It’s getting to be sports metaphor time for the ChryCo deal: the fourth quarter, the ninth inning, the obese lady’s vocal warm-ups. Automotive News [sub] quotes a White House spokesperson as saying “hurdles still remain, but we remain optimistic and hopeful that something in the next many hours will get done that will provide a pathway for Chrysler’s viability without continued government assistance.” Maybe the White House should read more news. And not just assurances from the UAW’s Ron Gettelfinger who sounds downright thrilled at the possibility of seeing his union gain a controlling stake in ChryCo. No, The Detroit News points out that a grassroots UAW effort to scuttle the deal (which must still be ratified by a full union vote) is underway. “It’s time to stop the concessions. Send them back to the table. We need a week to see the agreement before the vote. Jeep workers should be allowed to vote. Vote no,” runs a letter being circulated amongst UAW workers. Why so confrontational? The (proposed) lack of confrontation.
Ok, it’s not really a secret. But I sure wasn’t aware that the Italian automaker is “the biggest player in the market for natural gas engines,” selling 68k natural gas-powered rides last year and aiming for 120k unit sales this year. Thanks for the heads-up, NY Times! In yet more evidence of Fiat’s politically-savvy strategy, Italy’s scrappage scheme currently doubles the rebate for paisans who junk their clunker for a natural gas hoopty. Naturally though, one government incentive isn’t enough: “Fiat is collaborating with fuel companies and the Italian government to provide more than 1,000 stations where motorists can fill their tanks with natural gas.” Though most NG Fiats are “dual-fuel,” US infrastructure will have to be significantly upgraded (with help from taxpayers) to cash in on NG’s green promise stateside. Nonetheless Fiat’s natural gas technology is raising hopes for Chrysler’s future, if a deal is done, if infrastructure is upgraded, and if US consumers spring for the emerging fuel. But a word of warning: eco-tech enticement sent several billion GM bucks down the Fiat rabbit hole in search of competitive diesel technology not that long ago. And we all know how that turned out.
The question of a sales recovery looms large in discussions of GM and Chrysler’s road to viability. In particular, GM has been accused of overestimating demand recovery, as its successive viability plans have consistently revised demand assumptions downwards. But a survey and followup by RL Polk (full report in PDF) suggests that not only are a significant number of American consumers considering vehicle purchases, but many would buy American to “support the economy.” In all of the surveyed regions at least 50 percent of vehicle owners aged 18-64 said they planned a vehicle purchase in the next two years. Good news for Detroit? Polk’s breathless press release for updated regional data sure makes it sound like it. “In fact, more than a quarter of consumers we talked to as of the end of March plan to buy a new car or truck within the next year, even better news for automakers struggling to move excess inventory from dealer showrooms,” says Polk’s Lonnie Miller. But a closer look at the original survey shows that it’s too early to start counting chickens.
Automotive News [sub] reports that GM’s bondholders have turned down the firm’s debt for equity offer of 225 shares of “new” GM stock per $1K of debt. The deal, which would have given bondholders a ten percent stake in a partnership with the UAW (39 percent) and the Government (50 percent) and existing shareholders (1 percent) was derided as “neither reasonable nor adequate” and “a blatant disregard of fairness” in a prepared statement. “The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue,” write advisers to GM’s ad hoc bondholder committee. “We are deeply concerned that GM waited until late April to make its offer.” Money quote? “This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court.” And how.
Believe it, kids . . . the Cimarron is back! According to a Motor Trend “Scoop,” GM has acknowledged that it doesn’t have the resources to compete in Europe’s tough luxury market, build an RWD Alpha-platform “baby CTS,” or really do much of anything besides bringing another Epsilon II-based whip to the US market. Can you feel the excitement? The project, codenamed “GM 166,” will reportedly be positioned between the Buick LaCrosse and the Cadillac CTS. How? By costing more than the LaCrosse, of course. Because who doesn’t want a warmed-over FWD midsize starting at $35 grand?
The Washington Post reports that the Treasury reached an agreement “in principle” with major Chrysler bondholders last night on the terms of their haircut. Under the deal, $6.9 billion in debt would be paid off with a mere $2 billion in cash once Chrysler completes restructuring. Unlike GM’s debt-swap effort and Chrysler’s UAW VEBA deal, the debt is not being swapped for equity in a reconstituted Chrysler. Which means Chrysler’s lenders would rather walk away with about 28 cents on the dollar than cast their lot in with the New, New Chrysler. The Treasury is still trying to keep Chrysler’s restructuring out of bankruptcy court, but officials emphasize that this deal does not guarantee that Chrysler won’t file. Also, about a third of Chrysler bondholders are still mulling the offer over.
