Tuesday, December 2, 2008

AutoMakers Plead For Government Funds: Take Two

Today was a very good day to make a case that the US auto industry needs a government bailout. November car sales were flat-out horrendous.  Even Toyota had a year-over-year decline in sales of 34%.  Ford outperformed the competition with a mere 31% drop.  GM saw sales plunge 41% and Chrysler won the prize for worst sales performance by an automaker with a wrenching decline of 47%.  Overall, the industry sold about 34%, or 400,000 fewer vehicles, in November 2008 than it did a year ago.
Both GM and Ford presented turnaround plans to Congress today.  GM requested a total of $18 billion in federal loans, stressing that it needed an immediate injection of $4 billion to stay afloat until the end of the year.  GM's situation is the most precarious as it will likely be forced into a Chapter 11 bankruptcy filing before Christmas without government funds.  The automaker began discussions with bondholders in an attempt to cut its debt load by $30 billion by swapping debt for equity in GM.  GM will also attempt to restructure obligations to a UAW health-care trust set to begin paying benefits to retirees in 2010.  Nevertheless, the company stated that it didn't have a "Plan B," and was depending on help from Congress.
Ford is in much better shape, primarily due to the fact that it borrowed every penny it could raise in 2006 before the credit markets fell apart.  Ford is only asking for a $9 billion credit line, in the event that the recession is longer and deeper than expected.  Ford estimated that it would return to profitability by 2011 and planned to accelerate the development of new hybrid and batter-powered vehicles.  Of course, with the price of gas plummeting every day due to the commodity rout, by the time the vehicles are completed, everyone is going to want to buy a Hummer again.  Because when you're living underground in a bunker with your canned goods, and your bars of gold (wondering what the hell they're good for) and you have to go out for groceries, it's going to help to have a Hummer handy.  You'll be using the electric car as a toaster.  

1 comment:

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