The economic meltdown has pushed America’s biggest car manufacturers to the brink of bankruptcy. Ever since, the world has changed dramatically and America no longer enjoys the top car market title. The crisis has spread so far and wide that almost every automobile manufacturer is complaining of lower sales. The automotive landscape of the world has changed forever.
At the centre of meltdown are two major automobile manufacturers Chrysler and General Motors. Their revenues are bigger than turnover in many countries. Following their downturn all eyes are now on Ford which has so far remained independent.
The industry analysts predict that more looses await the automobile sector. Sales of passenger cars are expected to be just around 9.7 million in 2009. This performance will be lower than the 13.2 million units of sale recorded in 2008. It was termed the worst performance in several decades. In this fiscal year, auto manufacturers are looking at 2008 figures like a benchmark for high sales.
Look at why car manufacturers are crying hoarse. More than 2.6 million units of passenger cars are unsold, so far, and lay in dealer lots and holding yards. They include cars of the 2008 and 2009 models. Analysts predict that the net revenue will be around $ 80 billion to $ 100 billion dollars, significantly lower than last year.
Chrysler has already filed for bankruptcy and General Motors is contemplating a way out of bankruptcy. The reason is that it has give 70 percent of equity stake to taxpayers, in return of cash to restructure the organization. GM has so far borrowed $ 19 billion as part of its restructuring plan.
The U.S. federal government, which is to oversee the proceedings expects Chrysler to emerge healthier from the crisis. But General Motors will face a slower and painful transition from its current status.
The deadline for restricting is June 1, which is less than a week away. Industry analysts note that the situation at General Motors looks more complex than those at Chrysler. This is because General Motors is a much bigger entity having its operations spread across the world and involving many governments. Another factor is that General Motors has public shareholders and a broader array of secured and unsecured debt holders, unlike Chrysler. Hence, resolving the debt issues take up considerable time before any restructuring of the company can be undertaken. Valuable time will be lost in talks rather than giving the company a new shape.
Chrysler is luckier as it had already filed for bankruptcy on April 30. The procedures are expected to be completed in about 30-to-60 days time. Chrysler exit from bankruptcy earlier than General Motors, which is yet to file an application in this regard. A key hearing on plans to sell most of Chrysler’s assets to the new entity that emerges from the Fiat take over, is scheduled on Wednesday. If approved, the federal government could allow the new entity Fiat-Chrysler to exit bankruptcy proceeding by the end of June.
However, problems at General Motors are getting thicker everyday. The company has commitments towards its workforce. To help in restructuring, the leaders of the United Automobile Workers Union (UAWU) have recommended that GM substantially reduce its commitment to a trust fund set up for retiree health care. Initially, GM had agreed to pay $ 20 billion in to the fund.
The real challenge lies in restructuring the rest of the 90 percent of the house in order. GM has proposed that unsecured bondholders agree to a deal of debt-for-equity. This will help restructure only 10 percent of the company. However, bondholders have refused it saying that are getting lower than what the labour union is getting.
Even as the June 1 date stares in its face, GM is unlikely to resolve all problems and come out unscathed.
