It's impossible to avoid news around the U.S. automotive industry. And while speculation abounds, clear insight into the industry is less so. However, Grant Thornton's automotive practice has plenty of research, data and forecasts around the Detroit's Big Three (Chrysler, Ford and General Motors). To that end, Kimberly Rodriguez, principal of Grant Thornton's automotive practice, spoke with Consulting about what she's seeing in an industry that seemingly collapsed overnight.
Editor's note: At press time, President Bush was in the process of approving a $13.4 billion loan to GM and Chrysler. Consulting's interview with Rodriguez took place before the announcement.
Consulting: What is your role in working with the automotive industry?
Rodriguez: We work on behalf of most of the stakeholders in the industry. Our expertise here is our depth of automotive knowledge and manufacturing knowledge. Actually, unusual for an accounting firm, half of our automotive staff are operational people, engineers, people who can functionally run facilities, so way beyond the balance sheet in terms of the level of advice that we offer up to the client base. So ours is really supply chain and due diligence practice, the restructuring piece of it really has come on because a great part of the industry in which we work is distressed. So we're doing a lot of that.
Consulting: How would you describe the current situation for the Big Three?
Rodriguez: Gosh, where do I start? The immediate issue that we have right now I guess is the liquidity issue, and certainly due to the really unprecedented fall in demand worldwide it threw GM, Ford and Chrysler into a liquidity crisis. Nobody really could have forecasted the falloff in demand. Nobody did, frankly, forecast the fall in demand that has happened the last few months and then you add on top of that the inability to access financing, the inability to sell off business units. After several years of less-than-stellar performance [they're faced now with] a liquidity crisis that is difficult for them to manage independently. There's nowhere for them to go in the market. So that's really what we're faced with here in regards to the loan program. The $15 billion that's on the table currently is really a bridge; it doesn't solve the problem. It doesn't correct the financing capability to consumers. You could really throw as much money as you want to the OEMs (original equipment manufacturers) and effectively, and you're really not going to change the situation unless people start buying cars. This [money] will allow them to restructure in many ways. It should get them to a place where we can spend some real time with real people who understand the industry to develop a longterm solution because it is very complicated. We've got supply chain issues that are enormous; we have dealer issues. We have issues with labor that go far beyond compensation that need to be addressed as well. We have capacity issues in the industry as a whole, and that's really worldwide. And most of that excess capacity falls to the Big Three.
And all of that takes an enormous amount of time and an enormous amount of money, and they've arguably not had an enormous amount of money. It takes much more money to consolidate than it does to grow actually. It costs money to close the plant; it costs money to layoff people; it costs money to downside the dealership structure. All of that takes quite a bit of cash.
This is a situation that's developed over many years.
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