There's an old saying in business and economic circles that As GM goes, so goes the nation. While much has changed in the world since GM was the major powerhouse in auto manufacturing, the Big Three American automakers still have enormous impact on employment and the economy.
And all three are shitting razor covered bricks at the moment, you can bet your arse on that.
The ride into 2009 may be far rougher than any Ford or Chevy truck will ever be able to smooth out for ya....(WSJ)
Ford Reels as Truck Sales Plunge
Soaring Gas Prices Force
New Production Cuts;
Big Three Facing a Cash Drain
By MATTHEW DOLAN, JOHN D. STOLL and KATE LINEBAUGH
June 21, 2008; Page A1
Ford Motor
Co. announced cuts in production for the second time in two months and
gave up on ending its losses by next year, as the scramble by all three
Detroit auto makers to switch to smaller cars began to raise questions
about how they'll get enough cash to ride out the storm.
Ford said the plunge of U.S. truck and SUV sales due
to record-high gasoline prices was forcing the new cuts, and even
pushing back the launch of its redesigned F-150 pickup truck that once
was expected to drive the company's recovery. The moves suggest the
company is bracing for a greater loss in 2008 than its $2.7 billion
loss last year, and Ford said it no longer expects to break even by
2009.
In the past few days, it has emerged that both Ford and General Motors
Corp. are seeking ways to raise new capital, while Chrysler LLC is
slashing costs to conserve cash. GM Chief Executive Rick Wagoner has
said the company has enough cash for 2008 but declined to elaborate
beyond that.
In a telephone interview Friday, Ford Chief Financial
Officer Don Leclair said the company has enough liquidity to carry it
through. But earlier this week Chief Executive Alan Mulally met with
billionaire investor and major Ford shareholder Kirk Kerkorian and the
two discussed Ford's likely need for more capital, a person familiar
with the matter said.
Beyond the next 12 months, it's uncertain what cash
the three car makers will have, said Bruce Clark, an analyst at Moody's
Investors Service. "We're looking at 24 months that could stress the
liquidity positions," he said. "There could be an unabated burn for
every quarter for the next eight, nine, or 10 quarters."
Credit-ratings firms Friday warned of impending
downgrades of the Detroit Three, raising further concerns about their
future cash positions. Standard & Poor's Ratings Services said it
was likely to cut ratings on Ford, GM and Chrysler, while Moody's
Investors Service put Ford and Chrysler on the path for a downgrade.
GM and Ford led the market down Friday to its lowest
close since mid-March. The Dow Jones Industrial Average slid more than
220 points, or 1.8%, in a broad market rout. (See related article.)
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Ford fell 51 cents, or 8.1%, to $5.81, and is down
more than 36% in the last year. GM dropped $1.00, or 6.8%, to $13.79 --
its lowest close since 1982.
Ford as of March 31 has cash reserves of $33.8 billion
and GM $23.9 billion, but both companies are burning cash and spending
billions to develop new models. Greater-than-expected losses this year and next would tighten their cash positions.
Making matters worse, Ford and GM's credit arms, which
buoyed the auto makers in the past, are now suffering losses on truck
loans and leases as a result of declining values for used vehicles.
Shelly Lombard, a high-yield analyst at Gimme Credit,
estimates Ford has a cash cushion of between $7 billion and $9 billion,
after accounting for obligations and expected losses. If Ford's losses
increase, its cushion will decline, which could put the company in a
tough position. "Everyone has a plan until they get punched in the face
and a $4 gas price is a punch in the face," Ms. Lombard said.
Ford executives say the company has cash for at least
a couple of years, and that despite the current problems, the company
will rebound. They believe at least some buyers will come back to
trucks after this year, including the F-150. Ford plans to increase
passenger car production by 15% in the third quarter. Ford also is
working to bring small cars from its European unit to the U.S., and is
looking at converting at least one U.S. truck plant to car production.
Like Ford, GM is slashing production overall to try to
stave off a revenue implosion from fast-falling U.S. sales of pickups
and sport-utility vehicles, which generate a huge chunk of Ford and
GM's revenue and profits. So far this year Ford's truck sales are down
14% and GM's 22%, and both are seeing much steeper drops in the last
two months.
Chrysler, which as a private company no longer reports
earnings, faces similar issues and is looking closely at additional
cuts to its truck production. A spokesman said the company is sticking
to its plan to launch a new Dodge Ram pick up this fall. But a person
familiar with the matter said Chrysler has planned for a deep drop in
vehicle sales in 2008.
