Bankruptcy Looms for Chrysler and General Motors
Ford posts a big loss but says it has the cash, for now, to keep going
As auto giants General Motors and Chrysler struggle to avoid bankruptcy, Ford announced today that it can make it through the year on the $21.3 billion in cash it currently has and that it does not plan to seek federal aid, unlike its two domestic rivals.
That hardly means that Ford isn't facing obstacles. The company posted a net loss of $1.4 billion over the first quarter, $2.3 billion worse than the profit it made in the same period a year earlier. Even so, that's better than analysts had expected. "Despite the challenges, Ford made strong progress on our transformation plan," a statement from Ford's chief executive, Alan Mulally, said. Ford has taken several major steps in an attempt to get out of the red, such as changing its collective bargaining agreement with the United Auto Workers to slash domestic labor costs by $500 million. The company also reduced its structural costs by $1.9 billion.
Ford's domestic rivals are faring far worse. Chrysler and General Motors submitted viability plans earlier this year in order to qualify for more funding from the government, but both plans were rejected. "After careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting," President Obama announced at the end of March. Instead, Chrysler and GM were given more time to negotiate with their stakeholders to come up with business plans that would "justify an investment of additional tax dollars," Obama said.
Chrysler is hoping for up to $6 billion in aid on top of the $4 billion it has received. But as it comes up on the April 30 deadline for a new business plan, some insiders reportedly have said that the Treasury Department has told Chrysler to prepare to file for bankruptcy as early as next week. Meanwhile, General Motors, currently propped up by $13.4 billion in federal loans, said yesterday that it will temporarily close 13 assembly plants in North America this summer. The closures, which will last for up to 11 weeks, will affect almost 24,000 workers and thousands of suppliers and local businesses. Sales at General Motors fell 49 percent in the first quarter.
Reader Comments
A Way to Prevent Bankruptcy
"We might still be able to compete..using an emergency tactic, where labor and business can agree to minimize wages and benefits "up-front". They could agree to "backload" ....by setting a much larger predetermined profitsharing level, say 50%." Standardize design like Volkswagon did from one year to the next, and make repairwork ergonomically easy and efficient.
But most importantly, allow the manufacturer a tax credit for profitsharing. Allow them a 60% tax credit on every dollar returned to workers, on a regular basis. This would also be a built-in stimulus for the economy.
For a more detailed treatise on the tax credit for profitsharing see www.profitsharinguprising.com it is free online for all to see.
We should encourage all businesses and industry, workers and owners alike to join the profit-sharing uprising.
Race to bottom
Most industries that have offered good benefits and pay to the majority of their employees have already suffered the fate that GM looks foward to. This trend is bound to spread. Healthcare and pension costs make any legacy business uncompetitive with rivals that do not operate with these costs. The standard of living for the majority of people in this country has been going down for years and this trend will continue. Free market capitalism only works for those at the very top of the income distribution.
General Motors
Problem with GM is simply the market. It is not like Wal-Mart where giving up eating is an option. Like housing purchasing a car is a major investment. That is something that can be avoided in an economic crash. The government involvement is likely to make GM situation worse. Oddly, the government claims it is trying to save jobs but from what it is doing to GM only increases joblessness. I don't see GM surviving because of government decisions. Still we can always buy Japanese cars. On the other hand the government acting in its normal ineffective fashion going up the down staircase.
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