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January 5th, 2009

Will GM and Chrysler be Ready by March?

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Calculated Risk sarcastically summarized today’s December U.S. auto-sales reports as the “December to Remember.”

As reports filtered in from auto manufacturers, the stark lack of performance in December will weigh more heavily on some automakers than others. Although this year has been the first time Toyota, Honda, and Nissan have all reported such “broad-based declines,” they are not the ones in debt to the U.S. government for $17 billion– unlike some of their American competition.

Chrysler’s sales suffered the worst in December, exceeding expectations by posting a sales decline of 53% from a year ago. Similarly, GM reported a drop in U.S. sales of 31%.

While none of this is at all surprising or even all that newsworthy at this point, it does raise some important questions. Can the two companies — which reported a combined monthly sales decline of 84% — meet the requirements under their government bailout, or pay back their loan on time? How can two companies already in debt, which continue to post double-digit monthly-sales declines, return to profitability, or possibly prove that their “plan for viability” has any hope of success?

Perhaps Washington has delusions that it can sell some old auto plants for $17 billion to get back its money. It will probably cost the government more to clean up those old sites (to meet its own regulations) than it could get for selling the plants and the land underneath them.

Whatever plans GM and Chrysler have under their sleeve to entice American car buyers are largely based on the hope that consumers will be buying cars. Given their status, how can GM and Chrysler realistically pay back their loan on time? As Forbes puts it:

Without a surge in sales, which can only come with an economic recovery, it is not reasonable to expect Detroit companies to come up with profits.

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2 Responses to “Will GM and Chrysler be Ready by March?”

  1. WheelScene Says: January 6th, 2009 at 2:28 am

    Now I think economy of every country is in good position so Lets think every thing will be normal soon.

    Rose.

  2. Tim Manni Says: January 6th, 2009 at 11:01 am

    Rose,

    We can sure hope everything will be normal soon, but that doesn’t necessarily mean it will. I just read today that Toyota has planned to close their Japanese plants a total of 11 days in Feb. and March. Personally I think that’s a smart move. Just one of the many lessons we can learn from foreign automakers.

    Thanks for reading and commenting,

    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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