Imagine your sell someone a house. It’s hard to imagine, I know, but humor me. You settle on a million. You sign. Papers are shuffled, titles researched. Three months later, at the closing, you get  a check for $780K. Imagine there’s nothing you can do. Your lawyers are shrugging their shoulders. $220K poof, gone. The same happens every day in international trade. Welcome to the strange world of world currencies. You sell something in Euro, Yen, Won or Rupees. You ask: “How much is that in real money?” And a few days later, it’s all changed. Such is the life of a global automaker.

Japanese automakers are increasingly anxious about the high value of their Yen. Sure, their holidays and green fees in Hawaii will get cheaper. But when the yen is high their profits from abroad evaporate.

For eons, one Yankee dollar was worth more than 100 Japanese yen. In August, the dollar cost 110 yen. A week ago, it was down to 87 yen. The change spills yet more red ink onto Japanese automakers’ ink-saturated books. Against the Euro, the picture is bleaker still. But the Japanese don’t have as much exposure to the Euro as to the greenback.

Toyota is especially jumpy: “High up among Toyota’s problems is the recent surge in the yen against the dollar and euro. Every ¥1 gain against the dollar results in about a ¥40b plunge in profits at Toyota. While the company made its initial forecast based on an exchange rate of ¥100 to the dollar, the US currency appears trapped around the ¥90 level, a 13-year low,” writes the Manchester Guardian.

If you don’t like thinking in yen, here’s the translation [via Business Week]. “For every one yen strengthening against the dollar, Toyota’s operating earnings are reduced by over $450m.” According to CNNMoney, “Toyota expects losses of about $2.2b due to currency exchange rates alone.” Meaning: If the darned yen wouldn’t have surged suddenly, Toyota would still make a small profit, instead expected losses for fiscal ’08 between $1.5b to $1.7b.

Yoichi Hojo, COO for business management operations of Honda, told the Nikkei [sub] “If the exchange rate remains firmly below 90 yen to the dollar, and depending on the number of vehicles we export from Japan, then there is a possibility our consolidated operating profit for fiscal 2008 will be less than the projected 180 billion yen.”

Hojo’s comments also highlight the fact that the exchange rate is a major driver in whether they’ll build cars at home or abroad. “If the exchange rate remains below 90 yen to the dollar, it would be advantageous for us to increase overseas production, and we would be forced to cope with the issue of reducing the labor force at our domestic plants. On the other hand, if the yen significantly weakens, we would have to increase domestic production and reduce costs at our overseas production bases.”

Locating, building and ramping-up of a new car plant takes many years. Who dares to predict where the dollar, euro, yen will be three years from now? If anybody would have predicted in July that the yen, the currency of that non-growth, zero-interest country Japan would appreciate against the Euro by 33 percent within three months, that person would have been committed. Only to be released four months later and bestowed with the Nobel Prize in Economics.

“So yes,” says CNN Money, “the news is history-making and head-turning from Toyota. But it also paints a gloomy picture of how deep Japan’s recession will be and how tough it will be to recover.” Again, the bulk of the loss doesn’t come from Toyota’s weakness, or the weakness of the market, but the strength of the Japanese currency.

All is not lost for ToMoCo’s honchos. The yen rose from 100 to the dollar (at which it is in the books of most Japanese auto companies) to 87 to the dollar in just six weeks, The Japanese fiscal year usually ends in March. With a little luck or some adroit central bank intervention, the dollar may be worth 100 yen again in March, and Toyota would be profitable.

Japanese officials all the way up to Finance Minister Shoichi Nakagawa have dropped hints that an intervention is possible. Nakagawa told reporters in Tokyo ten days ago that he has “the means” to limit the yen’s strength and is “keenly watching” developments in foreign-exchange and other financial markets, as well as the economy. Since then, the rhetoric’s got louder. But there’s been no intervention yet.

According to Bloomberg, the last time Japan intervened on its own, it sold a record 20.4 trillion yen in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen strengthened to 103.42 per dollar.

“I am surprised the Japanese haven’t intervened,” said Dennis Gartman, economist and editor of the Gartman Letter in Suffolk, Virginia. “Intervention to weaken your currency can be very effective.” Especially between the holidays, when the markets are thin. Or in March, when it’s desperately needed.

My parents had many ways to traumatize me during my childhood holidays. Perhaps the most effective: taking me downtown to donate a hundred bucks to the local Ronald McDonald House. Don’t get me wrong; the charity could well be the best (only?) reason to eat a Filet-O-Fish. But a hundred bucks? That kind of money could have bought two copies of “Star Raiders” for the Atari 800. As it turns out, I’m not the only spoiled brat to resent a bit of charity, as the following Christmas list proves. It’s straight from my top-secret sources at the North Pole: a complete recap of what the more fortunate manufacturers are asking Santa for this year. We’ll start with Toyota.

