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The automobile industry’s domestic sales figures for 2008 are out, and to absolutely no one’s surprise, they do not paint a pretty picture. With the exception of BMW’s Mini and Subaru, all brands posted losses – yes, even Toyota and Honda. Chrysler took the biggest hit, as its sales were off by 30%. General Motors sales dropped nearly 23%, and Ford managed to do only slightly better with a sales decrease of almost 21%.
In the month of December, Chrysler’s sales were off by a whopping 53%. It is doubtful that even the $4 Billion worth of federal largess funneled to Auburn Hills and the prospects of an additional $4 Billion to come can save the company. All the talk about saving Chrysler takes place in the Fantasyland that is Washington, D.C. In the real world, the company requires $7 Billion every 45 days just to pay its suppliers, and analysts don’t see how the MOPAR brands, at their current mediocre rate of sales, can possibly generate sufficient cash to make the payments:
“Basically they’re done,” said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight in Troy, Mich. “There is no real possibility of turning this thing around as an independent company in my opinion.”
While GM and Ford have scrambled to bring new models to market and improve existing ones to be more competitive with the competition from foreign-owned brands, Chrysler has lagged behind. The fiercely competitive mid-size market provides a textbook example of Chrysler’s problem. This segment has long been owned by the Honda Accord and Toyota Camry. In 2006, Ford introduced its Fusion model, and GM followed two years later with the Chevrolet Malibu, both of which are considered serious entries in the mid-sized class. But Chrysler’s Sebring and Dodge Avenger, both introduced in 2007 as ’08 models, suffer from quality-control problems, middling performance and interior materials which don’t measure up the level of those used by the competition. Although Chrysler has new and improved products in the pipeline, they cannot be brought to market before the company’s sources of cash will have dried up.
Some analysts have said that an acquisition of Chrysler by GM is still possible. But GM has cash flow issues of its own to worry about. Nissan might be interested in buying Chrysler’s truck business, as the two companies have already signed an agreement for Nissan to sell pickup trucks made by Chrysler’s Dodge division. Some other automaker will likely be interested in acquiring the legendary Jeep brand from Chrysler. But none of these options will make the company viable again.
When the CEOs of Detroit’s former “Big Three” went to Washington with their hats in their hands last year, they were hoping to get sufficient funds to make their companies viable again, but they were only able to get short-term help from the Bush administration, ostensibly enough to last them through March. President-elect Barack Obama will be in office then, and they will be looking to him to provide more aid.
But there’s a problem. The United Auto Workers union will also be wanting something from the Obama administration. Last night, GM executives sat down across the table from UAW officials to do some hard bargaining. Under the terms of the deal worked out with the Bush administration, GM has to restructure its entire operation, which means it must reduce its corporate debt by two-thirds, requiring the UAW to accept half of the health care trust fund payments payable to the union from the automakers in 2010 in stock rather than cash. The union would also have to agree to new factory work regulations and accept wages that are competitive with foreign automakers by the end of 2009. Now the UAW is ready to throw a huge monkey wrench in GM’s desperate hopes to remain in business. UAW President Ron Gettelfinger is counting on the Obama administration to be cut a new deal with GM with terms more favorable to the UAW.
Detroit News Auto Insider columnist Robert Snell reports:
In a column published Friday in The Detroit News, Gettelfinger said the Bush administration has unfairly targeted the UAW. “All stakeholders must participate,” he wrote. “Unfortunately, the terms of the loans approved by President George W. Bush single out members of our union, by demanding steeper and faster concessions from the UAW than from any other part of the industry.”
And therein lies the problem. Both the company and the UAW are looking to Obama to be their savior, and even though Democrats are traditionally disposed to be more sympathetic to unions when labor disputes arise, the clock is ticking, and GM is running out of time.
Gettelfinger will try to make the case that his UAW members have already sacrificed much to do their part to save the imperiled domestic auto industry. In the 2007 labor agreement with the automakers, the union agreed to cut starting wages and benefits for new hires to as little as $14 an hour. But entry level workers aren’t the problem. Current UAW workers are paid roughly $55 an hour in wages and compensation. However, when the costs of health care and other benefits for retired workers are calculated, the figure rises to $70 an hour. In contrast, hourly pay and benefits for workers at domestic plants operated by foreign automakers is only about $45 an hour.
The union so far has considered the retirement benefits for its workers to be non-negotiable, and unless it relents, GM may be beyond saving. The company has other fish to fry, including the closing of at least 1,700 of its dealerships and cutting the proliferation of its brands and models, all part of the restructuring plan it agreed to with the Bush administration. Pontiac, Saab, Hummer and Saturn are all candidates for the chopping block. Shrinking its dealership network and phasing out brands will be a costly undertaking and will entail some hard bargaining. It cost GM $1 Billion just to phase out the Oldsmobile brand, and many of its dealers, who have been selling General Motors products for decades, will demand considerable cash buyouts from the once dominant automaker. As hard negotiations continue with its suppliers, dealers and bondholders, the company’s executives are not likely to have much patience left over for bargaining with the UAW. For its part, the union knows that whatever deal it can get with GM will cut the pattern for similar agreements with Ford and Chrysler – if there is a Chrysler at that stage of the game.
With the likes of Toyota, Honda and BMW building cars on American soil and doing it with nearly half of the labor costs that GM must pay, The General will try to persuade UAW negotiators that labor and management are in the same sinking boat. Both sides will be looking to Barack Obama for an answer on how best to save the ship. It is clear that both sides will have to throw a lot of luggage overboard to stay afloat. The president-elect, who benefited from the support of organized labor in the 2008 election, nevertheless doesn’t want to see the domestic auto industry crumble on his watch. Such a disaster would not bode well for his prospects of earning a second term in the White House. If he and his advisors fail to see a way to keep GM viable without sticking to the terms worked out between his predecessor’s administration and General Motors, the union may find itself sorely disappointed before the end of March.