chrysler, at 20%. The remaining 80% will be allocated among a variety of secured creditors that include at least five banks and U.S. taxpayers.

Cerberus and Daimler likely will hold much smaller stakes because they still hold loans that helped finance the August 2007 acquisition of the Auburn Hills-based automaker.

Even the UAW could end up owning a piece of the company.

"They are trying to trade debt for equity among the current creditors," said Tom Stallkamp, a former DaimlerChrysler vice chairman and president. He is now a partner in Ripplewood Holdings LLC, a private equity fund. "It's all based on how much of a haircut the debt holders will accept."

Coincidentally, those debt holders include some of the giant banks -- J.P. Morgan Chase, Citicorp, Morgan Stanley and Goldman Sachs -- that auto industry advocates argue have benefitted from a double standard in how they accounted for government loans.

Debt-for-equity talks
There are three levels of Chrysler debt secured by such assets as manufacturing plants, equipment, vehicles, parts and real estate. The first level, valued by Chrysler at $6.9 billion, was borrowed from the banks. The second is $2 billion borrowed from Daimler ($1.5 billion) and Cerberus ($500 million). The third is the $4.3 billion in government loans committed in December and January.

If Chrysler were to file for bankruptcy, the banks would be first in line to sell assets, followed by Cerberus and Daimler, and finally the federal government.

"This is the worst possible time to be selling an auto plant," said Shelly Lombard, a credit analyst with Gimme Credit in New York.

Chrysler, Fiat and President Barack Obama's auto task force are working hard to avoid that outcome. To succeed, they must secure breakthrough agreements with the banks and the UAW. Then, the task force has said it would release up to $6 billion more to fund Chrysler's operations.


Unlike GM, which is dealing primarily with bondholders, Chrysler's debt is owed to banks and the government. Some of the bank loans have been sold to hedge funds and other investors. "It's hard to know who bought what, even with bonds, and it's harder still with bank loans," Lombard said.


One of the banks likely will act as an agent for the hedge funds. Then, the task force leaders, Steven Rattner and Ron Bloom, will negotiate for a settlement that offers the banks a fraction of the loans' face value in exchange for shares in the new Chrysler.

Challenges ahead
Fiat so far has not offered cash and has said it will not assume any current debt to partner with Chrysler. While Chrysler has valued Fiat's vehicles and powertrain technology at $8 billion to $10 billion, that won't likely satisfy the banks.

"Fiat is in many ways a reasonable long-term solution," said Craig Fitzgerald of Plante & Moran. "The big question is will $6 billion more from taxpayers be enough to fund Chrysler's turnaround."

The challenge with the UAW is to find a non-cash method to cover half of $10.6 billion Chrysler owes in 2010 to the Voluntary Employee Beneficiary Association, or VEBA, trust fund. The trust was created to cover health care insurance for UAW retirees.

If Fiat doesn't offer cash or its own stock, Chrysler may offer the union stock in the new company. Such a deal would save $5.3 billion, which could be enough to satisfy Obama's demand for more concessions, and bring the UAW into partnership with banks, taxpayers, Cerberus and Fiat.....More