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Behind The Wheel

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Jan.19

9:44 AM ET

Monday, 19 Jan 2009

Clock Is Ticking for GM, Chrysler

Posted By:Phil LeBeau

Sectors:Automobiles and Parts

Companies:Toyota Motor Corporation | General Motors Corp | Honda Motor Company, Ltd. | Ford Motor Company

GM logo, General Motors logo

Less than a month from today, GM and Chrysler will have to give the federal government an update on how they are doing in restructuring their companies.

The clock is definitely ticking.

The question is whether GM [GM Loading... () ] and Chrysler will be ready to answer the bell when it rings in the middle of February? Both companies say yes, they will (what else would you expect them to say?) be ready.

Both claim that they are moving fast to change their companies. And both say they are working with the UAW to lower labor costs.

But how much should we truly expect to happen by then? From the people I've talked with, I have no doubt GM and Chrysler will have made progress in re-working their labor contracts with their auto workers.

UAW president Ron Gettlefinger and his top lieutenants are serious about modifying their agreements so they are more "competitive" with foreign auto makers. The tough part of the labor talks will come mid to late March when all sides have to agree on a final changes to the current contract.

As for GM lowering it's debt, that will likely be a much tougher task. The company needs to cut it's debt by two thirds. That means it will have to convince bond holders to exchange third debt for stock equity.

The largest bondholders have formed a committee to negotiate with GM and given how much greater risk these bond holders will face in an equity swap, those talks will be long and difficult.

Look at what happened with the GMAC debt restructuring a few weeks back.

That process was long, drawn out, and involved many bond holders saying, "No thanks, we don't like this deal." The bottom line: expect the next month to be a difficult one for GM and Chrysler.

What they have to accomplish is not impossible, but it's not going to be easy.