President Barack Obama Saturday proposed an additional $313 billion in cuts to Medicare, Medicaid and other programs to pay for health care reforms expected to cost about $1 trillion over the next decade.
"I know some question whether we can afford to act this year. But the unmistakable truth is that it would be irresponsible to not act," Obama said in an advance text of his weekly radio address.
Obama wants a health care reform bill on his desk by October, but faces opposition from Republicans who oppose creation of a government-run insurance plan to compete with private insurers.
Many of his fellow Democrats are wary of making deep cuts to Medicare and Medicaid, the U.S. health care programs for seniors and poor people, to pay for reforms.
With the cost of U.S. health care continuing to rise rapidly, Obama argued the country could not afford to wait another year for sweeping changes.
But he acknowledged the ambitious plan would increase government costs in the short run.
To address those concerns, Obama has pledged to come up with enough spending cuts and new revenue to pay for reforms.
"So today, I am announcing an additional $313 billion in savings that will rein in unnecessary spending, and increase efficiency and the quality of care — savings that will ensure that we have nearly $950 billion set aside to offset the cost of health care reform over the next ten years," Obama said.
About $110 billion of the new cuts would come from reducing scheduled increases in Medicare payments. That would encourage health care providers to increase productivity, White House budget director Peter Orszag told reporters loan until payday.
Obama also proposed cutting payments to hospitals to treat uninsured patients by $106 billion on the assumption those ranks would decline as health care reforms phase in.
An additional $75 billion would come from "better pricing of Medicare drugs," Orszag said, adding the White House was in talks with stakeholders over the best way to do that.
The remaining $22 billion in proposed cuts would come from smaller reforms, such as adjusting payment rates for physician imaging services and cutting waste, fraud and abuse.
The new cuts are in addition to a $635 billion "down payment" on health care reform that Obama outlined in his budget to Congress earlier this year.
About half of that came from cuts in Medicare and Medicaid and the rest from revenue proposals such as cutting tax deductions for families that make over $250,000 a year.
Altogether, the Obama administration is now asking Congress to trim spending on Medicare and Medicaid by more than $600 billion over the next decade, which is more than some Democrats are willing to swallow.
House Ways and Means Committee Chairman Charles Rangel told reporters after a closed-door meeting with fellow Democrats on the panel that the committee would include about $400 billion in Medicare and Medicaid savings in the health care overhaul legislation being drafted.
"We don’t think we can do all the things he (Obama) is recommending. … We think his 600 (billion) is our 400," Rangel told reporters.
John Rosenthal has a long history of social activism — and the prison record to prove it.
The 52-year-old entrepreneur runs Meredith Management, a Boston-based commercial real estate development company. In the 1970s, Rosenthal joined the No Nukes movement while he was working for a California startup that built solar-powered homes. He was arrested four times for trespassing while protesting nuclear power plants in California and New Hampshire. Between 1977 and 1983 he served a total of 3
Americans saw $1.3 trillion of wealth vaporize in the first quarter of 2009, as the stock market and home values continued to decline, according to a government report released Thursday.
Household net worth fell to $50.4 trillion, according to the flow of funds report by the Federal Reserve. Americans’ stock holdings plunged 5.8% to $5.2 trillion and mutual funds holdings slid 4.1% to $3.3 trillion, while their home value dropped 2.4% to $17.9 trillion.
The nation’s households have now seen their net worth shrink for seven straight quarters. Family net worth had hit an all-time high of $64.4 trillion in the second quarter of 2007, thanks to the housing bubble and a strong stock market.
"It’s more of what we saw late last year," said Scott Hoyt, senior director of consumer economics at Moody’s economy.com. "Consumers are cutting back on their borrowing to some extent, but the decline in value of assets is swamping that."
The results are not surprising. The Standard & Poor’s 500 index dropped 11.7% in the quarter, while home values fell 14.2% from the prior-year period, according to Zillow.com.
Though Americans are getting poorer, the rate of decline is slowing. Last year, households’ net worth dropped by a record $10.9 trillion, or 17.4%. It ended the year at $51.7 trillion. The fourth-quarter loss of $4.9 trillion, or 8.6%, was the largest quarterly plunge since the Fed started keeping records in 1951.
