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In just 64 days, the US president-elect will be whisked to his inauguration on Capitol Hill in a new, bulletproof limousine. The company building it, General Motors, looks anything but bulletproof. In fact, it has said it might not be able to stay in business if it does not receive a government lifeline before the sympathetic Barack Obama takes office on January 20.
The US car industry has been ailing for years but the admission by its largest company that it may be weeks away from reaching minimum cash levels came as a shock, spurring a flurry of downgrades and a “lame duck” session of Congress this week. It seems that GM is not exaggerating although it probably could limp along well into 2009 if a rescue was imminent. Even before the impact of a horrific October in which its sales slumped to the lowest level in decades, its available cash had shrunk to $16.2bn on September 30 and may soon fall to the bottom of the $11-$14bn minimum it needs for working capital. Without the certainty of a quick bail-out, it would then be sensible for GM to make a voluntary Chapter 11 filing in order to preserve cash for its reorganisation.
Ford is in better shape and has untapped credit facilities but is suffering from the same combination of slumping sales and heavy indebtedness. Privately held Chrysler, the least viable of the Big Three, seems to have dug in its heels to conserve cash and wait for a rescue but it has been mum on its liquidity position since June. Even if Ford and Chrysler have a bit more breathing room though, neither will survive for long without an infusion. The current state of limbo is unhealthy. Detroit is burning cash in the belief Washington will ply it with more. Sustaining zombies on life support is no way to build a healthy economy or promote free trade in a recession. If Mr Obama wants a stronger US car industry to emerge from the crisis, he must be brave enough to say no.
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