The GM-Chrysler bailout article in today’s New York Times (written by Edmund Andrews and our friend Bill Vlasic) just recaps yesterday’s bailout news. But it raises an interesting point. The argument thus far has been that auto manufacturers (namely Chrysler and GM) would be entitled to the Treasury Department’s bad loan buy ups (TARP) because they have large credit arms. Except for one glitch: General Motors only owns 49% of GMAC (the NY Times article oddly reports the reverse “General Motors … spun off 49 percent of its financing unit, the General Motors Acceptance Corporation.”) As a result, even if GMAC qualifies as a financial institution, General Motors would not. This isn’t the same as Ford, which wholly owns Ford Credit. Fortunately for GM, as Vlasic notes, the government will find a way, one way or the other, to put cash in GM’s coffers. Until GM blows through that, too.
Reuters is reporting that Avis is getting hit by the slowing economy. Perhaps even more than retailers, vacation-related businesses really take a beating when the economy gets rough, and just like hotels are getting slammed, so too are car rental companies. They say that the “workforce reductions” should save $50 million/year. Against a $1 billion loss, that sounds like a worthwhile way to ruin 700 lives. (Avis CEO Ronald Nelson only made $2.15 million last year before taxes). So much for trying harder.
News flash! Automotive News [AN sub] finally talks to someone on the record! And it’s no less a personage than GM Marketing Maven Mark LaNeve, the man in charge of managing The General’s declining ad budget. To celebrate the occasion, AN’s crack reporters resort to the lazy journalist’s best friend: Q & A. The resulting edit begins with the usual “these grapes are not sour, there must be something wrong with your taste buds” waffle. LaNeve would have us believe that the new media is so wicked cool GM doesn’t really need to spend as much money as it did before the last of the corporate cash pile went up the chimney. “When a lot of the digital technology was new, all marketers were learning. As you learn, you get more efficient and you spend less money to get the same results, the same impact, the same reach in the marketplace. That is why I am comfortable with some of the cuts we are making. We are a whole lot better at search, at digital, at working with our third-party partners like Edmunds.com and The Truth About Cars.” Just kidding. About TTAC. Anyway, AN raises the spectre of GM’s octo-brand stretch. Pah! “We prioritize the launches. The key launches are the Chevrolet Traverse, Camaro and Equinox. Cadillac has the CTS wagon, CTS-V series and CTS coupe on the horizon. And the Buick LaCrosse and GMC Terrain are two big launches.” THOSE are GM’s priorities? My children’s children’s children’s tax money is so dead. More revelations after the jump.
TTAC called this the moment we heard that Uncle Sam was allocating your taxes– I mean your children’s children’s children’s taxes– to bail out the banker boyz from the sub-prime mess they created. Still, it’s strange to hear GMAC– the lender that poured tens of billions of dollars into GM’s coffers– admit they need to suckle on the federal teat suckle on the federal teat. “GMAC has been in discussions with the government on a multidimensional level,” said GMAC spokeswoman Toni Simonetti. “We are interested in exploring options that are available to us through the federal government’s tool kit that was implemented under the new legislation.” To its credit, Automotive News [sub] asked GM’s Dr. Who fan what form this “assistance” might take. “Simonetti declined to say whether GMAC wants to sell troubled assets to the government or to sell a stake in the company to taxpayers.” Oh yeah, I want a piece of GMAC. But then I like lighting Franklins on fire. Meanwhile, “Last week, Ford Motor Credit Co. said it had registered with the Federal Reserve to participate in a new program aimed at easing the sale of commercial paper, which companies use to raise money for day-to-day operations. Ford Credit has not decided if it will take part in the program.” That’s news to me. Or, you know, not.
As you may (maybe) know, SEMA is right around the corner. As in next week (whoever scheduled it for November 4 needs their head examined). And what is SEMA you may be asking? Well, no one even remembers what “SEMA” stands for, but the show has come to represent all that’s wonderful and/or dreadful in the simply humongous after market, er, market. More than too many four-door cars with scissor doors, too. And SEMA is big. No, bigger than big. It’s quite gigantic and most of the major OEMs (from Dodge to Hyundai to Daimler) will have radically customized cars on display next to radically customized bikini models. And this fact got me thinking — who is doing all this customizing? Admittedly, my last WRX may have had a mod or two (or ten). But I was a much younger man back then. And not getting press cars all the time. My new WRX? Bone stock save for some fancy pants tires. Might I mod it? Dunno. As I age, I worry about reliability. And more boost sounds… expensive, in the long run. But dear readers, what about you?