Americans also continued to pull back on their borrowing. Household debt fell at an annual rate of 1.1% to $13.8 trillion for the first quarter, after contracting 2% in the fourth quarter of 2008. That was the first time household debt shrank.
During the white-hot housing boom, Americans piled on debt. Between 2002 and 2006, annual household borrowing grew at double-digit rates.
Such debt levels are unsustainable and had to come down to restore Americans’ household financial health, said Amir Sufi, finance professor at the University of Chicago. This contraction is a major factor behind the recession.
"Household deleveraging has to happen even though it’s painful," Sufi said unsecured personal loans with bad credit.
Mortgage borrowing remained flat, after falling for the previous three quarters. Consumer credit, however, dropped at an annual rate of 3.5%, the largest dip in at least 35 years, as people slowed their use of credit cards and auto loans.
The plunge in consumer credit concerns Paul Wachtel, economics professor at New York University’s Stern School of Business. It shows that either consumers are not able or willing to borrow.
"The ability of the consumer sector to start spending again is what will pull the economy out of the recession," he said.
Homeowners’ equity also fell to a record low 41.4% as values continued their plunge. More than one in five homeowners now owe more than their houses are worth, according to Zillow.com.
Businesses also decreased their borrowing for the first time since 1992, slipping 0.3% for the quarter. The federal government, however, pumped up its borrowing by 22.6% in an attempt to stabilize the economy. Federal debt grew by 39.2% in the third quarter of 2008 and 37% in the fourth quarter.
If the stock market comeback continues, though, Americans will likely see their net worth increase in the second quarter, said Michael Englund, chief economist at Action Economics. Financial assets, including stock holdings, account for 80% of a household’s wealth. The S&P 500 is up 17.7% so far this quarter.
"The gains in this quarter should more than reverse the declines of the first quarter," Englund said.
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BlackRock Inc. said on Thursday it will buy British bank Barclays Plc’s investment arm BGI for $13.5 billion in a blockbuster deal that will create the world’s biggest asset manager.
For BlackRock, a 21-year old company which relied heavily on acquisitions to grow from a one-room bond investment firm into the largest publicly traded U.S. money manager, the deal will more than double assets to roughly $2.7 trillion.
It will also give New York-based BlackRock, well-known for working with governments and institutional clients, access to retail investors and the hugely popular exchange traded funds San Francisco-based Barclays Global Investors offers.
BGI, which has operations in 15 countries and ranks as Europe’s largest hedge fund manager, will help expand BlackRock’s reach around the world and into new products spanning actively and passively managed portfolios.
“This gives BlackRock a global footprint which is a substantial thing to have in these markets,” said Geoff Bobroff, who advises mutual fund companies as president of Bobroff Consulting Inc.
For Barclays the deal will strengthen its balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry.
BlackRock will pay $6.6 billion in cash and the rest in stock to acquire BGI and Barclays’ iShares unit, which had been promised to private equity firm CVC Capital Partners for $4.4 billion in April.
Barclays was allowed to keep shopping for a better deal until the middle of June and will owe CVC a $175 million break-up fee if it sells iShares to another bidder. CVC has until next week to come up with a counter offer absolutely free credit report.
TRANSFORMATIONAL DEAL
“This is a transformational transaction” for the investment management industry Laurence Fink, BlackRock’s chief executive officer, said on a hastily arranged conference call late on Thursday.
Fink said BlackRock has received commitments from a global network of institutional investors and clients to purchase 19.9 million shares at the closing of the transaction for a total of $2.8 billion. He would not disclose the investors.
The combined companies’ market capitalization will be roughly $34 billion, Fink said.
BlackRock’s share price, which has climbed 36 percent since January, shot up 11.5 percent this week to close at $182.60 on Thursday as speculation about a possible deal heated up. Bank of New York Mellon was also said to have been interested in buying BGI, but several people briefed on the deal said the company’s more tepid stock price rise hurt its chances.
Together BlackRock and BGI — or BlackRock Global Investors as the new company will be called — will be the industry’s single biggest player, zooming past rivals State Street Corp, which manages $1.4 trillion, and Fidelity Investments, which oversees $1.25 trillion. The company will also outpace PIMCO, its chief fixed-income rival, which is building up a presence in exchange traded funds.
