Carmaker may sell building if it can't borrow $500M; Pitch to be made to Detroit pension funds
Robert Snell and Christine MacDonald / The Detroit News
General Motors Corp. wants to borrow about $500 million from one or both of Detroit's pension funds to refinance the Renaissance Center, the automaker's iconic world headquarters, in a move that could pump cash into the financially strapped company's coffers.

GM officials are scheduled to make a preliminary investment pitch Thursday to the city's Police & Fire Retirement System and are trying to schedule a meeting with the pension fund representing general city employees, The Detroit News has learned.

If a deal cannot be reached, GM will consider selling the landmark and leasing space within the RenCen, John Blanchard, GM's executive director of worldwide real estate, said Monday.

The moves come as the automaker is trying to raise about $5 billion through asset sales and borrowing to survive the worst auto sales market in 15 years. Already on the shopping block are the Hummer brand, GM's medium-duty truck business, vast amounts of real estate and shuttered manufacturing plants.

Blanchard stressed talks are preliminary and any deal with the pension funds is merely one way the RenCen could be used to raise cash for GM.

"That's an option we would look at," he said. "We are committed to the city. We have no plans to move."

Blanchard said GM will consider selling the RenCen but would structure a deal that would allow the automaker to lease the property.

"I guess the financial squeeze is on," said auto analyst David Healy of Burnham Securities Inc. "GM might be burning through that much (cash) a month. But it will get them through the squeeze period."

GM bought the RenCen -- a set of seven interconnected towers that includes a movie theater and several restaurants and a hotel -- in 1996 for $75 million, then borrowed $500 million against it for a major remodeling and had been leasing it until May. That's when GM paid $626 million to take full ownership of the building.

GM officials have been exploring ways to refinance the building ever since.

In simple terms, GM wants to take out a mortgage on the RenCen and generate cash that could be spent on developing technology, vehicle launches or weathering a sales slump as consumers have shifted away from profitable trucks and sport utility vehicles. Vehicle sales have fallen 18.1 percent this year, and GM posted a $15.5 billion second-quarter loss in August.

In return, one or both of the pension funds might receive an equity stake in the RenCen and regular payments over time.

"We think it is a great investment opportunity for both pension funds," Blanchard said. "It's almost fully occupied. It's a very visible iconic property, which generates a lot of cash flow. From our position, it's a safe investment."

GM isn't alone in using assets to raise cash. In November 2006, Ford put virtually all of its U.S. assets up as collateral to raise about $23 billion in financing from investment banks for its own turnaround plan.

Two city pension funds, one representing police and firefighters and the other for general city employees, have deep resources and investments in some of the city's top development projects.

At the end of June 2007, the police and fire fund had nearly $4.5 billion in assets. The general pension system had nearly $3.9 billion.

Locally, the pension funds have invested $24 million in the Westin Book Cadillac Detroit Hotel, which re-opened Monday, and the general pension fund has invested more than $20 million in the Doubletree Guest Suites Fort Shelby Hotel redevelopment.

But GM's request comes at a tough time for the city's pension funds, members of which are concerned about investments in failing companies. Both funds may be out as much as $30 million in loans that helped billionaire Alabama lawyer Donald Watkins, a member of former Mayor Kwame Kilpatrick's legal defense fund, buy the now-bankrupt TradeWinds freight airline company. In June, the boards sued Watkins in U.S. District Court, alleging he missed an $880,000 interest payment and failed to pony up his $5 million investment in cash.

"We're not going to do it because we don't have that kind of money," said George Orzech, police and fire pension board member. "There's no interest that I know of, but stranger things have happened."

He said the pension board already has too much invested in downtown Detroit real estate.

"We don't want any more," Orzech said.

Another board member said he needs to hear GM's pitch before making a decision.

"It's hard to comment when we haven't heard anything," said member Gregory Best. "Thursday will be the first time."

You can reach Robert Snell at (313) 222-2028 or rsnell@detnews.com.

Obama's "Industrialists"



There is something more than a little unsettling when a government and industry collaborate. Government is all about political power … and the use of force against those who refuse to cooperate. Industry is all about economic activity and, in free societies; it is closer to the individual. Business, after all, provides most of us our jobs, our income, our career paths. When business and government combine they form effectively fascist societies; combining the economic power or industry with the coercive power of the state.

