The race to save two of America’s big three carmakers is entering a new and intense period.
In March, the government ordered Chrysler to cut costs and form an alliance with Italian carmaker Fiat by April thirtieth. The actions were conditions for additional government aid of up to six billion dollars. The company received four billion in federal loans in December.
U.A.W. members meeting Wednesday in Kenosha, Wisconsin to discuss proposed contract terms
On Wednesday, Chrysler members of the United Auto Workers approved cost cutting measures. Under the plan, Chrysler will be able to change terms of an agreement with the labor union. In return, the U.A.W. would own fifty-five percent of the company.
The Treasury Department has also been pressing Chrysler’s creditors. The government wants forty-six creditors to accept two billion dollars instead of the seven billion dollars the company owes. Four big banks have agreed. They hold seventy percent of Chrysler’s debt. But other creditors have refused the terms.
The government has also been urging Chrysler to join with Fiat. On Thursday, President Obama announced that the companies have agreed to become partners. He said the government will make additional loans to support the partnership. All government loans are to be repaid before Fiat could take majority ownership of Chrysler in the future.
Mister Obama also said Chrysler will seek bankruptcy protection in court. Bankruptcy laws will protect the company from legal action while it continues operations and reorganizes its finances. The President said the government will provide about eight billion dollars in additional loans to the company during this period.
No one knows if all this will work. But if the plan succeeds, it could serve as a model for America’s biggest carmaker, General Motors. G.M. has until June first to offer a plan to the government if it is to receive new government loans. This week, the company proposed cutting twenty-one thousand more factory jobs. It will also sell fewer kinds of vehicles.
Like Chrysler, G.M. is attempting to reduce its debt. The carmaker plans to do this by offering company stock in exchange for twenty-seven billion dollars in G.M. bonds. It also wants to make the government a majority shareholder in return for part of the emergency loans it has received.
And that’s the VOA Special English Economics Report, written by Mario Ritter. I’m Steve Ember.
This week, General Motors went to bankruptcy court. It became the second of the big three American automakers to seek protection from its creditors while continuing operations. Chrysler declared bankruptcy on April thirtieth, though its plans to leave the process quickly still await final rulings.
A GM dealership in Burlingame, California, that sells Hummers. GM is expected to sell its Hummer brand to a Chinese company.
General Motors led the auto world for seventy-seven of its one hundred years. Last year Toyota took the lead. Not all of G.M. is losing money. Asia and Latin America have provided growth and profit. But lately bankruptcy became less and less of a surprise.
G.M. was one hundred seventy-two billion dollars in debt. Now creditors will learn who gets repaid and how much. The bankruptcy is America’s fourth largest, but the largest for a manufacturer. G.M. hopes it will be quick.
The government plans to invest thirty billion dollars, on top of an earlier twenty billion. In return, taxpayers will own sixty percent of a smaller G.M. Canada and the United Auto Workers union will also own part of the restructured company.
But President Obama made it clear Monday that he wants to limit the intervention in what some now call “Government Motors.”
BARACK OBAMA: “In short, our goal is to get G.M. back on its feet, take a hands-off approach and get out quickly.”
Is all that possible? Experts say one concern is that lawmakers will try to control company decisions like where to build new factories.
Another concern is that trade partners may consider the G.M. rescue a form of government support barred by free trade agreements. Only one of Detroit’s big three, Ford Motor Company, is not taking aid. Yet other countries, especially in Europe, have acted to save jobs in their own car industries.
University of Michigan transportation researcher Bruce Belzowski says one big question is what effect employee morale will have. Employees must believe in the new G.M. And, of course, its products must satisfy the public, as well as new government rules for fuel economy.
To reduce costs, G.M. plans to close more factories and cut more jobs by the end of two thousand eleven. And it wants to cut more than one thousand dealerships by the end of next year. Chrysler wants to quickly dismiss almost eight hundred dealers across the country.
The automakers defended their plans Wednesday as Congress heard from angry dealers.
G.M. plans to sell or discontinue its Saturn, Saab and Pontiac lines. And it may sell its Hummer brand to a heavy equipment company in China.
And that’s the VOA Special English Economics Report, written by Mario Ritter. I’m Steve Ember.
