GM Submits Business Plan to Congress

By Chris Haak

12.02.2008

GM has submitted its business plan to Congress for its review – and if the plan is deemed to be viable as far as limiting the likelihood that GM would have to come back to Washington down the road asking for more money – Congressional leaders Harry Reid and Nancy Pelosi will call another lame-duck session of Congress to vote on potential aid to the industry.

In marked contrast to Ford’s plan – where Ford basically said the money would be nice to have as a backstop in the event that things get worse – GM said that it needs $4 billion in Federal aid before the end of the month in order to continue operations.  Further, two weeks ago, CEO Rick Wagoner told Congress that the company would need $10 to $12 billion in assistance; the price has now climbed to $12 billion in loans by the end of March, as well as another $6 billion in revolving credit if conditions don’t turn around.

While the full plan was not yet available on GM’s media website, portions of it are:

GM’s press release regarding the plan is available here.
GM’s full presentation to Congress (.doc format) can be downloaded here.
Details on the conference call where CEO Wagoner and COO Henderson will explain the plan is available here.
A statement from GM’s Board of Directors is available here.

Much of the plan is not a surprise, with the sale of Saab and Hummer floated, as well as bankruptcy-like renegotiation of debt obligations (without actually declaring bankruptcy).  There are some biggies, though, and frankly I am not convinced that GM has the ability to execute on all of the checkboxes that it requires.  To me, it appears that GM has painted itself into a corner with only a very narrow, curvy pathway out of that corner.  Basically, nearly everything has to go right for GM (aside from the expected sales declines) for the company’s plan to work.  Some of the new info from the press release:

Acknowledgement that Saturn Is a Failure
GM seems to have been one of the last parties to realize this, but the 23 year old Saturn experiment has been an abject failure and drain of resources that might have otherwise saved Oldsmobile a decade ago and devotion of resources to what is basically a niche brand in the 2006-2008 timeframe (Aura, Sky, Outlook, Vue, Astra) that could have been applied to Chevrolet or Cadillac will probably go down as one of the biggest follies that GM management committed.  To this end, GM is going to engage in discussions with Saturn retailers (dealers) about the future direction of the brand.  It’s possible that it could be sold or shuttered.

Demotion of Pontiac To Niche Status
Pontiac, once a proud and successful performance brand, is going to be de-emphasized in coming years and will have an even smaller lineup than it does now.  GM even used the phrase “niche brand” in its press release today.  Given the use of that phrase, I’d expect the G6 to die (as it’s redundant with the Malibu), Vibe to die (it’s not a performance car), the Torrent to die (this is already confirmed – it will be a GMC in its next life), the G5 to die (it’s redundant with the Cobalt), and the G3 to die (it’s redundant with the Aveo).  That leaves just two niche products, the Solstice (which probably won’t see a second generation) and the G8 (which has not been a sales success, but certainly would also qualify as a niche product).

Labor Concessions
GM is depending upon the UAW to agree to “further changes in existing labor agreements, including job security provisions, paid time-off, and post-retirement health-care obligations.”  So basically, the 2007 concessionary contract wasn’t enough, and they need more.  The UAW is keenly aware of the precarious position that GM finds itself in, and while it may grumble, I’m sure the union will agree to many concessions to preserve jobs.  All of these things, though – I’m not positive.  Is paid time-off, for example, really a cash burner?

Federal Oversight Board
GM has proposed that a Federal Oversight Board be established to monitor the use of taxpayers’ money as well as assisting the company in negotiations with stakeholders such as debtholders who are being asked to forgive the company’s debt, and the UAW, who is being asked for further labor concessions.

In terms of laying out various US new vehicle sales scenarios as Ford did in its presentation, GM is saying that it needs $12 billion in bridge loans to make it to December 31, 2009 – if industry sales are at an annual level of 12 million units in 2009.  That 12 million units assumption (if you click the link above to the Ford presentation) falls close to Ford’s rosiest scenario – the so-called “Slightly Improved Rates” that projected that Ford would need no government money if sales were 12.5 million units in 2009.  GM expects that it would need to tap the additional $6 billion revolving credit line if industry sales fell to 10.5 million units in 2009, which would be Ford’s doomsday “Worse Rates” scenario.

So the bottom line is that GM will need $18 billion, plus a serious pruning of its model lineup, plus big concessions from the UAW, plus agreement from its debtholders to forgive $35.6 billion in debt (which is just over half of GM’s debt load) to make it to December 31, 2009 if industry sales crash to 10.5 million units.  Under that same scenario, Ford will need up to $13 billion, but Ford isn’t banking on balance sheet restructuring (bankruptcy lite) and labor concessions to make its number.

After getting through the roughest patch, GM expects its breakeven point to be an industry volume of 13 million sales annually, with anything beyond that considered gravy.  The company also expects that it will be able to begin paying off the government loans as early as 2011.

As I said above, I’m not convinced that GM has the management talent to accomplish all of the above; they haven’t exactly proven themselves over the past decade or three.  The stars literally have to be perfectly aligned for the company to pull this off.  Step one of this journey starts later this week in Washington, so stay tuned.  If they don’t get the money ASAP, stick a fork in them.

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