Now that self-styled AutoExtremist has acknowledged that his hometown heroes have screwed the proverbial pooch, Peter DeLorenzo wants the left and right coast elites to know they can’t afford to let Motown take a dirt nap. Rant #469 (my favorite title so far) makes it clear that the American automobile industry IS Detroit, and Detroit IS America’s industrial pillar. “Free-market theorizing aside [ED: sure , why not?], we have long since passed the point of no return in this matter. If this country allows one of its key manufacturing pillars to slip into insolvency, it would set-off a dark chain of events that would reach into every sector of the economy and would not only devastate the states where Detroit has its manufacturing and parts facilities, but it would affect every state of the union too.” That means you, bub. To avoid this “looming economic disaster,” Sweet Pete thinks the GM – Chrysler merger’s kinda neat. “Even though I am absolutely convinced that the idea of GM acquiring Chrysler is absolutely fraught with opportunities for abject failure on a grand scale, the White House will make the decision that a managed dissolution of Chrysler over time under GM’s stewardship would be preferable than an immediate corporate blow-up.” Especially before a presidential election, eh? Having finished this adventure into realpolitik, DeLorenzo’s got a plan for America, Inc. Counter-attack!
Posts By: Robert Farago
OK, that’s scary. While we fully expect Ford to be Detroit’s last man standing, those are the exact same words uttered by the man who’s been busy ramming GM into an iceberg– repeatedly. Well, at least FoMoCo CEO Alan Mulally acknowledged the competition. “People aren’t going to buy cars from bankrupt companies when they have great choices.” Big Al’s “stay the course” cry is a bit more credible than Red Ink Rick’s; Ford tanked-up up on cash before the excrement and air movement device collided. But October’s sales results, and Ford’s next financial quarter, are going to be super-brutto. Here’s Automotive News‘ [sub] nutshell analysis: “During the first half of 2008, Ford lost $8.6 billion, and analysts expect further losses in the third and fourth quarters. In May, Ford abandoned its plan to restore profits in 2009. Since 1995, the company has shed U.S. market share annually. This year, its sales have plunged 18 percent.” So what the new new way Fordward? We “absolutely stay on this plan and restructure to get back to profitability as quickly as we can in this changing world,” Big Al soothed. “And continue to invest in the new products for near- and longer-term growth and value creation. We’re just going to do whatever it takes to do that.” Given that the Euro-Fords are still a year out and GM’s just delayed all its product plans, simply not dying is about as good as it gets for The Blue Oval Boyz. And it may well be enough.
Well you kinda knew GM was pulling the plug on its cap ex (capital expenditure) when they announced the Chevrolet Cruze would be delayed a year (to 2013). The Cruze was supposed to be The General’s next big small thing. The great wheeled hope. The economy car that would put GM back in the non-SUV game. Fuhgeddaboutit. Or, as the Brits would say, GM’s dropped the other shoe. Automotive News [sub] reports that the cash-strapped American automaker is postponing “nearly all of its spending on product development in 2009 and 2010.” According to an unnamed source, “The 2009 stuff that’s too late to cancel is coming out, then everything else gets pushed out anywhere between three months and up to a year. It’s not just capital budget; it’s also engineering, design… everything that would cause money to flow out in 2009.” Except, of course, executive salaries. So what else is spared? The Camaro, the Hail Mary-shaped plug-in electric – gas Chevrolet Volt, the “restyled” Buick LaCrosse (whew!) and, maybe, just maybe, the Cadillac CTS Wagon (thank God!). And here’s the really scary part. “General Motors is taking drastic action to avoid running out of money sometime next year. With its product delays, GM hopes to save as much as $1.5 billion, said the source.” Just $1.5b? That’s only a month-and-a-half’s worth of GM’s current cash burn. Desperate days.
Yup, chalk-up another successful suckle on the federal teat, as Uncle Sam GM adds GMAC to the Commercial Paper Funding Facility. Reuters bears the glad tidings. “GMAC LLC, the auto and mortgage finance company, on Tuesday said it had been approved to use the commercial paper funding facility created earlier this month by the U.S. Federal Reserve with the aim of easing pressure on the corporate credit market.” Way-hey! Surprisingly (not), veteran GM spinmeister Gina Proia was a cagey as a canary on the deal’s specifics. For example, timing. “[GMAC] granted approval of its application ‘recently,’ Proia said.” And logistics. “Proia said GMAC would participate in the Fed’s borrowing window through its New Center Asset Trust (see: Bloomberg), a $10 billion asset-backed commercial paper facility. But she said GMAC would not discuss in a more detailed way how it planned to use the borrowing facility. ‘We are not discussing in any detail our participation in the Fed program,’ she said.” I agree! Why should the company benefitting from MY TAX MONEY tell me when, how, how much of it its hoovering? Hmmm. Something’s screwy here…
So now we know where the press scarfed all those Maximum Bob bites™: the text of GM Car Czar Bob Lutz’ address to a confabulation of spinmeisters. MB starts off on exactly the wrong foot: the perception gap. It gets worse from there, obviously. Bob reiterates his theme of late: design rules. Apparently, it’s “the last great differentiator in the automotive business. Everybody has great powertrains and adheres to the same basic fuel economy and safety standards. Everybody has good, flexible, low hour-per-vehicle manufacturing. Everybody has efficient purchasing and uses the same suppliers. Everybody has roughly similar reliability and quality ratings.” Hang on; does that include me? ‘Cause I don’t think Bob and I share suppliers, if you know what I mean. And then Bob says PR is a crock of shit. “I’ve been a lifelong critic of corporate communications that don’t communicate, or are too sanitized. All large corporations are good at it, and General Motors is certainly no exception. In this case, communications, instead of being a weapon for putting out the truth, becomes simple risk avoidance. It focuses on making sure that no one says the wrong thing. And often, by focusing on not saying the wrong thing, you’re essentially saying nothing.” Sorry. What were you saying?
