The Presidential Task Force on Automobiles (PTFOA) has seized control of Chrysler and GM, the latter more completely than the former. As part of their Monday manifesto, the PTFOA has laid the groundwork for Chrysler’s liquidation and GM’s entry into Chapter 11. They’ve created a new Warrantee Commitment Program that will guarantee Chrysler and GM vehicle purchases, even if (when) the automakers go belly-up. TTAC’s Ken Elias calls ChryCo’s final approach. “To do the Chrysler–Fiat deal, the secured bank lenders need to write off their loans. Why would they? They get more in a Chrysler liquidation. And even if they make a ‘deal’ with Fiat, so what? How does it solve the problems for the next several years before any Italian technology (small cars, small engines) shows up in Chrysler products? So Chrysler goes to liquidation.” As for GM, even the neophytes at the PTFOA know it can’t do what it needs to do outside of bankruptcy. Given that the automaker will now have the full backing of the federal government, controlling everything from car “warrantees” (warranty?) to the Board of Directors, why not? Who wouldn’t trust American Leyland?
This has to be an orgasmic day for the staff at TTAC. All that they’ve wished for, for so long is finally coming to pass.
That is not really such a “wild ass” rumor given all the information hitting the interwebs in the last 24 hours. More of a “likely scenerio”.
Excellent pic!
I guess I’ll take my Caravan to the local Federal Building for its transmission repair.
Rumor? I’d call it an undeniable fact. You have to add a specific date to make this statement a rumor.
I elaborated some time ago (a month or so) that this might be Obama’s final plan: let ChryCo go, force GM into Fed-approved Ch.11. But seeing all of the other things the Obama administration has done or is planning to do with the economy, I stopped believing it. I still don’t quite believe it. Hopefully the old me is proven right and the present me is proven wrong.
I have to say that I’m pleasantly surprised by the news that has come out in the past day or so. I was afraid the government was just going to roll over. The “good” news in all of this is that these steps are necessary if GM & Ford are going to be able to survive. It won’t be easy and it won’t be pretty, but make no mistake that it is necessary. My thoughts are with the Chrysler workers. They are in for a tough time. I hope GM & Ford come through this strong and viable. (if not smaller)
gslippy
I think it will be more like the DMV (or Secretary of State for the Michiganders). Take a number, the mechanic will see you shortly.
I guess I’ll take my Caravan to the local Federal Building for its transmission repair.
I was thinking that the post office would just mail you a new one (some assembly required).
John
I can’t see this being good for anyone directly or indirectly employed through GM. Long term, it’s better for GM’s survival, but short term it’s going to hurt a lot of people. As for Chrysler, those guys are going to be in a world of hurt. I really hope the best for everyone involved, but I think things are going to get mighty ugly. And meanwhile Dick Wagoner just got a golden ticket out with his millions in the bank.
I never understood why Chrysler should be kept on life support.
The D3 will be stronger if one of them dies off and they become the D2. They will each get more of that “must buy detroit” business.
Chrysler being smallest/weakest and with minimal desirable products, should fall.
At least it seems like we are coming to a head. One way or another, let’s get this over with. GM really has no one to blame but itself (whole company over decades, not just Waggoner.At least Chysler can point to the pillaging they received at the hands of Daimler, who made sure that Chrysler could never compete with the parent company.
I don’t like to see anyone fail, but as an employee of a Ford dealer, I look forward to getting this resolved one way or another and am glad that they aren’t just getting more money to provide unfair rebate programs that non-government teat suckers cannot competitively match.
I do hope they both end up surviving, but in more efficient, streamlined versions. Good competition makes everyone better.
I guess Obama has the stones to do what Bush didn’t.
I don’t get the logic. I’ve never heard good things about Italian cars. Have we forgot that Fiat failed in the U.S. market a few decades ago? Why will Fiat buying Chrysler amount to anything? Are they going to beat Honda/Toyota? The U.S. has too much auto capacity, it’s logical and necessary that Chrysler should vanish. Heck, Cerberpuss won’t even invest their billions in cash to fix it. And for Hummer, Saab, Saturn, etc., again, “finding buyers” does not fix the overcapacity problem; death does.
If things are as they appear to me, then I’m impressed.
The feds are shoving Nardelli up against the wall with the Fiat merger. Put up or shut up, get her done or go away. That’s exactly what the government should be doing with Chrysler.
Meanwhile, Uncle Sam is also implicitly playing hardball with the GM bondholders (although admittedly at the short term expense of the stock markets.) The underlying message here is really for the bondholders — better get ready to compromise with us, otherwise we are going to use other means to cram you down. Uncle is one step away from defaulting on your payments, so you had better get serious with us.
This is precisely what the government should be doing. It actually mirrors many of the tactical aspects of what has been suggested on this website.
The government is behaving like a private equity company. Since we’ve bought the company, we’re taking control to ensure that the mission gets fulfilled.
