GM rethinks survival plan again

GM rethinks survival plan again
By Bernard Simon in Toronto and Daniel Schaefer in Frankfurt
Copyright The Financial Times Limited 2009
Published: March 26 2009 18:59 | Last updated: March 26 2009 18:59
http://www.ft.com/cms/s/0/15942c22-1a36-11de-9f91-0000779fd2ac.html


General Motors is to prepare a third version of the viability plan that forms the basis of US government aid to the ailing carmaker in order to take account of unrelenting weakness in the new vehicle market.

The revised plan, known as VP3, will be published early next week to coincide with the March 31 deadline for GM and its smaller Detroit rival Chrysler to prove they are meeting conditions set by the US government bail-out.

More conservative assumptions could force both carmakers into further cost-cutting measures, such as plant closures.

But people familiar with the plan said GM was not intending to ask for more aid from Washington in addition to the $13.4bn it has received and its earlier request for another $16.6bn. Chrysler has received $4bn and is asking for another $5bn. GM is also seeking help from Germany, the UK, Canada and Thailand, among others.

With the two companies still engaged in talks about concessions from lenders and the United Auto Workers union, the deadline for implementation of their turnround plans is almost certain to slip into the one-month grace period provided for by the bail-out agreements.

President Barack Obama on Thursday said the US government would advance the funds required to keep the companies afloat in the next few days, pending the outcome of the UAW and lender talks, and deliberations by the Obama administration’s auto industry task force.

“Everybody is going to have to recognise that the current economic model of the US auto industry is unsustainable,” he said.

Optimism that GM will avoid bankruptcy helped drive its shares up another 14 per cent to $3.41 on Thursday, more than double their seven-decade low this month.

But the task force, among others, has questioned assumptions of the two companies’ turnround plans.

GM’s original plan last December was based on it breaking even at US light vehicle sales of 12.5m-13m units a year. That original estimate was lowered to 11.5m-12m in February. GM also reduced its anticipated market share from 20.5 per cent to 20 per cent.

But industry sales in the first two months this year have been running at an annual rate of only 9.3m units, while GM’s market share slid to 18.3 per cent last month.

Meanwhile, tensions have risen between Opel, GM’s German subsidiary, and the Detroit parent. Some Opel managers have said they feel neglected by GM. “The US management is only occupied with the GM world and they are completely negligent of Opel,” one said.

GM Europe denied there was friction with Opel and said that it had informed management in Germany of its restructuring plans.

Opel is the core of GM’s European operations. But its restructuring is closely linked to the parent company’s own viability plan.