GM's summer vacation may last a lot longer than 9 weeks

On Wednesday, the Associated Press reported that, amid falling sales and rising inventories, General Motors (GM) appears to be planning to shut down most of its factories for nine weeks this summer. While some may remain open to continue producing the automaker's most popular cars, even those are likely to reduce production.

This move comes on the heels of a 49 percent drop in first quarter sales, compared with the same period last year. The automaker, which is subsisting on $13.4 billion in government loans, currently has a six-month supply of many of its car and truck models. Given that this should easily take it into the new model year, the summer shutdown seems well-timed.

There are currently conflicting reports about when the break will occur. Most sources are suggesting that they will overlap GM's July shutdown, a yearly two-week closure that the manufacturer uses to retool its plants for the new model year. Closing during this period would presumably maximize the usefulness of the down time.

According to the Detroit Free Press, however, shutdowns at some plants could begin as early as mid-May, which would leave a gap between the end of the temporary closures and the beginning of the scheduled two-week switchover. This accelerated schedule is particularly disturbing when one factors in GM's current financial deadlines. On June 1, the car company will be responsible for a $1 billion bond payment. It is currently working on making a debt-for equity exchange with bondholders, and is trying to lower labor costs in an attempt to avoid bankruptcy.

If GM is unable to meet the June 1 deadline, it will have to declare bankruptcy. If this happens, all bets are off, and it seems likely that some temporary closures could become permanent.

Unfortunately, bankruptcy seems to be the most likely outcome at this time, at least according to CEO Fritz Henderson, who seems trying to blame his company's fortunes on the Obama administration. Goldman Sachs also seems to be preparing for GM and Chrysler bankruptcies, and has upgraded Ford, based on the expectation that it is about to get a huge boost in market share.

Over at Ford, however, the excitement is somewhat muted. As Bill Ford, the automaker's executive chairman, recently pointed out, the big three all use many of the same parts manufacturers, and GM's failure could result in the closure of factories that supply Ford. This will drive up costs, hurting the one Detroit carmaker that seems to have a hope of weathering the recession without filing for bankruptcy.
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