How Much More Bad News Can the US Automakers Take?

By Brendan Moore

10.12.2008

Last week was a tumultuous week for the American car companies. Here’s a quick list of what happened:

Renault stated that it might consider “merging” with Chrysler.

GM shares fell to their lowest price since 1950.

J.D. Power predicted that global auto sales would “collapse” in 2009, led by a dramatic drop in the U.S. to 13.2 million light vehicle units sold next year. Some people (I raise my hand) think it will be even less.

GM denied it would declare bankruptcy.

Ford denied it would declare bankruptcy.

Several media outlets reported that struggling GM had very recently discussed trading their share of GMAC to Cerberus for all of really-struggling Chrysler.

It was also revealed that GM had merger talks with Ford a couple of months ago, and that Ford broke those talks off, deciding to go it alone.

Ford is considering selling almost all of their 33.4% stake in Mazda in order to raise money.

Barron’s reported that GM would soon seek a bailout from the US federal government. GM responded that they have not approached the government about a bailout, but all options are open.

Domestic new-car dealers in the US are now going out of business at an alarming rate because they cannot obtain floorplan (inventory) financing.

What news will this week bring? Whatever it is, it’s not looking likely that it will be positive news. For Ford and GM, this has got be a case of insult added to injury. Both Ford and GM have made tremendous strides lately in revamping their lineup towards smaller cars, introducing hybrid powertrains, dramatically increasing quality and appeal of their cars, cutting costs, etc. only to be whacked over the head by a staggering drop in demand driven by high gas prices, a deep recession and a meltdown in the credit markets.

And Chrysler? It doesn’t seem that Cerberus, the owner of Chrysler, wants to be in the car business anymore. In fact, it seems like they want to get the hell out of the business as soon as possible. They picked up Chrysler for nothing, basically, and had delusions that they were going take those other auto manufacturers to school by leveraging their in-house superb management competencies. They went out and got even more of the same when they hired Bob Nardelli. It appears they misjudged the degree of difficulty in executing their turnaround strategy.

I don’t think I’m going out on a limb here when I predict this last quarter of 2008 is going to produce more change in what the US auto industry looks like going forward. Events are transpiring so quickly now that there may be some seismic change before the end of this month.

Stay tuned.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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2 Comments

  1. There could be only the beginning, European automakers will face the same music more sooner then we taught. Then we could ponder what’ll be the fate of the smaller Japanese automakers like Suzuki and Mitsubishi…

    And Peter DeLorenzo writen a rant about this more earlier then usual and he mention a scenario who could involve GM, Chrysler and….Carlos Ghosn.

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