The future of the US auto industry continued to look uncertain yesterday as the Obama administration announced that General Motors and Chrysler both failed to meet the presidential task force’s requirements for additional funding.
By Kyle Kock
Yesterday, CARtoday.com reported that GM and Chrysler would each receive 60 and 30 days worth of working capital to prove their viability and secure more US treasury loans or be forced to file for bankruptcy.
Some light exists at the end of the tunnel for Chrysler, because part of its agreement with the US government was that the Detroit heavyweight finalise its alliance with Fiat. Not long after Obama’s address on Monday, Chrysler announced that the two companies had sealed the deal.
Although only the framework of Chrysler’s alliance with Fiat has been laid out, the deal has been estimated to be worth $10 billion and has the potential to save up to 5 000 jobs in the North American manufacturing industry.
Another boon for the US automaker, is that the deal could save up to five years in development time and increase productivity at inactive Chrysler production plants with the introduction of smaller, more fuel efficient vehicles through Fiat’s expertise in that market.
The Obama Administration has indicated that it would only supply Chrysler with the additional $6 billion it requires for the wages and development needed for the release of 24 new vehicles by 2011, on condition that Fiat is limited in its share of Chrysler (apparently between 20 and 35 percent) – so more negotiations have yet to take place for a final outcome.
The situation over at GM pales in comparison. The auto industry task force outlined five weak points in the General’s viability plan. The most pressing of which, is its growing “legacy costs”, and despite a plan to swap half of GM’s $27,5 billion debt into stock,
GM’s optimistic market share prediction is another problem, likely to slip well below 20 percent if it disposes of some of its brands. The administration doesn’t agree with the current plan to cull brands and dealers, even with the likes of Hummer, Buick, GMC and Pontiac on the way out. The task force also voiced its concerns over GM’s future product plans, which apparently still rely heavily on “trucks” and SUV’s.
With a little over two months left, GM is in a whole lot more hot water than Chrysler, but Asian automakers have agreed that a failure at one or all of Detroit’s Big Three could seriously hamper progress of the global motor industry, because of North American suppliers’ contracts with Chrysler, GM and Ford.
“I think it will be best if General Motors is able to continue its operations. There surely has to be light at the end of the tunnel. I want the decline to stop, and I’m watching closely for it every month, but it’s not coming,” Toyota president Katsuaki Watanabe said last week.
“The U.S. Treasury has said that it strongly believes that a substantial restructuring will lead to a viable GM. Over the next 60 days, we will work around the clock, with all parties, to meet the aggressive requirements that have been set by the Task Force, and to make the fundamental and lasting changes necessary to reinvent GM for the long-term,” said GM CEO Fritz Henderson.
