The tone at today’s nearly six-hour congressional hearing on the auto industry bailout was markedly different than the now-infamous hearings of 11/18. Last time ’round, the automakers thought they were flying walking into a bailout-friendly environment, and maintained their PR-fluffed facade of a few good companies who had fallen on hard times and needed a hand to reach a glorious, fuel-efficient future. And though several representatives laid into the CEOs and their companies, those bashes were little more than populist sound and fury, signifying nothing. Today’s hearing was by no means devoid of politicking or disingenuousness, but a new sense of urgency was palpable. And for good reason. With Senators still far from a consensus, the automakers and their sidekicks had to abandon their long-held preferences in favor of the best available outcome. After all, saying “bankruptcy is not an option” only works when everyone agrees with you.
The seeds of an eventual outcome were sown by the first witness. GAO Comptroller General Gene Dodaro testified that collateral and an oversight board would be necessary in any publicly-funded outcome. Dodaro agreed with Chairman Chris Dodd (D-CT) that there was nothing in the Troubled Asset Relief Program (TARP) specifically preventing a manufacturing bailout. What’s more, the Federal Reserve has the authority to issue loans
Nardelli, Mulally and Wagoner must have felt considerable relief. Straight out of the gate, the question “if” was conspicuous by its absence. All conversation centered on “how.” In later testimony, all three CEOs agreed to any form of oversight the government wanted to impose short of a 350 lbs. minder. On the table: a 1979-Chrysler-style board or a single “car czar,” as suggested by Sen Chuck Schumer (D-NY). Yeah, sure, whatever.
And then the issue of collateral reared its ugly head. As in “what can you give us if we give you $34b?” The issue was discussed at great not to say interminable length. As the scope of Detroit’s indebtedness was examined, it became clear that the auto execs couldn’t promise anything more than some level of debt seniority.
Since everyone in the hearing room had agreed in principle to a government oversight body, the questions soon turned to restructuring and long-term viability.
Chrysler was treated to a withering analysis by (among others) Sen Bob Corker. The Tennessee republican pointed out that part of Chrysler’s viability plan depended on “getting married” to some other firm. Though Nardelli insisted that this meant getting contract work building Routans and Titans, Corker dismissed the equivocation saying “nobody alive thinks Chrysler is viable on its own.” He noted ChryCo is a “portfolio company” in a private equity fund that refuses to rescue it. This highly necessary statement of the obvious eventually brought back discussion of a possible GM-Chrysler “merger.”
Nardelli jumped on this. He trumpeted the fact that any such a merger would save $10b to $20b per year. Wagoner agreed that savings were there, but said that short-term cash flow needs had taken priority over the merger. When asked if they would support a merger if it was a condition of loans, Nardelli said that even though his job would be “the first to go,” he was willing to make that sacrifice to save the company.
This unexpected display of honor was a subtle but powerful tipping point in the proceedings. It was easily the most public display of vulnerability by any of the executives. For the first time, there was a real understanding that Detroit was no longer negotiating, but supplicating.
Not long after this astonishing display, Sen Corker again had the floor. He worked steadily towards a compromise based on reality. He pointed out that Gettelfinger could not force his union brothers to accept any sacrifices unless “bankruptcy is the endgame.” His solution: force the UAW to reduce its labor costs to transplant levels and turn at least half of VEBA into equity and get GM bondholders to drop their debt at 30 cents on the dollar by March 31, at which point the federal government would assume debtor-in-possession financing for a reorganization. He also recommended that Chrysler merge with GM.
This appears to be the consensus exiting the meeting. Which means that Cerberus faces a choice of either liquidating Chrysler or merging with GM. Ford will have to survive until retooling loans come available, although there is some chance they’ll get a small credit line with some restrictions.
Meanwhile, General Motors and the United Auto Workers face about 30 years worth of necessary change in just under four months, still absent any guarantees that they’ll even survive that long. There will be further testimony at tomorrow’s hearings before the House Financial Services Committee. TTAC will be watching.
Ooh, watch that stock price fall.
If Ford gets below 2$ again, I’m gonna make my first-ever stock investment.
