No good deed, or lucky bet, goes unpunished. Germany’s auto makers are crying poor at the bargaining table at the same time Porsche-VW is crowing about record gambling profits. Against this background, the AP reports that “IG Metall is seeking an 8 percent raise for the 3.6 million workers it represents in the metal and electronic industries.” Germany’s auto industry has the lion’s share of IG Metall workers. Didn’t the union bosses in Sindelfingen get the word about Automotive Armageddon? Apparently the union guys have taken a page from the Gospel of CEO’s and can only see the massive profits German industry has run up in recent years. “IG Metall has defended its requested wage hike as justified because companies’ profits increased 220 percent between 2004-2007– a time when wages effectively increased by only 8.7 percent– union leader Berthold Huber has also indicated they would accept less.” Ah, the dirty little secret of modern times has been, up until a few months ago, the massive run-up in corporate profits and executive pay happened while  workers got next to zero share of the growing pie. When times were good, the excuse for giving little was global competition. When times are bad, the excuse is “can’t afford it.” Meanwhile, the burghermeisters continue to live large and the pain of recession falls on the masses. Tune in tomorrow for more of the same.

The news that GMAC’s mortgage unit Residential Capital (a.k.a. ResCap) might go belly-up (AP via Yahoo) is shocking only because General Motors is the one saying it. What exactly was the captive finance arm of an auto maker doing so heavily into the mortgage business in the first place? Oh well, if Porsche can make a fortune gambling in the markets, why not everyone? The modern mortgage origination, funding and servicing business is so complicated as to be almost inscrutable. To wit: “ResCap said it posted an additional $200 million in collateral with Fannie Mae and sold off the rights to collect payments on $12.7 billion in loans, or 9 percent of the total amount it collects for Fannie Mae. Had ResCap not acted, Fannie Mae could have severely curtained its loan purchases from ResCap.” I really miss the days when home loans were made by banks using their capital plus deposits and were held, service and managed by said same banks. We may yet go back to the future on that one. Meanwhile, GM dropped a second bombshell in the same SEC filing by saying “that Delphi Corp., its former parts-making operation that was spun off in 1999, is unlikely to emerge from bankruptcy protection in the short term and may not be able to emerge at all.”  TTAC called it.

While GM, Ford and Chrysler put the squeeze on the taxpayer’s elected (and appointed) representatives, their shift of investment out of the U.S. and into other countries continues apace. This morning, for example, the Associated Press reports on the grand opening of General Motors newest $300mfactory… in St. Petersburg, Russia. “This plant is GM’s first in Russia, where demand for cheap, well-built cars has exploded amid a decade-long economic boom.” Similarly, last month GM opening it’s second factory in India and launched a new $250 million Shanghai, China R&D palace. For the life of me, I do not understand how GM executives can continue to pay themselves outrageous sums of money, shut down American factories, put development programs into the deep-freeze, toss American workers on the ash-heap, invest the company’s dwindling resources everywhere else AND demand financial bailouts from American taxpayers. Oh yeah, and don’t forget that bit about blaming American customers for un-patriotic buying decisions. Speaker Pelosi, are you paying attention? Can someone please tell her from whence cometh the Chevrolet Aveo?

AutoNation’s third quarter 2008 financial release is more grim news. The US’ largest automotive retailer reported “a 2008 third quarter net loss from continuing operations of $1.40 billion or $7.95 per share.”  Total sales revenue was down 22%, driven by a new vehicle unit sales decline of 24%. Overall industry unit sales for the period were down 31%, a set of numbers consistent with the observation that smaller dealerships are going belly up.  As one of the big boys, AutoNation is doing a little better than the averages.  We know that the small, and some not so small (Bill Heard, groan) dealerships are dropping like proverbial flies. AutoNation’s press release provides commendable detail on the domestic brand, import brand and premium luxury business segments. No real surprises there. Domestic brands got whacked with a 57% revenue decline while import brands and “premium luxury” both dropped 23%. The usual suspects of tight credit markets, high fuel costs and scarred silly non-buyers are duly noted. Operations wise, AutoNation squeezed out a $159 million profit for the quarter compared to $226 million in 2007’s equivalent period, a 29% drop off largely inline with the revenue hit. Why then the huge reported loss?: Value of the company’s domestic branded franchises. These dealerships were bought from small groups and owner-operators over the years. When purchased, the amount of the purchase price in excess of the real estate, inventory and any other hard assets of the business was booked as “goodwill and/or franchise” value. Today market value for a domestic branded car dealership is zero, so AutoNation had to write off $1.46 billion in recognition of the new reality. If and when those values ever go back up, AutoNation will be able to book an upside … but let’s not hold our breath.