“Dear Santa, we want a sack of Tundra tailgates that don’t bend when Americans sit on ‘em. We would also like some more of the green fairy dust that keeps the mainstream media from focusing on our ten gas-guzzling truck and SUV nameplates, while continuing to praise us for knocking out a couple hundred thousand hybrids every year.”

Maserati. “Dear Santa, you don’t have to bring us anything. Just take our remaining stock of 2008 Quattroportes and give them to someone deserving. Someone really wealthy, who can afford the service. What’s Mrs. Claus driving these days?”

Mercedes-Benz: “Herr Claus, please would you use one of those Men-In-Black neuralizers (a.k.a. flashy things) when you’re over our North American market. Get everyone to forget this ‘living within your means’ rubbish. Oh, and can you please remove memories of the first-generation ML320? Bitte.”

Mitsubishi: “Santa, we’d like a lump of coal. And a list of every Evo that’s ever run an autocross, so we can cancel all the warranties at once.”

Nissan: “Dear Santa, we’d like all the money back that we spent on that ‘From the Same Mindset’ ad campaign. It turns out that Murano customers don’t care about the GT-R’s fender vents after all. In exchange, we’ll look after something small and feeble that needs a new home. How about Chrysler?”

Porsche: “Dear Santa, we’ve been a bit naughty recently around the hedges (you know what we mean). But if we’re still on your list, we’d like the serenity to accept our massive profits, the strength to continue making grenade-like water-cooled engines, and the wisdom to convince our customers that the 911 is really worth half again as much as a Cayman.”

Subaru: “Dear Santa, we’ve just discovered that one of your elves is the guy who styled every Impreza since the year 2001. Please deliver him to us for a nice warm Christmas dinner. We’ll take care of the rest.”

Honda: “Dear Santa, we need  100k more transmissions for the Acura TL and CL, more mechanics to supplant the single full-time guy most Acura dealers have changing them out fifty hours a week. Also, some more alphabet soup to help us name our new vehicles.”

BMW: “Dear Santa. Can we please have a gift certificate for liposuction, plus another five thousand dollars per unit in 2009 to continue stuffing our lease programs with subvention like a drunk construction worker puts dirty singles in a daytime stripper’s thong? That is all.”

Bentley: “Dear Santa, don’t worry about us. Just stick bags of cash under the trees of rappers, professional atheletes, misguided car collectors and the guys in Brussels who make the rules about CO2 emissions.”

GM: “Dear Santa, Peace on Earth, good will to us. P.S. Who knew you delivered early?”

Chrysler: “Dear Santa, Please can we keep that cloak of invisibility another year?”

Ford: “At this point, we’d just like a chance to continue making the strongest lineup of domestic cars and trucks in modern history entirely on our own, without the constant fear of supplier failure, residual-value collapse, crucifixion in the business press, Stockholm-syndrome Southern senators, suicidal UAW demands, and know-nothing bloggers who swear up and down that they would crawl over broken glass to buy a ‘Euro Focus’ while studiously avoiding doing so much as opening the door of a Saturn Astra. Also, it would really, really be nice if people stopped calling our now-discontinued wood-side luxury pickup truck the ‘Black ‘N Da Hood’. Thanks.”

Last Friday was a good news day for Detroit. No, I’m not talking about President Bush’s loan package. That wasn’t so much good news as a stay of execution, with a case on appeal. And it wasn’t shadenfreude. What joy can anyone in the auto biz take from the reports that previously invincible Honda is losing money and cutting production? Or that Prius sales are down 50 percent, Toyota has suspended work on their proposed Prius plant in Mississippi, and the company will have a loss this fiscal year, the first in 71 years? No, the good news came, from all places, The Michigan legislature.

The august body passed legislation funding projects that could help the city of Detroit recover economically. What got the most attention, both from the general media and from car folks: a $288m dollar plan between the state, the city of Detroit and Wayne, Oakland Macomb counties. The partnership will improve and expand Cobo Hall (by 166k sq. ft.) to provide more space for exhibitors and allow Detroit to keep the North American International Auto Show (NAIAS). The refreshed and enlarged Cobo will join the newly renovated Book Cadillac hotel in the effort to increase Detroit’s convention business.

The legislature also funded a 3.5 mile light rail transit system to link the New Center area and downtown. This will also help convention business, as well as nurturing the nascent development along the Woodward corridor in recent years.