The deal also further shakes up an already battered money management industry where firms lost billions in assets and thousands of jobs during the financial crisis by eliminating a possible bidder for other firms that are up for sale.
U.K. Business Secretary Peter Mandelson called for greater efforts to boost employment and the economy in the European Union, including a proposal for 50 billion euros ($70 billion) of loans to help companies.
Mandelson urged the 27-nation bloc to implement up to 1,600 rules aimed at cementing a single market and to fight pressure from national governments to protect their economies. He will outline Britain’s priorities as the EU prepares to appoint a new European Commission this month.
“No matter how badly a downturn might tempt us to think and act in national silos, the next five years will in fact demand an even greater Europeanism from us,” Mandelson said in Berlin today, according to his office.
Later today, Mandelson will meet with German Economy Minister Karl-Theodor zu Guttenberg, who helped broker the sale of General Motors Corp.’s Opel unit in Germany to Magna International Inc.
The British government is working to protect 5,500 jobs at GM’s Vauxhall factories in Luton and Ellesmere Port and has kept open the possibility of granting state aid. Mandelson made no comment about the issue in his prepared remarks.
The U.K. backs Commission President Jose Barroso and his pro-business stance for a second five-year term at the helm of the EU’s executive arm cash till payday advance. Barroso has pledged “ambitious” European action to halt the recession and fight global warming.
“Europe must not retreat in on itself, but instead improve its competitiveness through an integrated approach to Single Market and industrial policy,” U.K. Prime Minister Gordon Brown said in a letter released by his office to Barroso.
EIB Lending
Mandelson said the European Investment Bank should lend 50 billion euros over the next two years to help companies and fund infrastructure projects. He also called for renewed efforts to slash red tape costs for small companies by 10 billion euros.
The EU should also map out clear strategies for services industries, renewable energy and digital industries, Mandelson will say.
Barroso’s bid for a second term got a lift in weekend elections that made his center-right allies the largest party in the EU Parliament, which has to approve the appointment.
The center-right group known as the European People’s Party got 263 out of the total 736 seats in the European Parliament. The Socialists won 161 seats, the Liberal Democrats 80 and the Greens 52.
Stocks cut losses Monday, ending mixed, as investors scooped up bank and consumer shares and kept an eye on Treasury bond yields, the dollar and commodity prices.
After the close, the Supreme Court granted a stay in the sale of Chrysler’s assets to Italian automaker Fiat, at the behest of a group of shareholders. The move delays Chrysler’s exit from bankruptcy, which had been expected to occur as soon as Monday.
The Dow Jones industrial average (INDU) ended just above unchanged and the S&P 500 (SPX) index ended just below unchanged. The Nasdaq composite (COMP) lost 7 points or 0.4%.
All three major indexes had slumped through the session, before turning higher near the close and ultimately ending mixed.
The late-session turnaround was positive, but deceptive, in that the market breadth numbers remained negative, said Donald Selkin, chief market strategist at National Securities. He was referring to the fact that more shares fell than gained, on both the Nasdaq and New York Stock Exchange.
He said that going forward, it’s going to be difficult for the major indexes to push much higher.
"We saw some resiliency today, but I think the market is going to be laboring under the perception that the Federal Reserve is going to be forced to raise rates," Selkin said.
That’s partly because Treasury yields have been rising, with the 2-year note yield now more than a full percentage point above the fed funds rate, which has been near zero since December.
Meanwhile, the 10-year note is edging closer to 4%, a level not seen since October. The spike has raised worries about the recovery hitting roadblocks before it’s barely begun.
Some optimism about the bank sector Monday helped to counter worries about inflation, the dollar and the spike in Treasury bond yields, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
"The banks are up because the rumor is that there are going to be nine banks that they allow to pay back TARP funds," Rovelli said.
The government will let the banks know this week, perhaps as soon as Tuesday morning, which ones they deem to be sufficiently capitalized to pay back the TARP funds received last fall.
Monday is the deadline for plans to be submitted by banks that need to raise additional cash as a result of the government’s stress tests.
Stalling after the rally: Stocks were weaker through most of Monday’s session as investors showed caution after a rally that has propelled the Dow off of 12-year lows hit in early March. The Dow has risen in 11 of the last 13 weeks, climbing 32.2% as of Friday’s close. That’s the blue-chip average’s best 13-week run in 26 years.