I am SO fed up with all these automotive top ten lists. Yes, yes, I know: TTAC’s Ten Worst Autos list receives more “outside” attention than anything else we do. And for good reason: it’s got balls. And yes, we’re gearing-up for our annual mostly readers’ choice poll. But Jesus, can Forbes and Jalopnik and Autoblog and everyone else in the whole damn autoblogosphere PLEASE lay off the top ten lists? The obvious answer is no. No matter what I think of these self-appointed lists, they garner amazing page views. So, in the great TTAC spirit, I’d like to start offering the most absurd Top Ten Lists we can imagine. How about TTAC’s Ten Best Cupholders? Consider this a semi-collaborative effort. Email a jpeg photo of your choice for best cupholder to robert.farago@thetruthaboutcars.com with CUPHOLDER in the subject bar. Justin and I will arbitraily choose the ten best by Friday. This could be big! Or not.
It was I who invented the name “Maximum Bob” for GM Car Czar Bob Lutz. That said, I also coined “Rabid Rick” for GM CEO Rick Wagoner; clearly, I should have stuck with the Buickman-perpetuated “Red Ink Rick.” John Horner, a charter member of out Best and Brightest and yeoman TTAC blogger, first mooted the moniker “American Leyland” for the federally-funded (one way or another, eventually) GM – Chrysler mash-up. But it’s a keeper. Or is it? Evan Newmark’s column over at The Wall Street Journal’s Mean Street proposes another way of characterizing the insanity to come: “GM = Government Motors.” While I’m not completely enamored by the new name, Newmark’s arguments are entirely seductive. In fact, it’s the best anti-GM bailout diatribe I’ve encountered, here or anywhere else– not that the topic is large enough to deserve a genre, yet. Anyway, I’ve excerpted some of the best bits below, and put it to you, our B&B: American Leyland or Government Motors?
What is it with this PR conference speech? Why are we getting GM Car Czar Bob Lutz’ bon mots in les dribs and drabs? In this latest instalment from the spinmeisters ho’ down [via The Detroit Fress Press], Maximum Bob almost breaks his arm, patting himself on the back for being so open with the press about the Volt’s progress– or lack thereof (although he doesn’t say that, obviously). “In the unlikely event that we were going to hit some huge stumbling block, we wanted the world to kind of see how we got to that stumbling block and what that stumbling block was. As it happens, luckily, we don’t seem to be encountering any stumbling blocks.” Wow! Has Bob forgotten that the Volt blew past its original deadline like a Dodge Viper passing a Chevy Aveo? Meanwhile, the car is a raging success. “Volt has received 95% hugely positive coverage and has become really an iconic vehicle, which is strange to say about a vehicle that is not out yet.” Strange, and wonderful, really.
One of TTAC’s Best and Brightest sent us this little ditty from Credit Suisse re: U.S. new car sales for October. Needless to say, it’s a jug full of that sucks.
• We expect the October annualized light vehicle selling rate (SAAR) to land in a range of 11.5 – 11.8 million vehicles, the midpoint of which would be about 27% below the year-ago month pace of 16.0 million, and about 7% below last month’s pace of 12.5 million.
• We expect October unit volume (selling day adjusted) to be down in a range of 27% – 29% versus October 2007. The seasonal factors are slightly favorable this month (about 1%), which explains why our projected decline in the SAAR is not quite as deep as our projected decline in volume.
• We look for a modest decline in the truck mix in October, to about 49% from north of 50% in September, as much of the excess truck inventory has been cleared as automakers have cut production schedules and thrown big incentives at pickups, SUVs, and minivans.
• By maker, we see GM sales down in a range of 32% – 34% in October. Market share should suffer sequentially as GM experiences payback from its “employee discount for everyone” program that ran in August and September. We expect share of around 23%, down from 29% in September and 25% in the year-ago month.
