Filed under: Chrysler, LLC., Ford, GM, Autoline on Autoblog
Autoline on Autoblog with John McElroy
by John McElroy on Aug 7th 2008 at 4:28PM 
SIX QUARTERS TO DOOMSDAY
2010 is shaping up to be a pivotal year in the American auto industry. From a product standpoint there will be a lot of interesting hardware in showrooms, including range-extending EVs, plug-in hybrids, clean diesels, pure electrics, and flex-fuel vehicles running on cellulosic ethanol. But it's also shaping up to be the year when the domestic industry will have to deal with its greatest challenge ever.
In short, the "Big Three" are running out of money, and running out fast. At its present spending rate, General Motors will burn through almost all the cash it has in the next 6 quarters. Ford can hold out a little bit longer. And Chrysler? Well, who the hell knows what's going on there?
John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.
Each company is mortgaged to the hilt. They've either dumped most of the assets that could be sold off, or are in the process of trying to dump them. They're borrowed enough money to fuel the economies of several small countries. And they have grabbed every line of credit that any bank would extend to them. But even that's not enough.
The big problem is that their revenue is plummeting. GM's revenue in North America alone dropped $10 billion in the second quarter. In fact, Ford is now bigger than GM measured on revenue. GM pulled in $38.2 billion on a global basis in the last three months, but Ford earned $38.6 billion. The last time Ford was ahead of GM was when old Henry was still making the Model T.
That's why they've all taken an axe to their operations. With less and less money coming in, they're being forced to slash spending. But now they're not just cutting out the fat, they're cutting into the marrow of the bone.
It's painful to watch. When you've got to meet your numbers, sentimentality goes out the window. Ford, for example, just laid off Richard Gresens, the chief designer for the Ford Flex, the newest vehicle in the company's showrooms. When you start getting rid of talent like that you know these are desperate times.
And let that be a lesson to anyone in the industry who's working on full-size trucks, SUVs and V8 engines: they don't need nearly as many of you anymore. Better get your resumes updated, or figure out what your second career is going to be.
Car and truck sales in the U.S. market will probably end the year somewhere north of 14 million units, a breath-taking 3 million unit drop from 2006. That's the equivalent of closing roughly 12 assembly plants, 6 engine plants, 6 transmission plants, 7 stamping plants and dozens and dozens of component plants. Talk about gutting the U.S. manufacturing base!
But obviously the bad news isn't over. With no hope of boosting revenue this year or next, and with their borrowing capabilities almost tapped out, the Detroit three will have to cut expenses even more than they have already to try and stretch out the cash they have for as long as they can.
Of course Chrysler is trying to present itself as immune from this impending disaster. It claims that it made an operating profit last quarter, that it has plenty of cash on hand, and that it is right on plan. But for any outsider it's almost impossible to believe what the company is saying.
GM lost $16 billion last quarter. Ford lost nearly nine. Yet Chrysler would have us believe that it's doing reasonably well even though it's lost more sales and market share than the other two. Well, when no one can look at your books, I guess you can claim whatever you want.
So what's going to happen? Some are gleefully counting the days to when General Motors and Ford have to declare bankruptcy, and when Chrysler is broken up and sold off in pieces. But I don't think that's going to happen.
As much as Congress is in no mood to bail out the "Big Three," they're not going to sit idly by and watch them die an excruciating death. There's already a move in the House to offer low-interest loans to GM, Ford and Chrysler.
It's not an unreasonable offer. If Detroit can hold out until 2011-2012, the future suddenly starts to look a lot brighter. The massive cost reductions from their UAW contracts fully kick in at that point, they'll have a much more competitive line-up in their showrooms, and presumably the U.S. economy will be back on its feet.
But can they hold out that long?
Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Last week's show: "New Roots"
2010 is shaping up to be a pivotal year in the American auto industry. From a product standpoint there will be a lot of interesting hardware in showrooms, including range-extending EVs, plug-in hybrids, clean diesels, pure electrics, and flex-fuel vehicles running on cellulosic ethanol. But it's also shaping up to be the year when the domestic industry will have to deal with its greatest challenge ever.In short, the "Big Three" are running out of money, and running out fast. At its present spending rate, General Motors will burn through almost all the cash it has in the next 6 quarters. Ford can hold out a little bit longer. And Chrysler? Well, who the hell knows what's going on there?
