The Car Czar: Auto Firms May Go Bankrupt Anyway

December 16, 2008 by Douglas A. McIntyre

Ford1The car czar is a joke, a way to get a few billion dollars to GM (GM) and Chrysler while they move their companies in better shape for Chapter 11 filings.

The two car companies are not likely to get what they want from the UAW, suppliers, and creditors without some kind of fight. Who wants to walk away with the smallest piece of the pie?

While The Big Three may come to the car czar with excellent plans and he may force the union and suppliers to their knees, the one thing he cannot do is increase sales.

By many estimates, total domestic vehicles sales could drop to 11 million next year. That would mean units shipped would drop another 10% from the already catastrophic levels they hit in 2008. On top of this, the Japanese are likely to take more market share aided by concerns among consumers that buying cars from companies which might go bankrupt is a bad idea.

According to Bloomberg, "The U.S. Treasury may adopt a plan that would let a car czar or the Treasury Secretary force General Motors Corp. and Chrysler LC into bankruptcy if the automakers don’t show they can survive without government aid."

That will give the new king of Detroit time to pour over balance sheets, UAW contracts, supplier pricing, plant production, and product development programs. Between when he steps into his job and the end of March, which is the deadline for the auto firms to put in their restructuring programs, enough information will have been collected to hand a roadmap to a bankruptcy judge.

The czar will also have December, January, February, and March sales and market share data and a very good look at April.

Sales number for The Big Three will still be sliding and sliding sharply in Q1 2009. That will give the czar only one choice.

Douglas A. McIntyre