Big Three Plant Closings - December 18, 2008

Is anyone out there car shopping these days? As the Big Three continue to wait for Congressional approval of a bailout, Detroit’s automakers have begun to take action to stave off bankruptcy that their companies are surely headed for.

In what appears to be a drastic move by one of the Big Three, Chrysler announced this morning that the company is closing all 30 of their North American production plants for at least a month, if not longer.

Chrysler, in efforts to cut costs, stated that they were extending the normal two-week Christmas break, which begins tomorrow, to January 19 at the earliest. The reason, auto sales have been horrific over the past several months, and with the company’s mismanagement, the company needs to cut production to save as much money as possible.

Back in November, Chrysler dismissed nearly 5,000 salaried employees to reduce costs, and by the end of the year, the company plans to cut an additional 1,800 hourly employees in order to save money.

Chrysler claims that they will have $2.5B in cash at the end of this year, the bare minimum for the company to meet the needs for payroll, pay suppliers and keep the company operational. Chrysler, which is privately held by Cerberus Capital Management, is seeking $7B in loans to make it through 2009.

To top it all off, there are customers out there that are willing to purchase Chrysler, Jeep and Dodge products, but with the crisis within the consumer credit markets, the dealerships aren’t able to close the deals due to the lack of credible financing.

General Motors (GM), another intrical part of the equation, confirmed reports that they would temporarily suspend production in 20 factories across North America, along with reducing output in the remaining plants.

Recently, GM petitioned Congress for a $4B handout for the company to remain solvent by the end of the year. GM also has their hand out for an additional $14B in federal loans to help them get through 2009.

So where is Ford (F) in of all this? They too are suspending production at their assembly plants. However, they are only shutting down 10 plants, and only for an additional week in January after the holiday break.

With U.S. sales down 31% in November, and off more than 20% so far this year, Ford still sits in a better position than the other two. Ford requested a line of credit of $9B from the government, but states that they have enough cash to get through all of 2009.

While Detroit’s automakers continue to wait for a decision, the affects of the economic downturn has reared its ugly head around the globe.

Honda Motor Corp. (HMC) acknowledged today that the company would impede their expansion of plants in Japan, India, and Turkey, while cutting nearly 500 jobs in Japan through February. Honda also stated that they would cut vehicle production by nearly 120,000 in the company’s upcoming 1Q.

Toyota Motor Corp. (TM) announced today that the company would delay the construction of a plant in Mississippi, which was scheduled to start producing the company’s hybrid-model Prius in 2010.

Finally, the Nissan Motor Co. (NSANY) affirmed that the company would reduce vehicle production by 78,000 in the upcoming quarter, along with relieving some 500 workers of their duties.

The fate of the auto industry lies solely in the hands of Congress on whether the much needed financial aid will be allocated to Detroit’s major players in order to establish some sort of economic stability. If action is not taken, the ripple affects could cause catastrophic consequences that could take decades for the country to recover.

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