The New York Times reports that the European Union is drafting trade duties on imported American biofuels to protect its own $10b biofuel industry. Even though both the US and the EU subsidize biofuels, European producers complain that American producers benefit from production subsidies in the US and retail subsidies in Europe. The EU has been investigating these claims, and tariffs of 44 euros per 220 lbs of imported biofuel could be put in place by this summer. Meanwhile American subsidies for corn ethanol production are set to expand indefinitely. We’ve argued that trade disputes could bring the bailout boom to a rapid close, but perhaps such a dispute will rid us of wasteful ethanol pork first.
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Posts By: Edward Niedermeyer
The merge-and-nationalize “solution” favored by those who don’t know their history has a new lease on life, reports the Financial Post. And the new champions are none other than GM’s bondholders, who continue to negotiate an equity restructuring. The logic goes that since bondholders are being asked to swap their debt for equity, a larger merged firm would make for a safer investment. And the idea might just be crazy enough for the government to buy in too. “From the government’s perspective, a GM-Chrysler combination offers the appeal of collapsing two problems into one and achieving necessary consolidation,” reckons Citigroup analyst Itay Michaeli. “But it would likely also entail additional government funding.” Just $4B-$6B extra though, and worse job loss. No biggie. But, argues Michaeli, “if a true buy-in exists that [a merger can generate US$6 billion to US$8 billion] in annual EBITDA synergies . . . we would think that the GM bondholder committee would attempt to condition the [debt-for-equity] exchange on M&A, since the upside would essentially accrete to them.” Of course that’s an “if” of epic proportions.
Sometimes this is an easy question to answer. If you’re talking General Motors, I’d have taken Wagoner out of the driver seat sometime in 2005. At least. But when you’re talking about an aging family member who may be giving up their connection to the outside world, deciding when to take away the keys can be a wrenching decision. The New York Times reports that new tests may help identify when patients with Alzheimer’s begin to place themselves and others in danger by getting behind the wheel. But for elderly people without an early diagnosis of Alzheimer’s or dementia, the signs that a family member may no longer be able to drive safely are not always immediately evident. Have you had to take the keys away fom a family member who was no longer able to drive? Was it possible to do so before an accident occurred? Does your state or local government require additional testing for elderly drivers? Have you been denied driving privileges for reasons other than criminal charges?
Automotive News [sub] reports that Ford CEO Alan Mulally and Executive Chairman Bill Ford will take a 30 percent pay cut as part of a package of management cutbacks aimed at easing passage of a recent Ford-UAW agreement. Additionally, Bill Ford’s entire compensation package will be “set aside” until the company returns to profitability and the Board will forgo all cash compensation this year. Finally, 2009 performance bonuses for global salaried employees and senior executives have been canceled. Read Bill Ford and Alan Mulally’s memo to Ford employees at the Detroit Free Press. And what of those UAW concessions? A UAW memo on the Ford agreement is also up at the Freep (PDF), and it includes the jaunty assurance that “there is no loss in your base hourly pay, no reduction in your health care and no reduction in your pension.” So what are the concessions?
Bloomberg reports that a GM bankruptcy filing could result in an up to $1.2b payout to its advisors, lawyers, accountants and affiliated toadies. According to UCLA Bankruptcy professor, Lynn LoPucki, the GM bailout bonanza could easily shatter the previous record for bankruptcy fees, set at $906 million by Lehman Brothers. “The bonanza has already begun and will continue through the bankruptcy,” LoPucki tells Bloomberg. Her estimate is based on bankruptcy statistics that she collects, and she says the size and complexity of GM would make its bankruptcy significantly more expensive than even the Lehman filing. And of course news of these fees has anti-bankruptcy politicians downplaying rumors that the Obama administration will arrange a Chapter 11 reorganization for GM.
Despite the fact that all of the Detroit firms are actively trimming their dealer ranks, the National Automotive Dealers Association (NADA) is calling on the federal government to guarantee dealer floorplan loans. According to Automotive News [sub] NADA is requesting “anybody and everybody” in the government step up and prevent (once again) a necessary downsizing in the auto business. NADA spokesfolks say the auto retail industry’s $100 billion in annual floorplan credit is drying up, and “the cost to government for guarantees would be little or nothing.” Ipso facto. And yet the $25 billion in “136” loans took $7.5 billion to guarantee. NADA is bringing its somewhat short-on-the-details message of hope to Congress, the White House, the Treasury Department, the Federal Reserve, and the Small Business Administration this week.
Jerry Flint in his latest Forbes columm:
Layoffs, product cancellations and product postponements in America’s once great auto industry are way beyond cutting into fat. ‘Amputation’ is a better description. Even as the government spends billions to save the American manufacturers—with billions more aid to come—it is fair to ask if there will be anything left to save.
Despite generously admitting that “Chrysler may survive,” Flint believes the Pentastar has far better chances under Marchionne’s Fiat than under Feinberg’s Cerberus. Not because Americans will fall madly in love with Italian cars, but because “Chrysler has thinned its employee ranks so severely that it probably cannot create new cars on its own.” And it’s a trend that Flint is seeing across the industry.
This is a concept for now, but glass roof aside it’s the near-production look of a new Kia mini MPV in the continental style. And now I’m curious what it would take for this Kia to sell, say 50k units per year in the US. I’m talking MSRP, gas prices, Kia’s new stop-start system (euro only, 15 percent better efficiency), suicide doors, whatever. Keep in mind, Honda sold nearly 80k Fits last year. Kia 2008 sales are here for comparison.
