With Chrysler sinking, Treasury seeking to throw a lifeline
Tighter credit markets are keeping would-be buyers away from their showrooms, Chrysler says. Dealers are unable to close sales for buyers due to a lack of financing, and estimate that 20 to 25 percent of their volume has been lost due to the credit situation.Chrysler claims it is nearing the minimum level of cash it needs to run the company and will have trouble paying bills after the first of the year.
Tighter credit markets are keeping would-be buyers away from their showrooms, Chrysler says. Dealers are unable to close sales for buyers due to a lack of financing, and estimate that 20 to 25 percent of their volume has been lost due to the credit situation.
Chrysler claims it is nearing the minimum level of cash it needs to run the company and will have trouble paying bills after the first of the year.
Operations at the 30 plants will be idled at the end of shift on Friday, Dec. 19, and will not come back online until Jan. 19, 2009, or later.
General Motors will close 20 plants for the entire month of January and cut back production by as much as a third in the first quarter.
Chrysler dealers are voting with their cash; they are stripping a cash management account that finances future inventory in order to infuse cash into their operations.
The cash management account is a program through which dealers can prepay their floor-plan financing costs and reduce their outstanding debt. According to the letter, the program currently offers a 2 percent reward for participating dealers through June 30.
Gilman said the recent withdrawals have resulted in a drop in Chrysler Financial's wholesale capacity, which has left the company with less funding to provide loans to dealers.
"The daily rate of withdrawals has placed a constraint on wholesale that is troubling to us," Gilman wrote. "Continued significant levels of withdrawals from CMA could potentially force us to temporarily suspend wholesale financing."
Gilman asked dealers to try and limit their withdrawals from the account, maintain or even increase their balances.
Meanwhile, the federal government is seeking to throw taxpayer money out the window by propping up these sickly, rapidly failing companies:
The Bush administration appears to want an agreement with the automakers before Dec. 25. It was unclear, however, when all of the particulars might be worked out, said the senior official, who spoke on the condition of anonymity because of the delicate nature of the negotiations.
But the official indicated that the administration was inclined to do more than just keep G.M. and Chrysler alive until President-elect Barack Obama takes office, saying, “Giving them enough money to limp along doesn’t solve anything.”
In the negotiations, the Treasury secretary, Henry M. Paulson Jr., is effectively taking on the role of “auto czar,” which was envisioned in the carmakers rescue bill written by the White House and Congressional Democrats and approved by the House but blocked by Senate Republicans.
In the days since the White House said it would step in to prevent the collapse of G.M. and Chrysler, Treasury officials have been poring over detailed financial data in a meticulous exercise that one G.M. executive likened to “putting on the aqualung” and diving deep into the companies’ books.
They can look at the books until they go crosseyed and it won't tell the feds anything new; American auto companies cannot be competitive in today's world unless their costs of doing business are roughly equal to everyone else's.
But with the UAW unwilling to save some of their member's jobs while letting others go, the Big Three will indeed just "limp along" until the government either stops throwing money down a black hole and allows for bankruptcy, reorganization, and perhaps even mergers or it nationalizes them.
Since the former means a loss of jobs and perhaps even renegotiation of the labor contract, it is far more likely that after a few more such "bailouts" the government will simply nationalize the American auto industry.