GM, Chrysler urged to make cuts to stay alive
DETROIT • When Chrysler was near death and awaiting a government bailout in 1979, then-CEO Lee Iacocca ordered drastic spending cuts and required all checks of more than $1,000 to be approved by a senior vice president.
Chrysler LLC and General Motors Corp. need to follow the same play book now, industry analysts and management professors say, as they try to outlast the debate in Washington over whether they will get billions in government loans.
With no hope of getting credit elsewhere and auto sales at a 25-year low, both automakers are close to having the minimum amount of cash needed to operate.
Today, with GM alone spending $6.9 billion more than it took in during the past quarter and having operations in 34 countries, Iacocca's $1,000 limit might not be practical. Industry analysts and bankruptcy experts say, however, both companies must take similar measures to ensure their companies live long enough to use any loans they get.
"You turn the electricity off. You do things like shut the proving grounds down," said Jim Hall, managing director of 2953 Analytics of Birmingham, Mich.
Top executives of GM, Chrysler and Ford Motor Co. went to Washington this week seeking roughly $25 billion but ran into so much opposition that Congress delayed voting on the bailout until the automakers prove they can be viable.
They must submit a plan to Congress by Dec. 2, followed by more hearings before any vote is taken. That means money won't be available at least until late December, probably not until early next year.
Meanwhile, the companies face huge expenses and a lack of revenue because car buyers are having trouble getting financing or are delaying big purchases because of uncertainty about their jobs.
October was the worst U.S. auto sales month in 25 years. November is looking only slightly better.
Chrysler CEO Bob Nardelli told the Senate Banking Committee his company had $6.1 billion in cash at the end of the third quarter after burning up $1 billion in cash per month from July through September.
GM fared worse. It burned up $6.9 billion last quarter and about $6 billion in the first half of the year and has said it could reach its minimums next month.
Ford, while burning through billions as well, has a stockpile of borrowed money and says it can last at least through 2009.
But without aid soon, GM and Chrysler will have trouble paying bills and may have to seek bankruptcy protection.
Inside both companies' headquarters, teams likely are looking to cut spending any way they can, including delays in new investments, experts say.
"They have to take really drastic steps in their cost-cutting," said Robert Wiseman, a Michigan State University professor who teaches strategic management. "Stop buying everything except for the most critical things they need for their operation."
