Think tank warns of US auto industry collapse

The Center for Automotive Research, based near America's car capital Detroit, says the toll would be magnified because many US component suppliers would also fail, with a knock-on effect on factories run by foreign carmakers in the country causing temporary shut downs.

Even if just one of the Big Three fail, CAR estimates that the ripples would still idle all U.S. auto production, wiping out 2.5 million jobs. By the second year, the surviving domestic carmakers would restore half of their former production while foreign companies would resume production and pick up some of Detroit's lost volume. By the third year, 1.5 million of the lost jobs would be recovered.

What is scary is that the think tank believes one of the two scenarios is probable within 12 months.

Chrysler could run out of cash to fund operations by the middle of next year and is preparing for a possible break-up of the company if owner Cerberus Capital Management can't arrange a sale to GM. Negotiations are currently bogged down GM's inability to borrow the $10 billion or so it would need to restructure the merged companies.

US news services says Cerberus might sell the Jeep brand and outsource finance and human resources operations. It is also considering selling the Viper sports car as a separate brand.

Reports add that the company is hemorrhaging $100 million per month to support ailing suppliers, in addition to cash to pay for hefty incentives to prop up sales while GM is no longer asking for government funding to help it complete a merger with Chrysler.

Instead, the company now seeks an immediate liquidity infusion to avoid insolvency. GM originally sought some $10 billion in assistance from the federal government to help it cover the costs of acquiring and restructuring Chrysler. But the U.S. Dept. of the Treasury refused that request last week.

It isn't clear whether GM has given up entirely on acquiring Chrysler. It is possible the company hopes that federal assistance would give private lenders the confidence to extend new loans to GM to fund the merger

US car sales plunged 34% from October 2007 to an annualized rate of less than 10.6 million-the worst monthly result since February 1983.

Credits: JRC