'Riches to rags' for US Big Three

Analysis
By Vlad Georgescu
Business reporter, BBC News

General Motors has closed several US plants

The rivalry between the three major Detroit-based car makers - General Motors, Chrysler and Ford - is moving into uncharted territory.

It is not only about who moves faster from large and thirsty cars into compact efficient vehicles.

It is also about cutting inventories faster, closing factories in a less painful way and managing wisely the limited available cash. The Big Three are running out of options - they are calling for more government cash to help them survive.

Government help

The chief executives of the Big Three, as well as union leaders, have been going cap in hand to Capitol Hill in the last two months.

In September, Congress threw them an initial lifeline - $25bn (�15.8bn) in low-interest loan money for automakers and suppliers.

Not enough to fix customer confidence, it seems, as sales fell to abysmal levels in October.

It was a disastrous 45% fall for GM, while Ford sold 30% fewer vehicles, hot on the heels of mammoth operating losses of more than $7bn between them during the preceding three months.

Chrysler could not escape the onslaught either, its sales down 35% during the months, despite offering customers attractive financing packages.

Middle-class America seemed to have made up its mind. The gas-guzzling, but once much-loved Cadillacs, Mercuries or Lincolns have lost their attraction.

Democrats' dilemma

Chrysler workers are facing redundancy

At a time when even Japanese carmakers, better positioned on the market for fuel-efficient compact vehicles, struggle to make a profit, the US auto industry needs to put its fate in the hands of the politicians.

The level of desperation could almost be felt when the GM's North American president Troy Clarke recently urged the rest of the auto makers to talk to "anyone who will listen", in Washington or elsewhere.

But how responsive politicians can be?

Democrat leaders are reportedly considering a doubling of the low-cost loans to $50bn.

And they might also listen more closely to industry voices, which have demanded an open line of credit, not loans with strict conditions attached to them.

But even if Congress was to reach an agreement with the carmakers, their survival would depends on how deep the recession will bite in the future.

With the $700bn banking bail-out package for the banking system bringing the budget deficit to gargantuan levels of almost a trillion dollars, giving more billions to a notoriously unprofitable industry would be a painful decision.

Pressure mounts