Posts By: Robert Farago
Previously– on “Why the Hell Would Anyone Blog This?”– we pointed-out that there was little newsworthy about Audi’s transcontinental diesel… uh… hang on. I’ve forgotten the name of the [non] event. “Audi Mileage Marathon.” What? The German automaker schleps 200-plus journalists around in oil burners to promote the DOA technology to disinterested Americans, and they didn’t even put the word “diesel” in the title? Anyway, I predicted that Autoblogger Sam Abuelsamid’s ride across America in a diesel Audi Q7 could well provide his readers with the world’s dullest autoblogging. Obviously enough, I was right. So I won’t link you there in case you’re eating soup. [ED: More importantly, why didn’t they invite Berkowitz? He’s small, packs light and drives like a grandmother. Also, he usually brings enough prescription drugs for everybody and has a list of all the good strip joints across the country.] But we did get a press release from Audi which contains this genuine gem from Audi of America chief Johan de Nysschen: “The Audi Q7 TDI makes driving a luxury SUV socially acceptable again because of its notable fuel efficiency and ultra-low emissions.” Bet that will cheer-up Detroit! [Twenty-eight mpg so far, in case you’re wondering.]
OK, that’s it. No really. That’s the whole story. Ford CEO Alan Mulally told reporters at the Paris Auto Show that he doesn’t regret selling-off Jaguar and Land Rover to Tata Motors for $2.3b. But you knew that, ’cause you read the headline. And you’re not brain dead. Pithy quote? Not really. “Our number one goal in Ford is to focus on Ford.” You know; aside from Lincoln, Mercury and Volvo. The real question: what in the world was Automotive News [sub] reporter John Revill thinking when he asked that question? So, Al, do you regret getting out of those money pits when there was still a sucker around willing to take them off your hands, or do you wish they were still in the FoMoCo portfolio, sucking bodily fluids from the emaciated body corporate? God forbid Revill should have asked Big Al excatly how many days’ worth of cash his employer has left. Or if GM files for Chapter 11, will you follow suit? Or… is your pension bankruptcy proof?
I don’t normally link to videos if they can’t be embedded, but this cracked carafe of not good is required viewing for anyone who thinks the U.S. car industry isn’t dead in the water. The interviewee, President of NY’s Major World Auto, offers such a litany of bad news that you half expect Harold Bendell to break down and weep: banks getting out of the sub-prime biz (perish the thought), leasing is DOA, new cars aren’t selling, used cars aren’t selling that well, etc. To which the Fox newscaster replies, “Car companies are in business to sell cars. If they are not selling cars, there’s no reason for them to be in business… what are they going to do?” “If you don’t have a 700/725 [Fair Isaac Corp or FICO credit] score, nobody really wants to look at you the same way,” the harried, hapless car dealer moans. “Who wants to take a chance?” Inventory problems? “I’ve got so many cars that I want to give them away,” Bendell says. Only you know what? I believe him.
• GM filed after the close on Wednesday a brief, but in our view important, 8K regarding the status of the Settlement Agreement regarding UAW retiree healthcare coverage.
• Recall that this was the deal hammered out as part of the 2007 contract negotiation with the Union, that effectively will take GM out of the business of providing retiree healthcare (OPEB) beginning in 2010, in exchange for a hefty installment of cash
(upwards of $30 billion) into a new VEBA trust.
• The 8K reported that all conditions have been met and all appeals expired, allowing the deal to become effective (for all practical purposes) as planned on January 1, 2010.
• There was a very important word in the 8K that we think investors should not overlook: “Terminate.” As in, the retiree healthcare plan will be “terminated” on the final settlement date. This is distinct from a plan “amendment,” and as such will receive very different accounting treatment.
• The key distinction is that under settlement accounting (which applies for a termination) the gains/losses generated by the agreement (in this case, a “significant curtailment gain”) will be recognized all at once (in this case, in 3Q08), rather than amortized through the income statement over a period of years, as would have been the case under the amendment accounting treatment that GM was originally seeking (and how the 2005 benefit cut was handled).
• This is where it gets dicey. When GM originally outlined the expected 2010-2011 savings (P&L) that would result from the VEBA deal, which ranged from $2.6 – $3.4 billion per year, the company had assumed it would be amortizing a sizable gain as a result of amendment accounting. In other words, the initial ~$3b estimate included not only the elimination of service and interest cost, but also some extra (significant) help (non-cash, of course) from the amortization of that amendment gain.
