Chrysler, GM Loans Include U.S. Production Goals; GAO Worried About GM

November 3, 2009
Fritz Henderson, GM CEO

Fritz Henderson, GM CEO

Yesterday's headlines may have centered on Ford's new-found profitability, but Chrysler and GM are working toward the black ink, too. General Motors in particular has high hopes for the future, but the federal government is slightly concerned that GM may be rushing its game plan and setting itself up for disaster (again). This could be read as an example of burdensome oversight, or it could be a matter of the government simply looking out for its investment, since there may be legitimate cause for alarm.

The concerns were expressed by the Government Accountability Office in response to talk of an IPO for General Motors in 2010. The GAO sees a few problems with such a plan -- not least of which is that the revamped company hasn't fully had time to implement and assess structural changes brought about by GM's recent bankruptcy. While those changes may result in truly amazing things for General Motors, that hasn't been proven yet.

Analysts are also concerned that 2010 "may be too early for the company to have demonstrated sufficient progress to attract investor interest". Put another way, the GAO doesn't want to throw a party for investors if no one's going to show up -- especially since the feds are depending on interest from investors to fuel stock prices so that the government can recoup the $58.3 billion it's loaned to GM .

None of these concerns -- internal or external -- are helped by the current state of the global economy, which in healthier times could perhaps give quicker indication of GM's strength and the effectiveness of its new game plan. However, it's worth pointing out that any offering of stock -- public or private -- would have to be approved by shareholders, including the feds, which own 61% of General Motors and roughly 10% of Chrysler.

In related news, the GAO revealed yesterday that part of the federal government's loan agreements with GM and Chrysler include stipulations on auto production, including figures on the share of production that the two companies are required to carry out in the U.S. Chrysler's agreement stipulated that the company must "manufacture 40 percent of its U.S. sales volume in the United States or its U.S. production volume must be at least 90 percent of its 2008 U.S. production volume." (Apparently, loans from the Canadian government carried similar requirements for Canadian production.) The Treasury Department's arrangement with GM was slightly more flexible, but included stipulations that the company use "reasonable best efforts" to make sure that General Motors' production in the U.S. is "at least 90 percent consistent of the level envisioned in GM's business plan."

It will be interesting to see how all that plays out in the future -- especially for Chrysler, as the company's five year plan is unveiled tomorrow. Although given the growing trend toward stateside production and export, maybe those production stipulations aren't so much of a burden after all.

[DetNews, Freep]

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