The Freep reports that the Treasury has blocked GM’s plans to buy Delphi’s unwanted steering business, while putting the kibosh on $150 million in payments that GM had planned to keep its major supplier operating through May. This puts Delphi, GM, The Treasury and creditors on a shorter timeline to resolve Delphi’s three-year-long bankruptcy; a deal must now be reached by May 9. If a deal isn’t reached by then, Delphi will be liquidated, GM will have to buy back mission-critical plants, and new suppliers will be contracted. So now you know why GM is idling most of its plants this summer: if parts stop shipping, there won’t be an (unplanned) production disruption. What isn’t clear is why the Treasury thinks a Delphi liquidation is a desireable outcome. After all, $5 billion has already been earmarked to help guarantee OEM payments to suppliers. Maybe Treasury actually thinks that money would be better off spent on ads. More likely though, the Treasury boyz want a top-to-bottom restructuring to go down next month, and Delphi’s lingering bankruptcy (and estimated $2billion yearly cost over competition according to GM) put it squarely in the “Bad GM” camp. And so it burns.
“Our ‘CC’ corporate credit rating on GM continues to reflect our opinion that there is a high likelihood that the company will undergo a distressed debt exchange (which we would consider tantamount to a default under our criteria) or file for bankruptcy protection toward the end of May or shortly thereafter. (Read More…)
But as one door closes, another opens. With Pontiac dead, Automotive News [sub] reports that GM will use its NUMMI capacity for some other Corolla-based GM product. Because, as one Pontiac spokesman puts it, “there’s really nothing wrong with the Vibe. Its only problem right now is that it is a Pontiac.”
At this morning’s press conference, GM CEO Fritz Henderson couched his decision to “choose” viability over jobs in terms of lowering GM’s break-even point. Like job cuts, UAW concessions and nearly every other recent viability-oriented reform goal, GM’s break-even point predictions have been consistently more optimistic than leading reality-based indicators. With every new viability scheme, GM’s assumptions about the demand for US-market new cars in 2009 have been revised downward. According to the NY Times, even though this is viability plan V3, GM may still have some reality embracing to do.
Or so says Automotive News [sub] Executive Editor, Edward Lapham, in a brief aside. According to Lapham, Chrysler is ramping up a major ad campaign (a fact that remains unconfirmed by Chrysler) that steals from the $5 billion supplier bailout fund. “Through its ad agencies,” writes Lapham, “Chrysler is lining up major media that are willing to accept a price cut of 2 percent in exchange for assured payment under the federally funded critical-supplier payment plan.” Because Chrysler wanted to see if its post-bailout supplier relations could possibly be worse. Although to be fair, those two percent savings do add up . . . to about 30 pieces of silver.
Pop quiz time: how many viability schemes has GM touted since it began asking for bailout bucks? Including today’s announcements (actual plan not yet released) General Motors has submitted no fewer than three new business models since it began receiving Treasury funds in mid-December. And that doesn’t even include the first two “requests” which were rejected by Congress before GM cut out the middlemen and started dealing directly with the guys who print the money. The progression of this parade of plans illustrates a single major theme: the slow, reluctant acceptance of some approximation of reality. Which includes confronting the fact that GM’s bloated payroll trades off with its viability. The Detroit News reports that GM now understands that it pays 21,000 more employees than it can support, and that these positions will be terminated. That’s 7,000 more job cuts than the last (February) plan called for. The December plan (now lost to the GM memory hole, but hosted at TTAC here (PDF)) didn’t call for job cuts at all because the bailout was all about saving jobs back in those days. The cuts amount to a 34 percent decrease in hourly employment, with plans to stabilize employment levels at 38,000 by 2011. GM’s hourly labor costs will drop from $7.6 billion in 2008 to $5 billion in 2010, as GM seeks to “lower its break-even point” according to CEO Fritz Henderson.
“I want to be absolutely clear: we will not spend a single dollar, neither today, nor in the future. Would we like to call this a barter? Well, yes, it is a barter.”
—Fiat CEO Sergio Marchionne on negotiations with Chrysler
Move over, Neil Barofsky. The SIGTARP may make the media rounds, but he’s got three trillion worth of TARP to cover. Which is why his recent Quarterly Report to Congress (PDF file available here) wasn’t exactly breathtaking for Chrysler/GM watchers. The Government Accountability Office, on the other hand, has just dropped a report specifically covering the Treasury’s execution of the auto bailout. If you’ve been following TTAC’s coverage through these strange days, the 48-page Summary of Government Efforts and Automakers’ Restructuring to Date (PDF file available here) won’t exactly brim with new insights either. It’s the fact that anyone in the government (sandbagging senators aside) is acknowledging some seriously inconvenient truths.
For me to steal! Check out this putative 2011 Hyundai Sonata! It’s not ginormous! And its Californian curves raise my expectations, even though they (the curves)’re camo-clad! But does it hasten the day when we’ll resort to coining the term “Camccordnata”?
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