Blog: Dave LeggettCold wind a blowin' at the Cobo

Dave Leggett | 12 January 2009

Attention is sure to swing back to Detroit this week. The Motor City has its annual motor show on, but this year it's less about the glitz and the new models (of which there is hardly a surfeit and some manufacturers are also notable by their absence).

The issue playing on most minds is the economic recession, what it means for automotive markets and indeed its impact on the industry as a whole. And the usual auto show displays of corporate bravado and self-confidence might not sit too well with the cold reality of plummeting sales, shuttered plants and survival strategies that are far from a done deal.

While there has been some federal help for GM and Chrysler, that was emergency cash to prevent otherwise imminent bankruptcy. There is still plenty of work to be done in terms of a next phase. And the spectre of Chapter 11 for GM hasn't gone away.

One curious comment last week came from the UAW's Ron Gettelfinger who said that he believed GM now has enough liquidity to get through the storm that's coming. That sounded a bit optimistic to me and I asked our financial sage, Rob Golding, to look into it. You can read his thoughts by clicking on the link below.

Thinking about it, the UAW might want to publicly say that GM is okay so that it can avoid making further concessions. Perhaps Mr Gettelfinger is worried that he doesn't have the membership mandate for wage cuts. He's maybe got a tricky path to tread, but the seriousness of the crisis still facing the Detroit Three should not be underestimated.

The next few months will be critical in terms of getting credible plans for viability together and convincing Washington that Detroit needs something more than a cold shower in Chapter 11 would provide. If the UAW doesn't move further, its actions may make the very outcome it fears most even more likely.

Wriggle room is small. There's no real sign that the market environment will get significantly easier anytime soon. In fact, that subject remains at the centre of things. It was when the market projections for the final quarter of last year collapsed that the yawning liquidity gap opened. Assumptions and market projections for this year are similarly charged - and I can understand why the market forecasters may be burning the midnight oil. When will we hit bottom? The uncertainties surrounding the economy are bigger than I have ever known them. Financial plans will have to be worked out on some very conservative numbers.

Detroit's motor show this year is mainly about the big cheeses in suits and what they say (and who they are talking to and what they really mean), rather than the metal on show. As Motown's Martha & the Vandellas sang it, there's nowhere to run to and nowhere to hide.

GOLDING'S TAKE: Can anyone help GM with the maths?


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