With GM, Ford losses expected, worries about survival loom
— -- The cash-burn numbers will signal the likelihood of the until-recently unthinkable: a Detroit automaker filing for bankruptcy-court protection to try to survive — or simply going out of business.
"It just feels like a matter of time" until one company makes such a dramatic move, says Kevin Tynan, an analyst at Argus Research. That includes Chrysler, 80.1%-owned by private investment company Cerberus Capital Management and thus not required to disclose profits and losses. Germany's Daimler, which owns the other 19.9%, valued the stake at just $268 million in June and recently wrote it down in the third quarter to $0.
The numbers show the traditional American auto industry is near collapse — so close that industry and labor heads have been pleading for a federal bailout to survive. Detroit auto executives and the head of the United Auto Workers union met Thursday with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., to ask for broader access to low-interest federal loans.
While Americans have been distracted by how to pay for $4 gasoline, or how to retire on 401(k)s that some now bitterly joke have shrunk to 201(k)s, or how to fix the roof when the bank won't cough up a home-equity loan, America's already staggering industrial icons — the Detroit 3 — have been hammered by disappearing sales.
"The plunge in consumer confidence coupled with the difficulty in obtaining credit has caused the near collapse of the auto market in recent months," Troy Clarke, president of GM's North America operations, says. "This may be the most crucial time in the history of our industry."
New vehicle sales have tumbled to a level that, adjusted for population growth, hasn't been this low since just after World War II, an "unsustainably weak level," says Mike DiGiovanni, GM's executive director of global market and industry analysis.
Without significant revenue — never mind profits — from new vehicle sales, Detroit's cash on hand soon may dwindle to where automakers have too little to keep up day-to-day operations. GM, for example, needs some $14 billion in the bank at any point just to keep the doors open — make payroll, pay for supplies, put aside money for retirees.
