Dim auto sales may lead Ford to join bailout

Following a disastrous year in the auto business, worsening sales projections for 2009 suggest that Ford Motor Co. may have to join the government’s auto bailout list that already includes General Motors Corp. and Chrysler.

Moreover, GM and Chrysler may have to seek more federal funds this year on top of the $17.4 billion that Congress and the Bush administration already agreed to provide.

Ford Chairman William Clay Ford Jr. told reporters Sunday that Ford would not need government aid unless “the world implodes as we know it.”

At the North American International Auto Show in Detroit on Monday, Ford Chief Executive Officer Alan Mulally predicted that U.S. vehicle sales “will gradually start to come back in the second half” of the year. Confidently declaring that “we will not see the worst case” scenario for industry sales, Mr. Mulally nonetheless acknowledged in a Bloomberg Television interview that Ford “would definitely need to think about recapitalizing” if total industry deliveries slumped to 10 million.

That level approximates the U.S. annual sales rate in the fourth quarter.

“The long and short of the situation is that it is unlikely to improve anytime soon,” consulting firm IHS Global Insight, based in Lexington, Mass., said in a research report last week. “A predicted sales rate of 10.1 to 10.3 million units in 2009 would be disastrous, meeting or even [falling] below the ‘worst-case scenarios’ presented by the Detroit Three automakers to the U.S. Congress late last year.”

The latest projection of IHS Global Insight, which has been making economic forecasts for more than 40 years, calls for American consumers to buy between 10 million and 10.5 million vehicles this year.

If sales were to fall that far, Ford told Congress in December that it would likely need federal loans of as much as $13 billion to sustain all its operations.

Ford is still forecasting U.S. sales of light vehicles such as cars, SUVs, minivans and pickup trucks will total 12.2 million this year. That’s nearly 20 percent above the industry’s fourth-quarter sales pace and the 2009 U.S. sales total projected by IHS Global Insight. GM predicts that about 10.5 million vehicles will be sold in the U.S. this year.

At a congressional hearing last month, Mark Zandi of Moody’s Economy.com said the Big Three would need between $75 billion and $125 billion over the next two years in order to survive.

GM received $4 billion in emergency loans from the Troubled Asset Relief Program Dec. 31 and is scheduled to receive an another $5.4 billion this month. If Congress approves the second $350 billion TARP installment, as President Bush requested Monday with the backing of President-elect Barack Obama, GM would receive an additional $4 billion loan in February. Chrysler has also received $4 billion in loans.

At the Detroit auto show, GM Chief Operating Officer Fritz Henderson said the troubled auto giant had given Congress a worst-case scenario showing how GM might require additional government funding.

Gary Cowger, GM’s top manufacturing executive, said the company will reduce its factory capacity to meet the requirements of its federal loans, but he would not say if further plant closures are coming.

“If you look at our viability plan, we have to get our capacity right-sized,” he said, “so I would say we would continue to look at locations for excess capacity and address that as we go forward.”

As far as Chrysler is concerned, “it is likely that the company will undergo a significant change in operation before the end of the first half of 2009,” IHS Global Insight said in its industry analysis.

Story Continues →