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The 2009 Pontiac G8  (Source: Edmunds)

UAW members in Indiana protest proposed cuts, back at a December rally.  (Source: MRzine)
The American auto industry has a tough road ahead before it can hope for recovery

GM and Chrysler have hit rock bottom.  Burning through bailout money and hounded by creditors and union retirees alike, the companies are facing a fight for survival.  After both companies had their most recent bailout plans rejected, and were ordered to make vast changes, both companies have struggled to meet their deadlines.  And despite recent reports that the government is finally going to offer some more bailout cash, both companies still appear to be teetering on the brink for disaster.

Chrysler, according to a report by The New York Times, is preparing a Chapter 11 bankruptcy filing under government supervision, and will likely file as early as Monday.  The government had offered Chrysler $6B USD in loans if it could complete a merger deal with Fiat, but Fiat has refused to commit to such a deal until the UAW makes steep concessions (which appears unlikely) or the company washes its debts via bankruptcy.  The deadline for the merger is next Thursday, but the government may give Chrysler an extension if it files for bankruptcy protection.

The government has reached a deal with the U.A.W., whose members’ pensions and retiree health care benefits would be protected under the bankruptcy filing, as well.  This clears the way for such a filing. 

The only obstacle that remains are the creditors, mostly banks (JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs), to which Chrysler owes $6.9B USD.  The creditors have thus far only offered to exchange $2B USD of the debt for a 40 percent stake in the company, a proposal which Chrysler flatly rejected.  However, a bankruptcy could wipe them out entirely.  A bankruptcy would also likely wipe out the interests of Chrysler's current owner, Cerberus Capital Management, which bought Chrysler from Daimler in 2007.

A Chrysler bankruptcy could rock the supply chain, causing difficulties for Ford and Chrysler as well.  Fortunately it comes around the time of the summer shutdowns that occur frequently in the automotive industry's bad years.

Meanwhile, GM also fights for its life.  In GM's case, it hopes to avoid bankruptcy by slashing brands and dramatic restructuring.  According to automotive site Inside Line, a source and GM says that the company will officially kill the Pontiac brand on Monday.  The brand is currently labeled a "niche brand".  The announcement would reduce GM's brands to four -- Chevrolet, Cadillac, GMC and Buick.  It would end the careers of such muscle car legends as the Pontiac GTO and Firebird.  It would also end the young career of the Pontiac G8, which drew strong reviews and revived interest in the brand.

A request for official confirmation from GM, was met with spokesman Tom Wilkson stating, "There's nothing I can share with you at this time. Keep your eyes on our media site. Officially, nothing has changed with Pontiac's niche-brand status, until you hear differently."

While the automotive industry is clearly in a world of trouble, they aren't going down without a fight.  And if the latest news from GM and Chrysler are any indication, the companies are willing to do whatever it takes to keep fighting till the bitter end.





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