When Detroit’s Big Three automakers return to Capitol Hill next week to re-plead their case for a $25 billion emergency loan, they may be flanked by a posse of supporters.
A plan is taking shape for auto suppliers, dealers and factory workers to caravan from Detroit to Washington in American-made, fuel-efficient vehicles. The National Automobile Dealers Association is considering flying in dealers from around the country to deliver the “message of Main Street,” underscoring the urgency of the industry’s crisis.
Discussions on the lobbying efforts began last week immediately after the top executives from Ford, General Motors and Chrysler appeared before a skeptical Congress, setting off a wave of anger and frustration within the auto industry.
After a year marked by continuous cost-cutting, precious few options remain for the cash-hungry carmakers. With credit tight, they can’t borrow money. Would-be car buyers are also having trouble getting loans, and consumer confidence is low, so selling a lot of autos isn’t very likely.
Offloading big assets to raise cash is also problematic because potential buyers—such as foreign carmakers—are being conservative and may have a hard time financing purchases. Laying off more workers could also be problematic because of the costs associated with downsizing. Some warn that bankruptcy could be the only option.
“I do believe the Detroit three will be insolvent within 12 months” unless they receive government cash, said Sean McAlinden, chief economist at the Center for Automotive Research..
GM said Friday it was cutting production at five U.S. plants and extending holiday shutdowns into the second week of January. Ford announced extended shutdowns at several plants, while Chrysler awaits responses to the most recent buyout offers it extended to 14,000 white-collar employees.
Meanwhile, in an effort to curry favor with lawmakers, GM and Ford announced plans to reduce their fleets of private jets, which drew scathing comments at the recent hearings.
Although those cuts may be the easiest to make, they create problems for the carmakers if they survive. If the companies cut production too much, they risk being unable to meet demand when buyers return to dealer lots. With development in the slow lane, there could be few appealing cars on those lots. And without robust advertising, many customers won’t know what the automakers have to offer.
For GM in particular, “bankruptcy could turn into a roach motel,” Lombard said. “The company goes in but doesn’t come out.”
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