Each of the Big Three is likely to report big declines
in sales in June. GM, the leader in the U.S. market for decades, could
fall behind Toyota Motor Corp. for the month for the first time,
according to a report by J.D. Power & Associates on sales in the
first half of the month.
On Friday Ford said it is delaying the much-anticipated
F-150 launch for two months, until November. It also said it no longer
expects to break even in 2009. In April Mr. Mulally said the company
expected to make money next year, and in May, after the drop in truck
sales worsened, scaled that back to break even.
The retreat represents a black eye for Mr. Mulally. He
had appeared to have the company heading in the right direction when
Ford surprised investors with $100 million in net income in the first
quarter. Now the former Boeing Co. executive is working on a crash
effort to cut its cash outflow and ramp up production of more
fuel-efficient vehicles like cars and crossovers.
"Clearly, we are working our way through changes in
the marketplace," Mr. Mulally said in an interview. "We're trying to
give the best guidance we can."
The rise of gas prices set off a dramatic shift among
U.S. car buyers. Trucks that used to be strong sellers suddenly piled
up in dealer inventories and consumers started flocking to small cars.
Those had traditionally appealed to a smaller segment of the market
dominated by Toyota and Honda Motor Co., which had already battered the
U.S. makers with their lower cost structures, higher margins and rising
sales.
A few years ago both Ford and GM faced questions about
whether filing for bankruptcy protection was a real possibility, but
such speculation is now revving up again. It comes just months after
the auto makers signed new union contracts that are expected to bring
Detroit's labor costs in line with those of their Japanese rivals. But
the sharp rise in gas prices this year has hit the Big Three hardest
because of their heavy reliance on trucks for most of their sales and
profits.
"Their wiggle room right now is almost nonexistent,"
said Tad Howard, president of financial consulting firm Nassau
Financial LLC in Potomac, Md. "I think it's a hopeless situation short
of two things -- a government bailout or additional cooperation from
the [United Auto Workers union]. So in some ways, bankruptcy may be an
attractive alternative."
In addition to funding ongoing operations, each of the
Big Three has agreed to put billions of dollars into a trust fund over
the next few years to cover the costs of health care for their retired
UAW workers.
Company spokesman Mark Truby said Ford doesn't believe the company is at any risk for bankruptcy.
GM has been burning through about $3 billion in cash
on a quarterly basis. Negative cash flow is usually worst in the third
quarter when auto makers shut down plants for a two-week summer
vacation. A person close to GM's financial situation estimates the auto
maker could run through at least $5 billion in the second half of the
year.
![[image]](http://s.wsj.net/public/resources/images/OB-BR413_620_fo_20080620112820.jpg) |
| Getty Images
|
| Country music singer Toby Keith,
left, talked to Ford Americas President Mark Fields during the
introduction of the 2009 Ford F-150 at the North American International
Auto in January. |
"Liquidity is the company's biggest concern right
now," one large investor said Friday. "They need to come up with a
funding plan, and need to prove to Wall Street they have a strategy to
back that plan up.
In recent weeks, GM has said it will shutter four
truck and SUV assembly plants by 2010, and cancelled development of new
pickups and SUVs slated to hit the market in about 2012.
GM has about $7 billion in credit lines it can tap for
working capital, but analysts fear that accessing those loans would
send a signal to Wall Street that it is out of options. The auto maker
is looking at ways of raising more financing, possibly by issuing new
equity or a convertible debt offering, or pledging assets for loans,
people familiar with the matter said.
On Friday Ford said it now expects to produce about
265,000 trucks in the third quarter, down from a forecast of 330,000 in
May. In the third quarter of 2007, it made 455,000 trucks. The deep
cuts mean one plant in Dearborn, Mich., that makes the F-150, for
instance, will be shut down for 11 of the 13 weeks in the third
quarter. A substantial cut in truck production also is scheduled for
the fourth quarter.
Ford is pushing back the F-150 launch in part to gain
more time to clear out its inventory of current model-year trucks. Ford
is struggling to sell the 2008 versions with consumers fleeing to cars
and crossovers. Even a move this month to offer "employee pricing," the
discounts the company gives it employees, has not helped move F-150s
out of the dealerships. "It's been a blip on the radar screen," Carlos
Garcia, a sales manager at North Country Ford Lincoln Mercury in Coon
Rapids, Minn., said this week of the incentive program.
Consumers' shift from trucks to cars comes as total
vehicle sales already are slumping to lows not seen in decades. In the
first half of June, normally a strong month, U.S. light vehicle sales
were running at an annualized rate of just 12.5 million, down from 16.4
million a year ago, according to J.D. Power.