GM Works Hard as Chrysler Readies to Exit
By: Carazoo | Posted: 04th June 2009
The economic crisis has left American automobile companies paralyzed. These giant companies, which have turnover that are larger than several economies across the world, are under severe financial strain. They have pushed to the edge of bankruptcy. Since 2008, the automotive world has changed completely, and America no longer can claim to the world leader. The U.S. auto crisis has had such an impact, that almost every automobile manufacturer is bleeding from lower sales. The automotive landscape has been changed forever.
The biggest losers are two major automobile manufacturers Chrysler and General Motors of U.S.A. Following their debacle, eyes are trained on Ford which has so far remained outside the purview of seeking government aid.
Auto industry analysts forecast that more losses are expected for the auto sector. Passenger car sales are expected to reach a maximum of 9.7 million in the year 2009. This is lower than the 13.2 million units registered in 2008. Last year, auto sector analysts had called it the worst performance so far by the American auto sector. But after the meltdown, these figures look like a dream, a benchmark for sales figures.
In this scenario, the sales have been at its lowest ebb. Nearly 2.6 million units of cars remain unsold, so far. They are laying in wait at the dealer lots and holding yards. These include the 2008 and 2009 models too. They remain stagnating, and denote the failure of investments. The revenues are expected to be around $ 80 billion to $ 100 billion dollars, which is going to be significantly lower than that recorded in several years.
Chrysler has already filed bankruptcy and Fit is mot likely to take over the company. General Motors is trying to restructure the house to find a bankruptcy. GM does not want agree to an early bankruptcy because, as per the government's proposition, the company will have to give 70 percent of equity stake to taxpayers, in return of cash. GM has so far borrowed $ 19 billion as part of its restructuring plan.
The U.S. federal government, which is to oversee the proceedings expects Chrysler to emerge healthier from the crisis. But General Motors will face a slower and painful bankruptcy deal.
The federal government has set June 1 as the deadline for the restructuring. Failing which companies will have to agree to bankruptcy and the government conditions. June 1 is less than a week away.
General Motors has to deal with a more complex situation that those of the Chrysler. This is probably because General Motors is a much larger company having its operations spread over several countries and involving many governments. It has its workforce in practically every country in the world.
Unlike Chrsyler, it has huge commitments towards public shareholders and a broader array of secured and unsecured debt holders. Hence, resolving the debts gain importance above all else. It has to be resolved before restructuring of the company is undertaken.
Chrysler noted its deep problems and filed for bankruptcy on April 30. The company is expected to be out of the crisis in about 3-60 days time. Chrysler's exit from bankruptcy will be earlier than General Motors. The latter has not filed for bankruptcy as it still hopes to restructure the company.
The bankruptcy courts are holding an important hearing on Chrysler on Wednesday, to finalise plans to sell most of its assets to the new company emerging form the deal. Fiat is expected to take over Chrysler and form the new Fiat-Chrysler entity. If approved, the federal government could allow the new entity Fiat-Chrysler to exit bankruptcy proceeding sooner than expected..
Meanwhile, General Motors is dealing with the union which has recommended that GM reduce its commitments to a trust fund set up for retiree health care. GM had earlier agreed to pay $ 20 billion in this corpus.
The real challenge for GM lies in restructuring the rest of the house. GM has offered the unsecured bondholders to a debt-for-equity deal. The bondholders have rejected the deal saying that they are being lesser than the union. If approved, it will help GM restructure at least 10 percent of the company. However, that seems unlikely even as the June 1 deadline stares in the face of General Motors.
This article is free for republishing
Printed From: http://www.a1articles.com/gm-works-hard-as-chrysler-readies-to-exit-913870.html
Back to the original article
Tags: meltdown, debacle, billion dollars, giant companies, government aid, american automobile, purview, automobile manufacturers, economic crisis, automobile manufacturer, auto industry, industry analysts, u s auto, automobile companies, american auto, auto sector, equity stake