I think it’s about time to dub Freep the official home of pro-bailout agitprop. When you make the Detroit News look like it’s being run by H.L. Mencken’s Tabasco-marinated ulcer, it’s time to rethink your priorities. Or adopt the tagline “fair and balanced.” Anyway, the Freep’s unabashed Detroit boosterism is reaching a fever pitch, with everyone capable of wielding subject and predicate pitching in for the noble cause of disguising self interest as principle. From old standby (and former Cassandra) Mark Phelan, to financial columnist Susan Tompor, to a condescending missive by the Freep’s editorial board, the latest issue spins harder than a Baghdad Bob interview in Spin magazine. Let’s pop a Dramamine and take a look, shall we?

One point on which the mainstream motor press has always agreed with TTAC is skepticism towards Cerberus’ claim that it doesn’t intend on “stripping and flipping” Chrysler. It’s been conventional wisdom since the Cerberus purchase was announced, and it makes perfect sense. They got ChryCo for a song, so why not break it up and sell? It’s what private equity does, and like a new Sebring, Chrysler is definitely not worth more than the sum of its parts. Well, we were wrong. Maybe. Bloomberg reports today that Cerberus has agreed to give up any profit on a future sale of Chrysler LLC should the company receive federal financial aid. Of course, this is classic bailout fodder, the proverbial spoonful of sugar to make the federal equity position go down smoothly with taxpayers. Chrysler is at a huge disadvantage in bailout wranglings, thanks to its ownership by a secretive private equity fund, and several pro-bailout commentators have already suggested throwing Chrysler to the wolves. Want some hard-hitting analysis on this revelation? “This is a sign they need the money and are willing to do anything to get it,” says Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. Ya think? Cerberus forswearing profit on a future sale is a metaphor-defying repudiation of everything everyone has assumed about the New Chrysler project. It can only mean that Cerberus would lose even more money breaking Chrysler up and selling its parts than by limping along on a ‘bring and a prayer. Oh yeah, and a federal equity position.

If you’re planning on buying a Ford this week, you might want to hold off a bit. Reuters reports that Ford will introduce Employee Pricing and cash incentives next week in an effort to turn around flagging sales. The incentive program will be available on most 2008 and 2009 Ford vehicles, with the notable exception of the all-new F150. But Ford isn’t the only struggling automaker trying to boost year-end sales and clear inventories through profit-munching incentives. GM’s “Year End Red Tag Sale” is also trying to squeeze sales from the dried-up American market, although added sales do little to prevent either automakers’ arterial spray of red ink. Toyota and Mazda are both trying aggressively drive sales as well, offering zero-percent financing on many models at a time when a lack of auto financing is dragging sales downwards. Ford’s offer will begin next Wednesday and will run through January 5, according to Reuters’ unnamed sources. If sales stay down, it won’t be a very merry Christmas at all this year.

The Associated Press is reporting that General Motors now plans to sell back its 3.02 percent in Suzuki for $230m. Buckingham Research Group’s Joseph C Amaturo gets credit for pointing out that “while the sale is indicative of GM’s near-term liquidity challenges, the proceeds are not very meaningful.” In other words, it takes a lot of $230 millions to fill a $5b hole. “GM is expected to burn $4 billion to $5 billion in (the fourth-quarter) or roughly $1.5 billion per month. Hence, the cash proceeds from the sale of its equity stake will not even cover one week of expected cash burn,” Amaturo said. Not that it’s bothering Suzuki. “We fully understand the necessity for GM to raise cash,” Suzuki chairman and chief executive Osamu Suzuki noted dryly, adding that GM and Suzuki would continue to pursue a business partnership. Joint development of hybrid vehicles and a joint venture building sports utility vehicles in Canada are said to be on the collaboration agenda. The two automakers are also joint stakeholders in GM’s currently-stalled South Korean operations, GM-DAT. GM has owned portions of Suzuki since 1981, only selling off 17 percent in 2006. The saddest part of this story? It decreases the likelihood that GM will help bring Suzuki’s current (well-received) Swift to the states. Not that they needed a competitive small car or anything.

The weekend talkers are going all-Motown all the time, as Dems talk up their bailout plans and Republicans show off some freshly-developed backbone. And if you talk about Detroit long enough, some nasty things are going to be said. “They’re not building the right products,” Alabama Senator Richard Shelby told Meet The Press (via AP). “They’ve got good workers but I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur in a sense.” And Shelby, the senior Republican on the Senate Banking, Housing and Urban Affairs Committee, doesn’t give money to dinosaurs. “Companies fail every day and others take their place. I think this is a road we should not go down,” he said. The second ranking Republican in the Senate, Jon Kyl (R-AZ), agrees. “Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning,” Kyl told Fox News. Isn’t it amazing what losing a few elections will do to a party’s sense of principle? Of course, the Rs are running downhill on this issue too. All they have to do is delay bridge loans until Obama is sworn in, and the question will become moot as the automakers run out of cash. And they’ll be scoring populist points (at least with us) every step of the way.