Otherwise, meanwhile, let’s face it, it hasn’t been a good year for the Detroit auto show. Nissan/Infiniti and Mitsubishi dropped their factory displays. Porsche, Land Rover, Ferrari and Rolls Royce pulled out entirely, That’s notwithstanding the success of last year’s “Gallery” program, which gave hundreds of well-heeled guests from around the country a private showing. A marketing event that racked-up a reported $3m worth of luxury car sales.

In a speech to the Detroit Economic Club, NAIAS’ senior co-chairman acknowledged the “dire times” facing the auto industry. Joe Serra sold the silver lining, asserting that the departing manufacturers had opened the door to other companies who wanted in. In fact, Serra said the total number of exhibitors on both floors will increase by two, and there will be more world premieres this year than last.

Still, this year’s NAIAS will be a low-key event. The New York Times reckons you can tell how the domestic auto industry is doing by the size of the shrimp at the Detroit auto show media preview. This year, swag shrimp of any size will be few and far between. Chrysler will forgo their usual showbiz introductions; all the manufacturers will have simpler displays. They’ll be fewer pretty girls, less glitz and more focus on product and business plans.

That said, the incrementally increased number of exhibitors will be displaying cars of particular interest to enthusiasts. The Bugatti Veyron will make its first ever NAIAS appearance. Lotus will have its first factory NAIAS display.

The success of the Elise and derivatives, as well as Lotus’ involvement in the development of Chrysler’s EV sports car, makes a NAIAS booth for Lotus a natural idea. Technology partner and electric car pioneer Tesla will have also have its first Detroit auto show factory booth, hawking their lithium-ion-powered Roadster. Self-appointed Tesla CEO Elon Musk will be speaking to the Society of Automotive Analysts at a NAIAS related event on January 13.

Also on the electric car front, Chinese automaker BYD plans to use the NAIAS to introduce a serial hybrid with a 60-mile batteries-only range. BYD produces about 25 percent of the world’s cell phone batteries, so they may have a leg up on other manufacturers’ electric plans. China’s Brilliance Auto will display for the first time. Along with BYD, Brilliance will be the first Chinese manufacturers to display on the main floor in Detroit.

Meanwhile, there’s other game afoot. To keep Michigan in the running for tomorrow’s battery technology, the state legislature approved a tax credit package intended to make the state a national center for the development of batteries for transportation. The bill will provide up to $335m in tax credits from 2001 to 2016.

Legislators and Gov. Granholm hope that the tax credits will help Michigan businesses access the $1b that Uncle Sam’s investing in battery research. While it would be better if the news was about private sector investment instead of government funding, it’s nice to see the state and federal government offerring local industry and innovation a helping hand.

“La plus belles des ruses du diable est de vous persuader qu’il n’existe pas.” Baudelaire, straight out of The Usual Suspects. And while the world focuses on the usual suspects of the auto-industry collapse, something odd is happening over in a shadowy corner: Honda is running scared. It’s been less than four months since the Civic sold more than fifty-two thousand units in a single month, toppling the almighty F-150 from its two-decade-long run as the best-selling vehicle in the United States, but if anybody at the Big H is celebrating, they’ve apparently decided to hide their exuberant light under a bushel of program cancellations, production cutbacks, and a panicky sale of their backmarking F1 team. Why? Surely, if anybody’s in good shape to survive the coming catastrophe, it’s Honda; they have the small cars people “want,” unimpeachable planet-friendly credentials, and a solid base of non-union production. What’s causing them to huddle behind their hurricane shelters? The answer’s simple: when it comes to Honda, reality is very, very far away from the public perception.

Americans are accustomed to thinking of Honda, Toyota, and Nissan as being the “Big Three” of Japanese auto production. Not quite. Honda sells more Civics in the United States than they do cars in Japan. A quick troll through Honda’s annual report reveals a corporate iceberg: The tip: Japanese-market auto and motorcycle sales. The nine-tenths below the surface: North American cars-– and Chinese scooters (by unit volume are Honda’s best-selling products).

More than any other Asian automaker, Honda’s fortunes are tied to the United States. The collapse of the American auto market would effectively turn back the company’s clock to 1970, making them once again a small-time producer of two-wheeled vehicles for emerging markets.

So what? Honda’s the small car company! Surely, they’ll benefit more than anyone else from the recession-that-isn’t-quite-yet-a-depression? Not so fast…

When Honda began producing Accords in Ohio twenty-six years ago, all of their cars were smaller than a Chevrolet Citation. Today, the upmarket versions of the Accord tip the scales at close to two tons, while the Civic is bigger than BMW’s 135i. The 2009 Fit is certainly small, but in stick-shift form it can’t even match the Chevrolet Cobalt XFE or (gasp) Ford Focus for EPA highway mileage.

