Chrysler Shuts For A Month and Chevy Volt Engines Delayed

Chrysler LLC said Wednesday that it will shut down all its North American production for at least one month starting December 19.

Both Chrysler and GM are having to cut deeply into expenses as they await news on a government loan package from the White House. GM said today that it will delay completion of the engine factory meant to supply the Chevy Volt extended range electric vehicle the automaker hoped to have in showrooms by late 2010. A GM spokesman says the delay of the engine plant should not delay the launch of the vehicle.

The Volt has been held up as a symbol of GM’s future and its innovation. It has run TV ads and bought billboards touting it even though it is two to three years off from being sold to customers.

Both companies are cutting to the bone as they try to avoid reaching such a low cash position that they have to file Chapter 11 bankruptcy. GM is hoping for an immediate infusion from the Treasury of $4 billion, and a total of $8 billion to $9 billion, while Chrysler is hoping for around $6 billion to $7 billion.

Ford is not applying for an immediate loan, though it wants to secure a $9 billion line of credit from the Feds in 2009.

At Congressional hearings this month, Chrysler, owned by hedge fund Cerberus Capital Management, said it would reach the critically low cash reserve level of $2 billion to $2.5 billion by year end.

Chrysler’s sales have been hit hardest among automakers, with drops in excess of 45% the last two months. For the first 11 months of this year, Chrysler sales are down 27.7 percent to 1.4 million vehicles from 1.9 million for the same period last year.

With the U.S. sales slump expected to continue into January, traditionally one of the slowest sales months of the year, the company has little revenue coming in and must pay suppliers $7 billion every 45 days.

Chrysler’s lineup of vehicles is top-heavy with SUVs, and overall its vehicles rank lower for quality and customer appeal than its domestic rivals or Asian brands.

Lawmakers have said repeatedly in the last month that Chrysler has no future as a standalone company. Tennessee Senator Bob Corker, for example, called the company “toast.”

Chrysler is expected to get government loans, but it is widely anticipated that Uncle Sam will facilitate a consolidation of the company with GM, or preside over the sale of assets, like Jeep and the minivan business, to multiple automakers.

It can afford to shut down factories because of the low demand for its vehicles and the inventory that is sitting on dealer lots with no buyers to drive them away.

GM and Ford have extended their usual holiday shutdown as well. GM said this week it was cutting first quarter vehicle production by 250,000, or 30% from a year ago. That is the equivalent of an entire auto factory shutting down for a year.

All auto companies have been severely hit by the scarcity of credit. Even consumers with good credit scores are having a hard time getting loans because banks have stopped lending. The finance arms of the U.S. Big Three have stopped leasing vehicles all together, and GMAC, GM’s loan arm, is hardly writing any business.

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