Detroit waits for the T-men

The fate of GM and Chrysler rests in Washington - and the outcome is still unclear.

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By Alex Taylor III, senior editor

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NEW YORK (Fortune) -- March 31st is the deadline for the Treasury Department's auto task force to announce how much more money it will extend to General Motors and Chrysler - and what the two tottering automakers will have to do to get it.

All Detroit is wondering what the T-men will do. But a totally unscientific sampling of opinion from industry executives and observers over the past couple of days in the Motor City suggests two major themes:

  • No one yet believes that either company has made a convincing argument that its future will be different than the past. In other words, there is no evidence that these industrial invalids will be able to get out of intensive care any time soon.
  • If auto sales continue at their miserable pace, it won't make very much difference how much money the government can come up with -- neither company will be viable.

With five more selling days left in March, industry insiders expect auto sales to come in at an annual rate of around eight and a half million units. That's about half what the companies would expect to make in a very good month.

In a business with high fixed costs, a persistent sales rate like that is a death knell. It is impossible to make money by running factories on what amounts to a single shift instead of two.

The T-men seem to be expecting the worst. In a recent television interview, Steve Rattner, chief advisor to the task force, was asked if the $30 billion to $40 billion GM and Chrysler are asking for would be enough to get them over the hump.

"It could be considerably higher. I won't deny that," he replied.

"There are a lot of pieces to this. The rate of car sales is the most important determinant."

Neither company has been doing well in the court of public opinion, either. GM has been embarrassed by its inability to get its bondholders to agree on a debt-for-equity swap. They apparently believe that GM stock is going to be nearly worthless, and they don't want any part of it.

Intransigence on the part of the debt holders is also holding up any kind of deal with the United Auto Workers. The union wants to make sure that the suffering is distributed equally before it makes any more concessions.

GM (GM, Fortune 500) didn't do itself any favors by essentially saying last rites over Saturn, Pontiac, Saab, and Hummer. Nobody likes to be associated with a loser, and customers have been staying away from those cars in droves.

As for Chrysler, the common opinion outside of its Auburn Hills headquarters is, "Who needs it?" Its market share has shrunken and none of its products are setting the world on fire. One veteran executive from a competitor looked at the 2010 Chrysler 300C and Jeep Grand Cherokee and asked, in effect, "Where's the beef?" He viewed them as only slightly-warmed over versions of the current models.

Chrysler CEO Bob Nardelli gets some sympathy for having been dealt a weak hand. Daimler, Chrysler's old owner hollowed out the company and left it with a truncated product pipeline. But Nardelli has to make a stronger case for the survival of his company.

Detroit certainly can't count on much political support. Public opinion polls show Americans opposed to more aid for the automakers, a fact that President Obama acknowledged recently.

The two auto companies are going to have to pull THEMSELVES up by THEIR own bootstraps and, so far, there hasn't been enough evidence of that. To top of page

Company Price Change % Change
Bank of America Corp... 16.15 0.02 0.12%
General Electric Co 26.56 0.44 1.68%
Alcoa Inc 13.56 0.14 1.04%
Microsoft Corp 40.01 0.00 0.00%
Huntington Bancshare... 9.21 -0.10 -1.07%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 8:12am ET
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