America’s carmakers

Back again
Dec 3rd 2008
From The Economist print edition

Will Congress lend a helping hand to America’s humbled carmakers?

AFP
HAVING flown their corporate jets into a hail of congressional bullets last month, the chastened bosses of Detroit’s Big Three car firms this week made their way back to Washington, DC, by road in fuel-sipping hybrids. Whether that belated gesture and the new restructuring plans the executives presented to legislators will land them the $34 billion of taxpayer-funded loans they are desperately seeking to stave off bankruptcy will not be decided until next week at the earliest.

That they will get something is not in much doubt. All three have made other obeisances to the prejudices of congressional Democrats. From now on, an increasing proportion of the vehicles they produce will use the latest technology to achieve low or zero emissions. Executive pay will be pegged—the three CEOs are promising to work for a dollar a year. Those company jets are all to be sold.

Less certain is whether help will come soon enough and whether the massive sums the car companies are pleading for will be enough to save them. Against the sombre backdrop of a 37% drop in November sales (compared with a year earlier) for the industry, General Motors’ sales fell by 41% and Chrysler’s by 47%. Only Ford bucked the trend slightly with a fall of 31%—the same as Honda and less than Toyota. It looks as if GM and Chrysler are already suffering from appearing to teeter on the edge of bankruptcy, while Ford is viewed by prospective buyers as a safer bet.

The plans submitted by the three companies on Tuesday December 2nd amply justified those sentiments. Although Ford is asking the government for a $9 billion line of credit, it still hopes not to need it. Its biggest fear is being dragged down by the failure of either one its two rivals. Ford also looks in better shape than the other two with a well-advanced strategy for cutting costs and bringing its highly-rated European products to North America. By 2011, it expects to break even or return to profit. The Ford plan also has the merit of detailing in crisp, no-nonsense terms where the company has gone wrong in the past, perhaps because its chief executive, Alan Mulally, was the boss of Boeing when those mistakes were being made.

By contrast, GM’s 37-page submission seemed designed to instil fear rather than hope. The most alarming revelation was the speed at which GM’s financial position is deteriorating. In total, GM is now looking for $18 billion worth of loans, $6 billion more than it said it would need only a fortnight ago. So urgent is GM’s plight that it says it needs $4 billion immediately just to get to the end of the month. JPMorgan estimates that GM’s cash burn in 2009 will be $14 billion, which means that Congress is being asked to believe that the sprawling car firm will have turned the corner by 2010, a year ahead of Ford. Or perhaps GM expects to return cap in hand some time next year, but is reluctant to admit it.

The other worry about GM’s proposals is the extent to which they depend on things that are outside the carmaker’s control. GM is promising to convert a large part of its $43 billion debt pile into equity, but for that to happen, creditors must be willing to play ball. The threat of bankruptcy may persuade them, but GM keeps repeating the mantra that “bankruptcy is not an option”. GM is also saying that it now intends to concentrate on just four core brands (Chevrolet, Cadillac, Buick and GMC), something it should have done a long time ago. The main reason it did not was because its dealers—GM has more than twice as many as it really needs—are protected from such action by powerful state franchise laws.

If GM’s prospects are likely to remain clouded even it gets the money it is asking for, Chrysler’s are even worse. It says it needs $7 billion to be able to continue trading after the end of the year. Its owner, Cerberus Capital Management, a private-equity firm, knows that it will get scant sympathy given the anti-Wall Street mood of Congress. As nobody really believes that Chrysler has a long-term future anyway, it is pinning its hopes of a bail-out on the potential domino effect of letting it go when GM and Ford are in such a fragile condition. Chrysler’s strategy is to stay in the game long enough for someone else to come in and buy it, or at least bits of it.

Now that the car bosses have made their pitch, attention is sure to switch to the United Auto Workers. As the union’s leader, Ron Gettelfinger, put it “there may be additional sacrifices required” if Congress is to cough up. That is an understatement. The problem with the deal struck in 2007 to cut the hourly pay and benefits of new hires to a competitive $26 from the $75 earned by most existing workers is that nobody is going to be hiring at any time soon. If time is up for the old Detroit that includes the once-mighty UAW too.

De recessie valt zo wellicht helemaal wel mee. Hype, anyone?

Ik zou het helemaal niet raar vinden als de mensen heel verstandig een paar jaartjes langer in hun auto rond zouden rijden….de kwaliteit van de auto’s van tegenwoordig laat dat makkelijk toe.

De industrie nu helpen???
Nee…laat ze maar lekker teren op hun reserves….
Hebben ze die niet?
Dan mag het personeel de baas linchen wat mij betreft….zij zijn verqantwoordelijk….niet de belastingbetaler (de werknemer zelf dus).

Net zoals Opel dat het zeker niet verkeerd doet, enkel
de amerikaanse partners verknoeien het op eigen markt.

@Autoblog
Volgens mij kunnen jullie voor autonieuws beter de financiële kranten in de gaten gaan houden als het zo doorgaat…