The motor industry is in deep trouble, writes MICHAEL McALEER, Motoring editor,and not everyone will survive the changes
THE TRAVAILS of the motor industry show no signs of abating as two of the big three US car giants edge closer to massive restructuring and potential bankruptcy protection.
The Obama administration rejected survival plans presented over the weekend by General Motors and Chrysler, who now face deadlines of 60 and 30 days, respectively, to come up with new, realistic plans.
Along with the rejection came a request for GM chief executive Rick Wagoner to step aside. He has now been replaced by former chief operating officer Fritz Henderson.
Henderson has experience of implementing significant cuts and change as regional boss of the firm’s European and Asian operations and is regarded as a decisive leader, which will be vital if the firm is to survive.
As Henderson said yesterday at a press conference broadcast on GM’s media website, the government outlined the needs from the new viability plans and cuts: “They’ve told us to go deeper, go harder, go faster.”
They need a sustainable plan that includes cutting debt, cutting costs and reducing output. After those changes, it needs to change output to sell only brands and models “that pay the rent”. That clearly spells the end for several brands.
A deadline of March 31st was initially set for decisions on Hummer and Saturn. It has missed the deadline for both but expects to have a decision on Hummer in weeks, after talks with several potential bidders.
As to the future, Henderson says the next 60 days will decide if the firm can implement the changes needed.
“It’s not going to take 60 days to find out if we can implement the changes out of court. If we have not restructured by June 1st, we will go to court.”
As for European operations, GM has outlined its plan to cut Saab loose and is looking to the firm’s management – and the Swedish government – to find a buyer. Indications are that its legacy may ensure its survival.
At Opel, years of centralisation schemes with GM’s US operations make separating the German brand complex, but it is planned to take an active investment partner on board to keep operations afloat.
With GM claiming it needs €3 billion in outside investment to maintain European operations, the German government may have to foot the bill. If its government were to invest, the question remains as to whether they would have the perseverance to make the necessary cuts to output, which will mean job losses and potential closures. Delays in implementing such cuts put GM in its current impasse.
Things don’t look much brighter at Chrysler, which has cut volume and dealer numbers but has been forced to look for help in Europe. However, the 30-day limit to reach a deal with Fiat seems incredibly short. President Obama wants an alliance where Fiat would get a 35 per cent share in the US car firm in exchange for working with its brands to create a range of smaller, fuel-efficient cars.
The problem is that, apart from legal and technical issues, the logic of such a deal is not clear. For Fiat, it may increase volume and access to the US market, but even if the market changes towards more fuel-efficient models, the reality is that small cars have never been profitable in the US. Many have tried to wean urban motorists to small models, particularly the Japanese, but they have never made money on these models. That would not bode well for rebadged Fiat models.
What’s more, the $6 billion promised to tide Chrysler over while new models come on-stream is unlikely to see the firm through re-engineering. Cars will have to be reworked to meet US standards and, while this is taking place, Fiat will be expected to start contributing to the firm’s running costs.
It’s decision time for the car market. Earlier this month, Martin Winterkorn, chief executive of Volkswagen, said he could see only see the survival of one Japanese firm, perhaps a few Chinese, two or three Europeans and an American. Clearly not even the most iconic brands can take survival for granted.