US Car Makers Turn To China & Capitol Hill For Help
Friday, November 07, 2008SUSIE GHARIB: General Motors and Ford Motor today reported billions of dollars in quarterly losses and said more cost cuts are on the way. GM's posted $4.2 billion in net third quarter losses. That worked out to $4.45 a share, much worse than the $3.70 that analysts had expected. The company burned through almost $7 billion of cash during the quarter and CEO Rick Wagoner said GM could run out of money in the first half of next year if it doesn't get help from the Federal government. He's cutting costs, including payroll by an additional $5 billion. Also, Wagoner said he's broken off all acquisition talks with Chrysler. Meanwhile, Ford lost $2.75 billion in the third quarter, a bigger than expected loss of $1.31 a share, excluding items. Ford used up almost $8 billion in cash during the quarter and says it's planning 26 (sic) additional job cuts. The auto maker has reduced its workforce by more than 40 percent over the past three years. Morningstar auto analyst David Whiston said the outlook for both Ford and GM is grim.
DAVID WHISTON, AUTO ANALYST, MORNINGSTAR: Today's numbers show that both companies are in really bad shape although I think GM is in much worse shape than Ford right now. Both are struggling, both are going to continue to struggle and with 2009 vehicle sales worldwide looking to be terrible for all auto makers, the weakest ones, which are the Detroit ones, are the most vulnerable.
GHARIB: That sales slump is one reason why American auto makers are turning to foreign markets to boost sales. GM opened its first assembly plant in Russia today and Ford is gaining traction in China. But as Shannon Van Sant reports from Beijing, China is dealing with its own economic challenges.
SHANNON VAN SANT, NIGHTLY BUSINESS REPORT CORRESPONDENT: High gas prices and tightening credit have been bad for auto sales in the U.S. and car companies are relying increasingly on China to boost revenues. China is the second largest auto market in the world and Ford Motor China's President and CEO Robert Graziano says that market is growing.
ROBERT GRAZIANO, PRESIDENT & CEO, FORD MOTOR CHINA: Through the first nine months of the year, Ford in China has sold just short of 241,000 units and that's up 7 percent from year ago levels.
VAN SANT: Sales growth have fallen to that 7 percent figure from 105 percent growth in 2006. Ford blames declining growth rates in China on the company's sale of Land Rover, Jaguar and Aston Martin and on this year's earthquake and snowstorms. Graziano says the Olympics and China's falling stock market have also depressed domestic consumption.
GRAZIANO: There has been a bit of a slowdown here. Part of it, the external factors have had an impact. But also the local stock exchange has been depressed a bit and that is affecting consumer confidence. And so the growth rate, while it's still growing, the market is still growing in China, it's not growing at the same rate that it has over the last several years.
VAN SANT: Some experts say consumer consumption should be growing more quickly and say the government hasn't done enough to balance China's trade surplus. Last summer China halted revaluation of its currency and increased tax rebates for exporters in an effort to cushion the country's economic slowdown. China's economy expanded by just 9 percent in the third quarter, the slowest pace in five years. Declining exports could speed the country's transition to a consumer-based economy, but Professor Michael Pettis of Peking University says that won't happen fast enough to make up for lagging sales in the west.
MICHAEL PETTIS, PROFESSOR, PEKING UNIVERSITY: So China will make that transition, there's no question. But it won't make the transition in six months. It probably won't even make the transition in five years. It's a much longer process for that to happen.
VAN SANT: That means it will be a long time before Chinese consumers buy more from the rest of the world, too long to help car companies like Ford through the current economic crisis. Shannon van Sant, NIGHTLY BUSINESS REPORT, Beijing .
