Sperlich and Runkle: U.S. must spur sales to save automakers
[2008-12-23 17:04:27]
DETROIT -- The Detroit 3 may not survive their cash crises unless the federal government supplements any emergency loans with consumer cash incentives to spur auto sales, say two longtime industry leaders.
Retired Chrysler President Hal Sperlich has written a position paper with Don Runkle, former vice chairman of Delphi Corp., calling for a $3,000 government cash incentive on the purchase of a Detroit 3 vehicle.
The subsidy, in addition to a manufacturer's match of at least $3,000, is needed to lift the industry from its seasonally adjusted annual selling rate of 11 million vehicles in October, the lowest in 25 years.
"Nobody can successfully run a car company with an 11 million SAAR," said Sperlich, who pioneered the Chrysler minivan and other front-wheel-drive cars in the 1980s.
Those vehicles helped Chrysler pay off its $1.5 billion government bailout package ahead of schedule after the 1980 deal. Sperlich was president of Chrysler from 1983 through 1988.
In an interview today, Sperlich and Runkle said that without consumer incentives, the Detroit 3 will merely burn through any government loans they receive within a few months.
"It will be a bridge loan to nowhere unless there are incentives to spur demand," Runkle said.
The carmakers are seeking direct federal loans of at least $25 billion, in addition to $25 billion already approved for the development of fuel-efficient vehicles.
In its third-quarter earnings report last Friday, GM warned that it would approach the minimum cash level needed to run its business before year end unless it replenishes its cash reserves. GM also said its cash "will fall significantly short of that amount" in the first six months of 2009 without a cash infusion such as federal bailout money.
Sperlich and Runkle said a $3,000 government incentive matched by manufacturer's cash would lower the base price of a Chevrolet Cobalt, for example, from about $16,000 today to about $10,000. That might provide enough equity in the car to persuade lenders to free up credit for buyers. Tight credit is damaging sales today.
That's a big if, Runkle and Sperlich admit. Many buyers are upside down on their car loans, meaning they owe more than their vehicles are worth. That makes trade-ins difficult.
On the other hand, if the incentives can move the current Detroit 3 selling rate from today's 5 million SAAR to 8 million, they would create an immediate cash infusion to the automakers and help suppliers and dealers as well.
Runkle now is chairman of parts supplier EaglePicher Inc.