The Freep reports that Chrysler’s cash reserves will fall well below the $2.5 billion the firm needs to survive sometime in March. Based on a liquidation analysis in Chrysler’s latest viability plan, Auburn Hills will be down to $1.3 billion by the first of April. According to the same analysis, Chrysler would need $25 billion in Debtor-In-Posession (DIP) financing to survive through Chapter 11 reorganization, a process the firm expects to last two years. And if the private sector won’t provide it (it won’t) and the government won’t cough up DIP financing or more loans (it shouldn’t), Chrysler will begin to liquidate its assets in April. After all, why should Cerberus lift a damn finger? But if liquidation does occur, Chrysler would dump $2 billion in pensions and $20 billion in health care obligations on the government, not to mention defaulting on the loans it currently owes the government. Meanwhile . . .
The Wall Street Journal is reporting that Steven “Steve” Rattner of Quadrangle Group will join the Presidential Task Force on Autos as an advisor to National Economic Council Director Lawrence Summers. Rattner has no publicly-known experience in the automotive industry, although as a former newspaper man and print media investor, he surely knows a thing or two about dying industries. Anyway, as we reported earlier, Rattner’s major qualification for the position (he was previously being considered for “car czar” before that position was merged into the PTFA) appears to be that he’s a major Obama fundraiser, and is married to the finance chair of the Democratic National Committee.
Or as the Freep rosily puts it, “Most Michigan voters back aid.” Which is technically true, but also as misleading as a St. Bernard that’s been after its own brandy. Because even though the Rasmussen poll in question shows that 52 percent of Michigan’s likely voters support “additional loans” to the nation’s automakers, there’s a caveat missing: the auto industry is the local issue in Michigan. Michigan’s congressional delegation have been the most shrill bailout boosters in Washington, the local papers are as pro-bailout as they come, and, well, it’s freaking Michigan. If only half of the Wolverine state support more bailout bucks for automakers, how bad must national support be? The Freep could tell you, just not in its headline. Only 24 percent are in favor of “additional loans” accorrding to the national version of the same Rasmussen poll. 64 percent were opposed. Ouch.
Via Green Car Congress comes word of China’s second plug-in electric car (after BYD’s Dual Mode plug-in, allegedly on sale now), the Chery S18. Chery’s website (In Mandarin, click here for Google translated hilarity) shows the tiny city car rolling off the assembly line, implying that China is taking a two-nil lead over the US in the race for production EVs. On the other hand, it’s probably safe to say that a carboard box has a higher chance of passing US crash test. Anyway, the S18 reportedly sports a 336 V, 40 KwH electric drivetrain featuring 40 Ah Lithium Iron-Phosphate batteries which recharge in 4-6 hours from a 220 V socket (a 30-minute quick charge provides 80 percent of battery capacity). Top speed is said to be 75 mph, and range is estimated at a modest 75-95 miles. Chery’s Yuan Tao claims (in Google translation) that the S18 not only boasts “the world’s most advanced technology” but “the price is also very suitable for families to buy.” Gasgoo says the S18 will go on sale in China later this year starting at less than 100K RMB ($15K), considerably less than even BYD’s F3DM which retails for 150K RMB.
Pet lovers rejoice! GM Media is saving you months of potential shopping for the best possible vehicle for the significant canine in your life by announcing that the GMC Acadia has won the Pet Safe Choice Award 2009! What led to the choice? “Emergency services and hands-free navigation; standard third-row bench seating for restraining pets and ample room behind the seats for pet crates; tinted windows, tri-zone climate controls and a large, power-operated sunshade for comfort; and top federal and insurance industry scores for crashworthiness.” You might not need these features as much as, say, good mileage or a high-quality interior, but dammit Fido does!
Danny Westneat at the Seattle Times apparently wasn’t taken in by the “This Car Gets 100/150MPG!” signage on Seattle’s test fleet of plug-in hybrid electric vehicles (PHEVs). And it seems that his journalistic incredulity was rewarded with some disappointing numbers from Seattle’s real-world testing of the much-vaunted PHEVs. Sure, a converted plug-in Prius might get 100 mpg in the hands of a fanatic hypermiler, but in daily use by untrained city drivers, the PHEVs return much more moderate results. Westneat reveals that Seattle’s 14 plug-in Priuses actually averaged about 51 mpg after driving a total of 17,636 miles in all kinds of conditions. And the Seattle case is no fluke.
OK, so I don’t expect (most of) the B&B to be entertained by a Flash-based, Frogger-clone “driving game” for more than a few seconds, but if iMotor’s “Save Chrysler” game isn’t a sign of the times I don’t know what is. The gist? Choose from Chrysler’s best products (PT Cruiser, Sebring Convertible, Viper ACR or The General Lee) and hit the road to keep Chrysler afloat. Avoid other cars and hit bonus icons to earn “cash” and weeks of viability for the Cerburian dog. Best of all, when you hit a Fiat logo you get to hear “Mama Mia!” and when you hit a Terminator icon you can hear Arnie assure you that he’ll “be back.” Hilarity! Now if only revamping Chrysler were as easy as not crashing a PT Cruiser, we’d be getting somewhere. Sadly, mashing arrow keys has not yet been proven to have a salutory effect on failing businesses.
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