The Demo Site

The Steering Column

As I sit at my desk, pondering this column in late October, hot and heavy rumors are flying about Detroit's auto industry. There's talk of a merger between General Motors and Chrysler. Carlos Ghosn and the Nissan-Renault group that he leads are also sniffing around Chrysler. There's even talk that Cerberus Capital Management, the private-equity firm that bought Chrysler last year, might sell the company to the Chinese or part it out. Anything seems possible in this year of economic turmoil that is on track to produce the lowest automotive sales since 1993.

The year started out soft for automakers as the slowing economy and falling home prices made people feel decidedly less wealthy than they did last year. Then came the April spike in oil prices that drove gasoline over four bucks a gallon. Companies whose sales and profits came predominantly from trucks—namely all three Detroit manufacturers—saw sales crater. The third blow came with September's financial crisis, which caused vehicle sales to fall further as buyers decided to stop coming into dealerships and instead hold on to their cash. This particularly added to the woes of the already hurting Detroit companies. And no one expects any improvement for 2009.

Making matters worse, none of the Big Three entered 2008 with tons of cash on hand. Since 2005, Ford has lost $21 billion. GM has made a staggering $74 billion disappear. And Chrysler is bleeding $2 billion to $3 billion per year, though we don't know exactly how much because, as a privately held company, it is no longer required to release financial information. Through these depressed sales, the companies continue to invest in new, fuel-efficient models, but the cash is flowing so quickly that it has turned into a race between the arrival of a business turnaround and the depletion of the companies' bank accounts.

Keep Reading: After Three Decades of Decline, Is This the End for Detroit Automakers? - Column