Written by Felix Minderbinder
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Topics: Cars, Toys

Friday, 12 December 2008

image for General Motors To Begin Making Toy Cars
A new prototype GM car

DETROIT (FMLiveWire)- The failure on Thursday of a congressional rescue package for the U.S. auto industry has made General Motors Corp. (GM) decide to shift production to toy cars.

GM said it was "disappointed" by the Senate's rejection of $14 billion in emergency loans that U.S. auto makers say they need to survive into next year, but that "toy cars are in demand and will be welcomed by the world's children."

"Toy cars are smaller in size and do not require costly engines, or even steel, so they should be cheaper to make," GM said in a statement. "Such small cars are better suited to American auto production."

But GM will still renew its request to the Bush Administration to tap the $700 billion in bailout funds to help it convert its factories to make the new generation of advanced toy cars.

The No. 1 U.S. auto maker had warned it could run out of cash and begin to default on payments within weeks without a government bailout. The toy car option was the company's only contingency plan if it didn't get loans.

Parts suppliers to GM welcomed the announcement, saying they also will convert to making parts for toy cars to be used in the new smaller GM vehicles.

GM should thus be able to avoid being pushed into filing for Chapter 11 bankruptcy protection, a move it says would inevitably lead to liquidation since consumers won't buy vehicles from a bankrupt auto maker.

GM board member Krent Krespa said in an interview Wednesday the auto maker had been weighing all options and the conversion to toy production "eventually won out."

Representatives from Chrysler and Ford, which have also needed billions of dollars to maintain operations, said they would follow GM's lead and convert to toy car production too.

The Big Three have reportedly signed lucrative contracts with Japanese toy manufacturers to supply the new toy cars for the amusement of Japanese children.

Shares of auto makers and suppliers rose sharply in New York trading Friday as optimism about these new developments grew.

GM shares finished Friday's session up at $7.32, while Ford shares rose to $5.90. Chrysler, owned by investment group Cerberus Capital Management, doesn't have publicly traded shares.

--Copyright Felix Minderbinder Live Wire

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