Time for that iceberg analogy again: the public image of Honda in the United States is as a purveyor of small, fuel-efficient models, but the bulk of their sales happen below the water with the Accord, the Acura TL, the forty-five-hundred-pound Pilot and the Cyclops-sized Odyssey. Nor could Honda quickly change their Marysville, Ohio and Lincoln, Alabama plants over to small-car production; these facilities are built around Accord-width vehicles and would require a nontrivial investment of time and money to retool.

Faced with a market which preferred the Fit to the Acura MDX, Honda might just do the easy thing and bring Fits in from their Chinese factories, allowing them to scale back US production to the bare bones.

Honda has plenty of money in reserve– over nine billion dollars in cash and investments. As we’ve seen in the past few months, it’s easy to burn through billions of dollars if you can’t move the metal. Some of that money will also be needed to expand motorcycle production for the Chinese market, and you can bet that, given a choice between spending money in a collapsing American economy or making money in an expanding Chinese one, Honda’s board of directors will choose the sure thing.

While relatively adventurous by the standards of other Japanese companies, Honda doesn’t like to take any risks which aren’t absolutely necessary to its survival.

That same relentless pragmatism has informed Honda’s indifferent attitude towards its enthusiast owner base in the past decade. It has now been a full decade since Honda introduced a new sporting vehicle for the American market. The S2000, introduced to compete with the BMW Z3 and first-generation Boxster, now faces the second-generation Z4 and the second variant of the second-generation Porsche. The Acura NSX, fresh from the indignities of a bug-eyed facelift and a mercy killing, is now officially an orphan.

When times are good, Honda doesn’t do much for their biggest fans; when times are tough, it does nothing at all. The company which powered the mighty Ayrton Senna to three World Championships has just abandoned his nephew Bruno in its ignominious quick-march backwards from Formula One, an unfortunate coincidence that emphasizes Honda’s unsentimental attitude towards the men and women who are fans, not merely owners.

In a perfect world, Honda’s reaction to an economic crisis would be the creation of exciting, enthusiastic cars that met the needs of the economist, the enthusiast and the environmentalist in one brilliant design. It’s happened before: the 1989 Civic Si that I am contracted to drive in NASA’s endurance-race series next year is a prime example of a car that was all things to all small-car buyers. Today’s tubby Civic, lumbering beneath the burden of half again as much weight as its predecessors, isn’t the car for the job, and two-ton Accords won’t carry the company very far into a fuel-starved twenty-first century.

Perhaps the new Insight will be the answer to Honda’s problems. I suspect it will be nothing more than a pale Prius copy. The next generation of Honda cars needs to recapture the tradition of those brilliant early Civics and Accords. More importantly, the company needs to recapture its bond with its most fanatical owners. Without that bond, well, another quote from The Usual Suspects: “And like that, poof. He’s gone.”

It’s that time of the year when industry pundits [usually] run out of news. Normally, this leads to retrospective reflection and informed speculation. The autoblogosphere has been pretty bad at this, of late. They missed  carmageddon more or less completely, treating Detroit’s BS like the Lord’s own gospel. That said, TTAC has offered its share of botched timelines and devil-may-care details. One nice, unforeseen twist: Ford. CEO Alan Mulally flew in from Seattle and kicked some Blue Oval butt. As a result, I give FoMoCo a chance of making it– albeit a shot rather than a dead cert. Ford must withstand the fallout to come, as GM and Chrysler head for bankruptcy. Now that’s for sure– regardless of the automakers’ progress on Capitol Hill of Pennsylvania Avenue. While I’m at it, I’ll go out on a limb and make some more predictions for 2009.

Near Term – Next Few Months

I repeat: the U.S. federal government will bail out Detroit. Despite the Republican Senators’ moaning and groaning and defeat of the first go-around, the money will head for Motown– even though the bailout billions only delay the reckoning day for a few months. Plenty of TTAC fodder ahead as we watch GM and Chrysler try to negotiate with their creditors and the UAW.

GMAC will avoid going bankrupt– barely. The debt exchange hasn’t been going down well with bondholders; it’s now on its last iteration with plenty of sweeteners. But they’ll make it across the finish line. GMAC will convert to a bank holding company and voila! Another government bailout via TARP. Too bad its base of principal customers– GM dealers and their car buyers– is gonna be much smaller. And soon. Another bad deal for Cerberus. No tears here.

