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GM, Chrysler Shutter Factories, Await Bush Decision
NOT BAD ITS JUST WORST,THE US ECONOMY IS POSSED IN THE POSITION THAT THE BIG INDUSTRY CANNOT RUN FURTHER.....SEEMS SO
Struggling U.S. automakers are launching a round of severe cutbacks as they wait for a government rescue, with Chrysler saying yesterday it will idle all 30 of its U.S. factories for one month.
General Motors Corp., Ford Motor Co. and Chrysler LLC will shutter about 59 factories over the next month as they struggle to adapt to the worst sales in 26 years and await a verdict on a U.S. rescue of the industry.
The closings show how far automakers are going to conserve cash and prune output under the pressures of a shrinking U.S. market, dwindling access to credit for dealers and demands for advance payments by some GM and Chrysler parts suppliers.
“No one is immune,” said Ed Kim, director of industry analysis for consulting firm AutoPacific Inc. in Tustin, California. The industry is “imploding to a degree I’ve never imagined could happen, and at a speed I’d never expected.”
GM, the biggest U.S. automaker, and No. 3 Chrysler are counting on President George W. Bush to approve emergency loans to help them stave off a collapse that would threaten millions of jobs. Without $14 billion in federal aid, the manufacturers will be out of money by early 2009, they say.
Bush told Fox News Channel yesterday he was still “thinking through” details of any government assistance. Congress deadlocked on a bailout last week, spurring the White House to reverse its stance and consider tapping money from the $700 billion bank-bailout fund.
Closing Plants
GM, Ford and Chrysler began another round of pullbacks yesterday, burdened by U.S. sales declines this year of 22 percent, 19 percent and 28 percent, respectively, compared with the 16 percent industrywide average.
Chrysler will shut all 30 of its plants for at least a month starting Dec. 19, and Ford plans to idle nine of 15 North American assembly plants in the first week of January.
Ford said its move was part of a previously announced plan to reduce first-quarter North American production by 38 percent. The second-biggest U.S. automaker acted after Detroit-based GM’s Dec. 12 decision to cut 250,000 units of production from its first-quarter North American plans, affecting 20 plants. That was equal to almost 30 percent of GM’s 2008 first-quarter sales.
GM said yesterday that a new $370 million factory making engines for the Chevrolet Volt electric car is being delayed to conserve cash.
‘Bad Times’
“You need to have a hoard of cash built up from the good times to get you through the bad times,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. “The bad times are here, the bad sales are here and GM and Chrysler just don’t have the cash.”
GM, which reported having $16.2 billion as of Sept. 30, needs at least $11 billion to pay monthly bills. Chrysler ended last quarter with $6.1 billion and needs at least $3 billion to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18. Ford has said it doesn’t need emergency aid.
The Wall Street Journal said yesterday that Chrysler owner Cerberus Capital Management LP reopened talks on a GM merger. GM spokesman Tony Cervone said the company isn’t in negotiations and hadn’t altered its Nov. 7 position to end discussions on a “strategic acquisition” while it seeks government loans.
GM fell 10 cents to $4.27 at 9:41 a.m. in New York Stock Exchange composite trading, while Ford slid 5 cents to $3.09. GM’s 82 percent plunge this year through yesterday is the most among the 30 stocks in the Dow Jones Industrial Average. Dearborn, Michigan-based Ford was down 53 percent.
Lending Shutoff
Chrysler Financial, the automaker’s credit arm, said it may temporarily halt the loans used by dealers to buy vehicles as the retailers drain $60 million a day from the account that helps finance their borrowing.
GM is awaiting the results of lender GMAC LLC’s bid to convert to a bank through a debt swap in order to tap the Troubled Asset Relief Program, the bailout fund that Bush may now use for the automakers. Detroit-based GMAC provides financing for about 75 percent of GM’s inventory.
GM and Auburn Hills, Michigan-based Chrysler both have been pressed by a small number of suppliers for cash payments for parts on concern that the automakers might file for bankruptcy, people familiar with the matter said last week.
The Pontiac division at GM may be pared to a single model from six following a drop in sales every year since 1999, Mark LaNeve, North American sales chief, said in an interview.
North American output for Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three biggest automakers, is being reduced, too, down more than 300,000 units from a year earlier. All three have announced cuts to scheduled production.
Toyota stopped assembly work at its San Antonio pickup truck plant for 15 weeks this year because of rising inventory and this week, it indefinitely halted construction of a Mississippi plant that was to produce Prius hybrids by 2010.
“When you’ve got the economy in the situation that it is now, it’s not just the Big 3’s customers that are affected,” said AutoPacific’s Kim. “It’s everyone’s customers. It is all interconnected.”
To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net; Greg Bensinger in New York at
