The Big Three carmakers got no bailout money from Congress last week. If the same thing happens again in two weeks, when they return with concrete plans to spend the $25 billion they're requesting, General Motors Corp., Ford Motor Co. and Chrysler will be forced to make hard decisions about how to stay solvent.
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 has laid off about 30,000 workers this year; Ford has reduced its U.S. workforce by more than half since 2003. Between them, they've closed or temporarily idled more than a dozen plants this year. Chrysler has performed perhaps the most drastic surgery of late, cutting a quarter of its white-collar workforce and closing the Delaware facility that was to make its first hybrid models.
As executives prepare the business plans Congress requested by Dec. 2, they're breaking out their knives again.
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.
One much-discussed option has been consolidation. "We have been restructuring for the last few years," Mark Fields, Ford's top executive in the Americas, said at the L.A. Auto Show last week. "Now we're going to have to continue to restructure the business."
Still, Ford dismissed a merger entreaty from GM this fall, and subsequent talks between GM and Chrysler, and between Chrysler and Renault-Nissan, went nowhere.
