President Obama Says The Cavalry Is Coming

DETROIT/WASHINGTON March 26, 2009; Soyoung Kim and Jeff Mason writing for Reuters reported President Barack Obama said on Thursday that his administration would unveil in the coming days the next part of its plan to help the troubled U.S. auto industry, provided the companies push ahead with sweeping restructurings.

The signal of additional federal support prompted a rally in General Motors Corp shares and came as the embattled automaker announced that 12 percent of its U.S. hourly workers had accepted buyouts.

Auto sector shares rallied across the board and GM jumped more than 14 percent as Obama's comments bolstered expectations that while U.S. officials would demand tough concessions from creditors and shareholders, they would not force GM and its smaller U.S. rival Chrysler LLC into bankruptcy.

"What we're expecting is that the automakers are going to be working with us to restructure. We will provide them some help," Obama said at a town hall meeting conducted at the White House for viewers on the Internet.

"I know that it is not popular to provide help ... to auto companies," he said. "If they're not willing to make the changes and the restructurings that are necessary, then I'm not willing to have taxpayer money chase after bad money."

GM and Chrysler face a March 31 deadline from U.S. officials to act on a request for up to $22 billion in additional emergency loans to help them ride out the weakest auto sales in three decades.

On a combined basis, the two automakers have relied on $17.4 billion in loans from the U.S. Treasury to stay in operation since the start of the year.

The request for additional funding, which is being reviewed by a White House panel led by former investment banker Steve Rattner, hinges on the companies' ability to win concessions from the United Auto Workers union and creditors.

As part of its efforts, GM said on Thursday that 7,500 U.S. hourly workers represented by the UAW had accepted buyout offers and would be off its payroll by April 1.

Including the latest round of buyouts, GM has cut 60,500 jobs since 2006 -- more than half of its U.S. factory workforce -- as U.S. auto sales have slowed and its own cash position has weakened.

Separately, Chrysler said it would extend a buyout program that it offered to all its 26,000 U.S. hourly workers last month.

GM and Chrysler have won pending contract changes from the UAW intended to help them cut hourly wage costs to the level of Japanese automakers' operating plants in the United States.

But both automakers have yet to reach related deals with the UAW that would allow them to pay the union in stock rather than cash for half of their remaining obligations to a trust fund for retiree health care, Voluntary Employee Beneficiary Association.

GM bondholders also face pressure to write off two-thirds of the more than $27 billion they are owed in exchange for stock in a recapitalized company.

Advisers to GM bondholders met with Rattner and the autos task force earlier this month, but complained as recently as Sunday that they had been shut out of ensuing talks with both U.S. government representatives and the GM executives.

A person briefed on those negotiations said on Thursday that the two sides had begun talking again this week.

GM shares ended up 14.1 percent at $3.41 on the New York Stock Exchange on Thursday afternoon, off an earlier high at $3.49. Rival Ford Motor Co shares ended 6.1 percent higher at $2.94.

Standard & Poor's said in a research note that Thursday's rally in GM shares was "unwarranted" because of lingering risks of stock dilution or bankruptcy. But higher share prices could help GM as it negotiates a debt-for-equity swap with bondholders and the UAW, it added.

'NO SIGNS OF RECOVERY'

A White House spokesman said Obama has been frustrated with the auto industry for some time, and said the president believes industry executives have made bad business decisions over several years.

GM and Chrysler, which lost a combined $39 billion last year, have been hit by a deepening downturn in U.S. car sales, which slumped by more than a third in January and February and hit their lowest levels in 27 years.

Toyota Motor Corp President Katsuaki Watanabe said U.S. auto industry sales have shown no signs of recovery in March from a weak start to the year and he could not tell when global car sales would bottom.

"Annualized sales in January and February were a little above 9 million, and we're hearing that March will be about the same, if not worse than February," Watanabe told a news conference on Thursday.

Honda Motor Co, Japan's No. 2 automaker, also said it saw no signs of a recovery in market demand as it announced further delays to the start of a new factory in Japan by at least a year.

In South Korea, the government announced tax breaks for new car buyers and measures for easier consumer financing to support its domestic car industry.

Most automakers have been reducing production, scaling back investment and cutting jobs in an effort to preserve cash as the sales slump bites around the globe.

Additional reporting for Reuters by Chang-ran Kim, Kevin Krolicki, Poornima Gupta and Walden Siew, editing by Patrick Fitzgibbons and Matthew Lewis