Automotive News - July 7, 2008 - (Page 8)
8 • JULY 7, 2008 advertising OUR DEALERS ARE GROWING Analyst: GM could tap UAW benefits fund David Barkholz firstname.lastname@example.org AND SO CAN YOU! GM’s piggy bank? Problem: GM must raise as much as $10 billion to avoid a cash flow crisis next year. Solution: Borrow $6 billion from GM’s retiree health care fund. Consequences: UAW could earn 12% on the loan, but the money is at risk if GM can’t repay it. Source: JPMorgan “With Zimmerman as a partner we have grown to be the # 1 GM Dealer in Albany, NY.“ Dealers Prove Our Advertising Gets Kara DePaula DePaula Chevrolet RESULTS! Steel prices • KEYES AUTO GROUP • IRA MOTOR GROUP • TOM WOOD AUTOMOTIVE • CHECKERED FLAG • AUTONATION • DIEHL MOTOR COMPANY • CORAL SPRINGS AUTOMALL • RUSTY ECK FORD • AUTOLAND • HENDRICK CARY AUTOMALL • PATRICK AUTO GROUP • HUBLER AUTOMOTIVE • PLEASANTON AUTOMALL • DEPAULA CHEVROLET • WALLACE NISSAN OF KINGSPORT • SUPERIOR CHEVROLET DETROIT — The UAW’s retiree health care fund is starting to look like a tempting piggy bank for General Motors, which could suffer a cashflow crisis unless it finds a source of funds. Last week, JPMorgan analyst Himanshu Patel said GM could raise as much as $6 billion by withdrawing money from a restricted retiree health care fund that it had earmarked for a UAW-run voluntary employee beneficiary association. Last year, GM pledged to contribute $14.5 billion in 2010 for the giant fund that it negotiated with the UAW last fall. That fund would pay for UAW retiree health care benefits, getting the liability off GM’s books. Patel said withdrawing the money temporarily would go a long way toward raising the $10 billion in cash that he thinks GM will need to avoid a cash crunch by the end of 2009. A bailout might be politically dicey for the union’s membership. But UAW President Ron Gettelfinger could point out that the union would earn as much as 12 percent interest on the loan while helping GM out of a cash pinch. “Why would the UAW agree to this? My short answer is they have to,” Patel said. He added: “The UAW now is extremely motivated to keep GM, Ford and Chrysler out of bankruptcy.” UAW headquarters was closed Thursday, July 3, and Friday, July 4, and spokesman Roger Kerson could not be reached for comment. GM spokesman Randy Arickx declined to comment on the fund or how much cash GM may need to raise. automaker also could borrow from banks, sell equity in profitable overseas operations or borrow against them, and sell other assets, he said. GM has about $24 billion of cash today. But it is expected to spend about $12 billion in cash in 2008 and $6 billion in 2009 as vehicle sales tumble in the face of a housing slump and high gasoline prices. Unless GM raises additional cash, that would leave the automaker below the $9 billion to $10 billion it needs on hand to operate safely for two months, Patel said. The existing $14.5 billion fund that GM has been putting aside for years for UAW retiree health care is not included in GM’s current $24 billion in cash. Permission needed That money is pledged to the UAW for a fund being established in 2010 that would eliminate a more than $50 billion retiree health care liability that GM now has for the union’s retirees. Patel said the automaker legally could borrow as much as two years’ worth of health care obligations under the plan. GM’s annual UAW health care cost is about $3 billion. Cash-raising options Tapping the existing fund for a loan is one of a number of options that GM could consider to get it through a difficult 2008 and 2009, Patel said. The GM would have to ask the UAW for permission to borrow against the existing fund, Patel said. But it probably would not be subject to a vote by the rank and file, given previous changes to the fund that the UAW leadership has negotiated with GM, he said. Ford Motor Co. is in a better cash position than either GM or Chrysler LLC, Patel said. Ford has $29 billion in cash and $11 billion in available credit. Ford also is spending cash at a slightly slower rate than GM. Its cash spending is estimated at about $14 billion through 2008 and 2009, Patel said. Ford is ahead of GM in funding a similar voluntary employee beneficiary association that it made with the UAW as part of last fall’s historic contract negotiations. Ford already has put $5.5 billion into the