This is not what I expected. Sure, I got the bankruptcy bit right. Big deal. Better analysts than I were making that call back when I was playing with Corgi toys (another car company destined for the scrap heap). But I never thought Uncle Sam would nationalize GM. Ace commentator PCH101 will tell you it’s all in good fun: a temporary government intervention that gives taxpayers a shot at recovering some of the tens of billions [we shouldn’t have] spent keeping the zombie automaker alive. Or at least postpones GM’s inevitable dissolution for a less financially fraught finale. But I reckon politics will rear its ugly head, create a distortion field around GM’s carmaking business and kill any hope of GM surviving in any way, shape or form. The acid test: the Chevy Volt.

Holman Jenkins offers his analysis of the Motown meltdown under the TTAC-usurping title “The Truth About Cars and Trucks.” According to the Wall Street Journal scribe, we should blame the current domestic auto industry implosion on the United Auto Workers’ (UAW) monopoly on Detroit production. Oh, and the manipulation of federal law to protect same. I think. “For three decades, the Big Three were able to survive precisely because they skimped on quality and features in the money-losing sedans they were required under Congress’s fuel economy rules to build in high-cost UAW factories. In return, Washington compensated them with the hothouse, politically protected opportunity to profit from pickups and SUVs. Doesn’t sound much like what you hear incessantly from your Congressman, about how Detroit’s problems are all due to management ‘incompetence’ in deciding to build ‘gas guzzling’ SUVs, does it?” Uh, it kinda does. And I’d like to see a bit more detail on this assertion, please: “Washington’s latest fuel-economy rules actually reward manufacturers for increasing the size and weight of some vehicles.”

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Earlier today, I wrote an editorial about the U.S. Treasury Department’s plan to “sell” Chrysler Financial to former GM captive lender GMAC. Motive: Chrysler could continue to function (under union control, no less). The lender could keep lending money to ChryCo dealers to buy ChryCo cars. Means: what are you kidding? Your tax money. Opportunity: none. Well, legally. Legally, a Chrysler Financial–GMAC merger would imperil the bank, in direct contradiction of FDIC rules. Of course, the fact that GMAC is a bank in the first place is a violation of federal rules. OK, not technically. Technically, the Fed bent the rules for GMAC to qualify for bank status at the 11th hour, behind closed doors, screwing over recalcitrant debt holders but good. So anyway, I called the ChryCo Financial–GMAC merger a clusterfuck. (I know: I should stop sugar coating my analysis.) Turns out I had no idea how bad things are over at GMAC. But CNNMoney does . . .

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As part of Viability Plan III, GM announced its intention to close 42 percent of its bloated dealer network, reducing the number of stores to 3,600. That’s a cut of 2,600 dealers. Our take on that part of that part of the new new new new new new new new turnaround plan: a Mandarkian laugh. American car dealers are covered by 50 states worth of franchise laws; politicians don’t get elected without the support of their local or state dealers’ council. Any dealer cull would have to wait for a bankruptcy judge. Nuff said? Apparently not. Wards’ Dealer Business reports that The General is laying the groundwork for an anti-dealer jihad, regardless of the “niceties” of C11.

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GMAC is a bank. It used to be a lender, to both the car and mortgage industries. And not a particularly good one. Or maybe too good. Or just right, if you were a sub-prime borrower looking for quick cash. GM owned all of GMAC, which was a cash cow. Right until it wasn’t. Just before the now-infamous sub-prime meltdown, GM was trying to cover-up its cash burn. So CEO Rick Wagoner sold a controlling share in GMAC to Cerberus, the same people who bought Chrysler. Flash forward to the waning hours of 2008. GMAC was about to fall into bankruptcy, dragging down Cerberus, Chrysler, GM and that funny-looking guy who used to be your landlord. So Uncle Sam stepped in—and how. The Fed relaxed its banking rules so that GMAC could become a bank, and, thus, hoover-up $6b worth of bailout bucks. After that, there’s some stuff about ending leasing, not lending money to car buyers, driving Chrysler and GM dealerships into C11, lending money to car buyers, etc. Up to speed? OK. So here’s the New Deal. . .

