Check engine light has come on for Detroit's auto industry - Dodge Nitro Forum
Chrysler/Dodge/Jeep News Find out the latest scoop here!

 
LinkBack Thread Tools Display Modes
post #1 of 1 (permalink) Old 06-22-2008, 09:30 AM Thread Starter
Super Moderator
 
rickaren's Avatar
 
Join Date: Nov 2006
Location: Indiana
Posts: 22,851
Garage
Check engine light has come on for Detroit's auto industry

June 22, 2008

Every sign of economic health -- jobs, oil prices, credit, housing -- suggests a calamity on the horizon as bad as Detroit's keystone industry has ever faced.

Consumers appear to be buying new vehicles in June at the slowest monthly rate in more than a decade. And they especially are shunning pickups and SUVs that have kept the Detroit Three running for a decade. Barring an expected rebound in the economy, sales equal to Chrysler's total last year may disappear from the U.S. market this year.

Detroit's automakers are bleeding cash, despite massive cost-cutting and job reductions in recent years. And while each has socked away funds, the money will last only until 2010 at the latest unless the companies borrow to buy more time, analysts say.

Banks appear ready to lend, but at a high cost. And with every loan, the road back to profits gets a little steeper.

"The industry started out with one problem, which was cost, then it was market share, then it was commodity prices, then it was gas prices. It just goes on and on for these guys," said Shelly Lombard, an analyst with Gimme Credit. "This is the worst situation they've ever been in, because there are so many things going wrong."

Hints of hope
If you're looking for some sign of light in the gloom, there are glimmers.

• Unlike previous slumps, the vehicles built by Detroit's automakers are broadly on par with much of their competition.

• The landmark deal that will lead the UAW to take on health care for workers will free up cash in 2010, especially at General Motors Corp.

• All three companies are pushing new fuel efficient models, with side bets on more exotic technology such as plug-in hybrids.

But a permanent cure -- generating enough cash to pay their debts as they roll out new vehicles -- appears unlikely before 2011, and another unexpected jolt could tear one or more of them asunder, analysts say.

"The outlook hinges on the price of oil. Almost nothing else matters right now," said John Casesa, a longtime industry analyst and consultant. "If oil prices keep going up, that will shorten the fuse, and if they go down, that will give them some breathing room. ... We're in a very challenging period here."

This latest round has been triggered by a profound slump in sales, thanks to the specter of gasoline at $4 a gallon nationwide and rising.

A stampede of customers shunning big trucks for small cars has left dealers with too few popular sedans to sell and too many unpopular SUVs and pickups clogging lots.

Russ Shelton, owner of Shelton Pontiac-Buick-GMC in Rochester Hills, said incentives had done little to draw buyers into the showroom.

"There's no floor traffic, there's no one calling in," said Shelton, a 30-year veteran. "This is probably the worst I've seen it, and I lived through the oil embargo of the '80s."

A troubling month
Outside of oil prices topping $130 a barrel, other economic indicators haven't reprised the worst of the 1980s, when soaring inflation and widespread unemployment triggered the worst recession since the Great Depression and nearly put Chrysler into bankruptcy.

Yet the steep drop in housing wealth, combined with stagnant personal income growth and little to no job growth, has forced many would-be car buyers out of the market.

Ford's announcements Friday -- no profits before 2010, a two-month delay in a new F-150, yet more cuts in truck production -- was just the latest in a monthlong parade of pain.

Earlier this month, GM launched plans to cut four truck plants, and said this week its engineers would focus on cars, pushing back a redesign of the trucks and SUVs that have kept it afloat for the past decade.

Chrysler Chairman Bob Nardelli told employees last week that Chrysler had seen a "significant and continued softening of the U.S. automotive market," with an annual sales rate near 12.5 million, the lowest in 16 years if the projection holds true.

J.P. Morgan analyst Himanshu Patel estimated June's rate at 13.7 million on Friday. That would be the lowest since September 1993.

"No one seems to know where the bottom is, for the Detroit Three or any of their competitors," said Gerald Meyers, a former auto executive and University of Michigan business professor.

The cash factor
From Wall Street's point of view, cash is the most important gauge on the industry's dashboard.

