AS THE first cold snap of winter kicks in, car workers in Swindon and Detroit are looking to each other for signs that the big freeze in their industry may show some signs of a thaw. A global slowdown is hitting car factories across the world but in the US it has reached a critical point.
In Detroit, known worldwide as Motor City, the big three face a nerve-racking 10 days. Having been sent home in their private jets by the US Congress the leaders of Chrysler, Ford and General Motors will this week sit down together and attempt to pr
ove how a $25bn rescue package from Congress will prevent their industry from careering into bankruptcy.
"We want them to get their act together," said Senate majority leader Harry Reid after Congress refused to offer the stricken car makers a lifeline on Thursday. "The executives of the auto companies have not been able to convince Congress or the American people that this government bailout will be its last," he added, before giving them a deadline of a week on Tuesday to submit their plan. Together the three firms employ nearly 250,000, but analysts say more than a million jobs rely on the industry, so the stakes are high for the US economy.
If Rick Wagoner of General Motors, Alan Mulally of Ford and Bob Nardelli of Chrysler thought they could turn to Europe for moral support, by Friday morning they where under no illusion where Britain's industrial sector stood.
Britain's car industry is feeling the same chill wind as the industry suffers a global fever. Honda has announced a two-month halt of production at its Swindon factory from February while BMW's Mini factory in Oxford closed its doors for three days ahead of an extended Christmas break. It blamed falling sales.
But any support for a UK Government bailout was squashed by Richard Lambert, director-general of the Confederation of British Industry. "We are concerned about what is happening in America," he warned. "The idea of a massive bailout of Detroit is worrying because it would have repercussions in Europe. State aids and competition do not go together. We have to be very, very careful about state aids to industry, and of getting into a world of beggar-thy-neighbour policies, where one country protects an industry or puts up trade barriers."
America's car industry is in crisis. General Motors has admitted it will need between $10bn to $12bn in bailout money while Ford and Chrysler are seeking $7bn each. Their message is centred on a belief that the industry's outlook is so bleak that a collapse is possible.
Due to their massive employment and the fact that they impact on one in 10 jobs across the US, insolvency of one or more of their companies would send shockwaves through the broader economy.
By Friday night the turnaround had begun. With the private jets already binned, Wagoner said he would mothball five North American plants for more time to cut production and keep inventories.
Congress, meanwhile, is weighing a tricky political question: should it spend billions more on government bailouts or run the risk of bearing the blame for a US car industry in meltdown?
Analysts argue that in the long term the Detroit Three can be reasonably confident of getting some help. Next year a sympathetic new President and a large Democratic majority in both houses of the new Congress should pass the bailout. But many are now asking: will it be too late? "One plan is what we're looking for," House Majority Leader Steny Hoyer said of congressional expectations for the industry.
For their part the car makers have pledged to spend bailout money on operations and invest in new fuel-efficiency technology such as better performing engines, hybrids and new electric cars. They have also promised to keep any investments using government cash in the US.
General Motors, Ford and Chrysler had set broad restructuring plans earlier this year and have added to them in recent weeks in response to the deepening downturn in sales. The plans include reducing capital spending and increasing targets for staff cuts. They also plan to delay some vehicle programmes and scale back production at several plants.
But the analyst community remains unconvinced. "Can the US automakers provide a convincing plan?" said Deutsche Bank analyst Rod Lache in a note to clients. "Based on the risks involved, we are not willing to place strong odds on the potential for a bailout before January."
Barclays analyst Brian Johnson said a federal bailout at this point would have more impact on shares of car parts suppliers. "While a bailout would lift a cloud over parts names, we believe GM equity has little value," he said.
Deutsche Bank's Lache, who has a price target of zero on GM stock, said a successful restructuring for the company would mean "shrinking to a defendable core" by cutting weaker brands and shutting factories.
In Europe the condition of its carmakers isn't much better. Market research firm JD Power forecasts that the western European market will shrink by 7.9% this year, compared with a 16% drop in America. But the situation is deteriorating fast. JD Power expects a further 10.5% contraction in Europe in 2009. Renault, which is cutting 6,000 jobs in Europe, thinks the market could shrink by 20%.
Adding to the angst, Asian car manufacturers expect to grow at the expense of their European and US counterparts. China expects to overtake the US as the world's largest car maker by 2015 and its potential is huge. Only 20 Chinese people in every 1,000 owns a car compared with 700 in 1,000 in the US.
Bernhard Mattes, chief executive of Ford's German unit, said that while the company can survive without a bailout from the German state, it hopes the European Union will help the ailing car industry with a loan package.
"We support a $50bn loan from the European Investment Bank for all European carmakers which will give us the possibility to achieve better efficiency and emissions standards faster. We have to push all of our development."
The European Investment Bank is currently assessing whether it will make the loan to the industry, which has been suffering as the economic crisis has caused car sales to plummet. "These would be loans with interest that have to be paid back, so it's not a gift. This is about modern technology and competitive competence for the world market," Mattes added.
Despite the hard times, he said the survival of Ford's German unit does not depend upon a financial rescue package from the German government. "We don't need any money from (German Chancellor Angela] Merkel. We never needed and don't need any state bailout money from the government."
In the US the outgoing Bush administration has criticised the congressional delay, saying lawmakers should consider a plan to let the automakers tap a separate $25bn loan programme for fuel-efficient cars for their short-term cash needs. "Why are they going to kick the can down the road?" said Dana Perino, the White House press secretary.
Supporters of a bipartisan agreement to temporarily divert the fuel-efficiency funds to cover the car companies' operations are hopeful they can win support in December. "We need speed. This is a very, very important moment," said Senator Carl Levin, a Michigan Democrat.
Reid and House Speaker Nancy Pelosi said a $25bn bailout proposal that would have tapped loan money from the $700bn bailout plan lacked enough support in Congress and the car-making industry didn't help matters with high-profile appearances on Capitol Hill. They have also been hammered in the American press for travelling aboard corporate jets to seek billions in government aid and failing to assure lawmakers they wouldn't need more money.
"What happened here in Washington this week has not been good for the auto industry," Reid said. "These guys flying in their big corporate jets doesn't send a good message to people in Searchlight, Nevada, or Las Vegas or Reno or any place in this country. We want them to get their act together."
"There is a perception issue," admitted General Motors spokesman Tom Wilkinson. "We need to be very sensitive to that going forward."
