GM Board Reviewing Wagoner’s Plan to Save Automaker

GM Board Reviewing Wagoner’s Plan to Save Automaker

Nov. 30 (Bloomberg) -- General Motors Corp.’s board is meeting in Detroit to discuss a rescue plan to present to Congress in two days that may determine if Chief Executive Officer Rick Wagoner can save the company and keep his job.

Directors started reviewing the proposal at noon today and will continue tomorrow, people familiar with the plans said. GM will prepare a 10- to 12-page public document and a private, more detailed plan of about 80 pages with background material, the people said. GM said Nov. 7 it may be short by year’s end of the $11 billion minimum in cash needed to pay monthly bills.

GM shares have gained on investor optimism that a plan to slash debt, cut labor costs and possibly eliminate half the automaker’s U.S. brands may help win as much as $12 billion to stay in business during the steepest industry slowdown in at least a decade. The stock rose the most in a two-day period in at least 28 years in New York trading at the end of last week, and climbed five out of six days.

“We envision the current Congress will authorize a short- term bridge loan that carries” GM, Ford Motor Co. and Chrysler LLC to the start of President-elect Barack Obama’s administration in January, Himanshu Patel, a New York-based analyst at JPMorgan Chase & Co., said in a note to investors on Nov. 25. He rates GM and Ford shares “neutral.”

GM wants to cut its $43 billion in debt, even after getting the government loans, to ensure its future viability, people familiar with the plan said last week. The automaker will ask current debt holders to exchange current bonds for lower value debt that may also include equity, the people said.

Closing Plants

The company also may seek an end to provisions that pay union employees not to work when their plants are shut down, the people said. GM is trying to close plants and slow production to adapt to auto sales that may fall to 11.7 million cars and trucks next year from 16.1 million last year.

The largest U.S. automaker also may ask to delay a $7 billion payment to a union retiree health fund, drop more brands and rework an accord with GMAC LLC to prove it can survive and repay the government, said the people, who asked not to be named because details haven’t been presented to Congress.

Lawmakers grilled Wagoner during two days of testimony Nov. 18 and Nov. 19 before deadlocking over whether to let the automakers tap $25 billion in low-interest borrowing.

‘Forthright Assessment’

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid agreed to a second lame-duck congressional session and instructed Wagoner and fellow CEOs Alan Mulally of Ford and Robert Nardelli of Chrysler to prepare specifics on how they’ll navigate past the crisis.

Pelosi and Reid told the automakers in a Nov. 21 letter that they must provide “a forthright, documented assessment” of their operating cash positions, short-term liquidity needs “and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability.”

While Republican critics such as Senator Richard Shelby from Alabama have said the auto chiefs were “arrogant” two weeks ago and that management changes might be needed, neither the government nor GM’s board has yet signaled Wagoner will need to leave to get an agreement, people familiar with those discussions said.

After burning through $6.9 billion in cash last quarter, GM said Nov. 7 that it had $16.2 billion as of Sept. 30, raising the prospect of falling short by year’s. GM has said a bankruptcy filing would be a “disaster.”

Prospective Buyers

The automaker, already marketing its Hummer unit to prospective buyers, is also studying whether to sell or close the Pontiac, Saab and Saturn brands, people familiar with those plans said last week. GM also sells models under Chevrolet, Cadillac, Buick and GMC brands.

GM gained 43 cents, or 9 percent, to $5.24 on Nov. 28 in New York Stock Exchange composite trading. Dearborn, Michigan- based Ford rose 54 cents, or 25 percent, to $2.69. This year, GM has declined 79 percent and Ford dropped 60 percent.

GM’s 8.375 percent bonds due in 2033 rose 4 cents to 23 cents on the dollar Nov. 28 to yield 36 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has fallen from 36.5 cents at the end of October and 81 cents at the end of last year, Trace data show.

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