Giants to shut factories

Bloomberg

General Motors, Ford Motor and Chrysler 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 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, they 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.

GM and Chrysler have also re-opened merger talks, the Wall Street Journal said Thursday, citing people familiar with the discussions. Chrysler owner Cerberus Capital Management, which initiated the move, has signaled a willingness to cut the value of its interest, the report said.

Closing plants
GM, Ford and Chrysler began another round of pullbacks Wednesday, 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 said it will idle 9 of 15 North American assembly plants in the first week of January. Detroit-based GM said a new $370 million factory making engines for the Chevrolet Volt electric car is being delayed to conserve cash.

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 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.

"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."

Monthly bills
GM, which reported having $16.2 billion as of Sept. 30, needs at least $11 billion on hand 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.

GM’s 82 percent plunge in 2008 is the most among the 30 stocks in the Dow Jones Industrial Average. Dearborn, Michigan-based Ford is down 53 percent.

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’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 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.