[thanks to you know who you are]
Financially-challenged Pennsylvania motorists can breathe a sigh of relief, as The Newspaper reports that “Abertis announced the Spanish-led Pennsylvania Turnpike Partners (PTP) consortium had dropped plans to lease the Pennsylvania Turnpike until the year 2083.” In a statement, Fat Albert said “Hey, hey, hey! We don’t have the cash to play!” OK, they actually said “Progress in the approval process, which is taking longer than expected, alongside uncertainties in financial markets are behind the decision, which will give the partners of the consortium more freedom to assess other opportunities and projects, some of which are in part related to the current situation.” And most of which aren’t. And that “longer than expected” bit refers to state lawmakers rejecting a proposed 25 percent hike (plus annual 2.5 percent rises) in tolls. Hey, and it’s win – win! “Fitch Ratings responded to the announcement by removing the Spanish company from its ‘Ratings Watch Negative’ list. The ratings firm believed Abertis would have had trouble raising the $3 billion in capital needed to begin the Turnpike takeover.” [TTAC is proud to announce that The Newspaper has agreed to simultaneous posting of its future articles]
With a conflagration raging through GM’s cash hoard, with enough debt and ongoing obligations to bury Bolivia, with its credit rating in the proverbial toilet (CCC), with the North America market fire hosing the company’s books with red ink, GM’s access to operating finance is, shall we say, “limited.” To feed the flames, GM’s already sold just about everything that’s not nailed down: subdivisions, 51 percent of captive financier GMAC, land, factories, shares in foreign automakers, etc. It’s not enough. Three months ago, GM CEO Rick Wagoner announced he’d raise $15b in cash through additional asset sales. The Detroit News reports that the company’s Renaissance Center headquarters is now on the block. “General Motors Corp. wants to borrow about $500 million from one or both of Detroit’s pension funds to refinance the Renaissance Center, the automaker’s iconic world headquarters, in a move that could pump cash into the financially strapped company’s coffers. GM officials are scheduled to make a preliminary investment pitch Thursday to the city’s Police & Fire Retirement System and are trying to schedule a meeting with the pension fund representing general city employees.” If not that, RenCen’s for sale. Does it strike you as odd that GM’s hitting-up the unions instead of banks or real estate investors? Does this have anything to do with the United Auto Workers’ forthcoming VEBA payment? Anyway, at $500m, GM’s looking at a $201m loss on the deal. In theory. “We’re not going to do it because we don’t have that kind of money,” said George Orzech, police and fire pension board member. “There’s no interest that I know of, but stranger things have happened.”
Edward Niedermeyer and I had a chin wag this evening. I was performing my “atta boy” management duties, complimenting our correspondent for his literary evolution, from calling people assholes to explaining why they’re assholes (a distinction without any diffidence.) A thought occurred to me: now that Niedermeyer The Younger has learned to curtail his automotive animus, he might like to cut loose a bit, and blog from the SEMA aftermarket show in Las Vegas. Needless to say, Eddy’s game. But the last thing I want on this site is 26″ wheel product reveals. “Have you ever dropped acid?” I inquired. Eddy’s response is on a need to know basis. Meanwhile, the question bedeviling me at this late hour: can our bad-ass blogger channel his inner Hunter S. Thompson without devolving into a pastiche? And would you, our Best and Brightest, like to read the results of this literary experiment?
OK, the credit analyst presenting the timeline works for gimmecredit.com. Take that as you will. But Shelly Lombard has done the math (for BusinessWeek): “GM had $21 billion in cash at the end of June. The company has a further $5 billion in available credit and cash and plans to save $10 billion from cost cuts. Assuming GM can also tap $5 billion to $7 billion in federal loans that the federal government has approved, GM has up to $21 billion in excess liquidity on top of the $14 billion it needs to run the company… Given GM’s cash-burn rate of more than $3 billion a quarter, the company has five to seven quarters before it gets down below the bare minimum it needs to buy parts and keep factories humming, Lombard says. GM’s best bet is to tap the government’s loan program and hope the market turns up.” Not to mention hunkering down. Oh wait, that too. “Several sources inside the company say GM is looking at product delays to save cash, hoping the company can weather the weak economy and liquidity crisis and make it through to 2010. All but essential programs are at least getting a review, the sources said. Even the next-generation Chevrolet Malibu could be on the table. GM wants each of its cars to get a makeover every 5½ years, but it may have to stretch that to 7½ years for some models to stay in the black. A GM spokesman says the company is delaying some product programs but that nothing major has been held up yet.” Stay in the black? What black? Anyway, that’s not exactly how I remember it…
As Edward Niedermeyer reported earlier today, the re-organization plan for Delphi pegs the bankrupt parts maker and former GM division’s worth at $7.2b (down from $12.8b). Delphi’s “valuation” is ridiculous; the company is still highly dependent on GM’s biz. Banking on GM is like entrusting a quasi-governmental lender to Rep. Barney Frank. To wit: today’s market cap for General Motors was under $5b, after the American automaker’s stock tumbled to its lowest level ($8.24 a share) in more than 54 years. Bottom line: Delphi is unlikely to emerge from bankruptcy; it will be liquidated. Meanwhile, let”s hope misery loves company; Fitch Ratings downgraded Ford’s credit to GM’s sub-basement level: CCC. Oh, and Fitch dropped Ford Motor Credit to the same rating (explaining Mazda’s decision to cut bait and fish with their own auto loan sources). Bottom line: the credit crisis is hitting GM and Ford (and Chrysler) at both the sharp end (auto loans) AND the macro-level (access to working capital). The center will not hold.