What this non automotive industry affiliated, tax paying U.S. citizen business owner finds astounding is after a hundred years in business, and trillions of dollars in sales through the years, they essentially have no collateral, other than some equity in comatose corporations and used copy machines.
they essentially have no collateral, other than some equity in comatose corporations and used copy machines.
Not sure about that. They probably lease the copy machines.
So I guess they are making American Leyland after all, eh?
Ford and GM deerve to be saved.
Chrysler deserves to go Chapter 11 (or 7) because they are not competitive at all.
Chrysler has NOTHING on the drawing board and their current products – which were acceptable back in 2005 – are far surpassed by virtually every other companies new models.
It hurts me most of all cause I own a 300 and I’m afraid I’ll be driving around in a car with no company behind it. If Chrysler goes down, I’d buying the next E-class or maybe even a Genesis.
Good summary. Now if only Wagoner had proposed what Corker did, that would have been the right and gutsy thing to do. Instead, they’re being dragged into change, as usual.
This spectacle certainly makes me want to run out and buy a General Motors car! I’m sure everyone else feels the same way.
I wonder how the March deadline is going to fit with GM position that they can’t survive past the end December.
Perhaps a bridging loan?
I watched the whole live feed on Bloomberg and it was pretty entertaining stuff!
I’m surprised this article didn’t pick up on another comment that Sen. Corker made to Mr Nardelli.
The comment (paraphrasing) revolved around “Why is Chrysler asking for money when it is owned by a private equity group with deep pockets? Why should the taxpayer pay for something that its owner won’t pay for?”
Mr Nardelli got extremely flustered and couldn’t produce an answer for Sen. Corker!
Now as much as I want Ford to fail, I have to admit that Mr Mulally was the only CEO there who came across as someone who “gets it”, has a viable plan and has the proactivity to do it. I would have the confidence to give a handout to him because he seems like the only CEO who wouldn’t spunk the money away. He still has a LOT of work to do, but if he gets (and uses) the $9bn he can accomplish that work.
Can we drop the crossing out of text? It’s getting old and belongs in the “hoon” pile.
I fail to see the savings of a merger.
Cost of keeping Chrysler and GM alive > Cost of a merger > Cost of letting Chrysler die/get sold
Yeah, it’s better than the ridiculous idea of throwing money at a hopeless company. Bravo.
Nice, concise review Edward. Especially given the painstaking length of the hearing.
I’m still twiddling my thumbs waiting for Cerebus to give a straight answer on why they won’t cough up more dough. Maybe after they say that, Nardelli won’t be so enamored.
At least I’m not holding my breath…
If they are kept afloat until March 31 Corker, along with all taxpayers, is getting played; no wonder Dodd thanked him.
After January 20 keeping the overstaffed UAW workers in the lifestyle to which they have become accustomed will become the taxpayers job. This why they talk about suspending the job bank, not ending it.
You better work hard to keep your job so that you can pay for fat high school drop outs to sit at home on their asses with $75K plus golden benefits.
Not to mention paying off bond holders at near face value and buying out dealers at what they tell the government they are owed.
Let’s see what Cerberus gets paid to have its negative net value company taken off its hands in the merger.
Fellas, let’s not get ahead of ourselves loving on Mr. Nardelli. I’d be shocked if there isn’t some gold lining in that parachute he’s got. “Being out of a job” for him likely means a handsome payout.
Nardelli is at the same level as Rick for intellectual dishonesty. Let’s all hope Mulally unhitches his Fusion Hybrid from Moe and Curly’s ride.
jgh:
You want the truth? Cerberus can’t handle you and Congress knowing the truth.
Chrysler is worth less than zero. Cerberus owns it as an LLC, so Cerberus can let it go Bankrupt and it will cost them nothing.
Cerberus would be stupid to put money into a company that has a negative net value when Cerberus can just let it go and lose nothing.
Cerberus would probably have to invest an additional $50 Billion in Chrysler just to make it worth $10 Billion. What idiot would spend $50 Billion just to end up with something worth $10 Billion?
As the saying goes, “[y]ou don’t put good money after bad.”
Cerberus is hoping that the government is stupid enough to pay them money for something that has a negative value, and the government just might be.
KatiePuckrik :
December 4th, 2008 at 5:58 pm
I watched the whole live feed on Bloomberg and it was pretty entertaining stuff!
