LANSING – The domestic auto industry that the United States has known for decades, dominated by three major Detroit manufacturers, is no more, economic analysts said on Tuesday as a combination of continued sales collapse and the uncertainty of federal assistance means that even under the best circumstances “radical restructuring” of the companies will be required.

While federal aid may be critical to maintaining existence, Pat Anderson of the East Lansing-based Anderson Economic Group said getting that aid is fraught with risks because a sound business plan to restore economic health will likely anger congressional Democrats.

However he said auto aid may get a political boost from the $20 billion aid given Citigroup. “Citizens are not long going to tolerate consistently bailing out financial companies and not bailing out companies that actually produce products and employees,” he said. To residents of the Midwest, this dichotomy is absolutely inexplicable, he said.

The crisis the auto industry is now suffering also does not mean there will be no profitable domestic producers in the future, Anderson said. But before that occurs dramatic restructuring will occur, he said.

That restructuring will mean continued jobs losses, reduction in brands (with possibly several foreign nameplates leaving the U.S.) and reductions in dealerships, said Anderson in a telephone conference call, if not the end of at least one car company. The company least likely to survive long-term on its own is Chrysler, Anderson said, even though General Motors may have more immediate short-term financial problems.

The analysis was done as part of a service the company offers analyzing economic trends.

Since the chief executives of the Big Three car companies failed last week to convince Congress to agree to a bailout proposal, and since receiving a letter from U.S. Speaker Nancy Pelosi (D-California) and U.S. Senate Majority Leader Harry Reid (D-Nevada) calling for the companies to provide details about their restructuring plans, how they intend to comply with environmental regulations and how they will pay back federal loans, sales of those vehicles have collapsed, Anderson said.

Total vehicle sales have gone from 16 million in 2007 to 12 million, Anderson said, but now are running at rates of 10.5 million sales just since the testimony of the auto executives last week.

If federal assistance is going to be effective it will need to be issued sometime by mid-January, Anderson said.

Anderson said he and his team of economists have developed six different scenarios for automotive survival in the U.S., three if federal aid is issued and three if it is not.

If federal aid is issued as a bridge loan, Anderson said GM and Chrysler could merge, which would probably be the best overall result. If not that, then the car companies could radically restructure outside of bankruptcy. A third option would have GM and Ford radically restructure outside of bankruptcy with Chrysler’s assets being sold to other entities.

If no federal aid is issued, then the least worst scenario is that Chrysler files for Chapter 11 while GM and Ford restructure, he said. The second worst is that GM and Chrysler file for Chapter 11 bankruptcy. The worst scenario is that all three companies would file for Chapter 11 and take some suppliers with them.

Under Chapter 11 a company can reorganize with some protection from its creditors. Under Chapter 7, a company would have to liquidate, and the car executives worried that filing for Chapter 11 would lead to liquidation.

Anderson said that a bankruptcy filing would require a number of elements for the companies to survive including a guaranty that customer warranties would be honored, that dealers continue to get payments and that top suppliers are supported.

He dismissed the idea of a pre-packaged bankruptcy as a financial insiders tool that would not work for the auto companies.

And he criticized those who try to compare the bankruptcy of the auto companies to the bankruptcies of the airline industry. The greatest threat passengers faced flying on a bankrupt airline was that their return trip would be cancelled or they would lose their frequent flier miles.

Spending in excess of $20,000 on a car from a bankrupt manufacturer opens a new level of concern to a consumer, Anderson said, as to who will maintain the vehicle and what market value it might have in the future.

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