John McElroy is host of the TV program "Autoline Detroit". Every week he brings his unique insights as an auto industry insider to Autoblog readers. Follow the jump to continue reading this week's editorial.
Each company is mortgaged to the hilt. They've either dumped most of the assets that could be sold off, or are in the process of trying to dump them. They're borrowed enough money to fuel the economies of several small countries. And they have grabbed every line of credit that any bank would extend to them. But even that's not enough.
The big problem is that their revenue is plummeting. GM's revenue in North America alone dropped $10 billion in the second quarter. In fact, Ford is now bigger than GM measured on revenue. GM pulled in $38.2 billion on a global basis in the last three months, but Ford earned $38.6 billion. The last time Ford was ahead of GM was when old Henry was still making the Model T.
That's why they've all taken an axe to their operations. With less and less money coming in, they're being forced to slash spending. But now they're not just cutting out the fat, they're cutting into the marrow of the bone.
It's painful to watch. When you've got to meet your numbers, sentimentality goes out the window. Ford, for example, just laid off Richard Gresens, the chief designer for the Ford Flex, the newest vehicle in the company's showrooms. When you start getting rid of talent like that you know these are desperate times.
And let that be a lesson to anyone in the industry who's working on full-size trucks, SUVs and V8 engines: they don't need nearly as many of you anymore. Better get your resumes updated, or figure out what your second career is going to be.
Car and truck sales in the U.S. market will probably end the year somewhere north of 14 million units, a breath-taking 3 million unit drop from 2006. That's the equivalent of closing roughly 12 assembly plants, 6 engine plants, 6 transmission plants, 7 stamping plants and dozens and dozens of component plants. Talk about gutting the U.S. manufacturing base!
But obviously the bad news isn't over. With no hope of boosting revenue this year or next, and with their borrowing capabilities almost tapped out, the Detroit three will have to cut expenses even more than they have already to try and stretch out the cash they have for as long as they can.
Of course Chrysler is trying to present itself as immune from this impending disaster. It claims that it made an operating profit last quarter, that it has plenty of cash on hand, and that it is right on plan. But for any outsider it's almost impossible to believe what the company is saying.
GM lost $16 billion last quarter. Ford lost nearly nine. Yet Chrysler would have us believe that it's doing reasonably well even though it's lost more sales and market share than the other two. Well, when no one can look at your books, I guess you can claim whatever you want.
So what's going to happen? Some are gleefully counting the days to when General Motors and Ford have to declare bankruptcy, and when Chrysler is broken up and sold off in pieces. But I don't think that's going to happen.
As much as Congress is in no mood to bail out the "Big Three," they're not going to sit idly by and watch them die an excruciating death. There's already a move in the House to offer low-interest loans to GM, Ford and Chrysler.
It's not an unreasonable offer. If Detroit can hold out until 2011-2012, the future suddenly starts to look a lot brighter. The massive cost reductions from their UAW contracts fully kick in at that point, they'll have a much more competitive line-up in their showrooms, and presumably the U.S. economy will be back on its feet.
But can they hold out that long?
###
Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Last week's show: "New Roots"
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Reader Comments (Page 1 of 3)
Randy 4:42PM (8/07/2008)
YES THEY CAN
Reply
Seminole 4:44PM (8/07/2008)
I just purchased a car a week ago today. I really wanted to do the "patriotic" thing and buy American. I had be researching cars for months and months. But to be honest, every time I compared cars the U.S. automakers were, to put it simply, outclassed by their foreign competition. I was looking to get a car in the compact luxury car segment. Lincoln MKZ?? Pass. CTS?? Very good car, but was both larger in dimensions and more than I was wanting to pay. I wouldn't even walk into a Chrysler showroom, so that's a mute point. In the end, The 3 series, TSX, C-Class, A4 are just too competitive for the domestics. And it is the same in many other classes.