I’m surprised this article didn’t pick up on another comment that Sen. Corker made to Mr Nardelli.
The comment (paraphrasing) revolved around “Why is Chrysler asking for money when it is owned by a private equity group with deep pockets? Why should the taxpayer pay for something that its owner won’t pay for?”
Mr Nardelli got extremely flustered and couldn’t produce an answer for Sen. Corker!
I think that this argument is not valid at all. GM and Ford are privately owned companies as well. Private shareholders own shares which are today of a certain value. Do you think any of them would subscribe to a capital increase today to rescue the company? If the government rescues Ford and GM, the Ford family, lots of big investors as well as small investors get basically a ride for free. This whole bailout is not about saving investments of one big or many smaller investors, it is about rescuing jobs at the manufacturers, their suppliers and everybody around. Using the Cerberus argument in this regard would be totally ridiculous for congress, as it would defy the intent to rescue such interest groups in the end.
Yes, this was a very long hearing, with a good many memorable moments including some that I have omitted here. Watching as the committee and witnesses groped towards some kind of understanding really brought home how much work there is still to be done.
Live blogging of the hearing can be found at:
Business Week
The NY Times
Detroit Free Press
I watched the whole thing on Bloomberg too, and agree with Katie that Mulally made the best case. And why wouldn’t he; he has the best case. I’m impressed with Nardelli; he’s got the facts on the tip of his tongue, and prepared his package well. Must be that GE background showing. Wagoner just slings bullshit. Those meetings he chairs at GM must be head spinners.
I was also impressed with Corker. Very well prepared and asked the right very hard questions. Corker’s a first termer and got elected via a dirty campaign in which he played the race card against a black opponent. He’s very smart and, according to Dodd, a very hard worker, so he’ll be in there until he dies.
I was hoping Chrysler wouldn’t get anything, but it looks like they’ll get a cut. It’ll be interesting to see what they say if they’re able to dump the company on some foreign company in whole or in part.
TireGuy:
You are right, the bail out money should not come from Cerberus. It should come from the UAW workers, the dealers and the suppliers.
If those special interests are not willing to fork out the money then too bad.
Although there is a strong argument for letting Chrysler fail simply because, regardless of ownership, it has the weakest current lineup by far and no future products.
I did not have an opportunity to watch this hearing, but I agree with Corker. If Cerberus is not willing to fund it’s own dying company why should the taxpayers? Chrysler should die, end of story. Sell Jeep quick!
Ford seems to be on the right track, and this was all set in motion BEFORE this whole bailout thing started.
GM, GM, GM… you were once a glorious company until you got greedy. Tisk tisk. Make it right. Fast. Oh, and fire Wagoner. He’s a financial drain even at a $1 salary.
UAW: You need to be part of the solution, not part of the problem any longer. Deep cuts, and fast… or you will be left with NOTHING if GM and Chrysler go under.
Thanks to Tireguy, it just occurred to me that maybe the only ‘public’ company of the three is GM. Cerberus owns Chrysler and doesn’t the Ford family still own a controlling majority of shares in Ford? Yes they hold ‘public’ shares but aren’t most of their shares ‘preferred’ which means Joe Six Pack can’t buy them under any circumstances? I’m guessing, but I’m sure someone on here knows all about how much of FoMoCo the Ford family owns.
Mel23 – Nardelli gave incomplete or misleading answers. First, Chrysler really has no future products. The only real new product is an all-new Jeep Grand Cherokee which was started by Daimler. Everything else new is either a reskin/modification of existing vehicles or the new Dodge Hornet (and siblings) produced by Nissan in Mexico.
Second, his claim about electric vehicles is also misleading. The ENVI vehicles are nothing more than electric go-karts on large body vehicles done for show. His electric vehicle division, GEM, makes what’s called NEVs, basically larger golf carts that are road legal below 35 mph. They do not meet all vehicle safety standards, and are intended only for college campuses, retirement communities, and other “contained” environments mostly.
