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'In my 27 years, I never saw a month like this'

Auto industry takes a beating from credit crisis, stock market crashes and even U.S. election

From Tuesday's Globe and Mail

Senior auto executives uttered the words “horrific” and “survival” Monday as U.S. vehicle sales plunged to 1940s levels in October and underlined the crisis facing both Detroit and a new U.S. president who will have to address calls for a bailout of a critical industry.

“If you adjust for population growth, this is probably the worst industry sales month in the post-World War II era,” Mark LaNeve, vice-president of North America sales for General Motors Corp., said in a statement.

“You all … know that I am always very optimistic in general …,” Mr. LaNeve said on a conference call, “but I can tell you that in my 27 years I never saw a month like this.”

Other GM officials, who watched their sales collapse 45 per cent, described the market's October numbers as “horrific.”

Chrysler LLC's sales plummeted 35 per cent. Ford Motor Co. sustained a 29-per-cent slide, while Honda Motor Co. Ltd. and Toyota Motor Corp. slumped 28 per cent and 23 per cent, respectively.

In actual terms, it was the worst performance for auto makers since January, 1991, amid the recession caused by the first Gulf War.

The auto industry was rocked by the credit crisis, stock market crashes and an election in the United States that crowded out their advertising and marketing campaigns.

The October numbers show the crisis afflicting the industry is not limited to the Detroit companies, but Chrysler and GM are in worse financial shape than their Japan-based rivals and cross-town competitor Ford. Between them, the two companies are bleeding considerably more than $1-billion (U.S.) in cash a month.

GM has been negotiating with Chrysler's parent, Cerberus Capital Partners LP, to merge the two auto makers, but has been turned down by the Bush administration for financial aid that might help backstop the deal.

That pushes any rescue plan into 2009 and likely a Democratic administration under Barack Obama.

Auto makers and the governors of several auto-producing states have pleaded with the lame-duck government of President George W. Bush for an overall rescue package. So far, however, Washington has refused to go beyond a $25-billion fund set up earlier this year to help develop environmentally friendly technologies.

Steven Landry, Chrysler's vice-president of sales, called Monday for a tax break for Americans borrowing money to buy a car, similar to the credit they receive for mortgage interest payments.

GM urged Washington to do more to thaw frozen credit markets.

Although both GM and Chrysler are cash-strapped, they will not run out of money tomorrow or even early next year.

Nonetheless, “October's sales figures underscore how short the fuse is for these companies,” said John Casesa, a veteran Wall Street auto analyst who is now managing partner of consulting firm Casesa Shapiro Group LLC in New York.

The question is what other job cuts or asset sales Chrysler and GM will have to undertake to survive until a new government is in place and is able to turn its attention to a potential bailout of the industry or financial backing for a merger.

Survival is the issue, Chrysler chief executive officer Bob Nardelli told employees in a memo Monday that outlined the reasons behind a recent job-cutting action.

“The difficult actions we have taken in the past and that we have just announced are for one purpose and one purpose only; helping Chrysler survive this economic trough,” Mr. Nardelli said.

Canadian auto sales defied expectations and the U.S. trend again last month to rise by 1.5 per cent, even though the credit crisis has also infected the Canadian economy and stock markets in Canada performed as dismally as those in the United States last month.

“I am absolutely completely surprised by the Canadian performance,” said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.

Vehicle prices have fallen by as much as 9 per cent this year, Mr. DesRosiers noted, which has probably helped buoy sales.

Big sales gains at such luxury manufacturers as Audi, BMW and Mercedes-Benz helped pull Canadian sales higher.

With files from Reuters

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