Extended Plant Shutdowns the Name of the Game for Automakers as Cash Reserves Run Out

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Researched by Industrial Info Resources (Sugar Land, Texas)--The battle over bailing out the U.S. automakers continues to rage in Washington while the automakers themselves are quickly running out of cash to maintain operations. As a result, all three automakers, General Motors Corporation (NYSE:GM) (Detroit, Michigan), Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler LLC (Auburn Hills, Michigan), have announced plans to temporarily close manufacturing plants in North America in the coming days to allow sales to catch up to inventory and to save money while the debate on the bailout continues.

Chrysler will close all 30 of its North American plants beginning today for a minimum of a month. Sales have continued to decline well into December and are not expected to improve in the near future with tighter credit markets making financing potential buyers a major problem, forcing the struggling automaker to make cuts wherever possible to save money. In addition, buyout offers have been made to thousands of employees in the hopes of cutting overhead.

While the plants are currently scheduled to come back online January 19, 2009, there are no guarantees that this will occur as the automaker will begin having problems paying its bills after the first of the year if a bailout package is not forthcoming. Four of Chrysler's plants will be closed even longer, according to reports. In Ohio, the Toledo North plant, which assembles the Dodge Nitro and Jeep Liberty, and the Toledo Supplier Park, which assembles the Jeep Wrangler, will be closed until January 26, 2009. The Windsor, Ontario, minivan plant and the Detroit Corner Avenue plant, which assembles the Dodge Viper roadster, will be closed until February 2, 2009.

GM has announced it will temporarily close 20 of its manufacturing plants across North America for the entire month of January. This move is also aimed at allowing sales to catch up with production. With its severe financial difficulties, GM is in desperate need of the bailout being negotiated in Congress. It will also be making massive production cuts as it seeks ways to save additional money while it tries and waits for a relief check from taxpayers. GM has also announced that it has halted construction of a new engine manufacturing plant in Flint, Michigan. The plant, which will eventually produce engines for the new Chevy Volt, GM's electric car, and the Chevrolet Cruze, GM's new smart car, will resume construction at some point in 2009. The delay is attributed to GM's need to save cash.

Ford has announced it will extend its normal two-week holiday shutdown in December 2008 by at least a week to January 12, 2009, at 10 of its North American assembly plants. There is a possibility that Ford, which is in the strongest position of the Detroit Three to weather this financial crisis, will extend that shutdown even further or add additional facilities to the list if sales figures do not improve in early January. Ford will also extend the holiday shutdown period at a number of engine, transmission and parts stamping plants to match the assembly shutdowns. Currently, the only assembly plants not scheduled for additional shutdown time in the coming weeks are the Claycomo, Missouri, plant and the Dearborn truck plant.

These extended shutdowns come as no surprise. The struggling automakers are near bankruptcy, although Ford has several more months of ready cash available than either GM or Chrysler, thanks to a multibillion-dollar loan Ford took out several years ago. As sales continue to decline, and there are no real signs that they will improve in the first half of 2009, we can expect additional temporary shutdowns of these facilities. The possibility of permanent closings is also very real as we proceed into the new year. The bottom line remains that the automakers still need to cut production, reduce the number of facilities they operate, renegotiate their respective contracts with the union to eliminate items such as the jobs bank, and restructure their management and business plan to make it viable for a return to greatness. In all likelihood, at least one of the Detroit Three will be out of business by this time next year. We will have to see what happens after the emergency bailout is finalized and the taxpayer money is distributed.

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