Third, Cerberus does have the capital to rescue Chrysler if it wanted. But it wants out, and won’t commit more money under any circumstance. Nardelli seeks government money to keep the lights on and hopefully find a buyer. Frankly, the company should be liquidated.
im sure all the UAW workers are none to happy right about now. though im sure the Big 3 wouldn’t mind if they strike and slow up production for a few weeks
i also like how quickly nardelli was willing to jump ship given the opportunity.
Porsche986 :
December 4th, 2008 at 6:52 pm
I did not have an opportunity to watch this hearing, but I agree with Corker. If Cerberus is not willing to fund it’s own dying company why should the taxpayers? Chrysler should die, end of story. Sell Jeep quick!
Again: why should this be true only for Chrysler. Yes, there you have just the one big shareholder which you can identify. But many “capitalistic” shareholders at GM and Ford will be rewarded in the end the same way. If they are not willing to invest money in their company, why not let Ford or GM die? Same argument – but without the one face at which is is soooo easy to spit.
@TireGuy :
You make good points. This is just part of a bailout of the US economy; along with the financials and all the victims, fools and crooks who paid more for something than it was worth and/or they could afford. So calling it a bailout of the Big 3 is inaccurate.
The banks etc. with their ever worth less assets continue to need ever more, so why should the car companies be any different. But what nobody seems to be saying is that bailing out the Big 3 won’t do much if anything for the supply chain and dealers without moving some vehicles. The suppliers and dealers live or die on volume regardless of the propping up of the B3. And this is where the huge volume of jobs are.
Whether it’s a merger with GM or bankruptcy, Chrysler will be liquidated. GM doesn’t need the brands – Jeep excluded, and doesn’t need the people either.
Merge them. Kill Dodge, Chrysler, Saturn, Pontiac, GMC, sell Saab and Hummer. Give the Jeeps to the Hummer dealers and the minivans to Chevy. Fire everybody in Auburn and sell the plants to the Chinese. GM can sell Silverados to Nissan and minivans to VW.
That STILL leaves GM with a ton of work to do. They still would have separate cars for different regions of the world – duplicate wasteful engineering, too many dealers, factories, the Delphi mess, the VEBA to fund. They still would need all new managers to grind through the remaining mess. Oh, and a shit load of government money.
The real question is do we want to pay 125 billion to keep them alive and get back on feet when its all their own damn fault, or X billion for damages to economy when they fail?
Somebody please fill in the X.
Unemployment benefits.
Pension benefit guarantee payments.
Lost income taxes.
Lost property taxes from foreclsed worker homes.
Lost future from their kids who dont go to college.
Lost everything from the ripple out across economy.
etc etc
Its like bailing out a criminal spouse. Costs maybe as much or more not to do it as do it.
“Which means that Cerberus faces a choice of either liquidating Chrysler or merging with GM.”
Whichever one makes Cerberus the most money.
It sounds like Sen. Corker actually has his head screwed on straight about the issues here. Wow, I don’t often find myself saying that about a Senator.
i also like how quickly nardelli was willing to jump ship given the opportunity.
The man was given Two hundred and ten million dollars to get the hell out of Home Depot. Nearly a quarter billion for screwing up and being forced to leave.
Let me write that out numerically: $210,000,000.00
Think about the lesson he’s learned: get in, f_ck up and get paid to leave. Can you imagine a sweeter deal than that? I can’t, not unless it involves the promise of eternal paradise.
Cerberus probably has contractual obligation to him that approach or exceed the Home Depot figure should he leave Chrysler prior to the nominal end of his contract. The man is already a multi-multi-millionaire. Falling on his sword is not exactly a hardship.
If there’s nothing else that proves that the American corporate oversight model is completely and utterly broken (and keep in mind, this is with examples like Enron, Tyco and Global Crossing) its that someone like Nardelli can be sh_tcanned, paid a quarter-billion and then hired again, only to run the ship full steam into the iceberg.
Amazing.
I’m occasionally tempted to believe Buickman’s insistent concerns about an Illuminati conspiracy.