Automotive News [AN sub] reports that GM is giving workers an extra week off over the holiday period at its Detroit-Hamtramck (Cadillac DTS, Buick Lucerns) and Bowling Green, Ky. (Chrevrolet Corvette, Cadillac XLR) plants. And no wonder. “As of Oct. 1, GM had a 95-day supply of the Corvette and a 215-day supply of the XLR. It had a 70-day supply of the Lucerne and a 50-day supply of the DTS.” Actually, a 50-day supply is quite good; the industry considers 60-days the sweet spot. But even so, the additional week off indicates the “pull” for all four vehicles is weaker than a snail darter on a deep sea rod and reel. A fact which AN confirms. “Through September, U.S. sales of all four of the vehicles have fallen from the first nine months of 2007: Corvette sales are down 9.5 percent to 23,384, XLR sales are off 26.3 percent to 1,039, Lucerne sales have declined 32 percent to 43,839 and DTS sales have dropped 32.4 percent to 25,790.” Whether intentionally or not, for once, GM’s spinmeisters offered a straighforward assessment of the reason behind the slow-down. “The market is telling us we don’t need that many cars,” GM spokesman Tony Sapienza admitted. Roger that. So to speak.
Not far to go now. MarketWatch reports that “General Motors Corp.’s creditworthiness came under fire yet again on Monday, with Moody’s Investors Service slashing its debt even deeper into junk territory at Caa2, three rungs above the lowest possible rating.” Ready for some carefully-couched euphemistic double talk? You know you want it. “Moody’s cited its expectation that the erosion in the U.S. auto sector that ‘will severely outpace’ GM’s ability to respond adequately.” More directly, analyst Bruce Clark reckons the downgrade reflects “the risk that despite all of GM’s business restructuring and liquidity raising efforts to date, the magnitude of cash outflows due to ongoing operating losses, debt repayments, and other uses will consume the company’s available cash during 2009.”
According to Karey Wutkowski at Reuters, the “The Treasury Department is considering aid of at least $5 billion, which could include direct capital injections and government purchases of auto loans.” The usual anonymous source claimed the decision could be made this week. Wutkowski reports that GM and presumably Chrysler have been lobbying the Bush administration for the money, no doubt made easier because Cerberus’s chairman, John Snow, is the former Bush-appointed Secretary of the Treasury. Purchase of bad auto loans is likely to anger many, but the “direct capital injection”– a suitcase full of freshly-minted money– is something else altogether. Will you, the new shareholders get any stock in GM-Chrysler? Of course not. Nor is there likely to be any accountability to the government beyond a nebulous promise by Rick Wagoner that “he’s working hard.” The kicker? The $5b is only the beginning. “People briefed on the merger discussions have previously said GM would need a minimum of $5 billion to start restructuring Chrysler’s operations. The total amount needed could reach $10 billion.”
The Detroit News reports that the White House wants the feds to cover GM, Ford and Chrysler’s bad paper. “White House spokeswoman Dana Perino said that GMAC, Ford Motor Credit and Chrysler Financial could be part of the Trouble Asset Relief Program — the $750 billion Wall Street rescue package approved by Congress. ‘It’s possible that some of those financing arms could be a part of the rescue package — the TARP, as they call it at the Treasury Department. So that’s why — that’s one of the reasons Treasury has been in contact with them.'” (The other: to buy 5k Trailblazers on the cheap.) Meanwhile, The Energy Department named a senior career U.S. Treasury Official named Lachlan W. Seward to oversee the Department of Energy’s $25b low-interest-for-20-year-old-or-more-auto-plant-retooling loan program. (Either that or buy Siberia from the Russians.) Parenthetical asides aside, it looks like TTAC’s Ken Elias was on to something. Something that smells BAD. “People familiar with the matter said General Motors Corp. chairman and CEO Rick Wagoner was in Washington last week for meetings with U.S. Treasury officials. GM spokesman Greg Martin declined to confirm or deny the visit. Bloomberg News reported that GM had offered to swap an equity stake in the company in exchange for federal help.” Looks like I was right about the race against bailout fatigue, as well.
Toyota outsold GM globally last year. Of course, GM took the low road and claimed they were still number one by dint of their minority partnerships with Chinese automakers. This year, ToMoCo will lift the crown as the world’s largest automaker– joint ventures or no. Anyway, here in the real world, that gig’s been up for a while. More than a year ago, GM CEO Rick Wagoner declared that Toyota’s title-taking didn’t matter. OK, it did, a bit. But it really didn’t; ’cause we don’t have time to worry about that shit [paraphrasing]. After all, we’ll be profitable by…. uh… hey! Is that an SSR? Well, Red Ink Rick’s going to get another chance to play spin the news. CNBC’s Phil LeBeau reports that Toyota’s three U.S. brands could outsell GM’s eight brands in October. “This week is not only the last one of the month. It’s also the week that could determine if GM holds on to the top spot in monthly auto sales in the U.S. Initial reports of October retail auto sales show Toyota outpacing GM and Ford. If that trend holds for the full month, we could be looking at the day many in Detroit have feared for years.” Even if GM doesn’t, Phil worries about the psychological impact of the smack-down.
