GM Struggles as Chrysler Finds Way Out

The Wall Street meltdown has pushed America's biggest car manufacturers almost out of business. The world has dramatically changed and America's no longer enjoys the supreme position the in automotive world. The crisis has spread across the world and almost every automobile manufacturer is bleeding profits. America's automotive landscape has changed forever.

At the centre of the crisis are the giant automobile manufacturers Chrysler and General Motors. All eyes are also on Ford which ha so far evaded taking government money.

The industry analysts predict a bleak future for the automobile sector. Sales of cars, SUV s and pick trucks are expected to be around 9.7 million in this year. These figures are lower than 13.2 million sales clocked in 2008, which was termed as the worst performance by automobile industry so far. The 2008 figures look like a dream to car manufacturers in the present scenario.

As many as 2.6 million units of cars are left unsold so far in dealer lots and holding yards. These include the 2008 and 2009 models. The net revenue of the auto industry will be around $ 80 billion to $ 100 billion dollars, significantly lower than last year.

Chrysler has already filed for bankruptcy and General Motors is staring at one. The U.S. federal government which will oversee the bankruptcy proceedings expects a healthier Chrysler to emerge from the crisis. But General Motors will face a slower and painful transition from its current status.

The federal government has set June 1, as the deadline for restructuring, which is less than a week away. The financial situation at General Motors looks more complex than those at Chrysler. Possibly because General Motors is a much larger company having bigger operation across the world and involving many governments. Unlike the fellow auto manufacturer Chrysler, General Motors has public shareholders and a broader array of secured and unsecured debt holders. Resolving the debt issues become important before any restructuring of the company can be undertaken.

Chrysler had filed for bankruptcy on April 30 and is expected to complete the process in about 30-to-60 days time. A key hearing on plans to sell most of Chrysler's assets to a new entity paired with Fiat SpA, is scheduled on Wednesday. If it gets the approval, federal government could allow the new entity Fiat-Chrysler to exit bankruptcy proceeding by the end of June.

However, General motors stand on a different platform altogether. GM has commitments towards its labour force. In order to help GM, the leader of the United Automobile Workers Union recommended that their member accept a deal that would substantially reduce GM's obligations to a trust fund set up for retiree health care. GM had agreed to pay 20 billion in to the fund, but under the terms deal it will be committed to a lot less amount.

Even if this restructuring demand is approved, GM's problems are far from over. The real challenge lies in getting 90 percent of the unsecured bondholders to agree to a debt for equity deal. The swapping will leave GM with 10 percent of the restructured company. However, Bondholders have refused the order saying that union gets a better deal than them. But General Motors has to deal with the remaining 90 percent of it problems and that seems unlikely before June 1.