DealZone

Driven to the brink

fritz1In Detroit, it is a fact of life that you are what you drive.

GM and Chrysler have staked their future — and some $20 billion of taxpayer-backed loans — on the idea that they can reinvent themselves as lean, green and mean manufacturers of small and fuel-efficient cars and electric-drive vehicles.

That’s a vision that resonates with the Obama administration, which has announced an ambitious target of putting 1 million plug-in hybrid cars like the much-touted Chevy Volt on the road by 2010.

But some of Detroit’s highest-profile auto executives are still driving like its 1999. Their rides still harken back to the era when they were the kings of the road.

GM sales chief Mark LaNeve called in from the road on Friday to brief reporters on the automaker’s plans to cut dealerships.

LaNeve said he used OnStar’s hands-free dialing to join the conference call from the cockpit of a luxury Cadillac Escalade SUV.

GM: Before any bankruptcy, the backlash

USA/For weeks, General Motors has been working to prepare its customers, suppliers and employees for the hard landing most analysts see waiting at month end: a bankruptcy filing.

The embattled automaker’s drop dead date is Monday, June 1 when it has $1 billion in bond payments due that it plans to skip.  Five days earlier, on May 27, GM learns how much of some $27 billion in bonds it was able to retire in exchange for its devalued stock.

Analysts and restructuring experts see little chance GM will meet its target of wiping its balance sheet almost clean of bond debt. That would leave one option: a Chapter 11 filing.

from Summit Notebook:

How to gum up an exchange merger: salt water

It's a puzzle M&A bankers and corporate executives have been trying to solve for years: how far from your home market can an acquisition take place and ultimately stumble over cultural differences? It's a question that looms large as quintessentially Italian automaker Fiat prepares to swallow up Chrysler -- inventor of the K-car and the minivan -- and which reportedly haunts St Louis-based employees of Anheuser Busch in the aftermath of their company's takeover by the penny pinching Belgians and Brazilians at InBev.

Gary Katz, CEO of Deutsche Boerse unit International Securities Exchange, insisted during his appearance at the Reuters Exchanges and Trading Summit that all has been sweetness and light since the Germans assumed control of the upstart American options exchange and that there has been "nearly zero turnover" since the takeover.

But Thomas Kloet, Chief Executive of Canadian exchange powerhouse TMX, was one of several executives at the summit who insisted that cross border mergers can often be a recipe for disaster and that the ideal mergers are "domestic roll-ups" like CME Group's takeover of Nymex and the Chicago Board of Trade or indeed TSX Group's takeover of the Montreal Exchange, which created TMX.

Ford goes into overdrive

AUTOS-FORD/With GM‘s share price heading toward $1 and Chrysler close to consummating its shot-gun wedding with Fiat, Ford‘s raising $1.4 billion through the sale of 300 million shares puts some serious distance between it and the competition.

Having gone this far into the recession without government aid, Ford is making a big show of going green, consolidating its dealer networks and taking the kind of cost-cutting steps that GM is being chased into by the government and that Chrysler is hoping for from its merger with Italy’s Fiat.

If the restructuring moves weren’t enough, Ford chief Alan Mulally (smiling and clapping, left) made sure to hit the right PR notes when detailing how the fresh cash would be used: possibly funding a larger portion of Ford’s retiree obligations.

Chrysler, an American Bankruptcy

CHRYSLER/DEALERSChrysler’s private equity owners Cerberus, or at least their lawyers, will arrive at bankruptcy court in Manhattan later this morning. Yesterday, President Obama assured hand-wringing industrialists that the process would be quick and efficient and that Chrysler would emerge a leaner, meaner machine.

To some degree, one can look at the U.S. airline industry in the same light. But that industry, while “saved” through bankruptcy numerous times, is today a shadow of its former self, and remains haunted every so often by the threat of a return to that business mortuary for rebirth.

But a lot has changed since the crisis mad bankruptcy court so busy. The key for the new age of court-run restructuring is to sell major assets before going to court — effectively leaving creditors to haggle over the dregs. Some disgruntled creditors contend that the quick bankruptcy promised by Obama is being engineered in such a way because the sales would never make it past a judge.

