Business Update: Lloyds slumpsBy Kevin Krolicki and Christiaan Hetzner
DETROIT/STUTTGART (Reuters) - General Motors Corp and Chrysler LLC raced to finish restructuring plans for the U.S. government that will outline aggressive cost-cutting, but are expected to stop short of delivering final deals to cut debt and labor costs.
Shares of GM fell more than 11 percent on Tuesday and analysts said the recent showdown between GM, its bondholders and the United Auto Workers (UAW) union underscored the heightened risk of bankruptcy for the top U.S. automaker.
GM and the UAW remained locked at midday in Detroit in negotiations, which were expected to run right up until the afternoon when the embattled automaker is slated to submit its survival plan to U.S. President Barack Obama's administration.
GM and the UAW made progress over the weekend in talks on labor concessions, and its bondholders submitted proposals to cut $28 billion in debt through an exchange for equity.
Both sets of discussions are crucial to GM's effort to use $13.4 billion in federal funding to restructure without having to file for bankruptcy protection.
But without final deals in place, GM will be forced to signal a readiness to use a government-financed bankruptcy process in a final bid to win concessions to slash costs and debt, analysts said.
Until now, GM Chief Executive Rick Wagoner and other executives had held to a line that a bankruptcy filing would spin out of control into a liquidation because it would scare off remaining car shoppers.
But the company's senior leadership is now open to the prospect of a government-financed bankruptcy if that can be done quickly to rewrite contracts with creditors, the UAW and suppliers, a person involved in the talks has said.
A similar change in thinking appears to have taken hold inside the Obama administration, an analyst said.
"We sense some senior administration officials have evolved to the view that the risk to GM's revenues of a government-funded Chapter 11 bankruptcy is probably now lessened though still significant," JP Morgan analyst Himanshu Patel said on Tuesday.
While the struggling U.S. automakers put the finishing touches to blueprints showing how they aim to pay back billions of dollars of government loans, Chrysler's German ex-owner Daimler said its remaining 19.9 percent stake in the Detroit-based manufacturer had forced it to post a steep fourth-quarter loss.
COST-CUTTING IN FOCUS
The restructuring blueprints from GM and Chrysler will outline plans by both automakers to shed capacity and cut jobs in hopes of returning to profitability as the U.S. auto market sags to its lowest level in almost three decades.
"They will be fairly aggressive. It's not going to be a minimal effort," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.
Wagoner was expected to hold a press conference later on Tuesday to discuss the automaker's plan. Continued...
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