The Detroit Big Three; General Motors Corp, Chrysler LLC and Ford Motor Co., are preparing a cost saving plan to put before the Congress next week with which they hope to get $25 billion in emergency loans. Tightened liquidity conditions in the US have prevented consumers from getting auto loans leading to US auto sales hitting a 25-year low last month.
However, before the US economy crashed this year, the Big Three of Detroit were already losing money due to a shift in demand towards more fuel efficient vehicles while these carmakers mainly churned out sports utility vehicles and small trucks that were profitable in the '90s.
Last week the US Congress sent the chiefs of these companies back to Detroit for failing to show a restructuring plan that would enable them to attain profitability. The Congress has given them time till 5 December and new hearings will begin next week.
GM has said it may run out of cash to run operations by the end of the year, and its board has reviewed the possibility of bankruptcy.
One option the company is said to be considering is to restructure its brand portfolio by shedding Saturn, Saab, Hummer and Pontiac brands. By coming up with an effective restructuring plan GM hopes to receive $12 billion in federal funds to shore up its finances.
The brands will be shed or sold to add capital to its deteriorating cash reserves and reduce overlap. The company will retain its other brands including Chevrolet, GMC, Buick and Cadillac.
GM is expected to raise $230 million by selling its entire 3 per cent stake in Japanese automaker, Suzuki Motor Corp.
Analysts say it is almost imperative for the US government not to let the Detroit Big Three collapse. The collapse of General Motors alone would cost the government $200-bn and millions of jobs and lead to a devastating impact on the country's economy.
GM reported a net loss of $2.5 billion in the third quarter of 2008 and spent $6.9 billion in cash in the same quarter.
General Motors is learnt to be thinking of eliminating models like Pontiac, Hummer, Saab and Saturn. Pontiac's sales were the highest in 1978 and are down 21 per cent this year, Saturn's sales peaked in 1994 and are down 19per cent this year, while Saab sales peaked in 2003 declined 31 per cent this year. This is against a 15 per cent industry decline.
The company chose the brands on various grounds. Pontiac offers no differentiation from other General Motors models, with the exception of some unsuccessful rebadged older (GM Australia) models.
Saab seems to be a dying brand going by its falling sales and only 105 dealers.
GM started the Saturn project in January 1985 in order to compete with Japanese brands like the Toyota in the United States. Saturn was touted as a brand with an unmatched sales and service experience. The company struggled with a limited model range for years, but now has its strongest lineup. The brand's sales are down 19 per cent so far this year.
Brands like Chevrolet, GMC, Buick and Cadillac are likely to remain.