GM bondholders haggle

GM/RESTRUCTURINGUnder the bondholders’ deal, they would swap a 51-percent stake in a restructured company for $27 billion in debt, a person with knowledge of the plan tells Reuters Detroit Bureau Chief Kevin Krolicki. The deal would give the United Auto Workers union 41-percent in a new General Motors while the U.S. government would not receive an equity stake, according to the person who asked not to be named because the offer had not yet been submitted.

A committee representing GM bondholders will present the alternative plan to the White House task force overseeing the restructuring of GM and Chrysler later today, the person said. GM said this week it was moving ahead with a plan to offer existing bondholders a 10-percent ownership of the restructured automaker. Under the GM plan, the US government would own a combined 89-percent of the new company.

GM Chief Executive Fritz Henderson said on Monday the automaker would file for bankruptcy if bondholders did not swap out of 90-percent of the $27 billion they are owed.

Chrysler bankruptcy looms despite deal

USA/Chrysler’s biggest lenders and the U.S. government reached a breakthrough framework deal to cut the automaker’s debt by $6.9 billion, but officials say bankruptcy is still a strong possibility with the Obama administration’s Thursday deadline for a comprehensive rescue plan just hours away.

Fiat Chief Executive Sergio Marchionne was quoted by the president of the Canadian Auto Workers union as saying Chrysler would likely enter Chapter 11 bankruptcy for a period of time. But Michigan Senator Carl Levin said, “If they do go into bankruptcy, it would really be in and out.” A source with senior-level knowledge of the restructuring told us that a surgical bankruptcy could be a way, for instance, to address “recalcitrant” lenders.

With Germany’s Daimler AG dumping its 19.9 percent stake in Chrysler and Italy’s Fiat poised to “eventually” own more than a third of the company, European know-how and innovation have never been more important for the U.S. auto industry.

Unions deal as Chrysler deadline looms

CHRYSLER/FIATWith just days left to complete deals to slash labor and debt costs or face bankruptcy, Chrysler has won union concessions aimed at paving the way for a deal with Fiat and the U.S. government to save the privately held automaker. The UAW said that deal must be ratified by Wednesday and meets conditions mandated by the Treasury as part of an emergency loan program for Chrysler. Treasury’s deadline is Thursday.

“The patience, resolve and determination of UAW members in these difficult times is extraordinary, and has made it possible for us to reach the agreement we will present to our membership,” UAW President Ron Gettelfinger said in a statement. The UAW represents about 26,800 Chrysler workers in the United States. The company also has a contract buyout offer on the table for those workers, which expires today. GM is expected to announce a fresh round of cost cutting later this morning.

The U.S. Treasury was expected to make a new debt restructuring offer to Chrysler’s lenders, who are owed $6.9 billion, as soon as today. Attention has shifted back to creditors. Whether they will show patience, resolve and determination remains a question.  Whether doing so will produce a deal is an even bigger one.

When life gives you lemons, make limoncello

FRANCEIt may be a raucous bit of speculation gone awry, but reports in Italy that Fiat is angling to pick up General Motors’ Opel operations in Europe if the Chrysler deal falls through are too good to dismiss out of hand.

The denial from Fiat’s Chairman, Luca Cordero de Montezemolo, left a little room for intrigue in its dramatic flair. “They’ve written about it in the newspapers? No, no,” he told reporters. Fiat shares raced higher in relief. “Opel is linked to GM and Fiat has already got out of that,” said a Milan dealer, referring to a previous partnership. “Plus, it (Opel) is a clunker. Heaven forbid!”

Meanwhile, over at Chrysler, Chief Executive Bob Nardelli has been telling it like it will be. In an internal memo to staff, he said the company would cede control of its board, and ultimately senior leadership, if it completes the planned Fiat alliance. Given the Fiat deal is for only a fifth of Chrysler initially, rising eventually to 35 percent, that might seem odd. Then again, it’s the U.S. auto sector we’re talking about.

Fiat steals union playbook

Of all the shotgun weddings out there, Fiat’s proposed partnership with Chrysler is the one looking most likely to end in a gory mess. Adding to the drama — and rolling out another irresistible cliché — the whole thing is turning into a game of chicken.

With two weeks to go before Uncle Sam pulls the plug on Detroit’s third wheel, Fiat’s chief warned Chrysler’s unions that he would walk away unless they agreed to cut labor costs.

Sergio Marchionne told the Globe and Mail newspaper a deal on a partnership had only a 50-50 chance of success because of lack of progress in talks with unions. Canadian unions are especially resistant, he said.