• We look for Ford sales to tumble 33% – 35% in October, with market share bouncing to around 13.5%, up from about 12% in September (getting a boost as GM’s share comes back to earth), but down from nearly 15% in the year-ago month.
• We expect Chrysler sales to fall in a range of 32% – 34% in October, with market share coming in around 11%, down slightly from last month, and down about 80 basis points versus the year-ago month.
• Foreign brand sales should fall sharply in October as well, but will be supported by a 0% financing program at Toyota. We expect large sequential share gains for the foreign brands, to north of 52% from just under 48% in September.
• Assuming our sales forecasts are roughly correct for the month, we think inventories are likely to end October more overstocked than they were in September.
• Note that our year-end inventory forecast calls for overall improvement in dealer stocks between the end of Q3 and the end of Q4. But our year-end base case assumed a 13.0 million unit Q4 selling rate. To the extent the selling rate runs closer to 11 million units, fourth quarter production schedules at GM and Ford could be subject to further downward revision.
Huh. Did you know that Chrysler has a business plan, let alone a business plan based on a return to higher gas prices? If you believe everything you read, it does! “As a company, we are looking at a future of high gasoline prices,” Yvonne Malmgren, manager of global sales and incentive communications for Chrysler told Automotive News [AN, sub]. “That is what we expect, and we’re aligning our business plans with that idea in mind.” Don’t pass out, but GM spinmeister John McDonald is singing the same song. “GM is basing its product planning on higher fuel prices, not lower.” Ah, if only we’d heard those words ten years ago. Anyway, the media meme: the return of lower gas prices is stimulating sales of big rigs. In other words, stupid Americans! To be fair, AN is reporting this one fairly; pointing out that a) the rise represents a bigger slice of a MUCH smaller market b) profit-killing incentives have stimulated truck sales and c) the numbers aren’t actually out. (What’s the bet the nets don’t parse this one quite so well?) And just in case you gave ANY credibility to the story… “Says Joel Baker, owner of Baker Cadillac in Leominster, Mass.: ‘When gas was at $4 a gallon, we went for probably a 50-day period when we didn’t show any Escalades. When it hit $3.50, we started seeing some traffic again.'” Some traffic (not quantified), show (not sell). Works for me.
We’ve already covered Detroit News columnist Daniel Howes’ Road to Damascus moment, when the hometown paper’s seriously smart scribe finally acknowledged that the domestics are going down. But Danny’s latest column indicates a bit of backsliding. “Fed help for GM merits tough terms” promises guidelines to protect taxpayer’s interests. You know something along the lines of Ken Elias’ recent General Motors Death Watch post. Of course, any such prescription would have to include a call for the dismissal of the Harvard-educated idiots runing GM, the Home Despots atop Chrysler and UAW jeffe Big Ron Gettelfinger. But that’s a bridge too far for the Detn’s Motown maven. “…the guys atop GM, Ford, Chrysler and the UAW with their collective hands out should be prepared to accept some onerous conditions in exchange for the federal dough — up to and including putting their jobs, legacies and golden parachutes on the line.” Putting them on the line? Danny, these guys needs to go (save that nice Mr. Mulally who rang us up the other day and totally coopted our coverage). Full marks for asking the right questions (albeit a bit late). Now, how about some answers?
The average American has no idea that GM is run by a bunch of nimrods. And even if they knew about the Machiavellian machinations behind the automakers’ recent struggle for survival– including hiring a raft of ex-treasury officials to lobby their former employer for tens of billions of GM bailout bucks– they wouldn’t care. That’s all Inside Baseball stuff. Joe the Public has enough on their proverbial plate just running the kids to school, keeping food on the table and putting a roof overhead. But when it comes to buying a new car, well, that’s a horsepower of a different color.
As Moody’s has downgraded GM and GMAC to Caa2, it only makes sense that the ratings agency has assigned potential “partner” Chrysler and Chrysler Financial the exact same rating. MarketWatch reports that the ChryCo Bros. are now at Caa2. Folks, Caa2 is the third circle of junk credit Hell, only a blink away from the last part of this category (Caa3). In other words, “Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk, and have extremely poor credit quality.” There are only two ratings lower: Ca and then C. And then… game over. Bottom line: Chrysler’s “plenty o’ cash contention” was the complete B.S. anyone with industry insight knew it to be. Or, as Moody’s puts it, “The downgrade of the Chrysler rating reflects the increased pressure on the company’s liquidity position due to the precipitous decline in US automotive demand and the likelihood that shipment levels will remain depressed through 2009.” Bottom line II: the only institution that will lend GM. GMAC, Chrysler and Chrysler Financial is you (a.k.a. the U.S. government). That said, Chrysler’s owners Cerberus have plenty deep pockets. According to their website: “Cerberus holds controlling or significant minority interests in companies around the world. In aggregate, these companies currently generate over $100 billion in annual revenues [emphasis added].” But Feinberg’s Boyz know better than to throw good money after bad.
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