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This may turn out to be a pivotal week for the US automobile industry as GM and Chrysler are to submit restructuring plans on Tuesday in order to qualify for continued federal aid. The industry’s parts suppliers have already asked the government for $18.5 billion in loans and guarantees. So far the Obama administration has been non-committal as to whether it will respond to the request for more funds. The White House continues to say that the industry is important but that all stakeholders — the manufactures, suppliers, labor, and bankers — must be willing to make concessions.
GM is already raising the specter of filing for bankruptcy protection to rid itself of unsalable assets, contracts and debt obligations. Even in bankruptcy it will likely require an immediate infusion of $5 billion in federal money if it is to remain open beyond the end of March.
Car sales in the US show no sign of reviving. As unemployment and economic uncertainty increase, some observers are talking of sales falling as low as an annualized 5 million cars per year from the current 9 million. Should sales continue falling, the industry will need to contract to about one third its former size unless it is to receive a continuing multi-billion dollar federal subsidy.