US Automakers Face Unprecedented Threat of Collapse

[Plex]

As sales fall dramatically, US automakers are running out of cash and face a bleak 2009, GM may collapse

Where to begin?

GM shares have fallen to their lowest point in 65 years. On Tuesday GM stock closed at $2.85 (no misplaced period there, Ford shares are $1.77). It's market value is now 1.8 billion US, or about 2 percent of Toyota's.

GM and Ford are burning through their cash reserves at unprecedented levels. GM is losing about 1 billion US a month while Ford spent 7.7 billion in the third quarter of the year.

October sales reports sounded a death knell for Detroit. Sales were down 31.9 percent overall compared to the same period last year. For GM, they were down 45 percent. Ford sales were down 30 percent, Chrysler 35 percent.

Sales have been hurt due to the sagging economy but also because of the credit crisis as dealers and consumers are having a hard time finding financing for car purchases. Even Toyota has had to drastically reduce it's sale projections but the company does not face the same risks as its US counterparts.

Detroit is scrambling to adapt to an automotive market in 2009 that could contract to about 11 million unit sales, compared to recent years where sales hovered at around 16 million units. But GM, or even Ford and Chrysler, may not survive the year.

GM needs to raise cash. It has floated the idea of selling off the Hummer brand or the money-losing Saab. Volvo, owned by Ford, is also a money-loser for that automaker. GM had to abandon its merger talks with Chrysler owner Cerberus Capital Management due to a lack of cash to fund the deal.

GM says it will run out of cash by mid-2009 if something isn't done urgently.

Bailout

The Detroit automakers are seeking about 25 billion US in loans from the US government for help in developing new products, to meet the demands of consumers for more fuel efficient cars. They are also seeking an additional 25 billion US in emergency loans to get them through next year, which will be tough by all accounts.

GM's CEO Rick Wagoner says that the automakers cannot wait for the Obama administration to come into office and that by January 20th when Obama is sworn in, it may be too late.

Consequences

If GM collapses, it could be catastrophic. It will take many of its suppliers down too. This may shut down Ford production, since Ford uses many of the same suppliers such as Lear and Johnson Controls. It could lead to complete collapse of the industry the likes of which have never been seen. About 2.4 million jobs are threatened directly and another 7 million other jobs related to the industry face serious risks too.

Worldcarfans

[wagonrunner]

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