General Motors and Chrysler will collapse before the end of the year if the giant manufacturers don’t receive massive US government aid now.
That was the stark message delivered to Congress yesterday in reports from GM, Chrysler and Ford, which set out drastic new business strategies and requested a combined total of $34bn to stay solvent.
GM needs $4bn immediately and at least $10bn more before the end of March to stay afloat.
In all, America’s biggest car manufacturer has asked for $18bn, made up of $12bn in soft loans and a $6bn credit line.
"Absent such assistance, the company will default in the near term, very likely precipitating a total collapse of the domestic industry and its extensive supply chain, with a ripple effect that will have severe, long-term consequences to the U.S. economy," GM warned in its plan.
“We have no plan B,” admitted GM’s chief operating officer, Fritz Henderson, in a conference call with reporters.
Chrysler, meanwhile, requested $7bn immediately. And Ford, seemingly best placed of all three, asked for $9 billion but noted that it would not access the money unless its situation worsened.
It was the second appeal to Washington within a month, with all three manufacturers seeking to present themselves as flexible, innovative and environmentally aware going concerns.
“As a company and as an industry, we readily admit that we have made our share of mistakes and miscalculations,” said Ford in its 36-page dossier. "We recognise that our business model needed to change, and we are changing it”.
All three companies focused on cutting emissions with new products. Ford said it was accelerating its hybrid and EV program while Chrysler and GM promised smaller, more frugal cars in future.
Drastic measures – Saab could be sold
It was GM that revealed the most dramatic cutbacks. It will axe tens of thousands of jobs in a global effort to streamline operations. GM’s dealer network will be reduced by one quarter.
Saab will also suffer and is likely to be sold. Its one of four brands that GM says it will sell or shrink alongside Pontiac, Saturn and Hummer.
The firm’s strategy will see its debt shrink from $65.6bn to £30bn and, it says, break even by 2012.
Chrysler did not make public the 100-page future plan report it sent to Congress, but said it continued "to aggressively pursue strategic alliances and partnerships" in an effort to secure its future. Merger talks with Renault-Nissan were put on hold earlier this year.
Will it work?
Initial responses to the plans appear to be more positive.
"We'll do everything we can to take care of the auto industry,” said Senate majority leader Harry Reid, who told reporters he wanted to see legislation on the Senate floor by Monday.
It’s understood that senators are privately leaning on President-Elect Barack Obama to be more supportive.
But the White House remains ominously reluctant. Increasing their aid request to $34bn could prove problematic for the car makers.
Commerce secretary Carlos Gutierrez said the Bush administration “wasn’t ready to support” more than $25bn in aid.
Ford CEO Alan Mulally, Chrysler CEO Robert Nardelli and General Motors CEO Rick Wagoner will all return to Congress later this week to testify about the aid request.
Wagoner said he believed the case was “more compelling” now.
Symbolically, all three will drive to Washington in hybrid cars after being criticised for arriving by private jet for their last meeting. Ford has now put its fleet of five planes up for sale and GM’s selling four of its seven.
All three CEOs have committed to a $1 salary next year, if it helps the US Senate release the money their firms so desperately need.