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GM, Chrysler Race To Finish Viability Plans

With just 15 days before a deadline to justify their government loans, General Motors and Chrysler are trying to pull together restructuring plans that prove they can become viable again.

DETROIT (AP) -- With just 15 days before a critical deadline to justify their government loans, General Motors Corp. and Chrysler LLC are trying to pull together restructuring plans that prove they can become viable again.

But as GM's board meets Monday and Tuesday to discuss its plan and other issues, several industry analysts and lawmakers are wondering if the automakers have enough time to negotiate such complex plans before Feb. 17, when they're required to submit at least the basics.

Both automakers have had to take billions in government loans to stay in business in the midst of the worst U.S. auto sales slump in 26 years. Under the loan terms, the companies must negotiate concessions from labor unions, bondholders and others, with a so-called "car czar" appointed by President Barack Obama to oversee the changes.

But Obama, who has been in office only two weeks, has yet to appoint such a czar. Because some of the loan terms imposed by the Bush administration are being disputed by the United Auto Workers union, both companies are in the position of having to meet loan terms that are still uncertain.

"Without knowing who's in charge and without knowing what approach the Obama administration is going to take, it does complicate the negotiating process that's going on," said Martin Zimmerman, a professor of business administration at the University of Michigan who specializes in government regulation and the auto industry.

Executives from both companies have said they can meet the deadline, but UAW President Ron Gettelfinger has said he doesn't think they have enough time. Gettelfinger has said he will approach the Obama administration about changing some of the loan terms, which he believes unfairly single out workers.

U.S. Sen. Debbie Stabenow, D-Mich., said Monday an extension of the deadline is an option. She said she hasn't been told when Obama will name a czar or how the administration will go about restructuring the industry.

"At this point, I don't think they have clearly defined exactly what this is going to look like. I'm strongly encouraging them to make sure there are advisers working with them who understand this industry," she said.

Government officials have contacted the Center for Automotive Research in Ann Arbor for information on the industry, said David Cole, the center's chairman.

"They are asking the right questions. That is really key," he said.

Cole, who declined to identify the officials, also wonders if the administration will have to extend the deadline, which is followed by a March 31 deadline to have the final plans in place.

"They've got a pretty fast clock on this," he said. "I think they realize how high the stakes are here, in terms of the potential impact on the overall economy."

Chrysler received $4 billion and expects to get another $3 billion after it shows the government its plan to become viable. GM has received $9.4 billion and expects to get $4 billion more when it files its plan.

Under the loan terms issued last year by the Bush administration, the companies must show an ability to repay the government loans and to achieve "positive net present value," which means that the present value of a company's expected net cash flows exceeds the initial investment in the company.

Both companies were in danger of running out of cash late last year, making the loans necessary for their survival.

The loan terms also set "restructuring targets" that include swapping a portion of the companies' bond debt for equity, as well as reducing labor costs so they are equal to the costs of Nissan Motor Co., Toyota Motor Corp. and Honda Motor Co. at their U.S. factories.

GM said it had identified most of its bondholders, a large undertaking as holders can be large entities or single individuals. Getting two-thirds of bondholders to agree to an exchange will be difficult, analysts say.

One of GM's largest bondholders -- Pacific Investment Management Co. -- last month removed itself from a committee representing company bondholders.

"PIMCO could be sending a clear message to GM and the existing committee that there needs to be more done on behalf of bondholders, or they could be holding onto these bonds because the government is going to have to bail (GM) out anyway," said Kip Penniman, a corporate bonds analyst with KDP Investment Advisors in Montpelier, Vt., which has a "hold" rating on GM bonds. "They're attempting to leverage their position up. GM is going to have to bring something very attractive."

He said PIMCO's participation, or lack thereof, would likely influence other bondholders to take GM's offer or sit on the sidelines.

"It is a massive coordination problem. There are other elements of the plan," said Gregg Lemos-Stein, credit analyst for Standard & Poor's. "If one piece of the puzzle holds out, it could hold up the entire viability plan."

GM also is starting to lobby for tax relief, fearing that it could owe at least $7 billion if it swaps bond debt for equity. Stabenow said she and others were seeking an administrative or legislative fix.

"We can't place GM in a position in the middle of everything else with a $7 billion to $10 billion liability as a result of this loan," she said.

Ken Thomas reported from Washington, D.C. AP Auto Writer Kimberly S. Johnson in Detroit contributed to this report.

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