In December of last year, a certain Peter Hart wrote an opinion column for Fairness And Accuracy In Reporting (FAIR). Hart decried the prevalence of polling in political coverage. Not only did he cast aspersions on the accuracy and reliability of polls, he identified them as a sinister threat to no less than “American Democracy.” “The more fundamental problem for the press — and for American democracy —” wrote Hart, “is that the media’s overreliance on polls encourages a kind of political conversation that prioritizes strategic consideration and tactics over substance.” He didn’t know how right he was. Today, Peter Hart Associates released the results of a poll of their own, gauging support for an auto industry bailout. Read the results in the Detroit News and you might be surprised. Read the poll itself and the Hart Associates client list, and that surprise should evaporate faster than Mr Hart’s ideals regarding polls and their cynical abusers.

Here’s a crazy idea. Instead of relying on a bunch of politicians with little to no business experience to sort out GM’s problems, let’s find out what someone who actually turns around failing companies for a living would do. How about, say, William Ackman of Pershing Square Capital? After all, his Fannie/Freddie restructuring ideas seemed pretty well put-together. What say you, Mr Ackman? “GM should be allowed to succeed, and the only way GM can succeed is if it has a balance sheet its business can support,” Ackman tells Reuters. He goes on to say that he would expect GM to get to that position by agreeing to a “prepackaged bankruptcy in which GM’s creditors erase large amounts of liabilities in exchange for equity in the newly restructured GM.” Should a newly restructured GM still need more liquidity for its balance sheet, “then the government can play an important role while protecting taxpayers from losing money.” This, in a nutshell, is why Treasury Secretary Hank Paulson refused to let GM into his TARP. Unless GM massively corrects its balance sheet blues, any federal loans will just be so much good money thrown after bad. Restructuring means jobs will be lost, but if the alternative is subsidizing jobs for their own sakes, then we’ve reached an impasse. Now, all GM and the UAW need to do is stop worrying and learn to love the bankruptcy court.

Dear Mr. Mulally, Mr. Wagoner and Mr. Nardelli:

I understand that your company has been lobbying the Department of Treasury and congressional leaders for additional financial assistance via loans or through inclusion in the Troubled Asset Relief Program. While I understand the economic turmoil that many American businesses face today, I think it’s appropriate to ask those who seek a bailout from the federal government to do everything they can to first cut internal expenditures, including and especially executive salaries and compensation packages.
(Read More…)

Quick, what do egregious bailouts have in common with the invasion of Iraq? Sticklers for a little-known concept called “international law” aren’t fans of either. And this time they could actually sue. “We will look very carefully at the details of the proposed aid package to the U.S. auto industry, in order to ensure compliance with international trade rules and assess the potential impact which it may have on trading partners,” Peter Power, trade spokesman for the European Commission told CNN yesterday. The World Trade Organization prohibits a range of subsidies that unfairly hurt competitors, and with pro-bailout rhetoric hitting new heights in “whatever it takes” shrillness, there’s a chance that good intentions will translate into a WTO lawsuit. After all, Europe and the US are already beefing over a number of trade issues, from aerospace subsidies to agriculture. In fact, it’s possible that Bush’s resistance to bailout plans is a result of his humiliating retreat from steel-industry protectionism some five years ago. Then, as now, a struggling industry needed his help, and help he did. Until the EU threatened $2.2b in retaliatory economic sanctions. Sue me once, shame on you…

Industry bearishness is tearing through the ranks of suppliers today, as Standard and Poors has downgraded the short-term credit ratings of 13 auto supply firms, according to the Detroit News. ArvinMeritor Inc., BorgWarner Inc., Cooper-Standard Automotive Inc., Federal-Mogul Corp., Goodyear Tire & Rubber Co., Hayes Lemmerz International Inc., Johnson Controls Inc., Lear Corp., MetoKote Corp., Shiloh Industries Inc., Stoneridge Inc., Tenneco Inc. and Visteon Corp have all been targeted, as Wall Street worries over these firms’ exposure to the Detroit 3. Automotive News [sub] adds that S&P has also cut the long-term credit ratings of supply giants Dana and Magna. This news is likely to spur on bailout backers who will no doubt see this as the dreaded “ripple effect” that they claim will take down the entire economy if bailout bucks aren’t forthcoming. Of course, anyone who follows the industry knows that these firms have been on shaky ground for some time already. The auto supplier sector has been rife with bankruptcies for years now, thanks in large part to the predatory practices of the very three firms that are now seeking a publicly-funded bailout. Imagine a parent starving their kids and then complaining that if they go to jail the kiddies will have nobody to look out for them, and you’ll have a good picture of the dynamic at play here.

