The Carnage That Is Called Detroit

Yesterday was the deadline for General Motors and Chrysler to submit their respective recovery plans to Congress in a bid to show that they are making good faith efforts to move forward, with each company beating the 5 p.m. deadline handily.

By last night news of what was in each report began to surface, but I chose to go online to watch a missed episode of The Closer instead. Ever since the networks positioned The Closer and “24″ against each other I’ve decided to watch 24 on Monday evenings while viewing The Closer at a later date. I’m not into American Idol and I certainly did not feel like watching the news!

So this morning I immediately began to rifle through my hard copy of The Wall Street Journal to find out what GM and Chrysler proposed, an easy task since it was headline news for the business newspaper. No shock there.

Not much of what the WSJ relayed was a surprise either because I was previously made aware that Hummer, Saab and Saturn weren’t likely to survive while Pontiac would be scaled back to just one or two models. Going forward, GM seems most interested in preserving its core brands which they have identified as Cadillac and Chevrolet as well as Buick and GMC.

Chrysler won’t be cutting additional brands, at least for right now, but their operation is still in flux pending approval of a possible strategic alliance with Fiat. Fiat has promised to supply Chrysler with several smaller cars in exchange for gaining a 35% stake in Chrysler LLC, an alliance of equally struggling automakers.

GM presented their case with several scenarios mentioned including the possible bankruptcy of the company. Not liquidation bankruptcy as in Chapter 7, rather restructuring bankruptcy as in Chapter 11 of the U.S. bankrutpcy code.

Still, the automaker said that it might need as much as $100 billion if they were to go through the traditional bankruptcy process or the government could “save” tens of billions of dollars by opting for a less drastic approach. Oh, by the way, GM needs an additional $16.6 billion to keep going for the next several months as well as a $7.7 billion loan from the Department of Energy to help develop fuel efficient cars.

Chrysler also mentioned bankruptcy while indicating that a $5 billion loan would keep the company solvent for a bit longer. Both companies are planning to shut down several more factories, trim production levels and lay off tens of thousands of workers. This is without considering bankruptcy, mind you. Expect thousands of dealers and tens of thousands of dealer employees to lose their jobs too.

While General Motors and Chrysler fight for their lives, America’s #2 automaker, Ford, is watching by the sidelines. It hasn’t asked for a government loan, though its request for a line of credit was turned down late last year. Ford has a bit more cash to play with as the automaker has hocked its plants and has been drawing down other lines of credit at its disposal. However, should the economy worsen over the next few months, expect Ford to press the issue and gain government funding.

Reading all of this has left me thinking of one word when it comes to the U.S. auto industry — carnage. There isn’t a pretty way to shrink their businesses nor can pain be kept to a minimum. Everyone smells blood but there aren’t predators coming in for the kill. Instead, the U.S. taxpayer in the form of the federal government is playing ambulance driver, hoping that they can rescue a pair of seriously injured automakers before their very lives have been lost.

I expected that 2009 was going to be a difficult year, but now I believe it will be downright ugly. Ugly for the employees who will lose their jobs. Ugly for the automakers who will lose the last vestiges of their independence and prestige. But extremely ugly for the American taxpayer who will be left paying the medical bills whether the patients recover or not.