Midsize family sedan? The Malibu is a tremendous improvement over the last iteration, and I would take it over a Camry, but I still think the Accord is a much more refined car. The Hyundai Sonata is damned nice too. The Fusion is good, but doesn't stand out. In the compact segment, the Civic dances on the corpses of it's competition and the Cobalt and Focus are poor excuses that can't even compete against the Fit.
Really the only area the domestics seem to shine is in the truck market, but we all know the deal with that. In the end, no matter how much I want to help my country's automakers and do what people say is the "right thing" by buying American, I just can't bring myself to do it. Until the US automakers can produce a car that I find appealing I will keep looking elsewhere.
Reply
Icon149 4:58PM (8/07/2008)
communist...
Just kidding, it is unfortunate that your comment really is often times the truth, i am trying desperately to make my 10 year old 'merican built car last a few more years so i have a chance at buying a truly interesting american car... if 2010 comes around and the big 3 are still building cars that uncompetitive... well i tried.
Randy 4:54PM (8/07/2008)
I know these are your opinions but I had to say that both the Fusion and the Focus are extremely competitive! And the Lincoln MKZ is packed with features and all three cost less than the competitors!
But it's the way you look at it!
Dave 5:04PM (8/07/2008)
If 5 mos.ago you were in the market for a new car would you have looked at a luxury SUV? Would you have looked at a Taurus/Sable? How about a Lucern or LaCross?Would not go in a Chrysler showroom? Why not, afraid you might like the product? How about helping someone when they're down? Pontiac G8. A car with performance and it's an import.
5 mos. later. I want performance in a small package and good mpg. Detroit doesn't make it. I have to go elsewhere.
Detroit built for it's market 5mos. ago. They never had to build to narrow roads, high fuel taxes and lower incomes.
I don't know what your field is, but I bet it could not change directions in 5 mos.
Dave
Seminole 5:06PM (8/07/2008)
I wasn't saying they were bad cars. But I would never pick a MKZ over a 3 series (What I ended up getting). Sit in one, then go right into the other. The difference is huge. The Fusion is ok, but no traction control? Not even optional what gives? Accord and Sonata have it standard. And the Focus doesn't have a grab handle to close the door. How do you forget to put one of those on... And if you look at Edmunds long term test Focus, it has all kind of trim issues.
djSyndrome 5:11PM (8/07/2008)
Awesome post.
Semi-related: I always find it ironic when someone chooses to buy a Mexican-built Fusion over an American-built Camry or Accord and then touts their 'patriotism'. Yes, the dollars ultimately wind up back here, but to me the /jobs/ are just as important - and I'd rather keep as much labor going in America as possible rather than feeding the Mexican government.
Shipey 5:10PM (8/07/2008)
It's all a matter of perspective. Given the same choice, I definitely pick the CTS. The Acura is completely anonymous, the Audi too staid. The BMW is an awesome car, but it's so "me too" that it just kills me.
I understand the CTS isn't everyone's cup of tea, but it's definitely mine and I'm really looking forward to the coupe. It's thoroughly modern and has TONS of curb appeal.
Of course, personal preference is what America is all about, and I support it fully. If you dig the other cars, go for it. All I ask is that people stop passing over the domestics simply because of the badge on the front.
It's like Life Cereal. Try it, you might like it.
Seminole 5:17PM (8/07/2008)
Dave,
I wouldn't have looked at a SUV, I don't need it.
I wanted a COMPACT luxury car. The Taurus/ Sable are huuuge. Now, I actually think those two are the best in their class, the Avalon blows. Once again a Lucerne/ Lacrosse are bigger than what I want, plus I don't really like the looks and interiors. Generic old GM styling inside. And they are incredibly thirsty when it comes to gas. Chrylser doesn't make a compact luxury sedan, unless you want to include the Sebring which isn't worthy of rental fleets. And the G8 is a great car, but I don't need something that big/powerful.
As far as helping someone while they are down. It is my $30,000 I'd be spending on a car. Why should I throw that money out the window to get a product that I am not 100% satisfied with? I'm not a charity. Whoever makes what I want gets my money.
