Tuesday, December 16, 2008
Car Buyers May Be Less Skittish About Chapter 11
--New research sponsored by ML suggested that buyers are less skittish about buying a vehicle from an auto cmpany filed for chapter 11 if government in involved --the notion that care buyers will be cautious about Chapter 11 has been at the heart of Wagoner's appeal for help --Chapter 11 will spiral into chapter 7 as auto maker will be branded as insolvent by buyers --Senate voted down the bailout plan last week. Concerned about riplle effect, Governm has been working on bridge loans. By JOHN D. STOLL A pair of new surveys suggests consumers aren't likely to be as cautious about buying a vehicle from an auto maker that has filed for bankruptcy-court protection as originally thought, as long as the U.S. government is willing to play a role in the Chapter 11 process. One study, conducted by Merrill Lynch & Co. for its clients, concluded that a "large majority of consumers would consider buying or leasing their next vehicle from an auto maker that is backed by U.S. government funding and may emerge as a strong company, following a restructuring through the bankruptcy process." The Wall Street Journal reviewed a copy of the survey, which won't be released publicly. A separate survey of 9,700 domestic car owners, completed Sunday by CNW Research, suggested 48% of buyers would be willing to consider a product sold by an auto maker in bankruptcy court, as long as the government was involved in the process, the firm's president, Art Spinella, said Tuesday. CNW had been the source of an earlier study whose conclusions raised concerns about the impact of a bankruptcy filing on a car company. That survey found buyers would stay away and the company's revenue would plunge. But Mr. Spinella said in an interview that people would feel much better about a Chapter 11 auto maker's chances "as long as there are loan guarantees by the government." The results contradict much of what executives at U.S. auto makers and the United Auto Workers have been arguing concerning the impact a bankruptcy filing would have on one or more of the auto makers. General Motors Corp. Chief Executive Rick Wagoner has said a filing under Chapter 11 of the U.S. Bankruptcy Code would quickly spiral into Chapter 7 liquidation because an auto maker would be branded as insolvent by buyers, even though many companies simply use Chapter 11 as a vehicle to restructure. Merrill Lynch's consumer-research service, Primary Source, conducted the firm's survey among 507 respondents. Merrill Lynch auto analyst John Murphy, writing to clients in a report accompanying the poll results, said the firm believes the results "will come as a surprise to many." After seeing the results of earlier studies suggesting people would shun an auto maker in Chapter 11, Merrill Lynch decided to conduct its own research that made it clear to survey participants that a company could continue to operate while restructuring in bankruptcy court. The firm also made it clear the government would provide financing during the Chapter 11 filing and likely guarantee vehicle warranties. In recent weeks, the chief executives of GM , Ford Motor Co. and Chrysler LLC, as well as the head of the United Auto Workers union, have told congressional leaders and the Bush administration that the vast majority of potential buyers would refuse to buy vehicles from an auto maker in bankruptcy court, fearing the company wouldn't exist long enough to honor warranties or provide needed service and parts. "We've seen studies that have shown that," Ford Chief Executive Alan Mulally told reporters Tuesday. "Sales would fall off really fast if one of the companies went into bankruptcy." After reporting dismal results for November auto sales, GM Marketing Chief Mark LaNeve said many buyers crossed the auto maker's cars and trucks off their shopping lists because of increasing reports about the company's fragile financial status, and the potential of a bankruptcy filing. The Big Three auto makers asked Congress for $34 billion in emergency loans but were blocked mainly by Republican senators. President George W. Bush is now deciding whether to use the Treasury Department's fund for troubled financial institutions to extend help to GM and Chrysler. Ford has said it doesn't need financial help right now. GM alone needs $4 billion by Dec. 31 to stay afloat. Mr. Mulally has been an advocate for the lifeline because he has said that a GM or Chrysler bankruptcy filing would lead to a collapse of the U.S. supply base and dealer body, therefore putting Ford at risk of collapsing. The Senate last week voted down a bailout of the Detroit auto makers after intense hearings and debates on the matter. But the Bush administration, concerned at the potential negative ripple effect a failure in Detroit would have on the overall economy, is considering extending short-term loans to GM and Chrysler that would get them through at least the first quarter of 2009. At that point, a so-called auto czar, appointed by the White House, could force at least one of the auto makers to seek a restructuring in bankruptcy court. As GM and Chrysler continued discussions with Bush administration officials Tuesday, negotiators kept the potential of an eventual bankruptcy filing on the table, according to people familiar with the matter. The bankruptcy filing, which would assist GM's attempt to reduce about $30 billion of its debt and restructure contracts with unions, dealers and suppliers, could be one of the strings attached to obtaining federal aid, these people said. The notion that people won't buy cars from an auto maker in bankruptcy court has been at the heart of Mr. Wagoner's appeal for help from the U.S. government. In congressional testimony, Mr. Wagoner cited a CNW Research survey, conducted in July among 6,000 respondents, that suggested 80% of potential car buyers would abandon plans to purchase a vehicle from an auto maker that filed for bankruptcy-court protection.