The other major indexes have also rocketed since March 9. Since hitting a more than 12-year low, the S&P has gained 39% as of Friday’s close. The Nasdaq has rallied 45.8% as of Friday’s close, since bouncing off of a 6-year low health insurance companies.
Pacing a typical post-rally retreat is the start of a shift in investor perception, said Jeffrey Kleintop, chief market strategist at LPL Financial.
He said the spate of not-as-bad economic news, punctuated by last Friday’s milder than expected job-loss report, has raised questions about whether the economy is healing faster than expected. If so, how will all the stimulus spending impact growth, and how will the government respond?
"The focus has switched to ‘yes, things are turning around, but maybe more rapidly than expected, and what does that mean for inflation?’" he said.
Financials: Banks were in focus Monday. The 10 banks that were required to raise a collective $75 billion as a result of the government "stress tests" have to submit detailed plans by Monday.
Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500) and PNC Financial Services (PNC, Fortune 500) are among the companies that have already met or exceeded requirements.
In addition, the government is expected to announce which banks can pay back the TARP funds.
Most major bank stocks were higher, boosting the KBW Bank sector index by 1.3%.
Apple: On Monday afternoon, the tech behemoth introduced a faster version of its iPhone, lowered the price on its existing phone and offered details on its revamped operating system. Apple (AAPL, Fortune 500) shares ended modestly lower.
Company news: Fidelity and private-equity firm KKR are teaming up to give customers of the mutual fund company access to initial public offerings of KKR companies.
The global airline industry is likely to lose $9 billion this year due to weaker demand and the impact of the recession, according to trade group the International Air Transport Association.
Among stock movers, consumer shares advanced, including Dow components’ Home Depot (HD, Fortune 500) and Walt Disney (DIS, Fortune 500).
McDonald’s shares dipped after the company reported May sales at stores open a year or more rose 5.1%, versus a rise of 6.9% in April.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.08 billion shares. On the Nasdaq, decliners topped winners eight to five on volume of just under 2 billion shares.
Other markets: In global trading, Asian markets ended mixed and European markets ended lower.
In currency trading, the dollar gained versus the euro and fell against the yen.
U.S. light crude oil for July delivery fell 35 cents to settle at $68.09 a barrel on the New York Mercantile Exchange.
COMEX gold for August delivery fell $10.10 to settle at $952.50 an ounce.
It’s starting to look like the spring awakening in bank stocks may not be enough to save the CEOs of America’s biggest troubled banks, Citigroup’s Vikram Pandit and Bank of America’s Ken Lewis.
A top banking regulator is agitating for Pandit’s removal, according to a report Friday in the Wall Street Journal. The clash between Pandit and Sheila Bair, the head of the Federal Insurance Deposit Corp., comes just a month after restive shareholders at Charlotte-based BofA (BAC, Fortune 500) stripped CEO Lewis of his chairmanship.
The FDIC told CNN it had no comment on the story. Citi (C, Fortune 500) says it stands behind Pandit, who took over as CEO at the end of 2007 and has spent much of his tenure trying to clean up the messes left by his predecessors Chuck Prince and Sandy Weill.
In a statement to CNN Friday, Citi chairman Dick Parsons said the company was "confident in our management."
BofA has similarly endorsed Lewis, and the three-month-long rally in bank stocks has quieted talk of wholesale government takeovers of these firms.
But given the massive investor losses at these banks and the failure of their top managers to anticipate the industry’s meltdown last year, few would shed a tear at either executive’s departure.
"These companies are sort of the poster children for the excesses that created this crisis," said Eric Jackson, an activist investor and managing member of Ironfire Capital in Naples, Fla. "I think it’s appropriate for the regulators to push for substantial changes in management and on the boards." Jackson’s firm does not own shares of either bank.
Citi and BofA have been the two biggest bank recipients of federal aid since the financial crisis erupted last fall. Together they have taken some $500 billion in federal aid, the lion’s share of which has come in the form of federal guarantees of their troubled assets.
Recently, both firms have shown some signs that they have broken out of what earlier this year looked like terminal decline.
