November 24th, 2008
From private jets to car pool? Detroit may be getting the message.
Nothing definite will happen concerning the Detroit Big Three automakers before December 2nd. But the saga of the sagging auto sales and the wilting industrial giants in Michigan is rich with plot points and maneuvering. Here are just a few of the things happening or being said:
There’s a move afoot for the Big Three CEOs to make their return trip to Washington as part of an inudstry-organized carpool. No private jets this time it seems. The auto companies have a December 2nd deadline to present a plan to Congress. If we give you the money, what will you do and how will you become profitable again?
Today the PE (that’s President-elect) made it clear that automakers lack the political clout wielded by big banks and brokers. PE called on the car guys to come up with a plan for competing and profiting. There’s some speculation that even in The Big Three get a loan from the feds, there’ll be strings attached. One could be a ban on using corporate jets. More likely: a ban on lobbying and executive pay caps. Also likely partial nationalization of ownership.
HOW UGLY IS IT?
Here’s one critic calling for a single American carmaker, one focused on making environmentally friendly vehicles. Sales in October equalled an annual car sales in the U.S. of 10.5 million. The industry claims 16 million is a sustainable sales level, and that the Big Three might survive at the 14-million level. 2008 will see auto sales of around 13 million and some predictions for 2009 see even lower sales. All projections, of course, pretend Detroit could maintain market share against green vehicles coming from Japan and Germany, not to mention low-cost manufacturers in China and India. So far nobody has said the T-word. That would be tariff. Not sure it matters since Honda, Toyota, et al. assemble cars in the U.S. in non-union plants.
Loading ...There’s speculation that the Big Three will be asking for federal help to stimulate car buying in America. Can you envision an IRS cash back plan if you just buy a new Volt? Meanwhile, subsidies abound in the auto industry, here, Europe, Japan and Australia.
GM appears to be the cash-poorest of the Bit Three. Ford says it has cash to get through 2009.
ALTERNATIVES?
As the outlook for a government loan remains iffy, gawkers (this really is like watching a multi-car freeway crash) are speculating on Chapter 11. Some industry insiders say if one automaker goes Chapter 11, all three are doomed. Liquidation would follow as the night the day. Here’s one argument that carmakers are not like steel makers or airlines, Chapter 11 wouldn’t work. Here’s a second critic’s look at the carmakers, again not much optimism around a Chapter 11 move. The thinking is car buyers wouldn’t want a vehicle from a maker who’s close to bankruptcy–how good would the warranty be? An airline flight is for few hours, a car purchase is usually for years and years.
GLOOMY NEW YEAR
Federal loan or not, it promises to be a gloomy new year in Detroit. Detroit annually hosts the first big international car show of the year. It happens a week before the PE takes office in ‘09. And it’s not going to be a party. Nissan has now pulled out of the Detroit show. They join Mitsubishi who pulled out earlier.
A newsman since 1969, Harry Fuller has worked for CBS, ABC, CNBC Europe, CNET and was founding news director at TechTV. See his full profile and disclosure of his industry affiliations.
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