Bloomberg reports that Source Interlink has gone Tango Uniform. You may know Source Interlink as the publisher of Motor Trend, Automobile and [a claimed] 73 other publications. Not to mention [a claimed] 90 websites. Like the formerly octo-branded GM, Source Interlink simply bit off more than it could chew—and then discovered there wasn’t enough to eat. “The company listed debt of $1.9 billion and assets of $2.4 billion . . . US magazine advertising revenue in the first quarter fell 20 percent from a year earlier, according to the Publisher’s Information Bureau, an industry group. US auto sales tumbled 37 percent in March. Source Interlink hasn’t reported a profit since the second quarter of 2007.” This after spending $1.2 billion to buy a package of titles from PrimeMedia in 2007. As for the future . . .

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When the historians chronicle Detroit’s decline and fall, Daimler’s rape and pillage of the storied American car brand will merit an entire tome. In short form, the Germans came, they saw, they laughed, they lunched, they left. And when they left, they maintained a 19.9 percent share in the hollowed-out American automaker. Wishful thinking? Tax law? A codicil from Cerberus to allow Chrysler’s new masters to sue the shit out of the Germans if things went badly? In any case, thanks to The Presidential Task Force on Automobiles determination to reconstitute Chrysler as a worker’s co-op, by Friday, Daimler gets to see Chrysler implode from afar. [NB: So much for the “The Big 2.8”.] Bloomberg reports that Daimler will “cede” its remaining its stake in “former U.S. division” (ouch) to Cerberus Capital Management LP. More to the point, the “transaction” will result in a $700 million write down in the second quarter. Oh, and Daimler will “forgive” $1.3 to $1.7 billion worth of “loans” to Chrysler. And “contribute” $600 million to the US automaker’s pension plans over the next three years. Meanwhile, Daimler’s own haus is on fire . . .

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According to Automotive News [sub], the United Auto Workers (UAW) agreement with Chrysler/Fiat would deliver unto the union a 55 percent share of the reborn Italian – American automaker. As in the proposed (but doomed) GM bondholder offer, ChryCo union workers will forego a multi-billion dollar payment into their Voluntary Employment Beneficiary Association (VEBA) health care fund in exchange for the equity stake. In Chrysler’s case, $6 billion buys them controlling interest in Chrysler. That’s all kind of nuts on all kinds of levels. And as we’re in tail wagging the dog territory . . .

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Political posturing, trial balloons, PR positioning—savvy elected officials know that professional survival depends more on voters’ perceptions than actual accomplishments. And so, when Norway’s Finance Minister called for an end to the sale of purely petrol powered vehicles by 2015, it was a major miscalculation. Info consumers are hard of hearing; they perceived Finance Minister Kristin Halvorsen’s proposition as a general ban on all gas-powered vehicles (including hybrids) in six years. Halvorsen was forced into damage-control mode, “This is much more realistic than people think when they first hear about this proposal,” she told Reuters. The fact that no politician in their right mind would suggest such a thing clearly occurred to the plucky Norwegian: “Halvorsen knew of no other finance minister in the world who was even arguing for such a goal. ‘I haven’t heard about any ministers. I’m not surprised. We are often a party that puts forward new proposals first.'” That said, Halvorsen has been on the front lines of extreme ideology before; she was forced to rescind her call for a ban on Israeli-made products.

