Give them more money? /*GM*/ and /*Chrysler*/ could return in months seeking more. Let them slip into bankruptcy? Hundreds of thousands of jobs could be lost. Try a government-led bankruptcy? In GM's case, that might cost up to $100 billion.
At stake is much more than the future of the PT Cruiser or the Saturn Vue. Hundreds of thousands of jobs - at assembly plants, car dealers, parts suppliers and the small businesses that serve them - could be at risk in a fatigued economy where nearly 12 million people are unemployed, including about 600,000 who got pink slips last month.
"This is an entire way of life here," said Republican Rep. Thaddeus McCotter, who represents a district near the auto industry's hometown of Detroit. "An entire state is hanging in the balance."
Even if /*Obama*/ meets GM and Chrysler's requests for an additional $14 billion in loans and the companies execute their turnaround plans released Tuesday, it would come with a painful price: An estimated 50,000 workers worldwide would lose their jobs and 14 plants would be closed.
Any deal would require painful concessions from the United Auto Workers, dealers and bondholders, who are mulling plans to swap two-thirds of their debt for equity as required by the loan terms set by the Bush administration.
The UAW said it reached an agreement with GM, Chrysler and /*Ford*/ Motor Co. on changes to their 2007 contracts, but they were still hammering out deals to give the union equity instead of cash for much of the companies' payments into a trust that will take over retiree health care expenses next year.
Complicating matters, the requests for more funding follow months of wrangling in Congress over the bailout of the financial institutions, the first auto industry bailout and a $787 billion economic stimulus plan meant to jump-start the economy.
"While no one in this country wants to see the auto industry fail, we cannot expect American taxpayers to bail out poorly run auto companies forever," said Pat Toomey, a former Pennsylvania GOP congressman who leads the anti-tax group Club for Growth.
GM and Chrysler, which initially received $13.4 billion and $4 billion, respectively, increased their requests to a total of $39 billion, telling the government that they need more money because of a weakened U.S. auto market, where sales have fallen to depths not seen in more than a quarter century.
Without additional aid, the companies said they would run out of money in March.
Ford, which borrowed billions from private sources before credit markets tightened, has said it can make it through 2009 without government help.
General Motors, whose entire request grew to $30 billion, expects to spend $14 billion more than it takes in this year because of the economic slowdown, Ray Young, GM's chief financial officer, told industry analysts Wednesday.
GM's cash burn, though, is projected to drop to $3.8 billion next year, and the company predicts with positive cash flow of $6.6 billion in 2012 and $6.4 billion in 2014.
"We expect '09 to be another exceptionally challenging year and particularly the first quarter, the first half of the year, as we get our inventories in line and as we add adjust our business," Chief Operating Officer Fritz Henderson told the analysts.
But the company said with the loans and its restructuring plan, which calls for 47,000 job cuts and 14 fewer plants, it could turn a profit by 2010 and fully repay its loans by 2017 if sales rebound.
Chrysler, whose majority owner is private-equity firm Cerberus Capital Management LP, disclosed that it lost $8 billion last year and upped its federal request to $9 billion. The company said it would cut 3,000 jobs and shed three vehicle models, including the PT Cruiser, as part of its plan.
Both companies painted bleak pictures of a bankruptcy proceeding, arguing it would cost the government more to provide debtor-in-possession financing than simply bailing them out.
General Motors said a bankruptcy would cost at least $45 billion, and in one pessimistic scenario, the cost would climb to $100 billion. Chrysler CEO Bob Nardelli said a Chapter 11 bankruptcy filing would demand $20 billion to $25 billion in financing or else the company would be forced into liquidation.
The mind-numbing numbers will confront Obama's newly assembled autos task force, which will be led by Treasury Secretary Timothy Geithner and White House economic aide Lawrence Summers. The panel, which expects to meet this week, will try to squeeze out concessions from the different stakeholders and remake GM and Chrysler into profitable entities.
With the U.S. economy taking a nose dive and few expectations that U.S. auto market will recover anytime soon, analysts expect creating a leaner GM and Chrysler will require a long-term commitment.
"If the industry takes several years to recover, as most of us expect," said Stephen Spivey, a San Antonio, Texas-based auto industry analyst with Frost & Sullivan, "then I think they'll be back again to ask for more."
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