In general, analysts say Ford's $40.6 billion in cash and short-term credit should be enough to get the automaker to 2010, when the health care deal with the UAW offers some respite.

Many of those predictions, however, were made before Ford raised its cash burn estimates Friday to more than $14 billion over the next two years.

Despite the cash stockpile, credit rating agencies warned Friday that Ford's ratings could be marked down even further into junk territory.

"You can come up with the conclusion that Ford's got enough for two years," said Bruce Clark, senior vice president with Moody's. "But we're looking at the margins of protection, and those margins are getting steadily narrower."

GM had $23.6 billion in cash on hand at the end of the first quarter, which ended in March, along with another $7 billion in credit available. But the company consumed $3.6 billion in cash through the first quarter of the year. Analysts say the company likely needs to have about $10 billion on hand just to keep plants running.

As sales decline, GM, Ford and Chrysler pay out more in cash to suppliers than they make from sales.

Analysts have estimated that GM could borrow about $10 billion from banks if it offered assets for collateral. Deutsche Bank analyst Rod Lache said last week that banks likely also would demand evidence of a more aggressive turnaround plan for the automaker than they've seen so far.

Lache said that given GM's declining U.S. market share, such a plan could include closing the Pontiac, Saturn and GMC brands in addition to shedding Hummer, along with eliminating up to 7,700 dealer franchises from a total of 13,000.

"Brand consolidation is ultimately necessary to reduce the company to a manageable size and complexity level," Lache said.

While Nardelli has said Chrysler ended 2007 with $9 billion on hand, Standard & Poor's said Friday that cash may only cover its needs into next year without some kind of infusion. Chrysler said Friday the company was still ahead of the financial plan set out by majority owner Cerberus Capital Management. As a private company, Chrysler doesn't have to offer a detailed review of its books.

For all of the production cuts, Detroit automakers also have been boosting output of smaller cars and crossovers, and pledged a new focus on those models.

GM President Fritz Henderson said last month that 18 of GM's next 19 new models in the United States would be cars or crossovers, while Ford pledged Friday to speed the transition of its more efficient European cars to American versions.

To succeed means breaking with two decades of history by making money on smaller vehicles. The alternative may be history breaking the industry.

Detroit "has to be able to transition to a business of not only producing cars and crossovers, but convincing customers to pay up for them," Clark said. "You have to have a fundamental sea change in the underpinnings of the business."


LINK: Month of economic troubles has Detroit 3 on edge | Freep.com | Detroit Free Press

Rick

Nitro Year: 2007 (1 of 91,815 sold in 07)
Nitro Model: R/T 4X4 Stone White
CAT-BACK Exhaust, CAI, Projector Head Lamps
Fully-Equipped w/all factory options
rickaren is offline  
Sponsored Links
Advertisement
 
Reply

  Dodge Nitro Forum > Dodge Nitro News & Polls > Chrysler/Dodge/Jeep News

Quick Reply
Message:
Options

Register Now



In order to be able to post messages on the Dodge Nitro Forum forums, you must first register.
Please enter your desired user name, your email address and other required details in the form below.

User Name:
Password
Please enter a password for your user account. Note that passwords are case-sensitive.

Password:


Confirm Password:
Email Address
Please enter a valid email address for yourself.

Email Address:
OR

Log-in











Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Show Printable Version Show Printable Version
Email this Page Email this Page
Display Modes
Linear Mode Linear Mode



Similar Threads
Thread Thread Starter Forum Replies Last Post
2007/2011 Dodge Nitro features and options ResumeSpeed General Discussion 46 12-19-2016 10:54 PM
1.6 twin-turbo petrol engine wins 1.4-1.8 litre category in IEYA 2008 awards rickaren Chrysler/Dodge/Jeep News 0 05-09-2008 01:36 PM
Engine Light On!!!!! CWFUNK General Discussion 8 03-13-2008 04:15 PM
Engine Recall On New Tundra Trucks? rickaren Chrysler/Dodge/Jeep News 2 06-01-2007 11:58 AM

Posting Rules  
You may not post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On

 
For the best viewing experience please update your browser to Google Chrome