Jeremiah 29:11

Very sad for American manufacturers and jobs that are at stake.

3 big questions for Detroit's Big Three
Despite the buyout of Chrysler, big questions loom about the future of the troubled U.S. auto industry.

By Chris Isidore, CNNMoney.com senior writer
May 15 2007: 1:51 PM EDT


NEW YORK (CNNMoney.com) -- Despite this week's big bet by a big private equity firm that it can turn around Chrysler, major questions remain for the troubled automaker - and the answers could shape the nation's auto industry for years to come.

DaimlerChrysler (Charts) announced Monday it would pay about $650 million to dump 80 percent of its money-losing Chrysler unit, undoing the industry's most expensive and least successful merger. The buyer, private equity firm Cerberus Capital Management, is investing about $7.4 billion in all, but most of that is new financing for Chrysler and its finance arm going forward.

Daimler was willing to pay to walk away from Chrysler because it wanted to end its exposure to the automaker's massive losses - and future retiree health care costs estimated at $18 billion. The extent of the losses came into clear focus Tuesday when Chrysler reported a loss of about $2 billion for the first quarter, compared with earnings of $857 million a year earlier.

The first-quarter loss topped the $1.5 billion Chrysler lost for all of 2006. Those numbers were reported on Feb. 14, Valentine's Day, when Chrysler also sent a love letter to its employees, announcing plans to cut 13,000 jobs and close several North American plants. That was also the day DaimlerChrysler put Chrysler Group up for sale.

The charges from the cuts amounted to $1.2 billion in the first quarter. But that leaves another $800 million in operating losses, from weak sales and stiff competition from the likes of Toyota (Charts) and Honda (Charts) as well as Chrysler's cross-town rivals in Detroit, General Motors (Charts, Fortune 500) and Ford (Charts, Fortune 500).

All of which gives rise to the first and most important question facing the U.S. auto industry.

When will auto losses end?
Of course Chrysler isn't the only U.S. automaker that's bleeding.

GM, despite record global sales, reported another loss in its core North American auto operations in the first quarter. Ford's loss in autos in North America jumped 39 percent to $614 million in the first quarter, and the automaker doesn't expect a return to profitability in North America until 2009.

All three automakers are still working on the difficult, expensive job of cutting capacity. But growing competition, record gas prices and the changing tastes of American consumers - who are back to buying cars rather than the pickups and SUVs that Detroit lived on for years - will make it tough for the automakers just to break even - though breaking even won't be enough.

"They scrape by year after year and are not building up the type of profits to invest in the new products they need," said Bob Schnorbus, chief economist for J.D. Power & Associates, the auto research and consulting firm.

Many experts say they fear that even if none of the automakers are facing the kind of immediate crisis that prompted worries about a bankruptcy filing at GM only a year ago, they are all facing the death of a thousand cuts unless they can overhaul the business of making and selling cars.

"I still believe that there is going to have to be a real rationalization of the industry," said Kevin Tynan, auto analysts for Argus Research. "It has to be more serious than every few years closing some plants here and there. It has to be torn down much further."

And the biggest change Tynan and some other analysts are looking for is on the huge costs from benefits promised to employees and retirees such as pension and especially health care. That leads to the second big question for the auto industry:

Will the union agree to