Lessons from Great Recession Keep Automakers Afloat

And this time, the estimates for the auto industry are somehow even more dire.

 

U.S. unemployment is soaring to levels not seen since the Great Depression, and even the most optimistic economic forecasts suggest the country is headed for a Great Recession-type downturn at best.

The estimates for the auto industry are somehow even more dire, with demand projected to fall off much more than it did during the last major recession in 2008 and 2009, when two of Detroit’s Big Three automakers were forced into bankruptcy.

This time, however, analysts believe that the lessons learned by GM, Ford and Fiat Chrysler during that painful episode will prevent the automakers from needing another round of bailouts — at least in the short-term.

CNBC notes that during the subsequent decade-plus of growth, automakers stashed billions in cash reserves in preparation for the next downturn. They also secured more flexibility in union contracts to reduce vehicle production targets, if needed, and have combined to draw some $45 billion in credit lines.

All told, analysts believe those companies have enough to weather the next several fiscal quarters with little to no revenue coming in.

The companies hope to reopen North American plants idled during the pandemic in coming days, but even if they successfully get up and running without bailouts, legislation could be needed to help spark demand from car buyers down the road. Reports suggest a “Cash for Clunkers”-style program could be on the table once again.

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