Buyer’s remorse is setting in for many of this year’s sudden converts to the gospel of fuel efficiency– if Jonathan Welsh of The Wall Street Journal is to be believed. Of course, some of that might have to do with buyers’ choices. “Fran MacDonald got better fuel economy and maneuverability in traffic when she downsized from her Buick sedan to a tiny Chevrolet Aveo. But the small car was noisier and didn’t ride as smoothly. And then there were the hand-crank windows. ‘I was driving with my mother, and she asked me to put the window down,’ Ms. McDonald says. ‘When I told her she’d have to do it herself, she said, ‘Well, I don’t see a button.'” Once again, a craptastic GM vehicle disappoints and discourages. Fran obviously did zero research before making her purchase. Has there been ANY source which doesn’t rate the Aveo the class dunce? Another unhappy camper is ex-Chevy Suburban owner Blake Schomas, who went for a slightly more efficient Chrysler Pacifica– only to discover that their family of four (plus a friend or two) means no room for luggage. Kind of hard to take the gang on a skiing adventure that way. Others like Rebecca Lindland ditched her Chevy Trailblazer for a MINI, only to discover it was way too small for her tastes. Tacking back the other way, she traded the MINI on a BMW X3. Mr. Schomas, on the other hand, is probably stuck with that Pacifica for a long time. The moral of the story? Darwin wasn’t kidding.

Honda’s press release puts the number at 28.4 percent, but that’s using Daily Selling Rate nonsense. In simple terms, Honda sold 25.2 percent fewer units in calendar October 2008 than in the same period last year; which puts them in the same boat as Toyota. Only two models showed sales upsides: the Honda Fit and Acura TL. The Fit has been capacity constrained forever and is still a relatively modest player at 6,478 units for the month. The TL is likewise a niche vehicle which jumped from 3,421 units last year to 4,340 this October thanks to the all new 2009 TL. But, Acura has two disaster products on it’s hands; the forever poor-selling RL range topper and the near luxury mini-ute RDX. RDX sales collapsed from last year’s already low 1,937 to an abysmal 647 units. Back over at the Honda brand, one surprise in the numbers is the collapse of Accord sales, down from 30,936 to only 19,783, a 36 percent drop in Honda’s #1 selling product. The Odyssey, Element and MDX also all posted larger than average declines. However, for some reason the Ridgeline’s fall was a little less than the average falloff. Cash on the hood effect? Year to date, Honda is still up slightly over 2007, but that record seems likely to fall over these next two months. During the first half of 2008 Honda seemed to be playing in a different ballpark than the rest of the US auto business. But from summer on they have regressed to the mean. But hey, there is one fun-fact buried in the numbers: Honda took sales credit for one unit of the FCX Clarity hydrogen fuel cell vehicle. I wonder who the lucky customer is?

The Wall Street Journal reports the massive financial hangover of South Dakota’s VeraSun, 2006 IPO darling turned bushel basket case. VeraSun is trying to point the finger at the in vogue financial turmoil excuse, but the real problem is that they are buying high and selling low. Their Greenspan worthy doublespeak goes thus: “‘Worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the Company’s liquidity position.’ It intends to work with lenders to secure ‘additional committed financing to provide adequate liquidity to fund operations in the normal course.'” But the real deal is that VeraSun “lost $63 million to $103 million due to bets on the price of corn that ended up working against it. VeraSun’s current liabilities totaled $312 million at the end of the second quarter, and it had $1.4 billion in long-term debt.” Ah, almost $2b in debt and losing commodities market bets. Now we’re getting closer to the truth. When it came time to get yet another credit card with which to pay the interest on the old credit cards, nobody would play ball. “As the global credit crunch intensified in September, VeraSun was unable to secure the funding it needed to pay interest on its debt, which is due in December.” And guess who has ridden to the rescue with debtor-in-possession financing to fund the Chapter 11 reorganization attempt?  Cerberus, I kid you not. Lucky for them, plenty of moonshine is on hand for the deal signing party.

