For the first time since the current crisis hit the car industry, the issue of debt default at one of the Detroit car companies has been raised by a ratings agency. According to The Wall Street Journal, "Fitch warned that Chrysler's issuer-default rating could be lowered two more notches from the current B-minus to CCC -- nearly default status -- if problems with rising loan delinquencies and losses on auto loans trickle down to retail volumes."
Fitch also downgraded GM (NYSE: GM). It has started to dawn on the experts in debt, cash flow, and balance sheets that if the current course of events in the US car industry continues, the former "Big Three" may have to raise more money or face a horrible cash crunch. There were concerns about Chapter 11 possibilities in Detroit three years ago and now those are returning.
But, that was then and this is now. Past problems in Detroit were primarily on the cost side. The car companies have cut billions of dollars in expenses and put together a new deal with the UAW. The concern now swings to revenue. Lehman Bros. recently said the the rate at which autos are being sold in June could indicate an annual sales figure of only 12.5 million vehicles in the domestic market. Last year the US produced 16.1 million unit sales.
"Default" is back in the dictionary in Detroit.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
6-26-2008 @ 11:05AM
gumbo koontz said...
GM and Ford is a steal right now or later. I dont mean I think a dinky billionaire ought to buy them. I mean any outstanding corporation like General Electric, 3M, Caterpillar, or the likes can buy them and keep them going until the better times comes before IPO them again. Why is everyone so bloody thirsty to see them go under and come to dance on their graves?? Road kill times for squirrels of Wall Street!
6-26-2008 @ 11:06AM
gumbo koontz said...
GM and Ford is a steal right now or later. I dont mean I think a dinky billionaire ought to buy them. I mean any outstanding corporation like General Electric, 3M, Caterpillar, or the likes can buy them and keep them going until the better times comes before IPO them again. Why is everyone so bloody thirsty to see them go under and come to dance on their graves?? Road kill times for squirrels of Wall Street!
6-26-2008 @ 11:07AM
gumbo koontz said...
There are bulls, bears, pigs and now squirrels at Wall Street!! My Gosh! Boo hoy!
6-26-2008 @ 11:56AM
hiliving5 said...
Keep buying those foreign cars and further put our economy in the crapper. All those who put their american made money in Jap & Korean made auto mfg's are the equivalent of monetary terrorists. Think about the impact on the economy before you buy.
6-26-2008 @ 12:19PM
hiliving5 said...
Keep buying those foreign cars. It is the equivalent to economic terrorism.
6-26-2008 @ 12:51PM
jpdr1100 said...
Hiliving, before we buy what? An Impala made in Canada? A Fusion made in Mexico? A Saturn made in Europe or a Pontiac made in Australia? A Chevy imported from Korea? How about either a Chevy or Pontiac SUV with communist Chinese-made engines? Is that what you want us to think about before we buy?