That’s a better alternative to what happened with AIG, which was to create onerous conditions on paper but allowed the company to continue many of its old practices. A bit ironic that it’s the political liberals who are behaving like private sector operators, while it has been the conservatives who are inclined to give away the money without enough or with the wrong strings attached. I just hope that they have the guts to continue with this course, and that they aren’t just playing paper tiger.
I agree with Pch101-this shows that Obama has some balls. I’m actually surprised that it was this forceful. Now we have to see the end game.
I’d buy a Chrysler without a warranty if the price was low enough – we will be in the market for a minivan pretty soon.
I also agree – a day where dreams have come true for many on this website.
The feds are shoving Nardelli up against the wall with the Fiat merger. Put up or shut up, get her done or go away. That’s exactly what the government should be doing with Chrysler.
Meanwhile, Uncle Sam is also implicitly playing hardball with the GM bondholders (although admittedly at the short term expense of the stock markets.) The underlying message here is really for the bondholders — better get ready to compromise with us, otherwise we are going to use other means to cram you down. Uncle is one step away from defaulting on your payments, so you had better get serious with us.
I agree with all of that, but notice that revisions to the UAW Contract are conspicuously absent. When Obama crams market competitive compensation down on the UAW, then I’ll be impressed.
A Dem hammering CEOs and Bondholders isn’t exactly a Profile in Courage.
The UAW workers, after rounds of previous concessions, weren’t making much more than Asian transplant workers anyway.
Besides, at a purely economic level, it doesn’t help achieve the government’s goals to take away the income that actually gets re-spent in the economy. Workers spend their incomes. Wagoner didn’t.
“The program will cover the participating manufacturer’s warranty on every new car sold during its restructuring period.”
That’s pretty vague. What’s the exact date of the restructuring period? Is it today or when they first took bailout money?
PCH101: “A bit ironic that it’s the political liberals who are behaving like private sector operators, while it has been the conservatives who are inclined to give away the money without enough or with the wrong strings attached.”
It’s been said that’s the irony of politics: The guy you vote for will wind up disappointing you, and the guy you vote against will turn out to be not as bad as feared.
However, as paris-dakar noted “A Dem hammering CEOs and Bondholders isn’t exactly a Profile in Courage.”
Or maybe the administration is just letting the other stakeholders figure out for themselves the train is stopping. It’s hard to see how employee numbers and unfunded retirement and health benefits can be maintained without massive government subsidy.
But cancelling health benefits for hundreds of thousands of GM stakeholders could help enact a universal federal health program that won’t cost anybody anything.
# paris-dakar :
March 30th, 2009 at 9:30 am
A Dem hammering CEOs and Bondholders isn’t exactly a Profile in Courage.
Absolutely. If Obama has the ball to let the bonds default at bankruptcy, does he have the balls to let all the labor agreements default and let the new GM hire at market rate?
By market rate, I mean the lowest legal wage that a qualified worker is willing to accept. I guess it’s likely $20/hour, everything included, for a GM job now.
As a loyal reader of TTAC virtually from the beginning, this is NOT “our dream come true”. The whole point of the billion DW’s was to suggest ways to avoid this nightmare. While I am glad to see Ricky “Aruba Baby” Wagoner shown the door, the de facto nationalization of two major car companies is not the path to industrial renewal. What will they make? What kind of market share will they pursue? I fear all we are seeing is the replacement of one group of incompetent managers by another set. All of whom have gone to the same schools and know the same people and know the same things. Well, Freddie Mac and Fannie Mae are costing the taxpayers $800 billion and those were corporations run by the best and the brightest that government insiders could give them.
I guess I always hoped that at some point the DWs would be followed by Life Watches. Not anymore.
Holy Smokes! Everybody, go read that PDF on the Treasury’s proposed warranty guarantee program.
Just one startling point: manufacturer puts up 15% of estimated cost of warranty repairs; gummint “loans” 110% to program. So GM gets to offload lions’s share of warranty costs to taxpayer. Hey, why not go to a ten-year, 150,000 mile warranty?
Well, at least we’d get to find out what warranty coverage actually costs GM.
RF, this subject deserves an editorial. Lots of implications. Meanwhile, I’m demanding the feds insure me against the cost of lawnmower repairs.
A warantee commitment program is the one GOOD thing that really needs to come out of the bailout.
GM needs chapter 11, but the big question has always been “what does it do to warantees”.
Even WITH a warantee, Toyota effectively gets a $2K premium over a comparable Jetta on the Corolla, because toyota builds reliable cars and VW doesn’t.
With the possibility of the warantee going away, nobody would touch a GM car.
tonycd Isnt the wage reduction for new workers only? And of course there are no new workers. When does the jobs bank new ruling take effect?
I think some of you are getting confused about the true desires of the people here. What is desired is a finish. A true finish. One where these companies exist and flourish or where these companies are gone. We just want them to stop “Failing.” How long can a company fail till it is gone? It appears that in the auto industry, that can be a very long time.
Why guarantee only the warranties on vehicles sold “during the restructuring period?” How does that reward those who bought a domestic vehicle to try to help the automakers before the “restructuring period” began? Those same consumers aren’t being allowed to deduct the interest on their auto loans.
