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The automakers are doomed. It's not that General Motors (NYSE: GM  ) and Chrysler aren't committed to fundamentally changing their business, it's just that the progress reports they submitted to Congress the other day are so far removed from reality as to be meaningless.

At 117 pages, GM's plan has ballooned in size from the 37-page missive submitted back in December. In the rarified air of Washington, however, that's not completely unexpected. With the carmaker also boosting the amount it wants to get from the bailout by $12 billion in just two months, anything less would have been the real surprise. Chrysler's new 19-page effort seems threadbare by comparison.

Yet bloated or bare-bones, neither plan is grounded in reality. Take, for instance, their expectations for auto sales. GM's "downside" scenario sees auto sales growing to 14.5 million cars in 2012, with breakeven being achieved somewhere around 2010 domestically and 2011 for global operations. Problem is, that suggests over a 50% increase in volumes from today, even though sales have been dramatically falling for 15 consecutive months and have been on the decline for the past few years -- they dropped 18% last year and on are on track to fall another 21% more this year. Remember, this is GM's worst-case scenario!

Sales in January plunged 37%, with GM falling 49% and Chrysler tumbling 55%. Ford (NYSE: F  ) was only slightly healthier, at a 40% decline. But the pain wasn’t confined to the Big Three, even foreign automakers Toyota (NYSE: TM  ) , Nissan (Nasdaq: NSANY  ) , and Honda (NYSE: HMC  ) witnessed drop-offs in sales of 30% or more.

Chrysler's plan isn't much better. While it's predicting only a 25% jump in sales by 2014, its assumptions begin with a baseline number that starts at a higher level than what current sales trends suggest. January's numbers indicate a 2009 run rate of around 9.6 million units, but Chrysler starts its forecast at more than 10 million vehicles. At least it sees the possibility of no growth to slow growth the first year or two; GM's plan simply draws a straight line upward, with even it's so-called disaster plan counting on a 20% surge in car sales in 2010. When was the last time sales grew 20% annually?

The amounts the carmakers are seeking are also growing exponentially. While GM and Chrysler requested an additional $21.6 billion in additional loans, that significantly underestimates the total bailout cost being sought. On top of the $17.4 billion the two got in December (and the $9 billion line of credit Ford asked for, just in case), the taxpayers have pumped $25 billion into the carmakers to retool their plants and $5 billion more into financing arm GMAC. Let's not forget that the parts suppliers are crafting a bailout plan, auto dealers are looking to sponge some money away, and the car rental industry wants a handout, too.

And in the event the government gets the sneaky idea to force GM into bankruptcy to ensure its original loans get repaid, the automaker made sure to point out that a traditional bankruptcy would cost about $100 billion. The good news being that a pre-packaged bankruptcy might cost as little as $30 billion. Just keep giving us these loans, Uncle Sugar, it's cheaper for you in the long run.

With the auto industry's bailout plans based on unreasonable assumptions and rosy predictions, it seems fated for sure-fire failure. But if any of these proposals pass muster, it is the taxpayer who will be doomed.

Nissan Motor Co. is a Motley Fool Global Gains selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Read/Post Comments (15) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 19, 2009, at 4:58 PM, gscott12 wrote:

    Honestly, as someone in the industry (but not a GM fan) I have to report that the volume analsysis in this article is weak.

    First off, until 9 months ago a 14.5 million unit industry would have been seen as weak. Eventually all cars die. Most Americans do not have the luxury of riding the train 100% of the time. That means sales will recover at some point. So, seeing a recovery to 14.5 million units after several dismal sales years, does not seem unfounded.

    On your share analysis, you cannot look at share in the aggregate. It ignores segment shifts. GM has higher share in trucks which were in decline during the last 15 months. If the economy begins to recover in 2012, you are likely to see the increase first in the fleet market. Higher truck sales will automatically give GM a higher aggregate share. Again, not an unreasonable assumption.

    There are MUCH bigger problems in GMs proposals. The sales data is actually reasonable.

  • Report this Comment On February 19, 2009, at 5:13 PM, brwn8484 wrote:

    Excuse me, but all the dead cars in the world will not restore our auto sales. Banks wont lend and people dont have jobs. My wife and I both work out of our house. So what if my car dies. I could care less.

