If it wasn’t already clear that the US automobile industry has reached a make-or-break moment, it is now.
The report comes as auto sales have plunged, as Chrysler and GM are seeking emergency government aid to survive, and as Ford Motor Co. – which up until now has survived without taking bailout money – is accelerating its own bid to avoid bankruptcy.
A rebound in auto sales would provide vital support, but carmakers can’t count on that in the near term.
Survival is on the line for all three companies, analysts say, and may hinge on big concessions from both creditors and the United Auto Workers union.
March 31 deadline
Concessions may come during negotiations between the various parties and an Obama administration task force on the industry. GM and Chrysler must have viability plans in place by March 31 in order to get more government help beyond the roughly $17 billion they have already received.
The Obama administration is “rapidly running out of time to make any action decision” to save the companies, Mr. Bragman says.
Both the Bush and Obama administrations have believed that the auto industry is too large and important to the US economy to be allowed to collapse during what is already a major recession. To avoid the industry’s demise, the Bush administration granted initial aid to GM and Chrysler late last year, and President Obama named a task force recently to determine whether carmakers should get more federal aid.
Taxpayer money has already been tapped for economic rescues to at-risk mortgage holders and cash-strapped states, which may limit how much help the automakers can expect from Washington.
Amid a consumer slowdown, the industry’s sales volume has dropped from an annual pace of 16 million vehicles sold in the US before the recession to a current pace below 10 million units.
'Substantial doubt' about GM
Deloitte & Touche, GM’s auditor, wrote that GM’s cash-flow problems “raise substantial doubt about its ability to continue as a going concern.”
Porter Stansberry, an investment analyst at Stansberry & Associates, doubts whether GM will come up with restructuring plans by March 31 that are sufficient to avoid bankruptcy.
Even in bankruptcy, the automakers may depend on substantial financial support from the government in order to survive. If one of the Detroit carmakers enters bankruptcy, they all might, in order to win maximum concessions, Bragman says. A much smaller industry, perhaps with two stand-alone Detroit giants instead of three, would emerge.
In or out of bankruptcy, federal aid might provide an asset as the carmakers shrink.