While unnamed sources in undisclosed locations continue pushing rumors about Chrysler’s marriage plans, the fact that Chrysler’s problems are rooted in one of the worst product lineups on the planet goes largely unnoticed. The AP’s Tom Kishner bucks that trend with his piece [via yahoo] No big sellers in sight to save troubled Chrysler. “Of Chrysler’s 26 models on sale in both 2007 and 2008, only four have sold more this year than last, and three of those are small-volume niche vehicles such as the Dodge Viper. The company’s market share has dwindled from 16.2 percent in 1996 to 11 percent this year, according to Ward’s AutoInfoBank.” The main blame for the heaping pile of losers in Chrysler’s showrooms is spoken auf Deutsch. “‘The truth is Daimler did them no favors,'” said Jim Hall, managing director of 2953 Analytics of Birmingham, Mich. ‘They approved products that previous Chrysler management wouldn’t have approved if they were completely drunk and beaten crazy.'” Cerberus has done nothing to improve matters, and has given up on any plans to lead the turn around of a Once Proud American Company. The best of Chrysler latest products are the new Ram and recent minivan redesign. Nice try, but the redone Ram remains an also ran in the truck wars. Ford and GM certainly aren’t about the cede any share of the already soft truck market. About that much hyped minivan redesign? It has done nothing to salvage Chrysler’s share of an imploding market segment. Minivan sales peaked at over 1.3 million units in 2000, but are expected to end 2008 at less than 650,000. Outside of the Rams and the Vans, things are even worse! Sebring, Nitro, Commander, Avenger, Caliber … the list of crap products goes on and on. Cerberus-Chrysler has more heads on it’s portfolio of dogs than even hell would sit still for.

Is the F150 a Phoenix rising from the ashes or an Icarus once again flying too close to the sun? The Wall Street Journal tell us Ford is betting on a revival of the living dead by “rehiring 1,000 workers to build the company’s 2009 F-150 pickup” at the long suffering Dearborn Truck plant. Perhaps this is an attempt to spin the company’s upcoming November 7th epic horror film release, um I mean quarterly financial announcement. Said quarterly results are going to be horrifically bad. Barn-burner October clearances sales brought truck’s US market share back up over 13.9 percent, a stunning recovery from the sub 9 percent range of this summer and back on track with the rates of this time last year. But those trucks were blown out the door at prices which don’t make money. A horrible economic environment, reduced total sales and high fixed costs mean rivers of red ink. The only good news: Ford’s end of October truck inventories were down from June’s 130k to a skinny 50k. As long ago as August, Edmunds was reporting  that buyer research behavior was already moving back away from small cars. Likewise, GM recently cancelled Saturday overtime plans at the Lordstown Cobalt plant. Gas prices are back down in the mid $2s, thanks for a record monthly drop in oil prices. Ford is betting that at least some Americans will revert to type and get themselves a new pickup, even if there isn’t a double scoop of cash on the hood. Meanwhile, FoMoCo CEO Alan Mulally remains committed to small cars…

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The pushing and shoving at the bailout trough continues, so say the usual unnamed sources. Reuters reports that moves are afoot to change GMAC’s legal status to a “bank holding company.” (This is the same sleight-of-hand Goldman Sachs used a few weeks ago to curry taxpayer favor.) Bank holding companies participate in the FDIC, which makes them eligible for capital injections under King Henry the Paulson’s solid-as-a-jellyfish $700b rescue/bailout plan. Rumor has it that Chrysler Financial would also be dumped into GMAC and the resulting company would be “a financial services company that would offer services including auto loans, interest bearing accounts and credit cards.” Yeah, just what we need: FDIC insured checking and savings accounts at GMAC. This is one of those nightmares from which I just can’t seem to wake up.