    We seem to fixated on all the wrong things when it comes to fixing this economic collapse.

    First and this HAS to be FIRST.... We need to get industry to start hiring. There is only one way to restore our job market. Massive tax cuts and incentives to small and mid size business. Big Business is dead. We also need to cut spending and give tax cuts (and I mean massive tax cuts to all Americans). Third we need to incentivize industry to hire employees and stimulate spending. All the TARPS and givaways and giant Ponzis in the world will not put poor little Humpty USA back together again.

    We may need to resort to a second Boston Tea Party in order to get our point across. Our leaders have buried their heads so deep in the sand, their brains are scrambled.

    Our US founders are rolling over in their graves. Hopefully we can elect some real leaders to give us a chance at getting out of this mess.

  • Report this Comment On February 19, 2009, at 5:27 PM, theecarczar wrote:

    GM and Chrysler got themselves into this mess. The government needs to force them into bankruptcy. It's the only way they will come to realize the mistakes they've been making for the past 20 years. The UAW has had them by the balls forever and it's time for the Big 3 to step up to them. If they're forced into bankruptcy then the UAW contracts are history and possibly renegotiated. Even better get rid of the UAW and their overpaid money grubbing hourly workers. Why should the Big 3 have to pay for all your Medical expenses after you retire. Once your gone your gone, its not like your in the Military! These whiners that complain about consumers not buying American need to get real! Toyota, Honda, and Nissan have been here since the 1960's and they will probably own the Big 3 in the next 10 years!

  • Report this Comment On February 19, 2009, at 5:31 PM, SamCoach wrote:

    Its quite obvious that Rich Duprey doesn't know a thing about predicting market demand, let alone the automotive industry! Calling the prediction that the total market of 14.5 million in 2012 is unrealistic extremely simple minded! Under normal economic times all experts concur that the US market supports 16 - 17 million unit sales. When GM predicts that the market will recover to 14.5 million units in 3 years, they are making an extremely conservitive assumption. Mr. Duprey should take his journalism degree back to college and try taking a few economic courses.

  • Report this Comment On February 19, 2009, at 5:43 PM, bernbern0 wrote:

    truthisntstupid's comments are getting smarter and smarter! Thank you once again for your very a meaningful remarks.

  • Report this Comment On February 20, 2009, at 10:01 AM, SamCoach wrote:


    Its a sad state of affairs when American's publically announce that they would prefer to help foriegn companies, foriegn economies, and foreign workers, than buy products made by American Union Workers!

  • Report this Comment On February 20, 2009, at 2:13 PM, SamCoach wrote:

    Brilliant justification for throwing your money oversees. You would rather spend your money on products made by people who work in third world countries for $10 a day because you're angry about your job situation. There's absolutely nothing socialistic about wanting to support the workers and the economy that supports your own job.

  • Report this Comment On February 20, 2009, at 2:54 PM, justanamerican wrote:

    We are a family that works for one of the foreign automakers and we are hurting also. My husband comes from a very strong union family and appreciates all that they have done in the past, but it is a new day. The business world has changed and it doesn't seem like the UAW understands that they just have to roll with some punches and just maybe change the way THEY do business. I think that in their situation I would be doing everything I could to keep the Big 3 afloat even if that meant taking a pay cut as long as it was company wide. Oh, and up until a few years ago we ALWAYS bought GM products even when one brand new car with 30 miles on it quit running and had to be towed back to the dealer!

  • Report this Comment On February 21, 2009, at 5:15 PM, trythisntstupid wrote:

    By the way Sam Coach

    The next new car I buy will probably put money in some american NONUNION autoworker's pocket!

  • Report this Comment On February 23, 2009, at 11:08 AM, SamCoach wrote:


    Unforunately you won't be able to buy an American nonunion made vehicle. If you don't want to buy a union made product, you will either have to either buy a foriegn made car imported by an American company, or buy a car built in Amercia by a foriegn company. Both choices send a big chunk of your American earned dollars over to support foreign workers and foreign economies.

  • Report this Comment On February 23, 2009, at 5:33 PM, SamCoach wrote:

    Its quite unfortunate that you feel the way that you do. I buy only American made cars from American companies for two reasons:

    1) I’m in sales and 99% of my customers are Americans or American companies. I know I won’t insult any of my customers (thus losing a sale) by driving an American Car.

