February 18, 2009
While my neighbors are circulating e-mails about the newly opened Irish pub that's within walking distance (conserve fuel and drown your sorrows) and notices about how to reduce the tax assessments on our homes—after all, our home values have dropped; one more reason to hit the pub— GM and Chrysler are asking for billions more in aid.
Back in November 2008, National Association of Manufacturers (NAM) President and CEO—and former governor of Michigan— John Engler stressed the importance of a stable auto industry in economic recovery. He said, "We're talking about close to a million jobs in America—we're talking about a lasting impact on our industrial production in the United States. We simply cannot afford to let the auto industry fail."
We know, John, but how much do we have to pour into what is fast becoming a money pit before we say enough already?
No one knows just how important the auto industry is more than visitors to thefabricator.com; readers of and advertisers in The FABRICATOR®and its sister publications, particularly STAMPING Journal®; members of the Fabricators & Manufacturers Association International®—and those who work for these entities, including yours truly. The health and wealth of the auto industry or lack thereof trickle down to so very many people.
Keeping the automakers solvent is only part of the solution. A more critical element is motivating and making it possible for buyers to purchase vehicles. A Forbes article published today bore the subheading "Unless demand for cars can be revived, it may not matter how much fat GM and Chrysler cut," or how much money we pump into their coffers.
The article said, "The credit crisis and weak economy have caused an unprecedented 40 percent collapse in vehicle sales, now at their lowest per-capita level in 50 years. Many dealerships look like ghost towns. Customers who are ready to buy often discover they can't get an affordable loan. And things have only worsened since December, when Detroit automakers first approached Congress for help, which is why General Motors and Chrysler now say they need more money."
GM and Chrysler delivered their restructuring (survival) plans to the government yesterday. GM's plan calls for cutting a total of 47,000 jobs globally and closing five more U.S. factories, which represents the largest work force reduction announced by a U.S. company in the economic downturn. Chrysler said it will cut 3,000 more jobs and stop producing three vehicle models— the Dodge Aspen, Durango, and Chrysler PT Cruiser.
GM announced it will either sell Hummer by March 31 or begin phasing out the brand. It is trying to sell Saab, and reportedly has asked the Swedish government to support the brand in the interim, with the intention that the company will cap its financial support for Saab this year. GM also suggested Saturn's days are numbered, unless it can sell or spin off the dealership network before the brand's current products reach the end of their life cycle in 2011.
The submitted plans left some serious issues unresolved, which were addressed in the Forbes article: "None of the three automakers has yet to reach agreement with the UAW to reduce their enormous health-care obligations to retirees. And GM said it is still negotiating with bondholders on a plan to convert $27 billion in unsecured debt to a combination of debt and equity, reducing its net debt by at least $18 billion. Deals on the health-care liability and the debt reduction, both crucial to GM's survival, are expected by May.
"Chrysler said if it cannot reach agreement to restructure its health-care liabilities and debt load, and doesn't receive 'essential' government funding by March 31, 'management believes the only alternative would be to immediately plan for an orderly wind down of all operations through a court-supervised liquidation.' Chrysler CEO Robert Nardelli emphasized that this was not the company's intention.
"But there's another bogeyman lurking that could threaten the carmakers' viability within weeks and render all these efforts moot. Auto-parts suppliers are in deep financial distress, too, resulting from the virtual shutdown of auto manufacturing in January. Two industry groups have asked Treasury for $18.5 billion in emergency bridge funding to avoid a wave of bankruptcies and a deeper crisis that could put one million additional supplier jobs at risk starting next month. The trade groups want the government to guarantee supplier receivables from U.S. automakers, accelerate payment terms, or guarantee commercial loans to parts companies."
The Forbes article drove the point home by concluding, "If shoppers don't return to showrooms, however, it might not matter. 'The most important issue is not what the automakers are going to do to cut costs, but rather what the government is going to do to stimulate car sales,' said Edmunds.com CEO Jeremy Anwyl. 'No automaker is viable under the current market conditions, and so far the spending package appears to spread money too thin to actually make much of a difference in any one area.'"
Granted, the 50,000 workers who will lose their jobs in the restructuring are far fewer than the million that could lose their jobs if the automakers fold, but these workers represent those the automakers need to attract to remain viable in the long term. And what about those of us who are sickened that it's come to this & our taxes being used to bail out industries that were too fat and too comfortable for far too long? Will we be motivated to buy their products, or will we feel that we've given them more than enough already? At this point, if my 9-year-old Jeep dies (and if you've read my blog posts in the past, you know I really like my Jeep), I might look at replacing it with a Ford. Or will I feel obligated to purchase another Jeep or a GM product to protect my investment? Would you?