Shares of Citi have tripled since Pandit surprised Wall Street by saying Citi was on track for its first quarterly profit since mid-2007. BofA’s stock price has quadrupled during the same time frame.
Both banks went on to report better-than-expected first-quarter results in April. Those surprises further boosted the shares even as many observers warned the numbers were padded by one-time gains and legal but incredible accounting maneuvers, such as profits tied to the declining value of the banks’ own debt.
The hopes of a banking sector recovery only intensified after regulatory stress tests showed banks didn’t need that much more money quick payday loan. The findings helped spur a surge of capital raising from the private sector that has bolstered the balance sheets of many big institutions.
But while investor fears of a giant bank failure have dissipated, regulators haven’t lost sight of the problems ahead. Though the 10 of the 19 biggest banks that had to raise $75 billion in capital after the stress tests had no trouble doing so, future loan losses will surely dwarf that figure — which means further capital raises could be necessary.
"There’s a desire to make sure the banks don’t get complacent," said Douglas Elliott, a former investment banker who is an economic studies fellow at the Brookings Institute in Washington. "Until we have a better grasp on exactly how bad the losses are going to be, it’s important to be cautious."
Even before the FDIC’s push to oust Pandit came to light, it was clear that policymakers intended to shake up the big banks.
BofA named a new chief risk officer this week after regulators questioned the management failures that led BofA into its current morass. Citi shook up its own board earlier this year, with former Time Warner (TWX, Fortune 500) chief Parsons replacing Win Bischoff as chairman and Clinton administration Treasury Secretary Robert Rubin stepping down. (Time Warner is the parent company of Fortune and CNNMoney.com.)
Still, skeptics such as Jackson say a change here and there won’t be enough, given the size and visibility of the two big banks.
"How can you have such massive failures without there being accountability?" said Jackson. "Citi and BofA are so large, so critical, they’re almost a case unto themselves."
And some observers believe that even management changes won’t be enough, and BofA and Citi will have to be broken up.
Vernon Hill, a longtime bank executive who is now chairman of investment firm Hill-Townsend Capital in Bethesda, Md., notes that a recent national customer satisfaction survey showed Citi was either last or tied for last in each of the five regions in which it does retail banking.
"Citi has been dysfunctional as long as I can remember," said Hill, who owns "only minor amounts" of both stocks. "How many times are we going to let these guys get in trouble before we put an end to it?"
CNN’s Amy Sahba contributed to this report.
The Federal Deposit Insurance Corp. wants to move around top management at Citigroup, putting Chief Executive Vikram Pandit in a precarious position, according to a report published Friday.
Under the leadership of Chairman Sheila Bair, the FDIC encouraged another government regulatory committee to downgrade Citigroup’s confidential rating within the government, allowing the FDIC more control over the firm, according to the report in Friday’s edition of The Wall Street Journal.
The FDIC declined comment to CNN.
Financial giant Citigroup (C, Fortune 500) has received approximately $45 billion in government bailout funds as part of the Troubled Asset Relief Program, or TARP.
Citigroup was one of the nation’s 19 largest banks to undergo a "stress test," run by the government to measure the health of the nation’s banking system 16 pt business cards.
Citigroup said Friday that the company has cut its expenses, raised capital and limited its exposure to risky assets.
"We are confident in our management and confident that we will continue to position Citi for a return to sustained profitability," said Dick Parsons, Chairman of the Board of Citigroup, in a written statement.
Friday is Citigroup’s final day as a component of the Dow Jones industrial average. It will be replaced Monday by insurer Travelers Corp. (TRV, Fortune 500)
Citi shares fell 5 cents to $3.52 in early Friday trading.
Japanese companies cut spending at the fastest pace in 54 years as a slump in global demand eroded profits, leaving less money for plant and equipment.
Capital spending excluding software fell 25.4 percent in the three months ended March 31 from a year earlier, the largest drop since the government began the survey in 1955, the Ministry of Finance said today in Tokyo. Profits tumbled a record 69 percent.
Manufacturers from Panasonic Corp. to Konica Minolta Holdings Inc. have cut jobs and are closing factories or scaling back spending plans amid an unprecedented decline in exports. Machinery orders, a key indicator of future expenditure, fell in March even as exports and production showed signs of stabilizing as companies drew down stockpiles.
