theSun | MONDAY JUNE 1 2009 15

business

Once mighty US auto industry

faces day of reckoning
WASHINGTON: The once mighty US
auto industry faces a day of reckoning
today with the looming bankruptcy
of General Motors and an expected
court ruling on the sale of Chrysler to
a group led by Italy’s Fiat.
The global economic crisis has hit
the US industry hard, prompting mas-
sive intervention by President Barack
Obama’s administration to prevent
total collapse and a new blow to the
nation’s economy, which is already
in recession.
A government rescue plan for
GM could put as much as 72.5% the
country’s biggest automaker under
state ownership.
With the hours counting down
for GM, company bondholders with
slightly more than 50% of GM’s
US$27.2 billion (RM95.2 billion) in
bond debt voted Saturday in support of
the restructuring plan, The New York
Times reported.
Under the plan, the bondholders
would obtain the rights to buy an extra
15% of GM’s stock at a low price. They
would also control 25% of the new
GM, after having supported the new
company’s creation in bankruptcy
court.
Recalcitrant bondholders who opt
for confrontation rather than coopera-
tion “will get nothing or very little,” an
Obama administration official told
reporters Thursday.
Government-backed restructuring
in bankruptcy court for GM, once the
world’s largest automaker, appeared
all but certain.
Today marks a deadline imposed
by the Obama administration for the
company to submit a viable restruc-
turing plan or file for bankruptcy.
Meanwhile, a US bankruptcy
court judge in New York was widely
expected to approve a deal between
Chrysler and Fiat today.
declared bankruptcy and is seeking a
tie-up with Fiat in a plan presented
as the only way to save the company
from liquidation.
Developments at Chrysler could
provide an example for restructuring
at GM, which will similarly have to
sell some of its brands and close many
dealerships.
But the administration official said
a 60- to 90-day timeframe was “better”
for GM, contrasted with the fast-track
process for Chrysler, which filed for
bankruptcy protection on April 30.
“This is a much more complicated
company than Chrysler, as a global
company. It’s three times the size,”
noted the official.
The United Auto Workers (UAW)
union said Friday its members rati-
fied a deal to allow GM to radically cut
costs and its debt load, clearing the
way for a quick exit from the expected
bankruptcy filing.
GM also announced plans to retool
an idled US plant to build small cars it
had originally planned to import, and
two more US assembly plants could
potentially be saved.
The automaker, which normally
shuts downs plants for two weeks dur-
ing the summer, is planning longer-
than-normal closures at a variety of
facilities this summer, The Detroit Free
Press reported.
Some factories will be shut down
for as long as nine weeks, according
to the newspaper report. This week,
about eight out of its 15 assembly
plants will be running.
The bankruptcy filing could also be
speeded up by a deal struck Saturday
after marathon talks that saw Canadi-
an parts maker Magna and its Russian
backers taking over GM’s Opel.
The deal for GM’s European
operations, brokered by the German
government, amounted to a major
global auto industry.
GM employs some 50,000 people
throughout Europe and Magna plans
to cut about a fifth.
German Chancellor Angela Merkel,
whose government agreed to stump
billions of euros in loan guarantees
and emergency loans to keep the
ailing Opel afloat, acknowledged that
talks over the future of GM Europe
had sometimes been difficult.
Germany’s Finance Minister Peer
Steinbrueck had even denounced
what he called “scandalous” US nego-
tiating tactics.
Yet despite what she called “huge
mismanagement” by GM executives,
a telephone call to Obama helped seal
the deal, Merkel said.
As for Chrysler, a new company
could be born within days of approval
for bankruptcy. The Treasury said it
had transferred US$6.9 billion (RM24.15
billion) in public funds to New Carco,
a newly created company to acquire
Chrysler’s “good
assets.”
– AFP
After stumble,
US Treasury chief
The GM
reaches out
world
headquarters
in Detroit,
to China
Michigan. WASHINGTON: US Treasury Secretary Timothy Geithner
The makes his first trip to Beijing yesterday, exploiting his early
century-old links with China to steer relations with the Asian giant
US industrial under President Barack Obama’s watch.
icon General Having started on the wrong foot by criticising China for
Motors is currency manipulation, Geithner will now have to grapple
expected with issues ranging from key Chinese holdings of dollar
to declare based assets to the global economic turmoil when he
bankruptcy meets President Hu Jintao, Premier Wen Jiabao and others
today in during his visit.
what would But analysts are confident that his previous Chinese
be the most connections will come a long way to establishing links
humiliating with the leadership in Beijing as the Obama administration
blow yet for banks on China’s credit to bankroll the recession-struck US
the reeling economy and its growing influence to help ease the global
US auto economic crisis.
industry. This despite the fact that he lacks the firm business
background of his predecessor, Henry Paulson, reputedly
the most well-connected post-war Treasury secretary, hav-
ing travelled extensively to Beijing as a private banker.
China has not introduced any of the risk-carrying exotic
derivative products, such as the unregulated credit default
swap contracts, which are at the centre of the current
American financial chaos that erupted during the Bush
administration.
Geithner, an ex-governor of the Federal Reserve Bank of
New York, is a China hand. He studied and taught Mandarin
during his college days and later also learned Chinese at
the influential Peking University in Beijing.
He also helped former globe trotting US diplomat Henry
Kissinger, who was instrumental in the landmark opening
of diplomatic ties with Beijing, write the China and Japan
chapters in one of his books.
His father Peter Geithner was also the first representa-
tive in Beijing for the Ford Foundation, possibly the oldest
US non-government organisation in China.
Obama administration officials took pains to emphasise
the Treasury chief’s Chinese connections at a media brief-
EPAPIX

