Chrysler Not Viable, Sixty Days to Save General Motors

Late last year, Chrysler and General Motors received 17.4 billion Dollars from the US taxpayer to avoid the auto makers being forced into chapter 11 bankruptcy. Three months later, the two companies have failed to secure 21.6 billion in further loans from the American government. A move that now leaves both companies in a perilous predicament.

Chrysler, the smaller of the two companies, has had the most damning condemnation when it comes to its future, with the Auto Task Force appointed by Barak Obama coming to the conclusion that Chrysler is “not viable” in its current form. As a result, Chrysler will get enough working capital to last thirty days, thirty days in which it must conclude its proposed alliance with the European carmaker Fiat. If this merger fails to materialize, the future of Chrysler looks extremely bleak, with Chapter 11 bankruptcy looking like the only option for the third largest automaker in the US.

The news for General Motors isn’t much better, with the one time world’s largest car manufacturer being given sixty days to dramatically restructure and cut costs. A restructuring that has already cost the chief executive Rick Wagoner his job. Forced out at the request of the President because the White House said that the present restructuring plans were insufficient and needed to be far more aggressive if the company is to have any long term future.

Even more worrying for General Motors is the realisation that the government are thinking that a "quick court-supervised restructuring" may prove to be the best option for success. A “court-supervised restructuring” can surely only mean chapter 11 bankruptcy, a move that could decimate any future sales and as a result plunge the company even deeper into the mire. Talk of a Warranty Commitment Plan – government backed warranty schemes for both Chrysler and GM - will do nothing to increase consumer confidence and if anything may have a negative effect. If either company has a viable future, why do they need the government to back up warranties? As was seen in the UK with MG Rover, government backed schemes can effectively speed up the process of failure.

Bankruptcy though, may be the only way GM can survive. Talks with the unions and bondholders have been painfully slow, leading many analysts to think that the only way GM can be restructured is through the courts. With the inevitable backlash that suppliers would feel if either company went bankrupt, hopes are that both companies can meet the demands of the government. A failure to do so will no doubt lead to job losses on a massive scale, job losses that would not just affect GM and Chrysler, but may also drag Ford further into the picture.

So with 30 and sixty days left respectively, Chrysler and GM find themselves in a position where they will have to comply with the Auto Task Force recommendations. Failure to do so can only result in one outcome. An outcome that would have repercussions throughout the world, not just in America.