“We have to assume economic growth will be subdued for a considerable period after the boost from inventory reductions wane,” said Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo.
The yen traded at 96.21 per dollar at 9:53 a.m. in Tokyo from 95.92 before the report was published.
Panasonic, the world’s largest maker of plasma televisions, said last month it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February. Konica Minolta, a maker of film used in liquid-crystal displays, said it will eliminate jobs and reduce spending on research to help save 33 billion yen ($345 million) in costs this year.
‘Nobody’s Building’
“Nobody’s building new factories,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. “Capital formation is unlikely to be a driver of growth in the foreseeable future.”
The government will use today’s report to revise gross domestic product on June 11. Preliminary figures showed the economy shrank at a record 15 half price payday loans.2 percent pace last quarter.
The report “will reconfirm the first quarter was the worst time for Japan’s economy,” said Shunsuke Saito, an economist at Dai-Ichi Life Research Institute. “Exports and production have already started recovering, and looking ahead, profits will probably stop deteriorating.”
BNP’s Shiraishi said that today’s report won’t result in a “major” revision in the preliminary figures.
The Nikkei 225 Stock Average has gained more than 30 percent since reaching a 26-year low in March on speculation spending by governments will halt the slide in the world’s second-largest economy. Finance Minister Kaoru Yosano said this week that the economy may have bottomed in the first quarter and output will probably be on an upward trend in coming months.
Boosting Output
Industrial output rose at the fastest pace in 56 years in April, and companies said they planned to boost output in May and June as well, according to a trade ministry report released last week. Exports fell 39.1 percent in April from a year earlier, after dropping 45.5 percent in March.
Even as output and exports are improving, reports showed domestic demand is weakening. The unemployment rate climbed to a five-year high in April, when wages fell for an 11th month. Toyota Motor Corp., Sony Corp. and Panasonic all expect to post losses again in the current business year.
Sony last month forecast a second straight full-year loss as the global recession forced the company to cut prices of its Cyber-shot cameras and Bravia televisions. Toyota cut its annual dividend for the first time and predicted a second year of losses.
Amid General Motors Corp.’s bankruptcy filing, a sense of relief came from local politicians and auto workers.
Analysts hadn’t expected the Wentzville plant — GM’s only facility that builds full-size vans — to be on the closure list released Monday.
Still, recent upheavals in the auto industry left workers nervous about any pending announcement.
"Obviously, there’s relief that we were on the safe list," said Tom Brune, a representative for United Auto Workers Local 2250, which represents more than 1,700 hourly workers at Wentzville. "It’s still sobering to hear the finality of the (bankruptcy) announcement."
On Monday, GM — the world’s largest automaker until Toyota overtook it last year — followed its Detroit rival Chrysler LLC and filed for Chapter 11 in a Manhattan bankruptcy court. The plan will allow GM to whittle itself into a leaner company by selling its "good" assets to a new GM and liquidating the remaining assets. The new company could be launched in 60 to 90 days.
The 100-year-old automaker will rely on $30.1 billion in financing from the U.S. Treasury to help with the restructuring process, on top of about $20 billion it already received.
The court filing listed the company as having $82 billion in assets and $173 billion in debt. It will be the fourth-largest bankruptcy ever, smaller than WorldCom but larger than Enron.
Once the sale of assets is completed, the U.S. government — which President Barack Obama called a "reluctant" shareholder — will own 60.8 percent of GM’s common stock. In exchange for this equity stake and $2.1 billion in preferred shares, the government will cancel all but $6.7 billion of debt that the automaker owes the U.S.
But the President said his administration will not control GM’s day-to-day operations and will only weigh in on major corporate decisions.
Meanwhile, the Canadian and Ontario governments will contribute $9 billion in exchange for $400 million in preferred shares and a 11.7 percent common equity stake.
The remaining owners would be the UAW-controlled retiree health care fund, which will own 17.5 percent, and then unsecured bondholders and other creditors will get the remaining 10 percent.
Meanwhile, two St. Louis companies were among GM’s top 20 unsecured creditors.
GM owes Clayton-based Enterprise Rent-A-Car more than $33 million for vehicles that Enterprise bought under a "repurchase agreement," an Enterprise spokeswoman said. The agreements called for GM to buy back the vehicles at a pre-determined price, and GM has assured Enterprise that it will honor those payments.
