And If That Didn't Impress You…

by Chris Sturr | November 07, 2008

…two items from the auto industry. From Reuters, again. Seems like some sort of nationalization of this industry is only a matter of time–and time, these days, is extra-short.

First:

Ford posts $3 billion loss, Toyota shares dive
Fri Nov 7, 2008 8:50am EST

By Chang-Ran Kim and Christiaan Hetzner

TOKYO/FRANKFURT (Reuters) – Ford Motor Co posted a $2.98 billion quarterly operating loss and shares in world No. 1 automaker Toyota Motor Corp plunged on Friday after it warned this year’s profits would hit a 13-year low.

Ford also said it would cut salaried expenses by another 10 percent, following on a program that cut such costs 15 percent earlier in 2008.

Analysts on average had expected Ford and General Motors Corp, which reports later on Friday, to post losses of roughly $2 billion each for the third quarter excluding one-time items, according to Reuters Estimates.

In Germany both BMW, the world’s largest premium carmaker, and its archrival Mercedes-Benz Cars of Daimler, posted sharp unit sales declines in October, citing continued weakness in U.S. and western European markets. Porsche is expected to report pretax profit fell 5.1 percent in the fiscal year to end-July, later on Friday.

Toyota shares fell as much as 13 percent in reaction to Thursday’s results.

Car sales around the world are stalling, and analysts said the Japanese group’s policy of breakneck expansion has left it especially exposed to an industry crunch brought on by the global financial crisis.

The credit crisis has meant many consumers are unable to access loan to fund auto purchases.

BMW suffered a comparatively mild 8.3 percent decline in group sales to 113,005 vehicles in October, while Mercedes-Benz Cars saw volumes fall 18.1 percent to 82,500 units.

GM and Ford’s results come at the end of a week that started with reports that U.S. auto sales plunged to the lowest annualized rate in a quarter century in the first month of the fourth quarter.

GM has also said it plans to announce more cost cuts as part of quarterly results.

Faced with accelerating cash burn–U.S. automakers have called for an industrywide rescue package. GM, which burned through more than $1 billion per month in the second quarter, warned on Wednesday the industry’s prospects are dwindling fast due to the “near collapse” in demand for cars.

Both BMW and Mercedes have reduced profit forecasts for their automobile businesses in two consecutive quarters following a sharp drop in demand.

Nissan Motor and Suzuki Motor also issued profit warnings last month.

(Reporting by Chang-Ran Kim, Taiga Uranaka; Writing by Victoria Bryan; Editing by Andrew Callus and Erica Billingham)

And second,

Chrysler cash drains away as crisis deepens: sources
Fri Nov 7, 2008 4:55am EST
By Poornima Gupta and Kevin Krolicki
DETROIT (Reuters) – Chrysler LLC is rapidly burning through cash and being driven to prepare for a possible break-up if it can’t clinch a merger with General Motors Corp or get government funding needed to ride out the economic crisis, people with knowledge of the situation said.

Without new funding or a wrenching restructuring, executives have raised concern about the automaker’s ability to finance its operations from existing cash beyond the first half of 2009, said the sources, who were not authorized to discuss Chrysler’s performance.

Chrysler has had to pay out over $100 million a month to support strained suppliers on top of a total $200 million support to sales through dealers in August and September as it suspended vehicle lease financing, the sources said.

The $11.7 billion the struggling automaker said it had as of end-June has seen a substantial decline because of the company’s deteriorating performance marked by a 35 percent slide in October sales and increasing cash incentives, they said.

Chrysler and its owner Cerberus Capital Management LP declined to comment.

Cerberus and GM had agreed last month on the broad terms of a merger of Chrysler’s loss-making auto operations and those of its crosstown rival but the deal foundered when the Bush administration rebuffed a request for some $10 billion to support it, sources have said.

That setback has put the focus on winning support for a broader federal rescue package for GM, Chrysler, Ford Motor Co and their suppliers that the industry argues would save jobs and protect benefits for retirees.

But Chrysler has been forced to consider a more drastic set of backup plans that could include selling off key business lines — including Jeep, considered its most valuable brand. It may also outsource its finance and human resources, sources said.

As a step toward that hard-landing scenario, the automaker is moving to split up its replacement parts business based on brand so that its Chrysler, Jeep and Dodge operations could be completely separate, one source briefed on that plan said.

That could make it easier to sell off an individual brand.

LOBBYING WASHINGTON

Chrysler Chief Executive Bob Nardelli joined GM CEO Rick Wagoner and Ford CEO Alan Mulally on Thursday in meetings with U.S. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reed.

The three automakers lobbied the Democratic lawmakers — who increased their power in Tuesday’s election that also saw Barack Obama elected president — for up to $50 billion in federal aid, sources said.

The push for aid has been accompanied by increasingly dire warnings from industry executives and their political allies about the cost of inaction and the risk of a failure that would cost tens of thousands of manufacturing jobs.

Chrysler does not release financial information.

While executives, including Vice Chairman and President Tom LaSorda, once touted that lack of disclosure as a strength, the same lack of transparency could now complicate the automaker’s efforts to seek aid under a federal rescue package.

In addition, analysts have said Chrysler’s ownership by Cerberus poses a political problem as a federal rescue could be criticized as a bailout for a secretive Wall Street firm known for its political contacts.

Cerberus is chaired by former Bush administration Treasury Secretary John Snow and its board includes Dan Quayle, who was vice president under former president George H.W. Bush.

Both GM and Ford are expected to post deep quarterly losses on Friday and announce further urgent steps to cut costs and conserve cash in the face of a plunge in auto sales to their lowest in around a quarter of a century.

GM’s president for North America Troy Clarke said late on Wednesday the government and industry faced a critical “100-day” window to secure financing and restructure.

The sharp decline in U.S. auto sales that began in the summer and has since accelerated has hit Chrysler particularly hard.

A pending asset sale is unlikely to be enough to save the day. Though Chrysler is pushing to complete a sale of its Viper sports car line this year, that is likely to bring in $80 million or less, said a person familiar with the brand’s valuation.

U.S. sales of the Chrysler, Jeep and Dodge brands were down almost 26 percent this year through October, and Chrysler’s market share has slipped to just 11 percent in October, putting it in an almost dead-heat with Honda Motor Co for the No. 4 spot in the U.S. market.

Under Cerberus, Chrysler’s captive finance arm, Chrysler Financial, moved quickly to suspend lease financing in August when resale values of its SUV and truck-heavy line-up plunged and threatened deep losses.

But Chrysler was forced to increase cash incentives by $2,000 per vehicle to offset the sudden move to
drop leasing. That cost some $200 million in August and September, the automaker told dealers in late September.

“The lifeboat is coming. We just have to keep rowing,” Chrysler Vice Chairman Jim Press said in a briefing for dealers that also discussed the automaker’s lobbying for government support, according to a person who heard the remarks.

Separately, LaSorda told dealers at the same late September event that Chrysler, which depends on the U.S. market for some 90 percent of its sales, was pressing ahead with alliances and believed it was close to a deal for the Russian market.

(Additional reporting by Jui Chakravorty in NEW YORK)

(Editing by Ian Geoghegan)

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