The future of General Motors, Chrysler LLC and their contributions to the southeast Michigan economy grew darker Tuesday.
GM executives told Congress that the venerable automaker will run out of cash before Christmas if it doesnt get a $4 billion loan immediately.
Chrysler said it needs $7 billion to keep operating.
Even if they gets those loans and the billions more theyre asking for early next year, the two automakers intend to make deep cuts in spending. Those cuts will be painful for the region that supplies the University of Michigan with a huge number of students and employees.
The automakers had to submit to Congress by Wednesday plans for how they would spend taxpayer money to overhaul their businesses.
The cost of failure in this instance would be enormous for everyone, given the broad impact of GM and the domestic auto industry on the present and future U.S. economy, GM said in its submission to Congress. Regionally, a failure at GM would devastate Michigan and other Midwest states that are already reeling with high unemployment and low economic activity.
Ford Motor Co. is in a slightly stronger position than its fellow domestic auto giants. In its submission to Congress, it requested access to a $9 billion credit line but said it didnt expect to use the money unless another automaker goes bankrupt.
If one automaker runs out of cash and cant pay its bills to suppliers, some of those suppliers could be forced to stop building and shipping parts altogether even to healthy automakers. Thats because many suppliers only have three or four large customers. If a supplier were to lose a quarter of its revenue, it could be forced to shut its plants.
Still, Ford said it expects to at least break even by 2011.
GM said it needs $18 billion available from the government. The company plans to use that money to keep the lights on, but also to restructure so GM has fewer dealers, brands and employees; in other words, a smaller payroll and less onerous debt payments. All three companies are trying to shrink to return to profitability. Their plant capacity, workforces and dealership ranks are all sized to build and sell far more cars than the Detroit Three are selling or will likely be able to sell in the near future, excecutives said.
Its the reduction in payroll and employees things that will happen even if GM gets federal loans that will hurt the University of Michigan and southeast Michigan.
The Detroit Threes problems were driven home yesterday when automakers reported their sales for November. The numbers were bleak.
U.S. auto sales dropped 37 percent, and Chrysler sold just over half as many vehicles last month than it did in November 2007. GM sold just 59 percent of its total sales last year.
Things were almost as bad for foreign automakers like Toyota and Honda, who saw sales declines of at least 30 percent.
GM now employs 96,537 people in the United States. Its telling Congress that it aims to shed a third of those, employing between 65,000 and 75,000 in 2012. In 2000, 191,465 people worked for GM in the U.S.
At the end of 2007, GM had more than 30,000 workers in Washtenaw, Macomb and Macomb counties, according to Crains Detroit Business.
Many of those workers have university ties.
LSA sophomore Joseph Sutkowis father is a former GM employee. Sutkowi currently receives a scholarship from GM.
Theres a fairly good chance that I wont be getting another $2,500 scholarship next year from GM, he said. Theyre going to in all likelihood cut that out.