Maritz Inc. of Fenton, another area creditor, is owed $25.6 million. That includes bills for customer satisfaction research and "continuous improvement training" for GM dealerships, as well as for meetings, events and incentives. A company representative said Maritz is confident GM will pay its debts and continue to use the company in the future.
The precedent that Chrysler set by its own bankruptcy process has paved the way for GM, said John Pottow, a University of Michigan law professor who is an expert in bankruptcy and commercial law.
Chrysler’s bankruptcy judge approved the sale of assets to Fiat SpA on Sunday night, 31 days after Chrysler’s first filing on April 30. Pottow said that suggests GM’s 60- to 90-day goal is possible.
Months of unprecedented drops and uncertainty have delivered GM to this point.
The global economic recession, credit availability problems and low consumer confidence walloped all automakers, domestic and foreign, in late 2008 and into this year. But GM and Chrysler, criticized for portfolios laden with gas-guzzling pickups and sport-utility vehicles, were among the deepest hit. Both automakers received government loans in December payday loan.
In March, the Obama administration forced out Rick Wagoner, the automaker’s chief executive since 2000, and it gave GM a June 1 deadline to complete restructuring out-of-court or file for bankruptcy. In recent weeks, the automaker made dramatic changes that included:
— Announcing in April plans to phase out the Pontiac brand by the end of 2010.
— Notifying 1,100 "underperforming" dealerships last month that it would not renew their franchise agreements when the contracts expire next year.
— Getting concessions last week from the UAW and secured bondholders.
As part of its restructuring plan, GM also identified 12 manufacturing plants and three distribution centers it plans to close by December 2011. Two additional plants, an engine facility in Massena, N.Y., and a stamping plant near Grand Rapids, Mich., previously were named for closure.
GM already has been moving equipment and operations from the to-be-closed Grand Rapids stamping plant to Wentzville, plant manager Rex Blackwell said. He wasn’t sure how many workers will transfer from the Michigan plant but said it would be less than 30.
Unlike Chrysler, GM would not use the bankruptcy process to end dealership contracts early, but it has decided to cut about 200 more dealerships, company spokesman Terry Rhadigan said Monday. It will notify those dealers some time this week, he added.
It’s still unclear how many St. Louis area GM dealerships will be affected. GM did not release a list, saying it would let dealers decide to make their status public. It also allowed dealers to submit appeals until Sunday, Rhadigan said, but he did not have a time frame for when decisions would be finalized.
"There really isn’t very many of these reversals," but the automaker must let its dealers try, GM’s CEO Fritz Henderson said at a news conference Monday.
GM wants to have 3,600 dealerships by next year, down from more than 6,200 in 2008. Consolidation with other locations, the sale or termination of car brands and voluntary shutdowns will help to pare down the network.
The challenge facing the remaining GM dealers is convincing consumers that vehicles discounted by a financially-strapped corporation will somehow hold their value, said Erich Merkle, an auto analyst based in Grand Rapids, Mich.
"If the price is equal to another brand, then why not buy a car from a dealer who is not in bankruptcy?" he said.
Merkle predicted GM’s post-bankruptcy sales won’t follow the lead of Chrysler’s sales figures.
"The only reason (Chrysler) sales stabilized is because Chrysler is unloading its inventory" from dealers that will lose their franchises on June 9, he said.
Tony Ziegler, general sales manager at Weber Chevrolet in Creve Coeur, doesn’t think bankruptcy will discourage buyers.
Chrysler’s court process has helped the public understand bankruptcy protection, he said.
"People are figuring out that it’s not that big a deal," Ziegler said.
Warranties for new GM vehicles, like those from Chrysler, are backed by the federal government.
Ziegler worries the bankruptcy could have a short-term impact on inventory but believes GM and the auto industry will persevere. One customer, he said, has already placed an order for the Volt, the all-electric GM vehicle slated to hit showrooms in 2010.
"Nobody is walking down (Interstate 270) yet," Ziegler said. "They’re still driving. There’s still traffic out there."
Jeremiah McWilliams, and Tim Bryant of the Post-Dispatch contributed to this report.
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