Dimmick, Chuck P.
born December 29, 1958 in Riverside, CA passed away suddenly on April 18, 2009 while attending a NASCAR race to watch his favorite driver, Jeff Gordon. Chuck was the loving husband of Kristen and devoted father of Dillon. Chuck was the Director of Marketing for the Lund Cadillac Group. We are sure he would still want all to know that 0.9% financing is still available on all New 2008 Hummer H2’s. A mass celebrating Chuck’s life will be held at 11:00 AM on Friday, April 24th at St. Patrick’s Church – 10815 N. 84th St. Scottsdale, AZ. Arrangements handled by Hansen Desert Hill Mortuary 480-991-5800. In Lieu of flowers, contributions may be made to the Dillon Dimmick Donation Fund at any Bank of America.

Whiskey Tango Foxtrot indeed. How could Toyota Prius, The Next Generation, not offer direct access to Apple’s technophile (technophobe?) gizmo? No USB paradise by the dashboard lights? True story, brought to you by PriusChat (motto: “Press our buttons”). “The USB integration won’t be available out of the factory until September, and it will only come with the Navigation option package that is available in the Prius III, IV, and V. Customers who buy their Navigation-equipped Prius before September will be able to have the USB kit installed at the dealer, but at their own expense. There are no specifics right now, but it looks like in September when the USB connectivity is added to the Navigation package, the price of the Navigation package will be going up. It hasn’t been established yet whether that price increase would be the same as the price a dealer will charge to install it, or if the dealer-installed USB will be more expensive.” It doesn’t take much Insight, or a Honda Odyssey without iPhone integration, to realize that this is a major marketing misstep by the ToMoCo. Did you know that Microsoft’s Zune can operate through your vehicle’s FM radio? Just sayin’.

The New York Times reports (and GM CEO Fritz Henderson’s comments at this morning’s press conference confirm) that the US treasury has plans to “own” GM. If the current bondholder offer goes through, “the Treasury and the UAW would own up to 89 percent of the company’s outstanding shares, while bondholders would hold no more than 10 percent and current shareholders would hold 1 percent. The Treasury would hold more than half of G.M. on its own and therefore have control over the election of its board of directors and other matters requiring the approval of shareholders.” A reporter brought up the fact that bondholders’ $10 billion debt swap would buy them 10 percent of the new GM, while the unions would get 39 percent for their $10 billion haircut. Fritz declined to address this issue—probably because there’s not a damn thing he can do about it. Of course, the offer won’t go through. But the principle will be established. And then, according to The Wall Street Journal, consummated in federal bankruptcy court.

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If 90 percent of GM’s bondholders don’t exchange, GM’s bankruptcy is a done deal. In other words, it’s a done deal. Or, as GM CEO Fritz Henderson said, it’s “more probable.” [Download pdf here.] How’s this for investor appeal? “If we seek bankruptcy relief, you may receive consideration that is less than what is being offered in the exchange offers and it is possible that you may receive no consideration at all for your GM notes.” And here’s a wrinkle TTAC’s Ken Elias has brought to our attention: the offer treats all bondholders the same, regardless of when their notes come due. “That’s because there’s no way to negotiate with different classes of bondholders outside of bankruptcy.” Ken reckons all of this is just window dressing: “They’re just softening-up the battlefield for a Chapter 11.” And here’s the really strange bit: GM’s stock went up 40 cents on the news. As Mandark would say, Haa ha haa, haa ha ha ha ha! Only, it’s not so funny, really.

GM’s new new new new new new pre-bankruptcy turnaround plan calls for a dealer cull to end all dealer culls. Until the next dealer cull. “Working with its dealers, GM anticipates reducing its U.S. dealer count from 6,246 in 2008 to 3,605 by the end of 2010, a reduction of 42 percent. This is a further reduction of 500 dealers, and four years sooner, than in the February 17 Plan. The goal is to accomplish this reduction in an orderly, cost-effective, and customer-focused way. This reduction in U.S. dealers will allow for a more competitive dealer network and higher sales effectiveness in all markets. More details on these initiatives will be provided in May.” Yes, how about those details? While “working for dealers” is clear code for a payday, there’s no way GM—and by that I mean you and me—can take the hit any such payoff would require. Or could they? The mind boggles.