As bailout after bailout sucks the federal teat dry, the ethanol lobby is finally doing the patriotic thing by taking its insatiable greed for public money to China. Green Car Congress reports that General Motors and its cellulosic ethanol partner Coskata are making the pitch for US-style ethanol subsidies in the Happy Shiny Peoples Republic Of China. At the World Biofuel Symposium hosted by Beijing’s Tsinghua University, GM and Coskata announced that China could produce 45-49 billion gallons per year (BGPY) of cellulosic biofuels by 2030… with the proper subsidies. And though the 45-49 BGPY would be 60% derived from agricultural residue, 20% from grasses, 10% from forest residue and 10% from “other,” China’s capacity is estimated (by GM and Coskata) at only half that amount without government incentives. E10 mandates in several of China’s largest provinces have already increased grain-based ethanol production from 100 million gallons in 2004 to about 500 million in 2008, but the Chinese government is also trying to limit grain-based production for all of the obvious reasons. Hence GM and Coskata’s attempts to hype their cellulosic ethanol approach, despite not having plans to open a commercial demonstrator plant before 2011. Meanwhile, “GM will continue to advance its strategy of ‘in China, with China, for China‘ to help China develop diverse automotive energy solutions and commercialize such energy solutions, according to GM China VP David Chen. All we can say to China is, beware of Americans bearing biofuels and patriotism. Then again, better you than us. But don’t say we didn’t warn you.
From the land of speed cameras and license points comes news that a new generation of GPS satellite navigation systems could be the Next Big Nanny to take all the fun out of driving. The Times reports that TomTom and Navteq are developing Advanced Driver Assistance Systems (ADAS) which will take GPS far beyond its current navigation-only capabilities… with dismaying results. The new systems will reportedly tell motorists when to change gear, at what speed to take a corner and even how to drive more economically, while providing 3-D navigation and refined destination-seeking capabilities. Needless to say, the prospect of having a computer yell at you for taking corners too fast on a windy mountain road is hardly the stuff of gearhead daydreams, but as usual a higher power is at play here. Navigation system makers have been dealing with the legal reprecussions of uncritical reliance on GPS systems, such as the woman who got her SL500 stuck in mud when her sat/nav told her that a ford over the river Sence was navigable. By issuing constant feedback about driving style and possible damage to the car’s internals while improving the three-dimensional mapping, these firms hope to prevent future lawsuits. And annoy the hell out of anyone who happens to enjoy the occasional spirited drive.
The Edmonton Sun reports that a judge has cleared the last remaining participant in the city’s photo radar bribery scandal. Sergeant Tom Bell, 50, accepted lavish gifts from Affiliated Computer Services (ACS) between 1998 and 2004 while the company was attempting to land the right run the city’s lucrative speed camera operation.While several other Edmonton Police Service employees, including Staff Sergeant Kerry Nisbet and former Chief Darryl da Costa, accepted similar benefits, Bell alone stood accused of returning the favor. On March 1, 2004, Bell wrote a memo falsely stating that ACS alone was capable of running Edmonton’s speed camera program; the company should be awarded a no-bid contract worth $90m. Court of Queen’s Bench Justice Bryan Mahoney believed this amounted to ordinary conduct and that it did not amount to a “serious and marked departure from the norm.” For that reason, he could not find Bell guilty of taking bribes despite “some poor choices and errors in judgment.” Mahoney discarded the testimony of Bell’s ex-wife, who asserted that Bell’s wrote the false memo in the hopes that he would be rewarded financially after leaving the police force.
As a website that started a General Motors Death Watch on April 3, 2005, and published its 208th episode this morning, TTAC is no stranger to the idea that GM has been heading for a Chapter 11 bankruptcy for quite some time. We’ve also reported that The General has refused to contemplate the possibility, nay, utter the word “bankruptcy” for lo these many years. About a month ago, we brought this Voldemort problem to our reader’s attention. And now GM Car Czar “Maximum” Bob Lutz brings it to ours [via the Detroit Free Press]. “Bankruptcy for GM certainly is not an option,” Lutz announced at the Public Relations Society of America. “The board has never talked about it… It’s not something that we consider would be constructive or would solve any problems for anyone.” While you’d expect an ex-marine aviator to tell the world “failure is not an option,” the idea that GM’s Board of Bystanders are sleep-walking towards disaster is as predictable as it is lamentable. [thanks to Polishdon for the link]
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