Detroit in Washington Again: November sales figures punctuate industry pitch for loans

The CEOs of the Detroit Big 3 are making their respective pitches to Congress this week for what amounts to $34bn in bridge loans and extended credit lines to keep the American auto industry solvent over the near term.

Senate Banking Committee hearings with Big 3 and UAW executives are scheduled for Thursday (Nov. 4) with House Financial Services Committee hearings to follow on Friday.

Through these processes, members of Congress are beginning to come to grips with just how a declaration of bankruptcy by even one Detroit automaker could - in all probability - cripple the entire industry, including foreign manufacturers with U.S. assembly plants. There are major suppliers in 46 states and dealerships nationwide, if not countywide, putting every Senator and Congressman squarely in the crosshairs of his worried constituency.

The auto industry functions on right-now cash flow and any significant disruption would drive suppliers to the brink of or into bankruptcy. And there's the rub. The supplier network generally serves the entire U.S. auto industry including the Sunbelt plants of the off-shore manufacturers as well.

It's a single thread tapestry; and that thread is cash flow.

Exclamatory punctuation to the Washington drama was supplied by the monthly auto sales reports for November which dribbled out Monday and Tuesday. Subaru fared best with sales for the month down just 7.8pct from the previous November. Every other automaker selling in the U.S. took a double-digit hit percentage wise.

The Big 3 were clobbered.

Ford was best of the lot with Ford/Lincoln/Mercury sales down 29.7pct. Include Volvo in the mix, and FoMoCo took a 32.6pct sales hit. Selling Volvo is a strategic option currently under consideration. The company says it does not require immediate financial assistance and projects that it will return to profitability in 2011. Nonetheless, Ford is requesting $9bn in bridge loan guarantees from Congress to draw on in case of emergency.

General Motors, which has told Congress that it will run out of operating funds by the end of 2008, reported sales of 153,404 vehicles in November, down 107,869 units or 41.3pct from November 2007. Despite moribund sales, the company remained the U.S. sales leader, both for the month and year-to-date by a significant amount.

GM has asked for a $4bn loan by the end of December as a minimum to continue operations. GM's business plan shows a 32pct cut in production with commensurate cuts in plants and personnel. The company will concentrate on core brands Chevrolet, Buick, GMC and Cadillac with Pontiac downsized to niche brand status. Plans are to sell Saab and to explore selling or shutting down Saturn.

Chrysler sold 85,260 units in November, a full 47.1pct decline from November 2007 and is the worst sales performer of the Big 3 this year. The company is requesting an immediate $7bn bridge loan to survive past the first of the year. However, the business plan Chrysler submitted to Congress projects an operating profit in 2009 and increasing market share over the next three years.

The United Auto Workers Wednesday helped grease the skids for passage of the bridge loan package with a concessionary peace offering to Congress. The union agreed to suspend the Jobs Bank program that guaranteed laid-off workers as much as 95pct of their regular compensation. Also agreed was a delay in payments by the Big 3 to the UAW's retiree health care trust in 2010.

Pacific Rim automakers also suffered significant sales shrinkage in November.

Toyota's drive to supplant GM as the world’s largest automaker is tracking in the wrong direction. Toyota's U.S. sales for November plunged 33.9pct to 130,307 units, continuing the trend of sales declines in each month of 2008. For the year, Toyota sales are down 13.4pct.

American Honda did little better in November with a 31.6pct decline on 76,233 units sold. Nissan took a 42.2pct sales hit for the month, moving 46,605 units. Other Far East companies suffering diminished sales for the month compared to November 2007 included Hyundai Group, down 38.6pct; Mazda, off 31.3pct; Mitsubishi, down 36.2pct; and Suzuki, off 46.3pct.

German automakers did little better.

Volkswagen of America sold 14,205 vehicles in the U.S. in November, down 19.2pct from the same month in 2007. Adding in Audi and Bentley, the sales decline was 21.5pct on a company total of 21,290 units sold for the month.

BMW Group sales were down 26.8pct on 19,784 units sold in November. Daimler AG sales of 16,007 represented a sales decline of 29.9pct; while Porsche U.S. sales were almost halved to 1,378 units, a 48.2pct decline.