Wow, could this actually happen?
Bankruptcy may be even closer for General Motors and Chrysler, now that the Obama administration’s auto task force has determined that both may have trouble surviving as viable standalone companies.
The task force spent a month analyzing the two automakers, concluding that “both (GM and Chrysler) have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way,” the White House said in its statement outlining the plan.
Next thing you know we will have to let banks slip away, too…
GM and Chrysler have made it clear that they need $21.6 billion in federal loans to stay afloat, in addition to the bailout money they have already received. They have also released detailed plans in which they cut 50,000 jobs, close several plants, and drop some of their weaker brands. Experts say this request for more money is no surprise.
The issue is not as much what the car companies are doing to cut costs, but what the government will do to stimulate car sales. Read more…
From the Wall Street Journal:
Troubled OneUnited Bank in Boston didn’t look much like a candidate for aid from the Treasury Department’s bank bailout fund last fall.
The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives’ use.
Nonetheless, in December OneUnited got a $12 million injection from the Treasury’s Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.
French President Nicolas Sarkozy said on Thursday the state would put “a lot of money” into the struggling car industry.
“We are working with the car sector, car makers and their suppliers, to get out of this situation and to finalize a plan by the end of January,” Mr. Sarkozy said.
“That means that we will be ready to give the necessary support, in the form of loans or guarantees, to compensate for the blockage in the financing of companies…but we will clearly ask them for an end to offshoring, and even the reinforcement of their activities in France,” he said.
The price of oil, the credit crunch and now an official recession is really affecting the traditional markets in North America, western Europe and Japan which in turn is affecting the carmakers.
“In America car sales are running at about 16% below last year’s level. Detroit’s struggling big three—General Motors, Ford and Chrysler—are in dire straits.”
However, there may be a light at the end of the tunnel as there is a huge demand in the big emerging car markets of Brazil, Russia, India and China (the so-called BRICs). Predictions are that, despite the recession and market crunch, global car sales may hot a record high of 59m.
From Mitt Romney:
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
Chrysler, and GM are pushing for a quick merger of the two car manufacturers, hopefully to come before the US presidential election. If merged, the pair would control 36 per cent of the US auto market. And, the impact on the US economy if either company were to fail would be tremendous. However, if the companies do combine, it is rumored that GM would simply continue Chrysler’s brands, while shutting down its operations. Read more…
September was a very slow month for automakers, thanks to the slow down (grinding halt?) in the US economy. In fact, for the first time in 15 years, auto sales for the month of September fell below 1 million. Check it out:
| Automaker | Sept. 08 | Sept. 07 | Change | Automaker | Sept. 08 | Sept. 07 | Change |
|---|---|---|---|---|---|---|---|
| General Motors | 282,806 | 334,974 | -15.6% | BMW | 18,583 | 24,968 | -25.6% |
| Toyota/Lexus | 144,260 | 213,042 | -32.3% | Mazda | 16,169 | 25,098 | -35.6% |
| Ford | 116,301 | 175,361 | -33.7% | Subaru | 14,491 | 16,457 | -11.9% |
| Chrysler | 107,349 | 159,799 | -32.8% | Mitsubishi | 7,378 | 12,102 | -39.0% |
| Honda/Acura | 96,626 | 127,200 | -24.0% | Suzuki | 4,083 | 7,653 | -46.6% |
| Nissan/Infiniti | 59,565 | 94,269 | -36.8% | Volvo | 4,054 | 8,408 | -51.8% |
| Hyundai/Kia | 42,148 | 57,301 | -26.4% | Porsche | 1,458 | 2,641 | -44.8% |
| VW | 24,504 | 27,601 | -11.2% | Isuzu | 258 | 565 | -54.3% |
| Mercedes-Benz | 20,582 | 22,481 | -8.4% | Industry total | 956,160 | 1,315,402 | -27.3% |
A bill set to be passed by Congress and signed by President Bush as early as this weekend- will save the big three that have been feeling rather small.
General Motors, Ford, and Chrysler will be receiving loans that will most likely amount to at least $5 billion each. That would allow them to borrow money at interest rates as low as 4 percent—a steep discount compared with the double-digit rates they’re paying now.This means that over the years, the automakers will save hundreds of millions in financing costs.
The big three need the money and help desperately as analysts have predicted that all three domestic car companies will face a life-threatening crisis if the U.S. car market, down about 20 percent so far this year, does not improve.
Although this seems like a huge amount of money, it’s nothing compared with the massive, $700 billion bailout plan for the financial industry.
Continue for some details of the program.
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