Thompson in Turn 5: As News From Detroit Worsens, Changes for NASCAR Are Inevitable

In these troubled times we live in, the average American citizen is worried about the ramifications of a $750 billion economic bailout. But what about the NASCAR big wigs down in Charlotte and Daytona?

They’re worried the money that forms the lifeblood of their sport just won’t flat out bail.

Indeed, NASCAR team owners supported by Chrysler, Ford or General Motors undoubtedly are reading the Wall Street Journal regularly these days, trying to gain insight as to whether their manufacturer of choice will continue to survive in the depressed American automotive industry.

Their interest has been recently heightened by the news late last week that top-level managers for both Chrysler and General Motors are weighing the feasibility of merging, with GM taking control of the Chrysler operation in any possible deal. This information comes on the heels of reports that GM and Ford Motor Company had earlier discussions concerning a merger of their struggling corporations.

It’s not that team owners are unaware their American-branded race partners have been in financial trouble for some time. It’s that owners have to realize that assurances by the heads of all three company’s race divisions in recent months that they remain committed to NASCAR probably have not been all that reassuring in the long run. Though these directors hold the purse strings that are somewhere in the neighborhood of $40 million apiece in money and technical support to owners representing their brand, they likely aren’t privy to the top-level maneuverings going on within their respective companies.

Now, attempting to forecast the final outcome of all merger negotiations and talk of bankruptcy filings by at least two of the Big Three manufacturers would be foolhardy. It is a safe bet that even those top-echelon executives intimate with the details of the closed-door discussions do not know with any certainty what the final outcome will be. But what is certain is that NASCAR, its teams and fans are going to continue to see the face of the sport keep changing – regardless of the outcome.

As implausible is it is to me, there are still NASCAR fans that are fiercely loyal to particular automakers, a subject that I have written about in the past. It’s an issue that, as the article’s title reads, remains something I believe to be nothing more than “Misguided Loyalties.” But nonetheless, at least one body of manufacturer loyalists will be left out in the cold in any potential merger scenario. And if reports prove accurate, it is expected that Chrysler – along with racing’s beloved Mopar trademark – would be the one that disappears.

Some industry watchdogs are giving the possibility of a Chrysler/GM merger a 50/50 chance of actually taking place. The two companies are poorly positioned by themselves to offer the consumer what the market is demanding – affordable and dependable high fuel-mileage vehicles. Yet the two seem to believe combining their operations will somehow mitigate their losses.

It sounds reminiscent of the old joke about two brothers that bought a dump truck and worked the truck day and night for a year, only to be notified by their accountant that they made absolutely no money at the end of it. The brothers, not too adept at business matters, concluded that the best move for them was to buy two dump trucks the second year… just so that they could double their profits.

Anyways, the presumable loss of Dodge in such a merger would have an immediate impact on teams tied to the automaker and dependent on its financial and technical support. This seems to already be a concern to owners, with the recent rumor mill having Ray Evernham – the cornerstone of Dodge’s reentry into NASCAR in 1999 – considering opting out of his minority ownership in Gillett Evernham Motorsports altogether. Even Dodge’s most fervent supporter, the legendary Petty Enterprises, finds itself eyeing an alliance with Toyota under new corporate owner Boston Ventures.

Perhaps a Chrysler and General Motors marriage would be successful enough to at least afford GM time to mitigate the financial bleeding that it has suffered for more than four years. Investors have become weary of the company, and its stock prices have plummeted in recent years with no sign of leveling off. The once shining-star of American capitalism recently had its credit rating downgraded as well, making it harder than ever to recover to previous highs.

Coupled with the current worldwide banking crisis, this makes GM’s chances of borrowing needed capital difficult at best, impossible at worst. Barring a significant turnaround by the second half of 2009, the company, burning up its remaining cash reserves at an estimated $1 billion a month, may be forced to seek emergency bankruptcy protection.

But as we learned in 1980, when the American taxpayer propped up a then-ailing Chrysler; and even in the past week, with government support being given to big corporations, being bankrupt doesn’t necessarily mean that a Fortune 500 company is kaput, only that the U.S. government will jump in to save it. Such intervention is now a real possibility for GM and for that matter Ford, who likewise is in dire financial straits and rumored to be a candidate for a buyout or bankruptcy.

In fact, the U.S. Congress just threw $5 billion in loan guarantees to each of the Detroit’s Big Three while the average Joe Taxpayer was preoccupied with watching their elected representatives gift ailing financial institutions with up to $700 billion in assurances. That’s a lot of help money, to be sure, but truly $5 billion is akin to putting a Band-Aid on a severed artery these days. Simply put, it’s just not enough to stop the bleeding from a problem which slows little, if any, signs of slowing down.

Regardless as to whether an aid package would be offered to, in particular, the publicly traded Ford and/or GM, it would not necessarily be a life ring thrown in NASCAR’s direction. If such a scenario happened, an overseer would be put in place to scrutinize the company’s business practices. Remember, practices such as tossing tens of millions of dollars NASCAR’s way will be heavily targeted unless it can be shown to be beneficial to the bottom line. And that’s not an easy task for any of the auto manufacturers to definitively prove week in and week out.

As previously stated, what scenarios ultimately come to pass will prove impossible to predict. Will the negotiations between Chrysler and GM result in GM taking over Chrysler, providing solid footing before being forced to make the tough business decision to cut back or end its support for NASCAR and its teams?

And how about Ford? Will they resume talks with GM on a merger of the two once seemingly invincible companies? Or will they, too, continue to struggle, and in the process curtail their NASCAR involvement to reduce costs before finally being bought by a foreign entity or going broke?

There is a lot unknown as to what the level of participation by U.S. automakers in NASCAR will be in the very near future. But without a doubt, there will be no Big Three in the relatively near future, an eventuality that will adversely affect the sport as we now know it and require further measures to be taken by the sanctioning body to assure its own viability and survival.

Team owners will be left scrambling for manufacturer support until there is no place left for them to look, while NASCAR and track owners will also be taxed with finding alternative race sponsorship dollars. No one that earns a living in the sport will be unaffected, and it’ll happen sooner rather than later at the rate these things are happening.

But as for surviving through the chaos? NASCAR will. The demise of the American auto manufacturing industry has clearly been on the radar of most successful racing organizations for quite some time. It is no accident that the racecar of today can be called a Ford one week and Dodge the next; because the fact is, they are neither. They are NASCAR racecars; throw a few stickers on that chassis and drop a motor of any manufacturer in it, and you can go racing. Fact is, should the worst occur and manufacturer support leave, teams will be installing NASCAR-specific engines in the chassis and bodies, allowing the racing to continue.

Change is tough. However, NASCAR is not responsible for the dying U.S. auto industry. What will be of interest is how the organization manages the inevitable changes… and how accepting fans of the sport will be to those changes once they become reality.

And that’s my view from turn 5.