The other shoe is about to drop GM/Chyrsler

[GG]

http://www.kiplinger.com/businessresource/forecast/archive/gm_chrysler_to_join_090317.html

GM and Chrysler Are Headed to the Altar
It's the shortest and safest route to weaning them off government support.

Look for General Motors (GM) to absorb Chrysler in a shotgun wedding, with Treasury walking them down the aisle. Come April, the feds will engineer a union in a prepackaged bankruptcy providing up to $50 billion in loans to bolster GM.

"With sales running at half their usual levels, Chrysler and GM would not have survived this long without federal loan guarantees, and without more money, they'll be out of sufficient cash flows in less than a month," says John Wolkonowicz, a senior automotive analyst with IHS Global Insight, an economic consultancy.

The White House doesn't relish playing matchmaker: The U.S. already has doled out $13.4 billion to GM and around another $4 billion to Chrysler. But President Obama sees combining two of the former Big Three as the best bet to rescuing the automakers and hundreds of thousands of jobs tied up in the companies in addition to weaning them off of what's now federal cash life support.

Despite reports that a White House-appointed task force is working feverishly to avoid any sort of bankruptcy filing, there aren't many options for keeping them afloat. The administration is loath to advance the automakers tens of billions of dollars more in loans, given the public backlash that has ensued so far on loans granted. The usual remedy -- reorganization in bankruptcy -- isn't an option. The two-year ordeal would dissuade most consumers from buying a car from a cratered company that might not be around to honor warranties or offer replacement parts. Airlines and trucking companies have reorganized and lived to haul another day, but experts seem to agree it wouldn't work for car companies.

A federal auto industry task force knows there's another ticking time bomb: auto parts suppliers. Several dozen of those companies could go belly-up if GM or Chrysler sinks further. That would be catastrophic for surviving car manufacturers since they rely on many of the same suppliers as the beleaguered Detroit automakers. The task force overseeing the two automakers' operations as a condition for granting loan guarantees won't tarry much longer in recommending a reorganization for the two companies.

That leaves one viable option: cajoling all stakeholders to agree to a prepackaged bankruptcy that would be over and done in about two months. This would minimize the loss of consumer jitters-induced sales and cut the automakers' labor, supplier and plant operating costs dramatically. GM will slice its workforce of roughly 100,000 nearly in half, along with its 20 plants. It also is likely to swap the $30 billion it pledged to the United Autoworkers union to take over health care for company stock. A similar trade will be offered to the company's bondholders. It also would assuage angry voters by ending the U.S.' open-ended loan guarantees to the automakers.

GM will have time to prune Chrysler operations, keeping a small stable of profitable models, such as Jeep and its minivan lines, while phasing out or selling off other lines, as well as assembly plants, supplier contact and dealer networks. "The U.S. can't let Chrysler go down now due to the big hit this would cause to the already damaged economy, so the idea is for GM to do an orderly wind down of Chrysler's business" over several years as the economy gradually improves, says Wolkonowicz.

Ford can look forward to a much better year than GM, even with the tough environment that may well see U.S. new vehicle sales drop below 10 million, nearly 40% lower than just a couple of years ago. After months of free fall, Ford's sales will steady, and while it won't see profits for a year or so, the automaker can survive without federal help. Its bet-the-company strategy of securing a large line of credit in 2006 and recent cost cutting likely will keep it solvent, even in the current sales environment in which sales are down 50%.

[Gaspar]

Because when you take two failures and squish them together you get what?

A really big failure.

I don't understand the reasoning unless the fed just wants to create a huge state run auto industry.  I predict the creation of a Automotive Bureaucrat within the next few weeks.

These companies need to become leaner and meaner or cease to exist.  Their biggest problem is their dead weight.  Huge tumors of people sucking off the main body, essentially, killing it.  You can't innovate when management is 100% absorbed in providing care for a workforce that exists at odds with the company.





Oh well.  Who is John Gault?

[waterboy]

This auto crisis is getting old. So are all the arguments pro and con. Kill off ALL the expensive labor costs Gaspar and the company still couldn't build go carts profitably. Its problems are so systemic and representative of manufacturing/marketing problems throughout the country that it becomes truly embarrassing to tell someone you have a business degree.

Recently a retired airlines exec told me of his despair with our plight. I told him I thought we would pull out of this recession quickly as technology would speed up the process. He felt it would do the opposite. He asserts that our reliance on Ivy League MBA's who have little real life experience is exacerbating the solution process. They haven't worked with their hands, they haven't worked their way up through the ranks learning as they go, they haven't weathered financial storms. In short, they don't get the big picture. Others emulate their failing strategies because, well, they're Harvard MBA's afterall. Meanwhile tons of experienced, savvy executive talent has been shuffled off to early retirement or as greeters at WalMart.

I wouldn't buy a Chevy/Chrysler combo car unless it was heavily discounted.

[swake]

Because when you take two failures and squish them together you get what?

Sears and K-mart?

(oh, and I think you mean Galt, not Gault)

[sgrizzle]

Kiplinger's not just off mark, they don't even have a firearm.

Chrysler has cash on hand and stable, just like Ford. Chrysler talking with the current administration about another $5B loan but both parties say they may not actually need it and the only reason they are even discussing it is just to give a bit extra padding.

GM is worse off, but just turned down a $2B payment saying they didn't need it.

[cannon_fodder]

Chrysler is a privately held company.  No way they join with GM unless Cerberus Capital walks away with ~ $3.5 bil.  Which isn't going to happen with GM in the boat.  At least, I doubt it.

And +1 for the Galt reference.

[USRufnex]

Hard to know the players without a program... do I buy a domestic car made north of the Mason-Dixon, or a JapaKorean car made in the old confederacy?... Sens. Stabenow and Selby, help me decide... or I could just ask Cooter...