This time, it appears,
actually does get it.
"Frankly, a shortage of liquidity does focus the mind," GM President Fritz Henderson told reporters on a conference call Tuesday, as his company, along with
, prepared to approach Congress for the second time in two weeks to seek a bailout.
The package the automakers are seeking is now $34 billion, even though the earlier $25 billion plan failed to win support last month. GM wants $18 billion, including a $12 billion loan and a $6 billion line of credit. It says it needs the first $4 billion by the end of the month in order "to ensure minimum liquidity levels through Dec. 31."
To support its case, GM has come up with a dramatic cost-cutting plan, one that contemplates urgent negotiations with the United Auto Workers, a long-delayed pullback to just four key brands, severe curtailments in the number of dealerships and potentially a haircut for bondholders.
On the conference call, CEO Rick Wagoner acknowledged the approach of two weeks ago needed work. At the time, GM assumed the procedure would resemble the relatively undemanding route by which financial firms accessed the Troubled Asset Relief Program. "Our only precedent was the TARP initiatives," Wagoner said. "It was clear those weren't the right baselines to be looking at.
"It was unstructured what they were looking for," Wagoner continued. "This time, we got very clear direction" from House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev. "If we are looking for support, it is incumbent upon us to react."
GM, like Ford and Chrysler, has adjusted on two levels. On the image front, Wagoner is driving to Washington rather than flying in a corporate jet, has agreed to accept an annual salary of $1, and seems willing to admit his earlier mistakes. Board members will also get $1 annual retainers, and other top executives take pay cuts.
On the specifics front -- automakers were way short on specifics last time -- GM is offering plenty of details. Its plan foresees annual costs falling to $23.2 billion in 2012, down from $30.3 billion today. The company projects annual U.S. auto sales, for all manufacturers, of 12 million units in 2009, rising to 15 million in 2012. By contrast, 2008 sales are estimated to be 13.7 million. In a typical recent year, sales have been about 16 million.
Henderson said the steep sales falloff prompted GM to reevaluate its assumptions. "I've never seen a situation other than emerging markets where we've seen such variability in demand forecasts as we've seen in the past three months," he said. "We coalesced around much more difficult forecasts." Under the business plan, GM believes it can be profitable, even with lower sales.
The GM proposal does have gaps, most notably in the discussion of an effort to reduce debt from $62 billion to $30 billion. Theoretically, a $20 billion decrease materializes after talks with the United Auto Workers regarding GM's contribution schedule for the Voluntary Employees Beneficiary Association, a UAW-run trust fund that will take over auto industry health-care obligations starting in 2010.
Even if the VEBA rescheduling occurs, about $10 billion in debt remains to be negotiated. "That is a scary set of numbers for bondholders," wrote Credit Sights analyst Glenn Reynolds, in a report issued Wednesday. Reynolds said GM is "looking to execute the plan on the back of bondholders."
That "could leave GM in a position where it tries to roll back bondholders by 56 to 60 cents on the dollar," Reynolds wrote. "That type of principal haircut could be World War III with the bondholders."
On a conference call with analysts Wednesday, GM Chief Financial Officer Ray Young was asked repeatedly how bondholders could be protected. His response: The federal government will handle it.
"We believe it's important to engage the U.S. government in terms of this discussion," he said. "Congress indicated to us they want a plan for not just GM but for the industry to remain viable, and we believe the oversight board or other parties likely to administer the loans will also have a say."