Motor Trend reports that the hot new convertible versions of the hot new Camaro and Challenger have been canceled, falling victim to GM and Chrysler’s new emergency-mode priorities. It seems the Challenger was not designed with a ragtop version in mind, and re-engineering the LX platform would simply cost more money than Cerberus wants to fork over. Meanwhile, GM is being characteristically disingenuous, claiming that the Camaro convertible is simply “on hold.” At this point, it’s safe to consider the whole Camaro project in limbo, as the hardtop doesn’t debut until the first quarter of next year. As fast as things are happening right now, don’t be surprised if GM goes down before a single Camaro hits the showroom floor. Or, if wishful thinking is your cup of Knob Creek, heed the words of MT who reckon “If GM’s situation improves, Chevrolet could return the Camaro convertible to its product plans for the 2011 model year, just in time to add a fresh new version of the car.” Or, as we are fond of saying around here, not. Meanwhile Ford dealers are cheering this news, after enduring a tough year of declining Mustang sales. As the old industry saying goes, a muscle car at the dealership is worth two being endlessly teased around the autoblogosphere.

In a new report covered by Automotive News [sub], Goldman Sachs says GM will end the year with $12.5 billion in cash, and will need at least $22b in government money to survive. Goldman is suspending GM’s rating, putting the automaker on a “wait-and-see” basis until further bailout details emerge. Meanwhile, JP Morgan cut its GM rating to “neutral” from “overweight” saying the automaker needs “something immediately” to make it through the end of the year. Morgan also slashed GM’s stock price target, from $3.08 to $1.84, about a dollar off its trading price of $2.89 at the time of this writing. And while Goldman set the bailout minimum at $22b, Morgan reckons the bill for righting the General “could easily reach $30 billion unless GM reforms its vast liability structure.” GM stock is currently down about five percent on the day, although it’s shown resiliance to earlier Deutsche Bank analysis which valued the stock at precisely bupkis. Still, urgency is the common thread that ties all the analysis together, and if news doesn’t improve soon for GM, its stockholders could see their paper become worthless in short order. Rest assured, TTAC will have the latest developments as they occur.

While Michigan Governer Jennifer Granholm spreads hysteria and misinformation in aid of her state’s struggling automakers, Indiana Governer Mitch Daniels is taking far more honest position on the the proposed bailout. “Let’s give Congress a chance, but there’s nothing in recent history that suggests they have an answer for this,” Daniels tells the Indianapolis Star. “The only thing we know for certain is the way they’ve been doing business does not work and throwing taxpayer dollars after it won’t make it work.” And before you accuse Daniels of throwing more vulnerable states to the wolves, consider that Indiana is the fifth-biggest auto manufacturer in the union, with some 61k auto industry jobs. Oh yeah, and his state’s unemployment fund is running low, thanks to the hard times. Daniels, who is in DC to receive an award from Governing Magazine for his accomplishments as a first-term governor, knows that once bailouts start there’s no telling where they will end. “If they send money, we’ll cash the check,” says Daniels. “But I didn’t come down here with a tin cup. I just think caution is the watch word. And I don’t know where it ends. I didn’t notice anyone throwing money at the RV industry and that cost Indiana a lot of jobs. Our position all along has been that any solution has got to be a solution leading to long-term viability.” Needless to say, short-term bridge loans don’t meet that criteria. Then again, maybe Daniels’ principled stand has more to do with the fact that the major manufacturers in his state (Toyota, Honda, Subaru) are doing fine, and aren’t asking anyone for a bailout.

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As commentators from all across the spectrum ditch their pom-poms and start to face facts, The Detroit Free Press is keeping it surreal by dedicating its nearly all of its ink budget to the cause of federal investments in the American auto industry. In fact, there’s so much bailout boosterism, it’s hard to know where to begin. How about the decision to run this CBS scare piece, complete with misleading, self-serving commentary by MI Governor Jennifer Granholm? When asked to justify a bailout of failed businesses, Granholm claims “one in ten Americans is employed in this industry.” Yes Ms Granholm, but “this industry” includes plenty of healthy firms who aren’t asking anyone for a bailout. Oh, but the “national economy,” “manufacturing sector,” and “energy future” (?) depend on a bailout, threatens pleads Granholm. You decide where her political career rates on that list of bailout-dependent priorities. Oh, but there’s so much more… (Read More…)