And my field is extremely flexible. I'm an accountant. You can do almost any job in business with an accounting degree.
Seminole 5:27PM (8/07/2008)
Shipey,
I gave the CTS a serious thought. But like I said, it is more towards the size of a 5 series, and I just don't need a car that big. The TSX's value for the dollar is hard to ignore. $32,000 fully loaded. Even though it is a cliche I went with the 3 series. The ONLY reason I did it was because I got invoice pricing and 0.9% for 60mo. The CTS is only offering 3.9% for 60 mo. If it wasn't for that I would probably have a TSX parked downstairs.
I forgot to add as well to my original post, that I needed a car this month. The US automakers have great cars coming out in a few years, but guess what? I don't have time to sit around and wait. Maybe next time when I'm shopping I'll buy American. I kind of feel like the US makers are pulling a Sony. (I bought a PS3 when they first came out) "Look at all this cool stuff we have coming out! But it won't be here for 3 years!"
Oh, and GM not selling the Beat in the U.S. in inexcusable. Wagner should be fired.
ASEVENSEE4 5:29PM (8/07/2008)
GRL plz, the Fusion has a nice interior, with good use of materials and build quality, it's just not visually appealing, AWD was their answer to stability control & now the Fusion has it. Correct me if I'm wrong the Fusion has Traction Control too, the MKZ did not, it now has it for 09, with stability control.
The Focus is an entry level Ford, something they're still working at, but for whats there after the discounts and the fuel economy there isn't anything that can beat it by a wide margin for daily driving.
I can think of a few superior Domestic offerings, the new Flex being one of them. Toyota's have too much cheap hard plastic. I would take a 09 Sonata or 09 Mazda6 over all of the other Japanese or domestic stuff. Until the new Taurus comes out, it looks EXTREMELY promising, after being in the new Flex, which is an infotainment powerhouse.
The TSX isn't competitive for anything, it doesn't match up to anything and beat it, the A4 with the 4cyl turbo included. The new MKS, another really promising ride for Ford. As is the new MKT crossover coming out, etc. Ford is on the rise, GM still has some issues to work out. Chrysler... just needs to get a line of cars people in the masses want to buy, and not settle for/rent.
The new Festiva & Focus, the possibility of them revamping Mercury with the Kuga and other Euro Fords, etc. Ford is coming back.
Dave 5:40PM (8/07/2008)
What an excellent reply to my post. You are truly a gentleman. I believe the american car that would have suited your purpose was the Lincoln LS. I drove a few of these sedans, both V8 and V6, automatic and stick. Wonderful styling and worthy of consideration in it's class. Unfortunately people were not interested due to the Lincoln label.
Yes, your field changes direction each year.
Dave
AZMike 5:54PM (8/07/2008)
Seminole,
don't know what planet you found the Lucerne and the Lacrosse on, but "incredibly thirsty"?
I have four Buicks with the same 3800 Series II engine, and my average CITY mileage is 27, with highway mileage between 31-34 MPG. if that's thirsty, I'll take it any day.
if you just didn't like the cars, say so. don't use fuel economy as the issue, because these cars put little teeny Japanese cars to shame.
AZMike
Seminole 7:51PM (8/07/2008)
My inbox hates you all ;-)
ASEVENSEE4,
You hit the nail on the head. The Fusion is a nice car, but it is dull style wise. I have high hopes for the 2010 model redesign. But like I said, I couldn't wait around for them to make it. I needed a new car now. And the 2009 Fusion does not have Traction Control on the I4 models, only on the V6. Which blows because if I bought a car in that class it would be the 4-cyl model. I really don't like the styling of the Focus at all. The only thing that would get me to buy one over a Civic is Sync. You have to admit, the lack of grab handles is a pretty glaring oversight. The Flex is a hell of a car, but just reinforces the point that the domestics seem to only be able to SUV's and Trucks. But the Flex is not something I need. And Ford dropped the ball by firing the Flex's designer. The MKS is gorgeous! I would take one over a ES any day, but not if I was looking at a 5 series type ride. The TSX is pretty competitive based on price. It provides great luxury and tech features at a low price. It's I-4 gets good gas mileage. If you compare it on value it's tough to beat. But if its performance you want, look elsewhere. I'm not a Ford hater though. My family has owned a 98 Contour, a 95 Explorer and two Volvo's. But you reinforce my point with your talk of the Fiesta and Kuga. Right NOW Ford doesn't have the cars it needs to compete (Neither does GM for that matter). They are at LEAST 2 years away and I don't think people are going to wait around. Like I've said before, maybe by my next purchase they will make a car I desire, but for now I had to look elsewhere.
