Tuesday, November 25, 2008

Report on the Current Status of the Auto Industry

Saw this new report on the current state of the Automotive Industry. Demand has continued to drop this year, but then it dropped at an even faster rate this last quarter. The Big 3 continue to burn through cash reserves as a result, and soon will be below their minimum cash balance allowed. Here are the scenarios spelled out in this report:

Scenarios with Commitment to Federal Assistance by January 2009
1. Federal bridge loan and a GM-Chrysler merger
2. Federal bridge loan and radical restructuring outside of bankruptcy
3. Federal bridge loan and radical restructuring outside of bankruptcy for GM and Ford; Chrysler assets purchased by competitors.

Scenarios without Commitment to Federal Assistance by January 2009
4. Chrysler files for Chapter 11 bankruptcy; GM & Ford restructure outside bankruptcy
5. Both GM & Chrysler file for Chapter 11 bankruptcy
6. All Detroit 3 file Chapter 11, along with major suppliers

The report also indicates that one or more of the foreign auto makers will probably go away as well. So there's no other knight in shining armor to save Chrysler at this point. It's either GM or bankruptcy. And option #6 is downright scary. Can you imagine how many suppliers would follow the Big 3 off the cliff into bankruptcy? Check out this report, the specific conclusions at the end are dead on.

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