GM, Ford Pare Declines as Bush Says TARP May Fund Auto Rescue
Dec. 12 (Bloomberg) — General Motors Corp. and Ford Motor Co. shares and bonds pared declines in U.S. trading after the Bush administration said it may tap the $700 billion bank- bailout fund to prevent an industry collapse.
Emergency loans for GM and closely held Chrysler LLC were rejected last night after talks failed over Republican senators’ demands that union workers accept a cut in wages next year. GM and Chrysler said they may run out of cash for their operations as sales head toward their lowest in 17 years.
The White House and Treasury reversed their earlier opposition to using funds from the Troubled Asset Relief Program to finance an automaker rescue, buoying GM shares after a plunge of as much as 37 percent. Ford trimmed a 27 percent drop.
“The government needs to find a way to provide funding to GM to help sustain it in the interim weeks until a new Senate can vote again,” Efraim Levy, a Standard & Poor’s equity analyst in New York, said in a note. “Without aid, GM could file for bankruptcy protection.” He rates GM as “sell.”
GM fell 17 cents, or 4.1 percent, to $3.95 and Ford slid 3 cents, or 1 percent, to $2.87 at 11:37 a.m. in New York Stock Exchange composite trading.
“We are encouraged by the White House’s willingness to consider other options, including the TARP program, for immediate aid to the domestic auto industry,” GM said today in an e-mailed statement. The biggest U.S. automaker said it was “prepared to work closely with the administration.”
Chief Executive Officer Robert Nardelli told Chrysler employees in an e-mail that the third-largest U.S. automaker was “pleased” by the Bush administration’s willingness to consider funds from TARP as the source of an industry rescue.
The Treasury Department “will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” spokeswoman Brookly McLaughlin said in a statement. White House spokeswoman Dana Perino said that because of the weakened economy, “we will consider other options” to aid automakers, including TARP.
“Congress has really punted the ball over to the White House,” John Bogle, 79, founder of the $80.6 billion Vanguard 500 Index Fund, said in a Bloomberg Television interview. “That will give them temporary stopgap aid. I do not think General Motors is going to go out of business.”
GM CEO Rick Wagoner told Congress last week and has said repeatedly that the Detroit-based automaker is trying to avoid bankruptcy at all costs. Lead director George Fisher said last week that GM considered and rejected the idea and it was “way down the list” of alternatives.
GM’s Dwindling Cash
Still, GM also has said it will lack the minimum $11 billion needed to pay bills by the end of this month, raising the prospect of bankruptcy should it fail to win a cash infusion. GM reported having $16.2 billion as of Sept. 30.
An attempt to restructure GM in bankruptcy would end up as liquidation, because sales would plummet as buyers flock to solvent car companies, Wagoner has said.
Chrysler has said it will run out of money early next year. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, Nardelli told Congress on Nov. 18.
Pressure was mounting on GM and Chrysler this week before the congressional failure as both faced demands from a small number of partsmakers for payments in advance because of the bankruptcy concerns, people familiar with the matter said.
Ford CEO Alan Mulally said the company doesn’t need emergency U.S. loans, though he predicted last week that the automaker could be dragged into bankruptcy by the failure of GM.
GM’s 8.375 percent bonds due in July 2033 lost 2 cents to 15 cents on the dollar, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The yield was 55.6 percent.
Ford’s 7.45 percent bonds due in July 2031 dropped 2.94 cents to 21.5 cents on the dollar, yielding 34.7 percent, Trace data showed.
United Auto Workers President Ron Gettelfinger endorsed the idea of emergency aid from the Treasury’s TARP program or from the Federal Reserve.
“We could work for nothing and GM couldn’t limp into January,” Gettelfinger said at the union’s headquarters in Detroit. The automakers will be liquidated without U.S. assistance, he said.
GM is reeling from almost $73 billion in losses since 2004 and a 22 percent plunge in U.S. sales this year. The automaker last month said it lost $4.2 billion in the third quarter.
Chrysler has been battered by a 28 percent plunge in U.S. sales through November, the most among major automakers.
Job losses would total 2.5 million to 3.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a Nov. 4 report from the Center for Automotive Research, which does studies for government agencies and companies.
The Senate failure on the rescue plan came when a bid to cut off debate on the bill the House passed Dec. 10 fell short of the required 60 votes. The procedural vote to end debate was 52 in favor, 35 against. Earlier last night, negotiations on an alternate bailout plan failed.