We’ve already put Detroit Free Press writer Mark Phelan through the Cassandra-o-meter— and found his logic more than slightly wanting. Today’s column reveals that Phelan’s cluelessness runs deep. Contemplating the collapse of the GM – Chrysler merger, Phelan says “Finding a foreign buyer to provide advanced engineering for sophisticated small vehicles in exchange for access to Chrysler’s U.S. dealer network and expertise in trucks, minivans and big cars is the best option.” Of course, Phelan’s theory assumes that an automaker would want to buy Chrysler. While everyone and their proverbial mother believes that Jeep is some kind of brand babe, other than that, what would be the point? How do we prod thee with a ten-foot pole? Let me count the ways. First, the U.S. automotive market is dead in the water. Second, any automaker stupid enough to assume tens of billions of dollars of ChryCo debt and obligations to a union (whose primary expertise is in wresting said benefits from overpaid execs), not to mention a roster of uncompetitive products and nothing in the propduct pipeline (although I just did), is also hurting in the worldwide auto industry meltdown. Third, if said automaker wants a piece of Chrysler, they’ll wait for the now-inevitable Chapter 11 or 7 and buy the best bits for pennies on the dollar. Phelan’s take? A ChryCo sale (as such) could happen. But that would suck. “Even in that best of all possible worlds, however, Chrysler will be a smaller company than it is today. It will have fewer plants and employees, but it can remain a major contributor to the U.S. economy and an important center of engineering and design expertise for a healthy global company. We can hope Chrysler’s next owners will value it more than the last two did.”
Posts By: Robert Farago
Senator and president-elect Barack Obama held his first post-election press conference on Friday– the same day that Ford and GM revealed their respective arterial sprays of red ink and third degree cash burns. Rather than highlight those stats and go for the close, bailoutwise, Obama played his political cards close to his chest. The exact text of his remarks are extremely revealing, in that politicians don’t really reveal anything unless they absolutely have to kinda way. “The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil.” Translation?
“The Scuderia Spider 16M is available in a choice of two new signature colour schemes: the standard version is black with grey trim, while a tricolour livery is also available as part of the Carrozzeria Scaglietti Personalisation Programme. [Translation:the 16M comes in a special color combo only available with this special edition– unless you’re willing to pay for it and wait an additional God knows how long.] The new car also sports a special plaque on its rear grille commemorating Ferrari’s 16th Constructor’s World title. The exclusivity of the interior is underscored by the silver ‘limited series’ plaque just above the air vents at the centre of the dashboard. [MONEY SHOT!] Other exclusive features include a roll-bar with carbon-fibre outer shell (hmmm) and a specific new generation audio system that can be combined with the removable customised Ferrari iPod Touch 16 GB with central dock just in front of the dashboard [not shown here because it probably looks like an after-birth, I mean after-thought].”
[Another one from our anonymous bankruptcy lawyer.] I’ve had a look at the rules for the $25b Department of Energy (DOE) direct loans for development of advanced technology and manufacturing facilities. To qualify, an automaker must prove that it is solvent. Either that or it must meet one or more of the stated tests that relate to financial liquidity– tests that can be met even if the automaker is insolvent on a balance sheet basis. In announcing its huge third quarter loss, GM has made a statement that suggests that it may not meet the liquidity tests and may not qualify for the DOE direct loans.
It’s the morning after the day of. The day General Motors admitted to the world that they don’t have enough cash to last until the end of the year. And for once, GM’s standard-issue PR ploy– leave the bad news until Friday afternoon, reveal some corrective action (axing 7k jobs) and downplay its significance– worked against the General’s generals. GM’s impending bankruptcy was buried beneath and within President-elect Barack Obama’s first press conference. The story was denied bailout-fueling urgency. It’s the ultimate condemnation of GM CEO Rick Wagoner’s administration: they can’t even exploit their own incompetence for the company’s survival.
Slipped that one in, eh? The official statement, via The Detroit News: “GM has recently explored the possibility of a strategic acquisition that it believed would generate significant cost reduction synergies and substantially strengthen GM’s financial position in the medium and long term, while being neutral or modestly positive to cash flow even in the near term. While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside.” To which Chrysler CEO Boot ’em Bob Nardelli responded, “”Chrysler LLC neither confirms nor discloses the nature of its private business meetings, as many times they do not come to fruition. Returning Chrysler to profitability continues to be the key focus of the management team. We are significantly challenged by today’s economic environment and by the automotive industry’s unprecedented downturn. As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability.” Good luck with that, then.
