Are automakers also too big to fail?
A sharp drop in demand is driving the industry to pursue a bailout.
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Second, the companies need some form of liquidity financing. GM, for example, is burning through $1 billion per month, says Lindland: "If you have $20 billion, that's not a lot of money." The major financial strains are at GM and Chrysler and to a lesser extent Ford, she says. GM has been in talks to acquire Chrysler.Skip to next paragraph
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Third, the companies are still waiting for $25 billion in aid that was passed by Congress earlier this year. This money is earmarked to help the companies retool their factories to produce fuel-efficient vehicles. Ms. Boyd says she has seen reports that it could take 18 months to get it to the industry.
"Right now, our goal is to make sure the $25 billion gets to the industry as soon as possible," says Emily Lawrimore, a spokeswoman for the US Commerce Department, which is responsible for the program.
That funding is "one piece of the problem," says Bruce Belzowski of the University of Michigan Transportation Research Institute in Ann Arbor. "There is no question the companies are behind in the need to produce more fuel-efficient vehicles," Mr. Belzowski says. "But it does not address opening credit to consumers."
For most Americans, their contact with the auto industry is at their local dealership, where dealers are bracing for tough times ahead. The US will lose some 700 dealers this year, the National Automobile Dealers Association (NADA) estimates. During the economic downturn of 1990-92, the industry lost 600 dealers per year.
"[Even] in a typical growth year, you might lose 75 to 100," says Paul Taylor, chief economist for NADA. "Because financial problems are cumulative, the numbers will be larger next year."
In Toms River, N.J., Buick-Pontiac-GMC auto dealer Jim Curley says that despite tight controls and a well-run business, "it is virtually impossible to turn a profit, even with a strong service-and-parts business."
Dealers are in a panic to move vehicles, causing them to sell at cost or below cost for fear the vehicle will depreciate more in value, he says.
But it isn't a totally bleak picture in the showroom, Mr. Curley says. If a potential buyer has good credit, financing is available. "For zero percent financing deals, you better be creditworthy and be able to prove that score," he says.
Even though some major banks have dropped out of providing auto loans, it's still possible to find lenders, Curley says. For example, TD Bank, a Canadian bank, is aggressively seeking the retail auto business, he says.
While the dealers selling Detroit brands are expected to shrink, by next year 260 new Mahindra dealerships are expected to be up and running. The Indian company currently sells tractors for gentlemen-farmers, says Mr. Taylor of NADA. But by next year, it will be exporting SUVs powered by "eco-diesels." "Their timing looks reasonable," Taylor says.
Unfortunately, the exact timing of the downturn for Detroit is not good. January and February are dead months in terms of car sales, says Spinella of CNW Marketing Research. He doesn't expect demand to pick up until the second half of next year at the earliest.
"All the Detroit brands are in dire straits," he says. "Who knows who has enough cash reserves."