Having the Federal Government administer vehicle warranties has about as much appeal as having the Federal Government administer veteran’s health care.
If Obama has the ball to let the bonds default at bankruptcy, does he have the balls to let all the labor agreements default and let the new GM hire at market rate?
Why?
GM’s problem, despite what the Dearly Departed had claimed, was not so much legacy costs as it was building vehicles that no one wanted to buy at a price that would make them profitable. The cost issue would have been a whole lot more believable had GM been selling cars at an average transaction price comparable to what Toyota has been able to command.
But they weren’t, and dollars to donuts that they still wouldn’t even if they had been able to shed the costs in question, because they really didn’t think they had a problem to begin with, and when they did finally come around to acknowledging that just perhaps their business might not potentially be kinda sustainable, it was all about how the media, the government, the unions, the imports and the market were at fault.
I’m not saying the unions are blameless, but I think that many people are too hard on the workers and far too soft on management.
On a related note: the coverage of Rick Wagoner’s departure in the media has been borderline sycophantic. Either they’ve missed the boat, or despite the supposed liberal bias in the mass media, the idea of the government strong-arming a fellow fat-cat out of his/her job is chilling.
I’m betting it’s both.
Nudav:
I know you are trying to be cute and sarcastic, but for all its problems, the VA medical system is regarded as one of the best, both at constraining costs AND providing service.
Just one quick little question: Why should I have any faith in a program run by people too ignorant and lazy to know the difference between a warranty and a warantee? Every new car comes with a warranty. The buyer of the new car is the warrantee. The automaker is the warrantor, unless you buy a GM or a Chrysler product, in which case the U.S. Government is the warrantor. Buy a Chrysler or a GM product in Canada or Germany or Australia or elsewhere, and I guess you’re ѕhit outta luck.
psarhjinian:
Is this legacy cost issue really so hard to understand? GM has had a tough time “building vehicles that [any]one wanted to buy at a price that would make them profitable” because of their legacy costs. Because of those legacy costs, the only way GM could price vehicles competitively with the foreign competition was by losing money on each vehicle sold or by cutting the costs of materials and R&D until their cars were uncompetitive. Or both.
GM didn’t make bad cars just because they were greedy or stupid, they made bad cars because they couldn’t afford to make good ones.
jimble:
Is this math so hard to understand? GM saved $1000 by building the Cobalt/Cavalier so crappy, and then had to sell them for $4000 less then Civic/Corolla. How does that possibly help?
To be frank, anybody who buys your line of crap is probably already on the shill side of the fence. The Malibu shows what GM hoped would happen – get lured to the dealer by a crappy Cobalt at a cheap price, get upsold to the more profitable midsize car. In other words, “they don’t want a small car anyways”…
Interesting.
Now I can purchase a new Chrysler with a lifetime powertrain warranty, AND have that warranty be backed by the government.
Hello 30-year warranty coverage.
If you do it right, you can even sell the car and keep the lifetime warranty in place FOREVER.
GM didn’t make bad cars just because they were greedy or stupid, they made bad cars because they couldn’t afford to make good ones.
Ok, let’s assume that GM is at a disadvantage per car purely because of legacy costs. I won’t argue that a few bucks per car matters in a large scale.
There are ways to deal with this, not the least of which is “add value without adding significant cost”. You can do this in all sorts of ways: making the product a better performer (and really, the Corolla isn’t that good a car, in holistic terms), you can make it higher-quality, you can offer a bulletproof warranty. Most importantly, you can not piss off your customers, tarnish your image and kill your products’ market value through nonsense pricing schemes like Value Pricing and toe-tag sales.
But this is what GM did not do. What they did do is take a small cost differential and turn it into a massive one, especially on their commodity products, where they could least afford it. By that measure, the UAW is responsible for perhaps a quarter of the cost disadvantage.
So does this mean we can continue to make shoddy cars, and the Govt will pick up the transmissions/intake manifold/etc issues that WE should have fixed ?
sweeet !
GM didn’t make bad cars just because they were greedy or stupid, they made bad cars because they couldn’t afford to make good ones.
Oh, they could make good ones if they wanted….it was cheaper to make shoddy ones, which once they passed warranty, were no longer a concern, and a motive to “buy a new one”. This worked until Honda, et. al. came out with cars that would last 200k properly maintained. Suddenly the D3 car having major failures at 80k (but safely out of warranty) became unacceptable.
With the possibility of the warantee going away, nobody would touch a GM car.
Not necessarily true, I’d consider a Tahoe at a substantial discount – think sub $20K for a 4X4 – and purchase a 2nd Party Warranty. Let’s face it, any Big Three warranty through their dealerships was of questionable value anyway. When I bought my Jeep, I wished there was a ‘Delete Warranty’ discount option so I could have rationally considered the value of the warranty. If nothing else, it would be nice to see some calculation as to what specific value a warranty adds to the vehicle.
I think the fear of this is greatly exaggerated. There might be benefits to eliminating the Factory Warranty.