By Kevin Krolicki and David Bailey
DETROIT (Reuters) - Automakers headed into 2008 hoping for a merely bad year. Instead, they got a full-blown crisis.
With credit tightening, gas prices rising and housing shaky, first-half auto sales in the United States plunged to the lowest level in a decade-and-a-half, bucking expectations for only a modest decline in the world's largest vehicle market.
American consumers also stopped buying trucks and SUVs loaded with high-margin extras and turned suddenly to more fuel-efficient passenger cars, a segment Detroit has neglected for a decade.
The result has pushed U.S. automakers, led by General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), to the brink, raising questions about their ability to ride out the downturn and forcing them to step up cost-cutting and other efforts to raise cash.
The key now is a push to get U.S. lawmakers to approve funding that would enable the industry to take up to $25 billion in low-interest, government-backed loans. The prospect of a low-cost option for raising cash has seen both GM's and Ford's stock and bond prices rise.
Top executives and union leaders will address the auto sector's response to its crisis, including the prospects for a bailout, at Reuters Autos Summit in Detroit from September 15-17.
"U.S. automotive manufacturers are presently operating in one of the more challenging times in their storied histories," Calyon Securities analyst Mark Warnsman said in a note for clients on Friday.
Detroit automakers are being forced to revamp their small car lines even as declining sales sap dealer profitability and "interest in moving Detroit metal," he said.
"Finally, both GM and Ford and burning cash faster than they can generate it and continue to face liquidity concerns," Warnsman said.
DON'T CALL IT A BAILOUT
Wary of a political backlash, auto executives have bristled at the suggestion that the $25 billion loan package, which was included in an energy bill passed by Congress in December, would constitute a "bailout" for the troubled industry.
"I'm not here today asking for any bailouts," GM Chief Executive Rick Wagoner told Congress on Friday.
Industry backers argue that cash-strapped automakers and their suppliers need the federal funding to invest in fuel-saving technology that will help them meet government mandates for 40 percent better fuel efficiency by 2020.
Erich Merkle, an automotive consultant at Crowe Chizek, said it was "critical" for the industry to get the funding.
"I'm not a fan of bailouts," Merkle said. "But this is what it costs when the government imposes restrictions on the automakers. There's no good fairy out there that's going to wave a wand and retool all their factories." Continued...
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