Auto woes open a new chapter

April sales of light vehicles manufactured in North America were down by about a third from the values seen a year ago. And a year ago we were already seeing recession-level values for auto sales.

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April year-over-year sales declines of imports were even bigger in percentage terms.

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Some analysts had hoped we’d seen the worst in February. But the April numbers make it pretty clear that optimism was premature.

And so Chrysler filed for Chapter 11 bankruptcy protection on Thursday. Plan A is for the company to continue to sell cars, and get back to producing them shortly. But both become a bigger challenge once you’re wearing the scarlet B. From the WSJ:

Across the country dealers Friday were scrambling to line up new banks to provide auto loans for buyers after the company’s ailing lending partner, Chrysler Financial, stopped providing loans with subsidized interest rates such as 0% deals….

Chrysler was preparing to shut down all of its vehicle assembly plants for 60 days on Monday. But on Friday two plants in the U.S. and two in Canada were forced to cease production because a few suppliers stopped shipping parts or materials.

Officials from the Obama administration’s auto task force cautioned that there was no reason that suppliers should be hesitating over shipments to Chrysler or getting worried about payments.

“It is the company’s intentions to continue to pay suppliers in the ordinary course,” said one official. “This company will operate in the ordinary course throughout the bankruptcy process.”…

Chrysler’s Conner Ave. assembly plant, which builds the Dodge Viper, has been stopped by interruptions in its parts supply for the last three weeks, said Chris Vitale, a worker at the plant.

It is possible, as President Obama declared on Thursday, that

The necessary steps have been taken to give one of America’s most storied auto makers, Chrysler, a new lease on life.

But this is a pretty tough environment in which to pull that off. And even if it succeeds, there’s no getting around the fact that, for the immediate future, these disruptions mean a further hit to the incomes of Chrysler workers, suppliers, and dealers.

But hey, at least the bankruptcy should generate a few hundred million for the lawyers.


Originally published at Econobrowser and reproduced here with the author’s permission.