THE WEEK THAT WAS: When will we hit bottom?

By just-auto.com editorial team | 10 October 2008

Far greater minds than that of your ever-humble just-auto deputy editor's are focused on The Economic Situation as yet another tumultuous week draws to a close. To this non-economist, the roller-coaster ride of the last few weeks shows no sign of ending any time soon as stock markets world-wide continue in free-fall despite massive government injections of taxpayers funds. What future the auto industry in all this?

As we report today, the 'b' word, especially in a General Motors and Ford sense, has reared its ugly head again. Could 'the general' or the 'blue oval', icons of US industry for a century or more each, really go under, ignominiously filing for US Chapter 11 bankruptcy protection (from creditors) as did GM's former parts-making subsidiary Delphi (in 2005) while Visteon almost had to (averted only by an 11th-hour Ford bail-out) also in 2005? No longer does that seem impossible in the light of news this week.

As we reported, fears are rising that the liquidity outlook for GM and Ford has worsened, increasing the chance that they could head into bankruptcy by the end of next year. This is nothing new; there has been talk of such a liquidity crisis for months, supported by both automakers' moves to turn everything they can into cash, particularly GM. Almost a third was wiped off its share price yesterday, too.

The Standard & Poor's (S&P) ratings agency has said GM's credit could fall further into junk status due to a 'rapidly weakening' global auto market and S&P put both GM and its GMAC financing arm on its lowest possible rating: 'creditwatch'. It then did the same to Ford. That makes borrowing cash harder and more expensive for both.

A report by Citigroup this week suggested that if conditions deteriorated further, Ford and GM could be forced into 'drastic spending cuts' including slashing jobs and making new pay deals with unions — or even debt-for-equity exchanges, in which the banks would take ownership of part of the two companies.

The outlook isn't good.

Ford's earlier forays beyond its core business continued to bring grief, too; though it's now shot of the Premier Automotive Group and the Jaguar, Land Rover and Aston Martin units, Volvo is clearly going to be a big challenge for new CEO Steve Odell and his Ford masters as the Swedish automaker this week announced plans to dump another 4,000 Swedish workers off the payroll.

Odell insisted last week at the Paris show he was not there just to sell Volvo for Ford (though you wonder if the cash boost that could provide is under renewed scrutiny in Detroit after this week). Still, our interview with his COO Steven Armstrong (at Volvo since 2001 but he has worked with Odell before at Jaguar and Mazda) suggests the new chief has strong management team support as he wields his new broom.

So there maybe is a glimmer of hope in the emerging markets? Hmmm. Seems they're not immune, either. China September sales figures out today  showed a slowdown for the second month running and India is also cooling because buyers there are finding it harder to get finance in a market where most new cars are bought on tick.

GM, however, will surely draw some comfort from only its small 1.9% year to date slip in all of Europe, with useful gains in the east and Russia, but nearly all emerging markets worldwide are now showing signs of, at best, slowing growth in recent months and the big question for the industry's crystal ball gazers must be: "When will it all bottom out?"

Also this week, India's Tata Motors took the extraordinary step of pulling out of its 95%-complete new Nano plant after local protests over the seizure of land (largely for the adjacent supplier park, we understand) got too much.

Gujarat state's government-supported gain is West Bengal's loss in this highly politicised dispute; we wonder what will happen to the building in the short-term and might an automaker (and its jobs) one day be welcomed back under different conditions (and national and state political control)?

Finally, interesting news that Porsche and Volkswagen might collaborate on a new, entry-level car. They already do, of course, on large luxury SUVs - Porsche's Cayenne and VW's Touareg - and back through the mists of time, I vaguely recall a mid-engined sportscar sold by both brands.

A little internet research soon provided the answer - the mid-engine VW-Porsche 914 conceived in the mid-'60s to plug an overlapping requirement for a new model to plug the gap left by the 356's departure in the bottom of the range that the 912, a budget version of the new 911, could not fill - and give VW a successor to the Karmann Ghia models (remember them, if you're of a certain age?).

That 914 also allowed VW and Porsche, then rear-drive-only specialists, to experiment with the mid-engine layout, which would give the new cheap sportster less tail-heavy handling.

Ah, the memories...

Enjoy your weekend,

Graeme Roberts
Deputy Editor