With a bit of luck, I’ll finish this editorial before House Speaker Nancy Pelosi tells America how Washington will save Detroit by spending your tax money on a domestic automobile industry beyond salvation. I doubt it. As we’ve previously reported, our duly elected representatives have already met with the titanic captains of Ford, GM, Chrysler and the U.A.W. in a closed-door session. I’m sure they got their ducks— and our bucks— in a row. Nancy will sing an ode to the working man and pen a paean to the importance of American heavy industry. Grim faces will then face a grim task: figuring out the fastest way to put Ford, GM and Chrysler on federally-funded life support.
The Wall Street Journal reports GM’s statement on its dismal Q3 results. The General’s general admits that “estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.” So, essentially, unless GM gets a federal bailout by 12/31/08, the artist formerly known as the world’s largest automaker will be forced to file Chapter 11. And no wonder, given GM’s cash burn reported [with all the numbers] by Yahoo! Finance. “Cash, marketable securities, and readily-available assets of the Voluntary Employees’ Beneficiary Association (VEBA) trust totaled $16.2 billion on September 30, 2008, down from $21.0 billion on June 30, 2008… The change in liquidity reflects negative adjusted operating cash flow of $6.9 billion in the third quarter 2008.” The entire “money shot” quote after the jump.
I’ve received a few emails upbriading the site for OCDing on the bailout story. My only defense: TTAC has covered this story for well over three years. We are the clear path through the blizzard of bailout B.S. being bandied about by bailout backers. While we glean our info from the usual suspects, our editorial eye is fixated on the details and implications that other outlets miss, ignore or bury. For example, this Automotive News [sub] story reveals the fact that the cappi di tutti cappi di automobili left their sit-down in Nancy Pelosi’s Washington office “through a hidden exit from the office suite of Senate Majority Leader Harry Reid sometime around 6:30 p.m. Security personnel kept reporters at a distance.” THIS is how OUR politicians spend OUR tax money? In closed-door meetings with a coven of craptastic carmakers? OK, no surprise, but it’s clear the important questions are not being answered– if only because the principles involved are literally sneaking away into the night. So, anyway, here’s the latest teat-sucking scenario…
Smaller loss, bigger burn. Relative to last year, The Blue Oval Boyz narrowed their Q3 losses from $380m to $129m. But the cash burn is, as expected, intense. The Detroit Free Press tells the tale. “The automaker’s cash reserves dropped from $26.6 billion at the end of the second quarter to $18.9 billion at the end of September. That means Ford burned through $7.7 billion in cash in three months, or $2.6 billion a month — a much faster burn rate than over the prior 6 months, when Ford burned through about $1 billion a month.” But wait! There’s less! “Ford recorded a positive accounting charge of $2 billion for retiree health care costs during the quarter that helped the company’s overall result. Excluding special items, Ford posted a pre-tax loss of $2.7 billion for the quarter, which is worse than the $2.1 billion in losses that Wall Street analysts had been forecasting.” So… “As part of Ford’s latest plan to preserve cash, Ford said it would also cut its 24,100 remaining salaried workers by another 10%, further reduce capital spending in a variety of areas, such as advertising. Ford also said it would continue to explore selling non-core assets, in addition to other actions.” Meanwhile, if my math is right (which it seldom is), assuming Ford needs a $10b pad to keep the lights on and nothing much changes ($675m per month cash burn), they’ll conflagrate their cash in just over a year. [Raw numbers here.]
