Industry analysts say hard times not over

Automotive analyst Fitch Ratings says the industry may follow a similar path to the airlines, enduring “boom and bust cycles without the boom”.

Its latest report suggests the industry may become “littered with failures – plants, product lines, brands and companies” and fall into a repetitive cycle of bankruptcies and poor sales.

It blames high fixed costs, production overcapacity and the lengthy process of developing new products, and doubts that rebounding economic conditions will be enough to level the balance sheets, leaving manufacturers vulnerable in future slumps.

Fitch expects additional money – on top of the US$125 billion in government support – will be given to General Motors and Chrysler in 2010.

“A number of suppliers have emerged from bankruptcy with untested business models and capital structures, which have and may result in double-dip bankruptcies. The manufacturers could also fall into the same pattern.”

Ford was the only US carmaker not to accept bailout money and Fitch believes its access to the equity markets, unsecured debt and bank loans will give it an advantage over the GM and Chrysler who are still restructuring.

“Ford is best positioned from a production and product standpoint to further strengthen its balance sheet.”

GM posted a US$1.2 billion third-quarter loss on Monday, while around one week ago Sen. John McCain said if “anybody believes that Chrysler is going to survive, I’d like to meet them”.
by Tim Beissmann