The third biggest US automaker has
development in the remaking of the ing before his departure from Washington Saturday for his
two day Beijing visit beginning today.
Geithner would deliver a speech at Peking university, his
alma mater, during the trip and “will meet with students
and with professors and we hope with some former profes-

GM’s collapse will mark end

sors of his,” one official said.
He would also visit the offices of the Ford Foundation,
which has funded economics education in the United States

of a blue-collar dynasty
DETROIT: The expected collapse of General
Motors will mark the death of a blue-collar
dynasty which bestowed upon generations of
Americans the security of a job for life and a
ticket to the middle class.
“GM represented the good life,” said Gary
Chaison, a professor of labour relations at Clark
University.
“There was a social contract: you worked
hard and the company would reward you with
job security and good pay,” Chaison told AFP.
“And this was something you could pass on (to
your kids.) It was an inheritance.”
In towns and cities scattered across the
Midwest, GM’s sprawling plants and the busi-
nesses which cropped up to service them
brought prosperity and stability.
The United Auto Workers union won wages
high enough to allow factory workers to own a
home, a cottage, a boat, to take summer vacations
in cars they bought with employee discounts.
Their health insurance was paid for. Pensions
would offer guaranteed income in retirement. They
worked for the biggest corporation in the world.
That dream began to slip away in the 1980s,
when GM began shutting down plants and
shipping production to Mexico and Asia.
Once bustling company towns like Flint,
Michigan – memorialised in Michael Moore’s
documentary Roger & Me – emptied and died.
Abandoned houses and darkened storefronts
transformed the once rich region into the Rust
Belt.
GM employed 440,000 hourly workers in
the US in 1981. By 2000, that had dropped to
133,000. In the next eight years it would fall
to 62,000.
The latest restructuring plan calls for the
unionised workforce to shrink to 38,000 by
2011: less than a tenth of what it was two
decades earlier.
But even through the downsizing and plant
closures of the 1980s and 1990s, the workers
who remained at General Motors were able to
hang onto their high wages and benefits.
That ended in the latest round of restructur-
ing, which began in 2005 and ended with the
union agreeing to slash benefits, cut wages
in half for new workers, and even give up the
right to strike until 2015.
“It could have been worse,” said Doug
Bowman, the president of UAW Local 594 in
Pontiac, Michigan.
Bowman has worked for GM for 30 years and
has watched employment at his complex shrink
from 14,000 in the late 1970s to 1,000 today.
He’s anxiously awaiting news about wheth-
er his truck plant will be among 14 GM plants
slated for closure. But he’s resigned himself to
the massive concessions the union has made
in recent years.
“The one thing I regret is that we couldn’t
protect the retirees,” he told AFP.
“We have no choice,” said Jim Hall, another
UAW official from Pontiac. “We have to vote
for the concessions to help the company
survive.”
But Hall hasn’t given up hope. If GM man-
ages to emerge from bankruptcy protection,
which it is expected to seek in the coming
days, Hall thinks some of jobs, and some of
those benefits, might come back.
GM, which only months ago lost the title of
the world’s biggest automaker to Toyota after
holding it for 77 years, had made huge steps in
recent years to revitalise its products and slash
its bloated structural costs.
But the restructuring cost billions and the
debt-laden automaker was unable to survive
the collapse of auto sales last fall amid a credit
crunch and deepening recession.
GM racked up nearly US$88 billion (RM308
billion) in losses from 2005 through the first
quarter of 2009, and has only managed to
keep its operations afloat in recent months
with US$19.4 billion (RM67.9 billion) in loans
from the US Treasury.
The hope is that, like Chrysler, GM will
emerge from bankruptcy in a matter of weeks
as a leaner, meaner company able to get back
to the business of making cars and trucks.
But while the union is likely to hold a large
stake in the new General Motors, its power to
shape the American social landscape through
sheer numbers is gone.
“Certainly an era has ended,” said Harley
Shaiken, a labour expert from the University
of California-Berkeley.
“We’re in uncharted waters.” – AFP
of a large group of Chinese who are now senior officials,
academics and members of the economic establishment
in Beijing.
“Coincidentally, the Ford Foundation was established by
secretary Geithner’s father,” the official said.
Despite his history with China, Geithner created a stir
at his confirmation hearing in January when he said in a
written reply to a senator that Obama “believes that China
is manipulating its currency”. It triggered a storm in China
and signalled that Obama will take the Chinese head on
over the currency manipulation charges.
But Obama administration officials swiftly moved to
contain the damage, saying the reply was written by
midlevel staff helping Geithner answer the plethora of
questions from senators.
On taking office, Geithner also rapidly reached out to the
Chinese. “I have talked to my counterparts in China over
the past few months much more than I’ve talked to my
counterparts from any other country,” he
told the New York Times in a recent
interview.
In Beijing however Geithner
faces the tough task of convinc-
ing the Chinese to maintain their
massive US bond holdings under
threat by burgeoning US debt and
prodding them to make their
currency more flexible.
Being the top holder
of the bonds, China is the
largest creditor to the
United States aside from
being the world’s largest
Geithner ... holder of US dollars as a
reaching out reserve currency, at nearly
to the Chinese US$2 trillion (RM7 trillion).
– AFP