With Standard and Poor's putting General Motors, Ford Motor, and Chrysler (and their respective finance companies) on credit watch with negative implications, the big issue is not just the deteriorating auto market, it's the potential liquidity crisis looming for these firms.
But nobody is predicting they will go bankrupt in the near future. In fact, they have plenty of liquidity to get through 2008. No, the real question is what happens if their finances don't improve by the middle of next year.
In short, the Big 3 are now in a race against time. They need to quickly shift gears and come up with more of the models that will sell (cars and crossovers) while pulling back on those that don't (trucks and SUV's) and in the process try to limit losses. In the best of times that's a tricky move. But in a weak economy it's like walking a tight rope.
That is what's scary about the downward spiral the Big 3 find themselves in. Nobody knows when gas prices will drop enough and consumer confidence will pick up enough to give these guys some breathing room. The only thing that seems certain is that June will go down as one of the worst months for auto sales since the early 1990s, and monthly truck sales may be their worst in decades.
The Big 3 are scrambling to make the right moves. Ford is now delaying the roll out of the re-designed F-150 pick up truck. It will hit showrooms in November instead of August to allow dealers more time to clear out the old F-150's that aren't selling. And GM has put its SUV and pick-up development programs on hold as it re-evaluates the market. Chrysler is also moving quickly to roll out more cars and crossovers.
This summer is turning into the perfect storm for an already battered auto industry. Here's hoping Detroit can ride it out.
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