A race for survival

Our view: GM, Chrysler have just a few months to cut the deals needed to stay alive

December 22, 2008

This is no time for celebration in Detroit.

General Motors and Chrysler are on life support now that the Bush administration has given its approval to a $17.5 billion loan. But the car makers have just 100 days - to March 31 - to prove their future makes economic sense. If they don't, the government has the right to reclaim the loan money and the companies will be headed for bankruptcy, with their hopes for survival significantly diminished and more than a million jobs once more in peril.

The companies, their suppliers, their dealers, the bondholders and the union representing their workers need to use every minute between now and then to strike deals that will drastically reduce the size of the companies, sharply cut labor and other costs, and set the stage for competing effectively against foreign car makers.

GM executives need somehow to find the will and perspective to abandon favored cars, SUVs and trucks that have fattened their profits in the not-so-distant past. They need to convince suppliers to accept profit margins that will threaten their own long-term health, for dealers to accept consolidation that could put some of them out of business, and for the United Auto Workers to accept drastic cuts in hard-won pay and benefits. Holders of tens of billions of dollars in GM bonds, currently trading at a fraction of their face value, will need to be persuaded to swap that paper for company stock with unpromising future value.

And if successful, all of that will still lead to radical downsizing, because that's the only reasonable path to success.

That's not the only challenge. In the middle of a recession, GM and Chrysler will have to persuade millions of consumers to buy a new American car and persuade banks to provide loans at reasonable rates for those purchases. All of that must happen because the companies need to sell a reasonable number of cars to produce the cash flow to fund their operations and pay their remaining debt.

GM and Chrysler shouldn't waste this opportunity, believing that President-elect Barack Obama and the new Democratic Congress will offer them more time and money and better terms. Two-thirds of the American people don't believe the car makers deserve a government bailout. That opposition will surely harden without a genuine push by GM and Chrysler to reinvent themselves, in which case the car makers may find the new president more responsive to Main Street than to Detroit. .

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