Not withstanding Cerberus ownership of them (something I wish had not happened – I was rooting for Magna to get them), but why should GM live and Chrysler die? Because GM is a bigger company? What has GM produced that was “game changer” since the 1960’s? The Corvair? Please. The only thing I can come up with is the 1953 Corvette. Chrysler created the Minivan. Ford created the ponycar. Chrysler had a brush with death twice, once in ’79 and once in 91-92 and rebounded from both with solid products, profits, and increased market share. GM has done NOTHING BUT lose market share for what? Thirty years. Chrysler was the most profitable car company on the planet in the 90’s. When has GM been the most profitable auto company? Not in my lifetime. So why should they get the taxpayer money again? So we can read about the next ZR1? Maybe they can sell it to Toyota.
+1 on Corker. How to believe that somebody like him can make it to Congress these days.
Can someone PLEASE tell me why a C/GM smashup would be such a bad thing at the right (equity only) price?
GM is a disaster in many ways…but imagine what they could do with Dodge replacing Pontiac and Jeep replacing Hummer.
Corker comes off far better than Shelby, who was unbelievably churlish with his curiosity on how they made it to Washington. This was a shameful, shameful example of grandstanding, wasting precious time to elicit substantive information from the Big 3 chieftans.
Shelby is putting his own Suthern car-making constituents ahead of the national good. Is that not obvious?
Cerberus should merge w/GM, as it seems silly to send money to a company that has a hard on for exiting the industry, particularly when Cerberus has the wherewithal to save itself. Nardelli made me weep crocodile tears when he was willing to sacrifice his job. What a complete ass!
And I don’t agree that Chrysler doesn’t have product today. It does. But it won’t be competitive in the future with its current track of cutting development R&D. It’s trading on past development efforts, and that margin is very thin as it stands today. I would hate to see C7 for Chrysler, but unless GM is willing to cut also-rans Saturn, Saab, Pontiac, Hummer and Buick, I don’t see GM having room for Chrysler. Buick could be spared given its popularity in China, but it too is a damaged brand in the U.S. Chrysler at least offers some diversity to offer GM, whereas the duplicity among GM’s existing line-up offers different shades of lipstick on a pig.
Two things I’d like to say. First, I think it’s great that you are having these hearings. It’s hard to imagine auto makers in Europe coming cap in hand to parliaments. If things some to a head over here on the other side of the pond, I expect monies will flow without the open discussion you guys are experiencing in the U.S.
(I say this in full knowledge of the untransparent way the banks are being supported).
Secondly, I appreciate these well-written, concise summaries. Thanks, Ed!
If I had a vote:
1. Ford gets its line of credit right now.
2. GM gets a prepack that involves new management, slashing models, brands, dealers, UAW wages/benefits and retiree pensions/healthcare.
3. Chrylser is cast off to die(the idea of merging GM and Chrysler makes no sense – sure their are savings from the two existing companies, but no one NEED the third company in the first place).
This is as good as any summary of the hearing until Harry Reid comes out and says he has the votes to get something passed next week. From his comments yesterday, its no better than a 50-50 proposition.
Nardelli should not sell himself so short. I think he would be in a better position than wagoner to run the combines companies. Bob, who I realy don’t like, came late to Chrysler’s demise whereas Wagoner has watched it go down for 30 years. Who would really be better suited to run it all?
The best answer is Mullaly but he is busy with Ford. Alan will get high marks from historians for changing Ford, it remains to be seen if Ford can withstand the new company formed by this shotgun marriage. With restructured debt, combined manufacturing and government backing CryGM will have advantages over Ford.
Unfortunately they won’t have better product. Ford products are better positioned and can beat the combined efforts of the other two.
windswords: Not withstanding Cerberus ownership of them (something I wish had not happened – I was rooting for Magna to get them), but why should GM live and Chrysler die?
It has nothing to do with history, or which company innovated more in the 1960s or 1990s. It has to do with which company will more likely to be viable going forward, and that is based on future product plans, current sales and presence outside of the U.S.
GM wins on all three, compared to Chrysler.
Chrysler has built a lot of interesting cars over the years. But so did Packard and Studebaker, and we know what ultimately happened to them…
Dr. No: Shelby is putting his own Suthern car-making constituents ahead of the national good. Is that not obvious?
And how are the bailout proponents doing anything different? They want to use taxpayer money to allow GM and Chrysler to continue business as usual (with no guarantee that these companies will not be begging for more within a year), and make sure that no UAW members lose their jobs or (the horror!) take a cut in benefits.
