The Auto Writer

On Wednesday of this week, Chrysler announced that the automaker was shutting down all of its production facilities at the end of shift on Friday, December 19 and would resume production no sooner than Monday, January 19, 2009. Chrysler management said that they were taking this action to align production with market demand, effectively extending its holiday season production shutdown by several weeks.

The move by Chrysler could be interpreted as ominous, as the automaker noted that they aren’t definitely resuming production on January 19th while also noting that 20-25% of Chrysler buyers are not able to close their deals due to the lack of available financing. Ever since the financial markets began their collapse this past September, the credit market have tightened considerably. Money is available for lending, but many lenders have raised their credit requirements as well.

Yesterday, reports that Cerberus Capital Management, LP (80.1% owner of Chrysler LLC with Daimler AG holding the remaining shares) announced that they had reopened merger talks with General Motors for its Chrysler unit. Later, GM spokesman Greg Martin flatly denied that talks had resumed when asked by CNN. Reportedly, Cerberus expressed that it was interested in “giving away” a piece of Chrysler to GM though the meaning of that statement wasn’t entirely clear to analysts.

Waiting on Washington

Sometime today, the Bush Administration is likely to lay down what it plans to do to tide General Motors and Chrysler over for the next two months, long enough for the Obama Administration to take office and figure out what they’ll do for (or to) the auto industry.

Hardly the lame duck president that most liberals have been calling Bush, ironically he has within his power to save GM and Chrysler or let them twist in the wind. My thinking is that Bush will offer a rescue package that will keep Chrysler and GM functioning for the next few months with big strings attached.

In particular I see that President Bush will require:

That GM and Chrysler swallow a poison pill – the federal government will insist that the companies agree to a pre-packaged bankruptcy deal backed by federal guarantees. Indeed, Ken Elias of The Truth About Cars, agrees that Moody’s prediction that a “Pre-packaged bankruptcy with government assistance” plan was the one most likely to be offered by Bush. This move would guarantee commercial lenders for future debtor-in-possession (DIP) financing while ensuring that new car warranties are also guaranteed.

Other scenarios are possible, but would likely cost the federal government tens of billions of dollars, while a structured bankruptcy would force the two automakers to restructure. Over time, I believe GM and Chrysler will merge spelling the end to Chrysler as we know it while giving GM the opportunity to shut down virtually everything but Cadillac, Chevrolet and Buick. A few Chrysler products could be saved, perhaps the entire Jeep line, but everything else would be liquidated.

2009 is going to be an ugly year, however with the federal government backing what amounts to be a structured shake out, that move should leave GM in a better position going forward. Ford, meanwhile, has a terrific opportunity to pick up some market share and position itself as America’s top automaker. The automaker could still receive its line of credit from the federal government, but that might wait until a “car czar” is appointed by Obama to oversee the US auto industry.