With sales tumbling to levels last seen back in the 1950s, General Motor Corp., Ford Motor Co. and Chrysler LCC updated plans for restructuring and justifying requests for billions in federal aid.
In their newly released plans GM is asking for $18 billion in loans, including $4 billion, this month and another $4 billion in January, to head off a default by the company.
Even Ford, which said it would not need federal cash in 2009, said it needed a $9 billion line of credit on which it could draw if necessary. "For Ford, government loans would serve as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company," said Ford President and CEO Alan Mulally. (See the 50 worst cars of all time.)
Chrysler is looking for a $7 billion bridge loan by the end of 2008. The company also is asking for $6 billion in loans from an already-approved Energy Department program established to encourage production of fuel-efficient cars.
"To be fair, the circumstances are unusual ones," said GM's Chairman Rick Wagoner. "It's been a terrible for the industry. These are pretty bad numbers," he said, adding that the company is stretching its cost-cutting targets in response to collapsing consumer demand. "We hope our case is compelling. We believe it is," Wagoner said.
Overall industry sales dropped 35% in November. Ford actually beat the industry, reporting a sales drop of 30% but GM reported a 41% drop and Chrysler's fell 42%. Nissan's sales dropped 44%, Toyota fell 35% and Honda fell a similar amount. "We cannot continue to operate at these levels or the entire industry is going to go down," said Mike DiGiovanni, GM's director of market analysis, who acknowledged the steep drop in sales in October and November was devastating to the company's finances.
DiGiovanni said GM's number crunchers estimated new vehicle sales, on per capita basis, had dropped to the lowest level since the recession of 1958. "2008 will go down as unlike any other year in the industry, and thus, comparisons to 2007 sales have become irrelevant," said Jim Press, Chrysler chairman.
"In this environment, we need to evaluate sales based on month-to-month trends, with the last two months of the year being especially important to determine if we have established a base for sales in 2009," he said. (See pictures of the recession of 1958.)
"Consumers just aren't showing up, we're going to see flat sales next year [relative to the last half of 2008] and we're not going to see improvement until 2010," said Jesse Torpak, an analyst with Edmunds.com, which tracks auto sales data.
Automakers also took steps to avoid the kind of public relations disaster that dogged their first aid-seeking trip to Washington D.C. last month Ford chief executive Alan Mulally and Chrysler Chairman Robert Nardelli said they would drive to Washington D.C. Mulally, in a carefully worded statement, also said he would reduce his $21 million salary to $1 if the company tapped the federal line of credit.
Wagoner's travel plans are still secret but he won't be traveling via corporate aircraft. Wagoner also said he was reducing his salary to one dollar and four other top GM executives agreed to reduce their cash compensation by 50 percent. Both Ford and GM also announced they plan sell their corporate aircraft.
The automakers acknowledge that they are looking to obtain additional concessions from the United Auto Workers, which has come under intense fire in Congress for its extensive pay and benefit packages. Union leaders are meeting this week in Detroit to take up the issue on whether to re-open their current contracts with the Big Three.
The UAW is expected to give up the controversial jobs bank and approve a change in funding the VEBA trust that is supposed to take over paying for health-care of blue-collar retirees in January, 2010. The $7 billion contribution GM owes its VEBA could be postponed indefinitely, according to Sean McAlinden, vice president of the Center For Automotive Research in Ann Arbor.
However, another contract the union signed with Mitsubishi back in September could become the template for the union's next contract with Detroit automakers. The UAW-Mitsubishi contract, which covers roughly 1,100 workers at the Japanese automaker's plant in Normal, Ill., called for workers to take a 14% pay cut, rolling back wages to $24 per hour from $28 per hour.