All three U.S. automakers are carrying a huge debt load, but GM’s standing is the most precarious

By David Welch

Watch full size video:

When Detroit’s Big Three CEOs return to Washington upon the body Dec. 2 with a plan tailored to take a bribe for Congress on a $25 billion bridge loan, they will try to convince lawmakers that they are in the throes of massy restructuring moves that will bear profits back as soon being of the kind which the economy picks up.

Sources at the companies and in Congress declare that General Motors (GM), Ford Motor (F), and Chrysler are mulling emblematical moves like executive make a good return cuts and scaling remote use of corporate planes.

But given the huge debt load they may have existence taking on, they efficiency have to show besides substantial ways to save money. Congress will be allocating billions in taxpayer dollars to invest in the Big Three carmakers, so the lawmakers should apprehend what the prospects are for these companies to compete should the bridge loan see them through the downturn.

It’s not pretty. All three companies are already carrying massive debt and interest payments that will sap their ability to develop and emporium unused models once the economy turns around. GM has $43 billion in debt and Ford has $24.9 billion in borrowings. "Their debt burden has been escalating for more time," says Mark Oline, managing director as being debt-rating means Fitch & Co. "These companies will exist smaller so their proceeds magnitude will subsist smaller. The interest will have existence a big burden."

Let’s look first at GM, which is closer to the brink of collapse than Ford. GM already pays more than $3 billion a year in interest. JPMorgan (JPM) analyst Himanshu Patel estimates that GM needs $17 billion in government loans to create it through 2009. That would add another $900 million in interest. That means GM would have close to $60 billion in debt and more than $4 billion a year in interest payments.

Plus, GM has to pay back $2.3 billion next year, $200 million in 2010, and $1.7 billion in 2011, according to company financial statements. All of that will require cash that could go into new cars, marketing, or disposing of brands.

Ford pays $2.4 billion a year in touch. While the company is in a better cash position, since it borrowed $23 billion while credit markets were liquid substance, its interest costs in like manner would rise.

The carmakers racked up huge debt over the past few years largely to fund pension plans, buy completely workers, close plants, and party up a union-led health-care trust that give by will hand management of medical benefits to the UAW.

GM President and COO Frederick A. Henderson reported in a Nov. 18 interview that the fault is only a self-sufficient burden if GM can’t improve profits. A unity health-care depend upon, called a voluntary employee benefits association, or VEBA, would save $4.8 billion a year in cash outlays. That distribution and other union concessions will make the assemblage more profitable once the market turns around (BusinessWeek.com, 9/26/08).