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Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Search Search: Weak sales could topple US carmakers despite bailout AFP - Tuesday, December 23 CHICAGO (AFP) - - With a massive government bailout secured, US automakers are focused on a far bigger threat than empty coffers: empty showrooms and spooked consumers. The US auto industry dodged almost certain collapse last week when the government extended 13.4 billion dollars in loans to cash-strapped General Motors and Chrysler. The plan could include an additional four billion dollars from February for GM pending congressional action. But analysts warn it could be a temporary reprieve unless sales improve soon. And few predict sales will increase without significant government help as the United States slips deeper into its worst financial crisis since the Great Depression. "Friday's bailout does not mean bankruptcy for all of the Detroit Three has been avoided," JP Morgan Chase analyst Himanshu Patel wrote in a research note Monday. Ford, another major US automaker, said it would not be part of the loan program. But although it is in a better cash position than GM or Chrysler, the company also suffers from falling car sales. While GM is still at risk of bankruptcy, Patel wrote that he expects both the Bush and the Obama administrations would work to prevent a failure at GM or Ford. But the terms of the deal announced last week suggest that "some sort of orderly down stepping of Chrysler may be in the works," he said, cautioning that this would have a significant impact on a number of auto suppliers. Patel also noted that Bush "made it clear the bankruptcy was still an option" when he announced the 13.4-billion-dollar bailout package. The requirement that GM and Chrysler prove their "viability" by March 31 "could provide the next administration enough room to force one of the carmakers into bankruptcy," he added. Even if the government tries to prop up General Motors, "it is not clear whether GM can achieve the changes that it needs before time runs out," wrote Deutsche Bank analyst Rod Lache. "We still see it as unlikely that GM (or any automaker) will be able to restructure itself to positive cash flow in North America while US light vehicle sales continue to trend around the (annualized) 10 million unit range," Lache wrote. While the terms of the bailout package will help GM accelerate its cost-cutting plans, it will not be able to reach a breakeven point at its current market share level unless US sales reach an annualized rate of 13 million vehicles. But Lache said GM's share of its home market will likely continue to slip from 20 percent to about 18.5 percent. That would push GM's breakeven point to 14.5 million vehicles, he wrote. Few analysts expect auto sales to rebound to that level until 2010 and Lache said he expects demand to remain below trend levels of 16 million units through 2011. There is also the risk of serious production disruptions should the already fragile supplier base be racked by more bankruptcies and liquidations as a result of the dramatic drops in production levels, Lache warned. "Uncertainty over these issues, and uncertainty over the magnitude and duration of US, European, Asian, and Latin American downturns imply that there is still considerable risk on the horizon," he concluded. "There appears to be an increased acknowledgement in Washington that there may not be sufficient capital to support three independent US automakers in that environment." US auto sales have fluctuated between around 16 and 17 million units a year for the past decade. They are expected to reach only about 13.1 million this year and fall to 12 to 12.5 million units in 2009, according to auto pricing and rating website Edmunds.com. Facing the sharpest drop-off in demand in decades after financial markets crashed in September, carmakers began offering huge discounts and incentives to customers but have had little success in increasing sales. "The price point is really not the main issue," said Jesse Toprak, industry analysis director at Edmunds.com. "It's the uncertainty in the market place -- people don't know if they're going to lose their jobs and their homes." The credit squeeze has also had a major impact: about 40 percent of prospective car buyers who used to be able to get low-cost loans are now squeezed out because their credit, while good, is not good enough. "There has to be some incentive for getting people out to shop and it's not going to be just credit or incentives," Toprak said in a telephone interview, adding that the government should develop a plan to boost demand. "If they let the market handle this crisis, the recovery will take much longer and will come at the expense of the domestics." Email Story IM Story Printable View Blog This Recommend this article Average (1 vote) Sign in to recommend this article » Most Recommended Stories » Enlarge Photo Snow falls on cars at a dealership in Detroit, Michigan. With a US government bailout worth US$13.4 billion, automakers in the country are focusing on a far bigger threat than empty coffers: empty showrooms and spooked consumers. 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