Chrysler, GM continue to not go bankrupt
July 11, 2008
GM and Chrysler have been up against it recently, with both automakers cutting production and dropping models in light of declining sales. As they continue to bleed red ink, Wall Street has begun speculating that one or the other will be forced to declare bankruptcy soon. The two continue to insist they're more than capable of weathering the current hard times, and exciting new products will put them back in the black soon. But despite this the rumors persist, and now both are reassuring the public -- yet again -- that they're not going under anytime soon.
Last week a Merrill Lynch analyst said that in spite of a new restructuring plan and continued layoffs, without an additional $15 billion in cash it was "not impossible" that GM would declare bankruptcy. This sent the automaker's stock tumbling amid rumors that GMC or Saab would be dumped, and sales chief Mark LaNeve quickly sent dealers a letter reassuring them that no further brand cuts were planned for the time being. Now in a continued attempt to put out the fire, even GM CEO Rick Wagoner is stepping in, telling reporters that Lynch's conclusion is "inaccurate" and insisting "we don't have plans to eliminate any more brands." Even if truck and SUV sales fell off even further, according to Wagoner the company could just cut additional production. Meanwhile the General and Wall Street no doubt would agree that products like the Volt and compact Chevrolet Cruze can't arrive soon enough.
While GM responds through the press, Chrysler is rebutting its own bankruptcy rumors more formally. CEO Bob Nardelli recently admitted that despite new incentives the automaker has experienced its "lowest sales level in 16 years," causing word to spread that the company was in dire straits. Now co-president Jim Press and executive vice president of North American sales Steven Landry are following LaNeve's lead, sending dealers a letter insisting that the company isn't in a cash crunch, and that "the suggestion of a possible bankruptcy situation is without merit." Imploring them to "hang in there and fight for every sale during this period," Press and Landry also pointed out that the company is trimming production of its gas guzzlers to focus on higher-mileage models for the rest of the year.
The rumors of Chrysler's demise originally stemmed from reports that the automaker recently received a $2 billion loan, of which $1.5 billion came from former owner Daimler. While many thought this was a sign of financial trouble, Auburn Hills now insists it is part of new parent company Cerberus' original purchase agreement, and in no way out of the ordinary. Both GM and Chrysler are adamant that they're doing fine, and insist current losses are nothing to worry about and a bright future lies ahead. Yet despite their protests, the rumors will most likely continue.
Source: Automotive News (Subscription required)