That works, I suppose. Instead of giving– sorry “loaning” GM, Ford and Chrysler $25b, Nancy Pelosi and Co. will tell voters that the money’s going to “help the Detroit 3 meet their obligations to newly created retiree health benefit funds.” So tax money’s not going to incompetent SUV-building American automakers. It’s going to blue collar retirees, who never did a thing wrong except show up for work and put in an honest day’s labor. This according to Automotive News‘ source familiar with the people close to the matter who are actually the people who are cutting the deal but are too chicken-shit to say so and therefore co-opt lazy journalists by getting them to let them go “off the record.” Perhaps this would be a good time to revisit the fact that the $25b Uncle Sam’s minion want to dump into the United Auto Workers’ voluntary employee beneficiary association (VEBA) will fall into the grasp of a union known for corruption, waste, fraud and mismanagement. If that link doesn’t convince you that the UAW may not be the best stewards of your tax money or the workers’ health care, have a browse here. Or have a look at General Motors Death Watch 165. As the Brits say, they’ll be tears at bedtime. Oh, and would it be churlish of me to point out that Ms. Pelosi, winner of the Cesar Chavez award, own a non-union vineyard and hotel, yet counts unions as one of her top three largets contributors?
Democratic House Speaker Nancy Pelosi has met with the heads of Ford, GM, Chrysler and the U.A.W. While the meeting was closed to the press (way to go government openness), what’s the bet the words “how much?” escaped her plumpness-assisted lips? The Detroit News reports that Pelosi emerged from the confab with her political PR prepared for battle: “‘We may need to make a statement of confidence in our auto industry,’ Pelosi told NPR this afternoon. ‘We’re not saving those companies, we’re saving an industry. We’re saving an industrial technological and manufacturing base… It’s about jobs in America.'” More interestingly, “Congressional leaders are likely to put out a statement on Friday — the same day that General Motors Corp. and Ford Motor Co. are expected to announce heavy third-quarter losses.” So here’s how it goes down: Ford and GM announce catastrophic losses and third-degree cash burn, the stock market freaks (for the few remaining hours before the weeked) and Pelosi and Co. ride to the rescue with a fast-tracked bailout plan, which may or may not be pegged at $25b (for starters). Then it’s a race to the trough, as Cerberus hopes and prays no one notices that it’s using your money to cover their ass.
The Senior Director of Communications for the Alliance of Automotive Manufacturers has revealed that Subaru and Nissan are applying for Department of Energy’s (D.O.E.) low-interest loans. As TTAC reported earlier, the just-released rules for the loans do NOT contain a provision limiting calls on the $25b available to American factories twenty-years-old or older– as originally thought. The door is now open for any automaker with operations within these United States that thinks it can build a vehicle that’s 25 percent more fuel-efficient than a comparable model. “For competitive reasons, I would think that any elegible automaker would apply for the loans,” Charles Territo told TTAC. “You can’t write anyone off.” That said, if the D.O.E. rules are enforced as written, you CAN write off GM and Chrysler; they don’t meet the regulations’ criteria for financial viability. Territo expressed confidence that Detroit’s automakers will “figure out a work around” for that and other stipulations. “It’s Washington. Where there’s a will, there’s a way.” Territo’s organization is also supportive of the next bailout: another $25b to $50b aimed at improving American automakers’ liquidity. “A failure will cost more than a bailout,” Mr. Territo opined, declining to provide statistics to justify the claim.
[The following analysis was sent to TTAC by a New York City bankruptcy lawyer who wishes to remain anonymous. It’s twice as long as our usual editorial, but I think you’ll find it’s well worth your time. Thanks to you-know-who-you-are.] Cerberus Capital, a highly secretive NYC-based vulture investment fund, wants the U.S. government and taxpayers to bailout its failed investment in Chrysler and its failing investment in GMAC. Its partner in this raid on the US Treasury is General Motors, a woefully insolvent automobile manufacturer whose CEO is paid $40k each day. Here’s why a bailout for GM and/or Chrysler is a bad idea.
“DOE would like to invite you [ED: who shall remain nameless] to participate in a conference call for industry stakeholders on the new Interim Final Rule for the Advanced Technology Vehicles Manufacturing Loan Program issued this evening. The program was authorized by Section 136 in the Energy Independence and Security Act of 2007. The FY09 Continuing Resolution authorized up to $25 billion in direct loans. The press release is attached. The Interim Final Rule is posted at http://www.atvmloan.energy.gov/.” Interim Final Rule? Yeah, that sounds like the feds alright. Anyway, while I scan the pdf myself, I once again invite TTAC’s Best and Brightest to cast their collective beady eye on this doc, which was allegedly going to take over a year to produce. I guess it pays to have high friends in low places. Right. Let’s get stuck in…
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