The Detroit Free Press’ Mark Phelan is one of Motown’s most reliable cheerleaders. So it was no surprise when Phelan gushed all over the new Ford Flex back in August. “The 300,000-plus people who used to buy Ford Explorer SUVs every year are the group who will decide whether the Flex experiment pays off. If 80,000 to 120,000 of them year plunk down $35K or more for the Flex, Ford’s future immediately starts to look brighter.” Notice the if? Ah, but then… “It should.” Anyway, big whoop. Phelan does this shit for a living. But why did fellow Freep Sarah Webster shiv Phelan in this morning’s paper? “Boxy Ford Flex isn’t selling as expected in brutal market” is the most ambivalent mea culpa I’ve ever encountered (other than Richard Nixon’s remarks to David Frost). Phelan’s fellow scribe starts by cataloguing the carnage. “Earlier this year, {Ford marketing maven Jim] Farley said Ford hoped to sell between 70,000 and 100,000 of the Flex crossovers annually. At its current selling rate, though, Ford would sell about 24,000 a year.” Then she recaps Phelan’s positive review, and other positive reviews, and customers’ positive reviews. So what gives? Bad marketing! Cue Farley’s black-is-white PR thing: “Farley said the market conditions are so bad that it’s tough to tell how the Flex would be selling otherwise. Putting aside the lower-than-expected sales volume, Farley said the Flex has actually been a success.” In other words, the operation’s a success but the patient’s dead. Focus people! Focus!
Silicon Valley vs. Detroit for THE CAR OF THE FUTURE. Nice story. Geeky David vs. Creaky Goliath. Only building a car is one thing. Building a hundred thousand is quite another. And not only did Tesla fail to build the first customer car anywhere near its oft-delayed deadline, but its production is still a lot closer to single digits than triple. But hey, a Prius is a gas-guzzling hog in comparison with Tesla’s car. Apparently. Anyway, Leslie Stahl applies some serious journalistic chops to the story, reporting that the Roadster travels [an unconfirmed] 200 miles between charges and requires four to thirty hours to rejuice. Hey did GM Car Czar Bob Lutz say Silicone Valley? I’m not sure. But Leslie’s happy to say “crock of shit” on TV– which is more than Maximum Bob was willing to do re: his opinion on gflobal warming. But Stahl’s real F-bomb comes when she glibly provides a reason why Silicon Valley might have the edge over Motown: “But Detroit is broke.” Ethanol industry types must also have choked on their Manhattans when Stahl pronounced corn juice a last big thing. And for what it’s worth, Bob Lutz stakes his reputation on the Volt.
Yes, British funnyman Jeremy Clarkson’s knee-jerk anti-Americanism jerks my chain. (If it’s supposed to be funny, how come I’m not laughing?) But, anti-elistist that I am, Ride Lust’s contribution to the top ten genre– “Top 10 Everyday Things People Do To Ruin Their Cars“– is worse. Vito Rispo’s dietribe [sic] begins by dissing the geography skills of what Bill O’ Reilly oleaginously refers to as “the folks.” “Two thirds of all Americans aged 18-24 cannot find Iraq on a map; 33% couldn’t identify Louisiana; 47% couldn’t find India; 75% think English was the most widely spoken language in the world. People are idiots, and this isn’t a uniquely American phenomenon, it’s worldwide. The majority of human beings on Earth are stone dumb. Being dumb, most people do dumb things, like unknowingly destroy their car.” English “was” the most widely spoken language? It’s my firmly held belief that people are like any other animal: exactly as smart as they need to be. No more, no less. Anyway, I challenge TTAC’s Best and Brightest (hoisted by my own elitist petard!) to point out the fallacies within Mr. Rispo’s riposte. Or is that rip post?
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