Obama invited the heads of the major US banks to a meeting in the White House recently, and they came. They had no choice; the government is either a majority or minority stakeholders in their companies.

President Obama is scheduled to give a press conference today at 11:00 AM EST today in which he'll officially reveal his plans for the U.S. auto industry. Stay tuned and keep hitting refresh on your browser to learn the latest.

Hightlights

- Gov't will give GM adequate working capital to survive next 60 days

- Working capital up to $6 billion will be provided to Chrysler for next 30 days, during which time an acceptable deal with Fiat must be struck

- Chapter 11 bankruptcy still an option

- NEW TAX BENEFIT (for vehicle's purchased between 2/16 and end of year): Deduct cost of any sales tax or excise tax.

 - Cash for Clunkers incentive (get money to trade in old car and buy new one): Obama wants to make this happen and make it retroactive, work with Congress to carve out funds from Recovery Act to pay for it.

- Designating a new Director of Recovery for Auto Communities and Workers


- Auto industry has shed over 400,000 jobs in the past year, Michigan has 10% unemployment rate
 
- "We cannot and must not, and will not, let our auto industry vanish."

NOTE: DOW down 275 points at 11:11 AM EST

- Companies must stand on their own, not as ward's of the state

- Neither restructuring "plan" goes far enough to warrant substantial new investment each company is requesting

- GM/Chrysler being offered limited, additional period of time to fundamentally restructure in a way that would justify new investment from government.

- Sounds like the administration is basically giving each automaker more time to restructure and another deadline to submit another progress report to justify more investment.

- Committed to working with Congress and automakers to meet one goal: "United States of America will lead the world in building the next generation of clean cars."

- Obama going through list of accolades that U.S. automakers have received for their "green" cars.

- "Our auto industry is not moving in the right direction fast enough to succeed in a very tough environment."

- Obama is now going to go over what each automaker needs to do...

GM
- Current GM plan is not strong enough
- Confident GM can rise again if it undergoes fundamental restructuring
- Rick Wagoner stepping aside is first step
- Not a condemnation of Wagoner, recognition that company needs new vision
- Gov't will give GM adequate working capital to survive next 60 days
- Criteria GM has to meet includes A) consolidating enough on profitable brands, B) cleaning up balance sheets, C) business model to survive and succeed in this competitive global market.

- "Let me be clear, the U.S. government has no interest in running GM."

Chrysler
- Situation more challenging
- Partner required to remain viable (Fiat)
- Fiat will give Chrysler technology and build cars and engines in the U.S.
- Chrysler will repay tax payers before Fiat can take majority stake in company
- Working capital up to $6 billion will be provided to Chrysler for next 30 days, during which time an acceptable deal with Fiat must be struck
- If no agreement with Fiat happens and no other partner steps up, Chrysler gets no more money


- Chapter 11 bankruptcy still an option, Obama is being very careful to explain what "bankruptcy" means, i.e. restructuring, clearing away old debts, companies remain open and workers employed.

- U.S. government will stand behind warranties of GM and Chrysler cars.

What gov't will do to support demand for auto sales...
- Gov't will make sure funds to purchase gov't cars will be paid as soon as possible
- Accelerate Treasury Dept's Consumer and Business Lending Initiative
- Work with auto finance company's to increase available credit

- NEW TAX BENEFIT (for vehicle's purchased between 2/16 and end of year): Deduct cost of any sales tax or excise tax.

- Cash for Clunkers incentive (get money to trade in old car and buy new one): Obama wants to make this happen and make it retroactive, work with Congress to carve out funds from Recovery Act to pay for it.

- Obama ending with speech directly to working people: "I will fight for you."

- Compares auto industry crisis to natural disaster, "Damage is clear and we must likewise respond."

- Designating a new Director of Recovery for Auto Communities and Workers to "cut through red tape". Ed Montgomery appointed, former Deputy Labor Secretary. Will provide support to auto workers and their families (not sure how, though). Apparently he'll have access to Recovery Act money.

- Closing with ra-ra speech on how Americans have always tackled adversity and emerged stronger.