General Motors released its annual report and says its future is in "substantial doubt." The company says it needs help to avoid filing for bankruptcy, and it's scouring the world looking for loans. The World's Jason Margolis has more.
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LISA MULLINS: The news gets worse and worse for General Motors. The car and truck maker released its annual report today, and admitted it has what it described as “substantial doubt†about its future. GM's report talks about bankruptcy protection. This, in spite of $13 billion dollars in loans from taxpayers just last fall. As The World's Jason Margolis reports, GM wants billions more – not only from Washington, but from abroad as well.
JASON MARGOLIS: GM employs 55,000 people in Europe. So it's asking European nations like Germany, Spain, and the UK to loan it more than $4 billion dollars. Chris Preuss is GM Europe's spokesman in Zurich. He says European governments are the last place GM wants to go for money, but the company's financial situation is becoming very dire.
CHRIS PREUSS: In Europe here for instance, we've seen retail sales, as the whole industry has, fall off by some 35, 40 percent. That happened in a matter of just months. And so we're just in a situation where there's no possible way you can cut structural costs fast enough to keep cash flow situation stable.
MARGOLIS: But the good news? While GM is bracing for a tough fight in Washington –
MAURO GUILLEN: I think General Motors actually as a corporation doesn't have to do much to get bailout money in Europe.
MARGOLIS: That's Mauro Guillen, a professor of international management at the Wharton School of Business. HE says it will be considerably easier for GM to get money in Europe.
GUILLEN: For two reasons. One is that European governments in general have less of an ideological problem with helping out companies, as we know. And then secondly, because GM's European operations have a much brighter future if they survive the current downturn than GM's North American operations. Why? Well, because in Europe GM has been much more innovative.
MARGOLIS: GM has good models there. GM is also asking for more than $6 billion dollars from Canada, a source of about 20 percent of its North American vehicles. GM also gets many of its auto parts from up north. The future of those auto parts companies is what worries Charlotte Yates, the Dean of Social Sciences at McMaster University in Hamilton, Ontario. She says all the discussion and focus has been on car makers – but no bailout money is being offered to parts makers.
CHARLOTTE YATES: There are hundreds of parts makers in Canada, thousands possibly. But it's also the sector that could fail almost immediately. And if it fails, then there is no hope in hell – excuse my language – that Ford, GM, or Chrysler will survive.
MARGOLIS: And if parts makers fail, it will no doubt hurt Japanese and Korean car makers, too. The auto industry is one big inter-connected web. Steven Beatty is the managing director of Toyota Canada. He's supportive of government bailouts of his competitors.
BEATTY: Clearly, we share many of the same suppliers that the Detroit Three work with here in Canada and the United States. It's just not really in our interest to see anything that would result in failure of the supply base and loss of jobs. Anything that sets the economy back, frankly, is a setback for everybody in the auto industry.
MARGOLIS: Now, time for a deep breath. All of this bleak economic news we're hearing day to day, hour to hour, may be starting to sound a bit like the end of Western civilization. Not so, says auto industry analyst Dennis Derosiers.
DENNIS DEROSIERS: If you look at the auto sector back over the last 40 years, there's been two, three occasions, where the North American auto industry has gone into the absolute toilet. The 1973 to 1979 downturn was actually worse than this one. It happened over a longer period of time. What's unique about this particular downturn is how quickly it hit.
MARGOLIS: Derosiers says the bad news is that American automakers are going to need many more billions of dollars than are currently being discussed. He doesn't know how much of an appetite the world's governments will have to keep bailing out the car makers. But taking the long view –
DEROSIERS: I think that one of the things that is very good that is going to come out of this is a restructured GM and Ford that are going to be lean and mean and a fighting machine. And I would say that in a four or five-year time frame, you're going to see $10 billion dollar profits a quarter instead of $10 billion dollar losses per quarter.
MARGOLIS: Derosiers stresses there's only one way to make a dramatic turnaround like that: build better cars. Derosiers is critical of the vehicles that Detroit has produced in recent years, but he calls the new product lines from Ford and GM “exciting.†There's an irony in that, though: the companies are running out of money. And that's forcing them to cut back on new product development. For The World, I'm Jason Margolis.
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