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Analysts stay upbeat about Valley plant
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The Chevrolet Volt all-electric concept car is seen on display at the GM exhibit during media previews for the Los Angeles Auto Show Wednesday, Nov. 19, 2008. The show opens to the public Friday, Nov. 21.
By Don Shilling
The Lordstown car plant should survive a presidential call for further restructuring of General Motors Corp. — if the automaker itself lives on, analysts say.
General Motors is spending $350 million at the Lordstown plant to begin producing the Chevrolet Cruze next year.
“The Cruze fits in right where the administration expects people to be buying cars over the long haul,” said Stephanie Brinley, an analyst with AutoPacific, Southfield, Mich.
What the administration thinks has become very important.
President Barack Obama asserted unprecedented government control over the auto industry Monday, rejecting turnaround plans from GM and Chrysler and raising the prospect of controlled bankruptcy for either ailing auto giant.
As it pushes more changes, the administration will provide GM only with enough cash to survive for 60 days and for Chrysler to live on for 30 days.
“If he [Obama] is giving us an extension, that’s good,” said Rick Holloway, who has been an employee at Lordstown for 32 years.
For GM, Obama wants fewer models, brands and dealers, but the larger demands are for concessions from bondholders and the United Auto Workers, analysts said.
“We’re not crazy about the added concessions coming our way, because we feel like we’ve already given all we can,” Holloway said.
GM has been unable to meet a federal demand that bondholders and UAW take much of what they are owed in the form of company stock.
“No one wants the stock,” said Erich Merkle, an analyst in Grand Rapids, Mich. “Everyone wants guarantees, and there just aren’t any.”
Brinley said Obama’s time limits show that he isn’t giving in on these demands.
“This is serious, serious pressure on the bondholders and UAW,” Brinley said.
GM owes the UAW money to fund a trust that would pay health-care benefits for retirees. The UAW also could face pressure for more wage and benefit concessions.
For Chrysler, the president pegged the survival of the automaker on a merger with Fiat SpA, an Italian automaker.
The administration appears willing to let Chrysler expire without that deal, Erich Merkle, an analyst in Grand Rapids, Mich.
The Bush administration late last year approved $17 billion in federal funds to help GM and Chrysler survive. It also demanded both companies submit restructuring plans that the Obama administration would review.
In a statement read at the White House, Obama said Monday he was “absolutely committed” to the survival of a domestic auto industry that can compete internationally. And yet, “our auto industry is not moving in the right direction fast enough,” he added.
Obama said a controlled bankruptcy, if it becomes necessary, could be short-lived and allow GM to jettison its debt and other issues that are holding it back.
Brinley said, however, that she thinks bankruptcy may be more complicated than the administration envisions. It appears the president believes he can “pick and choose” which bankruptcy laws he wants to use, she said.
Merkle said a bankruptcy could also bring into question GM’s commitment to build cars in the U.S.
“Lordstown looks better than some of the other plants,” said. “But given what is happening at GM, anything is possible.”
Local auto dealers had different outlooks on Monday’s announcements.
The mention of bankruptcy as an option unnerved Shorty Navarro, who owns Stadium GM Superstore in Salem as well as other dealerships in Boardman.
He said he wished the president had just announced that he was supporting the automakers. The uncertainty surrounding the automakers is causing car buyers to wait on purchases, he said.
“This negative stuff is making people very nervous,” he said.
Greg Greenwood, who owns Chevrolet dealerships in Austintown and Hubbard, said he was pleased that Obama was willing to continue to work with the automakers and give them more time to restructure. He said he thinks the president views the auto industry as “too critical to our manufacturing base to allow it to go away.”
Greenwood said, however, that he was disappointed that Rick Wagoner was forced out as GM’s CEO as part of the deal.
“Wagoner was the poster child of going in the right direction but going too slow,” he said.
Chuck Eddy, a Chrysler dealer in Austintown, said he saw two signs that the administration will support the automakers in the end.
First, Obama said the government would back the warranties for the automakers if they go out of business. The government wouldn’t do that if they thought the companies were likely to fail, Eddy said.
Second, the administration recently announced it would loan $5 billion to auto suppliers. Those loans wouldn’t have been approved if officials thought the domestic industry wouldn’t survive, he said.
He said he has heard that Chrysler is close to completing a deal with Fiat, and it will make his dealership stronger by adding Fiat and Alpha Romeo vehicles.
“That’s very, very exciting,” he said.
shilling@vindy.com
The Associated Press contributed to this report.