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NASCAR Race Weekend Central

Thompson in Turn 5: Potential Loss of GM & Dodge Will Force NASCAR to Make Difficult Decisions

The drumbeat to the demise of American automakers General Motors and Chrysler is becoming increasingly louder in recent days, as both manufacturers appear certain to either cease to exist or file for bankruptcy to seek temporary protection through the courts as they attempt to reorganize their failing businesses. Curiously, NASCAR remains silent as to what their contingency plans are as the industry they have been intertwined with for decades continues to crumble around them.

At this point, let’s hope silence isn’t an indicator they have no such plan in place… because otherwise, the outcome for the sport could be disastrous. That two of the three U.S. automakers may soon be forced to withdraw their support from NASCAR is not an insignificant matter. In fact, those two manufacturers account for more than half the teams entered in this Sunday’s Samsung 500 to be held at Texas Motor Speedway. A quick count shows 17 of the 25 cars entered will be running Chevrolet powertrains, with another eight sporting the red emblem of Dodge. In the not-so-distant future, those 25 teams may very well be scrambling to find non-existent manufacturer support to stay afloat – or be forced to close their doors as a result.

How bad is it financially for these automakers? Really, really bad – particularly for Dodge’s parent company, Chrysler. Earlier this week, the Obama administration made the determination that the company Richard Petty brought to stock car racing prominence in the 1970s was not worth attempting to save. With the U.S. taxpayer already committed to approximately $9 billion in loan guarantees for the No. 3 American car builder – and Chrysler back with their hands out for another public funding to the tune of $5 billion – the company was told no, that it would need to find outside help instead to stay afloat.

More accurately Chrysler, owned by the private equity company Cerberus, was given 30 days to reach a financial accord with the Spanish automaker Fiat Group SpA and undertake drastic cost-cutting measures. Talks between the CEO of Fiat, Sergio Marchionne, and Chrysler execs have gone on since the first of the week. Insiders are reporting that Fiat is showing only moderate interest in Chrysler and are not willing to absorb a significant interest in the beat-up car builder. Further, the cuts that are being required by the administration’s auto task force are, especially in Chrysler’s case, problematic at best given the short period of time afforded the company to turn around its business.

So Chrysler is, for all intents and purposes, down for the count… there simply is nowhere else to turn. Absent the support of an administration generally sympathetic to the plight of one of the few heavy industries left in the U.S. and the folks they employ, the government has concluded that any further financial assistance would be nothing more than throwing money down a rat hole. The company is destined to be sold off piecemeal under the guidance of a bankruptcy judge which, in the end, will leave any agreements or commitments to NASCAR, individual team owners, or drivers null and void.

If there is any good news for General Motors, it is that they may simply have 30 days more than Chrysler before filing for Chapter 11 bankruptcy. The Obama administration nixed $17 billion in immediate aid and gave GM – once the pride of American industry – until June 1st to cut billions of dollars in operating costs and improve its debt-ridden balance sheets.

That means the final chapter is likely playing out for the General Motors Corporation as we know it. Rick Wagoner, the long time CEO, was fired this week at the urging of government overseers, leaving a near impossible set of tasks put before new CEO Fritz Henderson. Henderson has since been given a government laundry list that he cannot possibly fulfill in the time allotted. Among the government prerequisites for continued public assistance is the selling or discontinuation of unprofitable divisions – such as Hummer and Saturn – which have bogged down the company’s profit margins in recent years. And as if those obstacles were not enough, GM must reach an agreement with the United Auto Workers on the funding of a trust to guarantee blue-collar retirees their healthcare benefits – as well as make up some staggering deficiencies in pension funds.

The hurdles that the century-old GM must clear are just too many and too high. To satisfy the government at this point would require further renegotiating of wage cuts, plant closings and reductions in health care and pensions for GM’s remaining employees. All in all, that’s a daunting task with no guarantee at the end that it would satisfy the government, particularly in respect to the significant public backlash that prevails towards further taxpayer funds being used to prop up the auto industry.

As a result GM has now, for the first time, acknowledged the possibility of entering bankruptcy court. A short bankruptcy would give the automaker the ability to wipe out debt, rewrite or cancel contracts and reemerge as a significantly smaller but less debt-burdened operation. When asked this past Tuesday what the chances of bankruptcy are for GM, Henderson replied it is “certainly more probable.”

What does such a pending financial collapse mean for our sport? Well, rest assured that the bankruptcy courts will do what managers at GM and Chrysler have been hesitant to do… cut off the channeling of funds to NASCAR and individual teams. Though the estimated $140 million that each manufacturer contributes to the sport is, relatively speaking, a drop in the bucket to the billions of dollars the automakers (Ford Motor Company included) have been losing in recent years, it will be an easy expenditure for a court auditor to point out and order eliminated.

In good times, NASCAR racing may be as good as any other advertising venue for a company to get their brand before the public eye. However, given the fact that in spite of their past involvement in the sport, these companies have continued to see market shares decline, it will be hard to argue that a heavy investment in the sport has been necessary or beneficial.

In truth, the argument that “what wins on Sunday sells on Monday” is an antiquated and a difficult to prove philosophy. It may very well have had merit in the days when NASCAR’s stock cars at least vaguely resembled those found on showroom floors, but no longer – a nuance that is not likely to be missed by court-appointed auditors looking to cut costs any way they can.

The slow and steady demise of the once powerful American automobile industry is, and has been, a sad story for American capitalism. Of course, the damage that NASCAR and its effected teams would experience – should a bankruptcy court rule that one or both manufacturers are to renege on their financial and engineering support agreements – pales in comparison to the suffering and pain that thousands of pensioners and employees that are furloughed will endure. But nevertheless, the sport will be significantly impacted.

When the shoe drops for owners such as Rick Hendrick, Richard Childress, Chip Ganassi, Roger Penske and the other Chevy and Dodge teams, it will be chaotic in the Cup Series to say the least. Of course, those mentioned will eventually, due to their great successes and resources, eventually land on their feet. However, how long it will take and who, ultimately, will suffer are big unknowns.

Unfortunately, there is no manufacturer for the GM and Dodge organizations to simply merge with. Of the two car builders that will remain, one, Ford Motor Company, has cut back significantly in its motorsports support to save capital as it continues to suffer heavy losses in its own right ($14.6 billion in 2008). Toyota, though certainly in better long-term financial health than the U.S. manufacturers, also posted its first annual loss ($1.6 billion) in 70 years last year. Perhaps as a direct result of that financial hit, they have made it clear there’s no intention of further expanding their NASCAR program.

None of this is good news for NASCAR or the sport. But it certainly is a scenario that has been a possibility for some time. The sport has been ravaged by change in recent history and clearly more change, albeit unavoidable, is on the way.

That change, as always, brings questions about what the future of the sport will look like. Will NASCAR revert back to a goodly number of teams running as independents without the benefit of factory support? Or would a situation exist that we’d see a few teams supported by a deep-pocketed Japanese automaker and even fewer teams attempting to compete with what support a crippled American carmaker can provide? Or, is it possible the series might jettison the manufacturer support concept altogether, moving to a generic powertrain and “crate engine” to install in their generic chassis and bodies to offset the loss of viable manufacturers?

In the interim, NASCAR has little choice but to outwardly remain hopeful that GM, Chrysler and, for that matter, Ford can somehow right their ships. But the chances that will happen are near impossible at this point. Now, by year’s end, they will be confronted with a difficult set of circumstances that they will have to deal with.

Decisions will have to be made. Tough decisions, to be sure.

And that’s my view from turn 5.