Sorry, but that sounds like a pretty parochial viewpoint to me.
I am really surprised all 3 of these guys keep getting lumped together. They are 3 completely different situations:
1) Chrysler is private, and they coincidentally want exactly the same amount of money that cerberus paid for them. They are the least viable of the 3 by any measure. This is a no brainer – they die. Because they are such a small player at this stage the “ripple effects” would be the least threatening.
2) Ford doesn’t actually want any money. If anyone has tagged along because GM’s trouble has made free money available, it’s Ford, not Chrysler. They have viable plans with demonstrated results. I think they will decline to participate if the pound of flesh extracted in return is too great.
3) GM needs cash now if they have any chance of surviving. I think they will get $4B to make it through Jan, and then the next administration will keep them on life support until a forced reorg plan can be worked out.
This is business deal for the American taxpayer, and for my money I’m fine if we can get over the emotion and nostalgia. It’s not about “fair” of propping up an “American institution.”
I, for one, want my money back some day!
You know it’s bad when a sixty-something career politician looks like the smartest, most forward-thinking guy in the room. Yikes!
Its quite telling when the smartest guy in the room is the sixty-something career politician senator.
geeber:
“It has to do with which company will more likely to be viable going forward, and that is based on future product plans, current sales and presence outside of the U.S.”
Well you still haven’t answered my question. Why does GM deserve a chance to live (to only die, imo) another day?
You can’t convince me or the entire North American consumer market that GM will more likely be viable going forward when they have NEVER, NEVER, NEVER (did I mention never?) gained market share in the last oh, 30 years. And I bet they made some interesting cars during that time too, but mostly forgettable ones.
As for overseas sales they have peaked. They are not going to grow anymore in China or Europe or Australia. Maybe South America or the Middle East, but that is not going to save their bacon. Chrysler has more potential upside in overseas markets. You know, that “growth” thing.
Look at it this way: at their current “market share burn rate”, in a few years (or months at the rate things are going) they will as small as Chrysler. Is it ok for them to go out of business then?
Look at this way; Chrysler because they are smaller, don’t have 8 self-competing brands, 1500 layers of inovation stifling management, and best of all, don’t have Rick Wagoner, is a better candidate for a turnaround proposition than GM.
Regarding the handful of posts that say
Nardelli > Wagoner… And post merger Nardelli should run the GM/Chysler show… WTF
Nardelli was FIRED from GE
Nardelli was FIRED from Home Depot and
Nardelli will be FIRED from Chrysler.
It took Rick over 10 years to wreck GM, Nardelli wrecked the Depot and Mopar in about 24 months.
Yes he is much more efficient then Rick…
He wrecks companies FAST…
As a CEO he sucks… wherever he lands after he leaves Chrysler… SHORT that company… you will make a MINT!
RetardedSparks :
December 5th, 2008 at 10:10 am
I am really surprised all 3 of these guys keep getting lumped together. They are 3 completely different situations:
1) Chrysler is private, and they coincidentally want exactly the same amount of money that cerberus paid for them. They are the least viable of the 3 by any measure. This is a no brainer – they die. Because they are such a small player at this stage the “ripple effects” would be the least threatening.
GM and Ford are private as well – only with the diference not being owned by one shareholder alone. But the shareholders of GM and Ford would have the same benefits like Cerberus, on a total scale at a larger amount.
Regarding the ripple effect – this thinking prevailed for Lehman Brothers as well. Do not underestimate the effects on Suppliers supplying also GM and Ford.
2) Ford doesn’t actually want any money. If anyone has tagged along because GM’s trouble has made free money available, it’s Ford, not Chrysler. They have viable plans with demonstrated results. I think they will decline to participate if the pound of flesh extracted in return is too great.
Due to the downturn in the market, Ford will have no chance to survive this without loans, even if they have a plan. Read their plan, and the sales assumptions for the US, and you will know ..
3) GM needs cash now if they have any chance of surviving. I think they will get $4B to make it through Jan, and then the next administration will keep them on life support until a forced reorg plan can be worked out.
I believe it it either 18bn now or nothing. it would look ridiculous if the Republican congress would at this stage approve 4 bn as a loan with the argument, that after 20 January Obama shall decide. No way.