Paul Ingrassia’s essay in The Wall Street Journal takes a stab at a question which has preoccupied me for years. How the hell did the American automotive industry, which once was the model of industrial might for the world, become a sickly embarrassment? Generally, blame is apportioned amongst these areas: management, labor unions, government, customers and bad luck. Ingrassia comes down pretty hard on management, with a supporting role for the unions.

Domestic branded car dealerships continue to throw in the towel at breakneck speed. Today’s Wall Street Journal reports on the rolling blackouts. As new vehicle sales have fallen to a “25-year low, car dealerships from New Jersey to California are going out of business at an accelerating pace, threatening greater economic pain for communities around the country.” Love ’em or hate ’em, car dealerships are a significant source of jobs and sales tax collections. “The country’s 20,700 dealerships accounted for $693 billion in sales last year, or 18% of all retail sales, according to NADA. Dealership wages and salaries make up 13% of the nation’s retail payroll.” Said NADA forecasts 5,000 fewer US new car dealerships by the end of 2008 than there were in 1990. The death knell blows are coming from bankers slamming the door in long time customer’s faces. Stories like this abound: “Joseph Pfeffer, owner of Bigelow Motors, a Chrysler and Jeep dealer in Belleville, N.J., closed shop Oct. 4 after his bank decided to exit automotive financing and cut him off from $5 million in inventory financing. He had been in business since 1942, getting his start selling DeSotos and Plymouths. ‘I always survived,’ said Mr. Pfeffer, 92 years old, ‘but nobody ever cut off my line of credit before.'” Bigelow sold forty units in August, but only seven in September. No buyers, no bankers, no business. Its ugly out there.

Barrons [sub] offers Inside Baseballers a lengthy interview with former Merrill Lynch auto industry analyst John Casesa,. GM’s bestest best friend thinks the GM – Chrysler merger “looks terrific on paper.” That said, JC (coincidence?) thinks the resulting mega-domestic would have too many brands and dealers. “So this is a deal that would be difficult to execute operationally, although it could happen because the motivations are so strong on both sides… Just because GM has 22% share and Chrysler has 11% doesn’t mean the combined entity will have anywhere near a 33% share.” OK then. So what does the walking quote factory make of Kirk Kerkorian’s Ford share sell-off? “He’s not one to give up easily. The sale is alarming.” Less alarmingly, Casesa likes Toyota and Honda because of their strong balance sheets and well-hedged technology bets. [ED: For that he gets paid?] Barrons offers an excellent graphic comparing the debt loads of Ford, GM and Honda per vehicle sold. Ford was sitting on almost $4k in debt for every vehicle sold LAST YEAR and GM’s number was just a few hundred dollars less. The equivalent figure for Honda: $119. Strong balance sheet: Priceless. For everyone else: Disaster.

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The AP reports on the ongoing oil price collapse. “OPEC said at an emergency meeting Friday that it will slash oil production by 1.5 million barrels to stem the ‘dramatic collapse’ of oil prices, but crude prices plunged 7 percent anyway as financial markets spiraled downward across the globe.” In the face of OPEC’s proclamation, oil opening below $64/barrel this morning; down over half from the $140 highs of just a few short months ago. Even with the growth in China, India and the rest of Asia, the US still consumes a fourth of the world’s oil burn, and “U.S. demand is down nearly 10 percent during the past four weeks year on year.”   OPEC hopes to talk Russia into playing along with a supply squeeze, but Russia has problems of it’s own and typically goes her own way on these matters. Other oil producers are singing the blues (’cause they never thought they’d lose). “Iran, Venezuela and other OPEC members having suggested that for them, selling oil under $80 was a loss-maker, and Iraq on Thursday said it would have to rethink next year’s national budget if prices remain under that level.”  OPEC’s El-Badri is unsympathetic: “OPEC cannot bail out the problems of others.”  Words to live by.