Dave,
When I was younger my neighbors dad had a LS. I loved that car. Shame they stopped making it.
AZMike,
I'm pretty sure I said I didn't like the cars. I'm not fond of the LaCrosse's exterior styling. I like the Lucerne's, but the interior is a lot like the Impala (No surprise since they are based off the same platform). Lets also not forget that the Lucerne is pretty expensive with a CX 6cyl starting at $27,000.
But I don't know what a 3800 series II engine is. I'm going by the EPA ratings. The engines in both the Lucerne and the LaCrosse are big, thirsty, and underpowered. The Lucerne has a 3.8l V6 that only puts out 197hp. In comparison the 328i that I got has a 3.0l I6 that puts out 230hp. The Lucerne is also rated at only 16 city/ 25 highway. That's pretty bad considering the Nissan 3.5l engine puts out over 100 more horsepower and gets the same fuel economy. The LaCrosse is slightly better. It's V6 is also 3.8l but it gets 17 city/ 28 highway.
So I'm living on planet earth where those numbers are considered thirsty for cars in their classes. The Honda Accord V6 gets 19 city 28 highway and puts our 268hp. Don't make me break out the numbers for the V8 versions of the LaCrosse/Lucerne, those are even worse. GM needs to refocus fast. Instead of wasting time making the Traverse, who's purpose is essentially filled by the 3 other Lambda CUVs, they should be bringing the Beat here. We don't need a fourth Lambda, but we DO need the Beat.
Vintage 4:48PM (8/07/2008)
They. Made. The Same. Mistakes. Twice.
For that, let them die. The big three was big on SUVs, and ignored small cars. They don't deserve government ANYTHING.
Reply
Icon149 4:58PM (8/07/2008)
Vintage it isn't about what they deserve it is about what the country needs, and the country needs the big 3. we need the engineers and designers and middle managers and assembly lines and component plants. if the big 3 die and all of the cars they would have built and sold in the usa, still get built in the usa, then maybe the US economy can weather it. but i don't see a lot of korean cars getting built here in the future, and once chrystler is chinese you can bet they won't be paying UAW wages to build cars on our shores. you can Hate all you want, but the US economy and alot of jobs completely unrelated to the auto industry are at stake.
communist.
Shipey 5:00PM (8/07/2008)
@Icon149
CAUTION: Don't feed the trolls.
Farris 5:13PM (8/07/2008)
Wow. For once, I agree with Vintage.
I would hate to see the American car manufacturers go, but they are so freaking short sighted that they refused to plan ahead for the time when oil would go high again... and refused to scale ladder-frame vehicles back when the swing started. It would be a shame to see them go, but it's their own damn fault.
Vintage 5:15PM (8/07/2008)
What this country needs is less decision making based on "needs and wants", rewarding failing companies for stupid decisions. Survival of the fittest, and government money won't fix anything. It'll just pad the pockets of the CEOs in the big three. That's it.
djSyndrome 5:17PM (8/07/2008)
Troll? No, just someone who sees the domestics for what they are. On the hopes of unlimited cheap oil, they sunk all of their money into profitable SUVs, needless money-losing acquisitions of luxury marques (Aston Martin? seriously?) and wasteful engines while they let their small car development languish. Now that Americans suddenly care about gas mileage, they've been caught with their pants down.
I'd hate to see Ford or GM go away because their European divisions offer some truly great cars (which need to be brought here, uh, yesterday). Chrysler is a stain on the industry and can die in a fire.