Another crucial week for the world car industry.
The US starts a process that could see General Motors, Ford and Chrysler given $US25 billion in loans and or aid to help them survive 2009.
But it might be tougher than that with board changes a likely cost of any aid; creditors forced to take a haircut by converting loans to equity and incurring losses, and the trio closing more factories, killing off brands and axing tens of thousands of jobs and the powerful auto workers union being forced to share in the cost.
GM and Ford have the begging bowl out across the world, looking for help, especially in Europe. The Australian Government had already produced a plan for more than $A6 billion in assistance over 13 years.
Both companies have sold or are selling assets in Japan and Europe to raise cash quickly.
But that won’t be enough: only the US Government can provide more substantial help.
After the bailout of Citigroup last week, helping the car industry would be a no brainer, considering no onerous conditions were imposed on Citi.
But the car companies upset the pollies in Washington, so to get the cash the companies and the union could have to kill off large parts of their businesses and privileges: it’s no longer a matter of using a corporate jet.
Ford and GM will both tell the US Congress they have plans to dispose of some of their brands this week when they present detailed business and financial plans to support their request for $US 25 billion of emergency funding.
Some US politicians are likely to seek assurances that taxpayers’ money will not go towards subsidising the Detroit companies’ far-flung overseas operations. That could be bad news for Ford and GM’s businesses in Australia.
General Motors Corp and Chrysler have both warned it would be difficult to survive without government funding, but Ford still reckons it will be able to make it through 2009, at this stage.
GM insists that without aid it won’t make it through 2009 and could be forced into bankruptcy after the end of this month if its cash levels fall too much. The company’s auditors will have to decide if GM is a "going concern’ without the Government cash.
The GM board met to discuss its plan over the weekend before it is sent to Washington (by Fed Ex or private jet?).
But before that happens, November’s sales are due for release on Tuesday night (our time), which is also the deadline for the car companies to submit their turnaround plans requested by Congress.
Analysts expect a small improvement in November car sales: they are expected to be off 28% to 34% from November 2007, compared to October’s terrible 32% fall.
The seasonally adjusted annual rate of sales is likely to be between 10.5 million and 11.5 million vehicles, down from the 16.1-million-units rate recorded in November 2007, which gives you an indication of the size of the slump.
Helping stop the slum, according to analysts like Edmunds.com and JD Power is the intense discounting by all car makers as they look to clear unsold stocks of all vehicles.
Toyota, Nissan, BMW and Daimler (Mercedes) are also expected to take a pounding as well.
Investors are confident the two companies will get aid: GM shares rose 43 US cents to $US5.24 on Friday, the highest price for almost a month, while Ford hit a two month high the same day of $US2.69, up 54 US cents.
The revamp plans have to be sent to Congress by tomorrow night, Congress could start hearings Friday to assess the plans with a possible vote starting a week today.
The New York Times reported yesterday that US car dealers will take a hit regardless of whether there’s aid to the big three: without aid the losses in dealer numbers and employees will be greater, but even with the aid, some 900 of the US’ 20,700 dealerships will close this year.
The US Labor Department has reported that in October alone, 20,000 employees of auto dealerships lost their jobs nationwide. That isn’t going to stop.
London newspapers reported at the weekend that GM has approached European authorities for possible help for its European operations, which are mostly in Germany (Adam Opel) and the UK (Vauxhall).
Opel last month asked the German Government for a billion euros of aid if the parent went into bankruptcy.
The media reports said GM Europe had also approached governments in Britain, Spain, Sweden, Belgium and Poland to try to secure financial help. That’s why the talk of selling real estate emerged on Friday in London.
Bloomberg and the Detroit Free Press reported at the weekend that GM may get rid of its Saturn, Saab and Pontiac brands in addition to Hummer. GM’s other US brands are Chevrolet, GMC, Buick and Cadillac.
The Financial Times said that Ford had approached the Swedish Government about help for Volvo.