fund, said company spokesman Mark Truby. That contribution was made soon after the agreement was reached. Ford is obligated to put an additional $400 million into the fund over the next eight years at the rate of $50 million a year. Truby said that will be no problem. c Amy Wilson contributed to this report nudge up Nano’s costs Suppliers asked to share 50% spike Mehul Srivastava email@example.com GET A COMPLETE MARKETING PROGRAM! Guerrilla TV Marketing Radio Print Hispanic Direct Mail Web Design NEW DELHI, India — Tata Motors Ltd. is finding it difficult to contain costs on the inexpensive Nano small car, mostly because steel prices have risen about 50 percent in the past year. In January, Tata created a splash when it unveiled the Nano, a basic car that it planned to sell with a wholesale price of about $2,500. The bare-bones four-door car has one windshield wiper and a twocylinder engine and weighs just 1,278 pounds. The company is asking suppliers to share the cost increases. Tata also has a pricing model in which it pays less for parts as volume increases, ac- cording to four suppliers. “There are different rates for if they buy 10,000 units or if they buy 25,000,” said the CEO of a Delhi supplier. “That’s never happened in India, where we usually set prices for the next six months or the next year.” A Tata Motors spokesman declined to comment. It is not clear how much of the added costs will be absorbed by Tata Motors, but the four suppliers interviewed said the adjustments requested by the automaker were fair. Tata is working to adjust parts prices with an informal consortium of about 50 suppliers. With steel at record highs — hot rolled coil jumped by as much as 30 percent in the past quarter to $742 per metric ton ($675 per U.S. ton) — the company agreed to raise its purchase prices for some parts, said a Delhi-based Tata Motors had planned to sell the Nano with a wholesale price of $2,500. But steel prices took off — rising up to 30 percent in the past quarter alone. parts supplier, who declined to be identified. Tata may receive some discounts on steel because its parent company, Tata Group, also owns Tata Steel Ltd., India’s largest steel producer. Suppliers to the Nano also have been squeezed by the nearly 40 percent increase in the cost of furnace oil, used to forge parts. c Internet Website Optimization In-Store CALL OR E-MAIL THE AGENCY THAT WILL WORK FOR YOU 24/7 (SERIOUSLY) Great Wall becomes Chrysler’s 2nd Chinese partner Bradford Wernle and Lan Lan firstname.lastname@example.org 1-888-878-ZADV email@example.com or visit www.zadv.com Chrysler LLC has signed a cooperation pact with a second Chinese carmaker: Great Wall Motor Co. The memorandum of understanding, signed by the companies in June, initially will explore shared distribution agreements and swapping and purchasing parts from each other. The agreement will not affect Chrysler’s agreement with another Chinese carmaker, Chery Automo- bile Co., says Chrysler spokesman David Elshoff. Chery is supposed to make small cars for Chrysler. But Chrysler officials have not said when Cherymade, Chrysler-branded vehicles might be available in the United States. The two companies agreed to work together last July. “We’re continuing to work with” Chery, Elshoff says. Great Wall is an independent automaker that makes about 400,000 vehicles annually, primarily small trucks and SUVs, Elshoff says. Great Wall received Chinese government approval to branch into making cars in late 2007 and launched its first small car, the Gwperi, this year. Great Wall is also building a plant in Baoding in Hebei province that is capable of producing 200,000 manual transmissions and 100,000 automatic transmissions annually. The company plans to lift its production capacity for car engines to 300,000 units in two years from the current 100,000 units, says a Great Wall source. Chrysler has been talking with other Chinese automakers about deals. Earlier this year, Ling Yuzhang, chairman of Soueast (Fujian) Motor Corp., confirmed to Automotive News China that his company had discussed a joint venture with Chrysler. Chrysler has expanded its engineering capabilities in China by opening a new center in Beijing. The automaker’s purchasing chief, John Campi, has said he wants to increase parts purchases in China.c
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