A man walks through the car lot at a Ford dealership in Willowbrook, Ill., March 3. Auto sales dropped by more than 40 percent in February to their lowest level in nearly three decades, as Americans pulled back from taking on more debt.
(Frank Polich/Reuters)Photos (1 of 1)
Time is ‘running out’ to save US automakers
As auditors question GM’s viability, creditors and labor unions must negotiate, analysts say.
By Mark Trumbull | Staff writer of The Christian Science Monitor/ March 5, 2009 edition
Reporter Mark Trumbull outlines possible strategies for the ailing Big Three automakers.
Reporter Mark Trumbull
If it wasn’t already clear that the US automobile industry has reached a make-or-break moment, it is now.
The company that audits General Motors, the largest of the Detroit-based carmakers, filed a report Thursday calling GM’s viability into doubt.
The report comes as auto sales have plunged, as Chrysler and GM are seeking emergency government aid to survive, and as Ford Motor Co. – which up until now has survived without taking bailout money – is accelerating its own bid to avoid bankruptcy.
A rebound in auto sales would provide vital support, but carmakers can’t count on that in the near term.
Survival is on the line for all three companies, analysts say, and may hinge on big concessions from both creditors and the United Auto Workers union.
“[The auditor’s report] notifies everyone that … now is the time,” says Aaron Bragman, a Detroit-based auto analyst with the consulting firm IHS Global Insight.
March 31 deadline
Concessions may come during negotiations between the various parties and an Obama administration task force on the industry. GM and Chrysler must have viability plans in place by March 31 in order to get more government help beyond the roughly $17 billion they have already received.
The Obama administration is “rapidly running out of time to make any action decision” to save the companies, Mr. Bragman says.
Both the Bush and Obama administrations have believed that the auto industry is too large and important to the US economy to be allowed to collapse during what is already a major recession. To avoid the industry’s demise, the Bush administration granted initial aid to GM and Chrysler late last year, and President Obama named a task force recently to determine whether carmakers should get more federal aid.
Taxpayer money has already been tapped for economic rescues to at-risk mortgage holders and cash-strapped states, which may limit how much help the automakers can expect from Washington.
Amid a consumer slowdown, the industry’s sales volume has dropped from an annual pace of 16 million vehicles sold in the US before the recession to a current pace below 10 million units.
‘Substantial doubt’ about GM
Deloitte & Touche, GM’s auditor, wrote that GM’s cash-flow problems “raise substantial doubt about its ability to continue as a going concern.”
Porter Stansberry, an investment analyst at Stansberry & Associates, doubts whether GM will come up with restructuring plans by March 31 that are sufficient to avoid bankruptcy.
Even in bankruptcy, the automakers may depend on substantial financial support from the government in order to survive. If one of the Detroit carmakers enters bankruptcy, they all might, in order to win maximum concessions, Bragman says. A much smaller industry, perhaps with two stand-alone Detroit giants instead of three, would emerge.
In or out of bankruptcy, federal aid might provide an asset as the carmakers shrink.
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Comments
2. screwuaw | 03.05.09
The UAW and the AFLCIO is so in love with illegal aliens let them take the place of their members on the assembly lines. Wouldn’t that be a kick in the pants after all of the years of paying dues have is to have some border jumping scum take the jobs they paid their union to protect!
3. James Corbin | 03.06.09
Let the free market decide. If GM, Chrysler, and Ford can’t make it, that’s life. Lax management and no plan for the future has caught the Big 3 flat-footed. I see no reason that the government should decide what firms survive and what firms collapse. The free market is much better at weeding out poor companies and showing their errors in living color. Rewarding incompetence by bailing out failed automakers is the height of folly. Chrysler should have been allowed to die in the ’80s and here it is 20 years later and they are in trouble again. The market is much better at determining winners and losers than the government will ever be!
5. j wingate | 03.07.09
i beleive they all right g.m & chrsy should close their doors… uaw has been the threat to all companys [ greed ] first all company had to close their doors because the union is so greedy. tho G.M has fallin behind big time. juck is how being built theres no love in what they do !!!!. back in the 60 & 70 their cars where built strong and they last a long time also less money to repair them. i no i work on all chevy’chrsy’ford. for the 37 years of turning wrenchs i see the big change a nightmare as goverment tells them we need this. they talk green but their a-wholes. nasa can still shoot rockets in the sky also discovery what hell is that. no green their. ty
6. Stephen | 03.20.09
I would like to see the government take a more laizzez-faire approach and let the market forces do their work to determine whether GM and Chrysler fall. Unfortunately, in this mileu of bailing out everyone, I doubt the government will cease wasting tax payer dollars in giving more money to GM and Chrysler. Perhaps the only way is when the rest of world say that they are unwilling to loan more money to the US and it has no choice but to say we have no money to give you.
7. D Ford | 03.21.09
I just watched a Saturn commercial claiming they are building cars that Americans want to buy. I disagree. I recently decided to buy a new car and began the ordeal of researching & visiting domestic auto dealers. I found 3 models that I considered good cars (quality, performance, comfort. They are the Chevrolet Malibu, Ford Fusion, and Saturn Aura. Once I decided to buy one of these the going got rough. Misleading advertisements, poor incentives, “attitude” from sales people, etc. It was if they had no idea they are in any kind of trouble. The bottom line is that for the same amount of money they wanted for these models, I could buy a better import. VW, Toyota, and even used Audis and Mercedes were a better car for the same or better price.
The bottom line is I want the best car for the money. I want the option of modern diesel engines, functional models of “luxury” SUVs that I can get in Europe and elsewhere but not in the US. If the Big Three can’t deliver, at least give us access to these import models.
I finally bought a Volkswagen. They gave me 1.9% financing, were willing to deal with me on the price ($1800 off sticker) and gave me what I wanted on my trade-in (twice what Saturn offered) all in less than an hour and the negotiations were very cordial.
I really wanted to buy one of the three US models listed above, but they made it very hard to to do. They just didn’t seem to get it.
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1. Brian Freund | 03.05.09
In most of these current economic fiascos, the unions have shown themselves as irresponsible as management. All they did was try to get a bigger slice of the pie without in any way caring how long that pie would last. Now they, and GM’s creditors, will have to make major sacrifices to protect their livlihood. This whole mess should serve as a reminder to labor, as well as to management, that for the good of the workers whom they purport to represent, they need to keep an eye on the financial and long-term viability of their companies and not only imitate the greed of management to keep getting more, more, more!