    2) Because 99% of my customers are Americans, I know its in my best interest to reinvest the money I make from my American customers back into American made products, so that my American customers have more to spend on my company’s products and services.

    One of the misconceptions that you have made several times is that American Made produced by American companies cost more than similar Foreign products. If you do a cost comparison on comparable, similarly equipped vehicles, you will see there is no difference in retail price. A similarly equipped Tundra, Titan, F150, or Silverado all cost about the same and the American versions get better mileage and generally outperform the foreign makes. The key difference is that the GM and Ford make less profit per unit than the Foreign versions because of their higher wage and legacy costs, however, they don’t pass on the higher cost because they would drive consumers to buy the cheaper Foreign vehicles.

    Although there is a lot of work to be done with the unions, Ford, GM and Chrysler have made tremendous strides in reducing their wage and legacy costs by doing the following:

    1) Effective in 2010, Union workers no longer have Health Benefits for life provided by the companies.

    2) The Unions have agreed to a tiered wage scale for new hire.

    3) The Unions just agreed to eliminate the Jobs Bank for laid off employees (the jobs bank forced the companies to pay union members full wages during a layoff.

    4) New Salary hires haven’t had the benefits for life in retirement since the mid 1990’s.

    5) All salary employees hired after the mid 1990’s do not have a company funded retirement pension.

    6) All salary employees since the mid 1990’s have had to pay 85% of all increases in their healthcare benefits.

    7) It was recently announced that all Salaried employees at GM and Chrysler are taking 3-10% pay cuts.

    As much bashing that the American Automakers have taken lately, they are still extremely important to America’s economy for the following reasons:

    1) GM alone employs more Americans than all the Foreign automakers combined.

    2) Ford employs more Americans than Toyota and Honda Combined.

    3) GM has more assembly plants in the US than all the foreign automakers combined.

    4) Ford has more assembly lines in the US than Toyota and Honda combined.

    5) GM is the largest private provider of healthcare in the WORLD.

    I could go on and on, however, most people in the US will continue to bash the American Auto Companies no matter how many facts are presented to them.

  • Report this Comment On February 23, 2009, at 9:24 PM, SamCoach wrote:

    Like I said, most people in the US will continue to bash the American Auto Companies no matter how many facts are presented to them.

    You go buy your foreign car because you have a beef with the UAW. Who cares about the salaried employees, the nonunion American parts supplier jobs, the 100 or so local American communities that have plants in thier communities that depend on the jobs that they provide and the tax revenue that they generate. Your money will help provide socialized medicine in foreign countries. It makes alot of sense to me!

  • Report this Comment On February 23, 2009, at 9:48 PM, SamCoach wrote:

    BTW, are you now just making up facts to help suport your flawed position? $0 for R&D for the last three years? Where in the world did you come up with that? Ford, GM and Chyrsler have all come out with dozens of new products the last three years which all require RD dollars. Programs related to GM's Volt has already cost GM over $1 Billion in RD dollars the last three years. You are getting goofy on me now!

  • Report this Comment On February 24, 2009, at 11:57 PM, SamCoach wrote:


    I'm sure you're smart enough to know that the Yahoo financial statements are extremely condensed statements that are meant to show only a brief overview of the company's more detailed, actual financial statements. Try looking up any company's R&D on Yahoo and you won't find the Yahoo statements to show R&D line items for many corporations. If fact, the Yahoo income statements fail to show that in normal, nonrecession years, that the US Automakers spend on average about $15 Billion a year on R&D. Thats more that the US Pharmaceuticals spend on R&D and even more than NASA spends on R&D a year.

    Anyways, that really doen't have to do with the main point you initially made which is you will "NEVER buy a new car if any part of the money I'm paying goes to union members again. EVER."

    You still haven't explained to me the following simple question: How will you buying a car from a foreign car company (whether made in a foreign country or right here in the USA) be more beneficial to you and the US economy than you buying an American car, built in the US?

    I look forward to your very specific answer!

  • Report this Comment On February 25, 2009, at 7:00 AM, SamCoach wrote:

    Well, you didn't answer the question, but at least you're honest. When you do have a choice, I hope you will buy American products. It will help all of us. Its getting harder and harder to find American made items. I wish you prosperity in the future.

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