Auto sales will still suck. Yep, the entire first quarter will be a disaster for everyone. More dealers will fail; at least a thousand. All manufacturers will cut production. Again.

Transplants’ fear of the UAW organizing their plants has disappeared. Their workers know for certain that union affiliation has zero benefits (as if it ever did before). The Republican bailout bill mandated that Detroit blue-collar working stiffs get paid the same as Toyota workers today, not in the future. In the next Congressional go-around, the Republicans will stick to their guns on their “wage parity” demand. So why would transplant workers consider organizing and give two hours a month of pay for union dues and get nothing in return? Answer they wouldn’t.

Toyota and Honda will furlough employees.

Ford’s MY2010 Fusion will get [more] rave reviews. Three years since the launch of the Hermosillo trio, Ford’s redesigned and reengineered C/D mid-size vehicle will be hailed as a true competitor to the Camcord duo. FoMoCo’s four cylinder EcoBoost will provide more power with better fuel economy than any engine from the Japanese. And the Fusion hybrid, with its US-sourced technology, will officially beat the pants off Toyota’s hybrid. Only problem: low gas prices mean no one will care.

Mid Term – Next Spring/Summer

Assuming the government steps up this week with a federal grant (a.k.a. loan) now, GM and Chrysler will go belly-up later. Over the winter, the financial situation at both companies will worsen, and the cash burn will increase. There’s not enough emergency money in the government kitty. Worse, the attempts to get reorganized outside of bankruptcy will fail miserably; every single creditor will want a better deal. The UAW will show its real intentions: no sacrifices. “We already gave.”

The car czar will have no enforcement power to make the deal work. And even if he does, the cuts required will be so drastic that they border on ridiculous (at least outside of bankruptcy).

Cerberus will refuse to support Chrysler. It will go straight to Chapter 7.

Congress will step in with Debtor-in-Possession (DIP) financing for GM. Expediting the bankruptcy, cutting out any negotiation in the bankruptcy process among creditors, will be allowed as a “national matter.” Some will cry foul, but Obama will take the lead from his “bully pulpit.” Hard to argue with the President – makes you look bad.

The biggest losers will be the bondholders – the hedge guys get their knees chopped off in the non-negotiated reorganization. Amazingly, GM will still believes it can support its multiplicity of brands. Thankfully, Rick Wagoner will resign (forced out) and take rest of the Board with him to Aruba. The new CEO will call the game: Chevrolet and Cadillac are the “go forward” brands. The Swedish government will take on Saab (and Volvo from Ford). Every other GM brand will die.

Ford will get close to seeking government assistance, but instead tap its credit line. Ford will count on picking up sales as Chrysler folds, especially in the truck business. CEO Alan Mulally will decide not to replace Chrysler’s foregone rental fleet business with his own vehiclesl he will figure that nameplate devaluation will be too severe. GM will jump on with the business along with Hyundia, Kia, Nissan,and Toyota. But Ford will have a new problem: GM’s cost basis will be lower than Ford’s.

Long Term – Fall

Ford will negotiate a partial debt for equity swap with its debt holders. The deal will dillute current shareholders but the possibility of prosperity is on the horizon. Mulally will keep the Ford jet and his paycheck. Time will name him “Person of the Year.”

GM will undergo a painful restructuring. The dealer body count will fall drastically. Half of GM’s labor force will get shown the door, with little compensation. The UAW’s health care VEBA superfund will get stock in the new GM but little cash. It will be enough to give UAW retirees full health care coverage short term, but it will only be a promise for the future. Ouch.

Parts of Chrysler will find their way to other car companies. Mostly to GM, which will get the minivan business. Ford will scarf the Jeep brand but only pick up the Wrangler. Nissan will pass on the Saltillo truck plant, rightly  figuring it can never compete with Ford, GM and Toyota in the pick up market.

As the credit crisis passes, car sales will rebound late in the second half of 2009. But to everyone’s chagrin, car prices actually increase, forcing folks to “trade down.” This plays right into Ford’s 2010 playbook with its line up of well-equipped small cars.

What say you?

Many have been guessing what annual U.S. car sales would amount to this year. Some confused souls predicted sales as low as 10m. J.D.Power now has the pretty firm conviction that the year will end with 13.2m light vehicles sold for the year in the United States, down 18.5 percent from 16.2m in 2007, says the Automotive News (sub) who received an e-mail from J.D.Power. However, the big slump happened in the last 4 months. For the last 4 months, monthly sales were under 1 million. Total light-vehicle unit sales will hit 870,000 this month, down 37 percent from December 2007. Now THAT’S bad. That puts the seasonally adjusted annual rate to 10 million light vehicles in December, down from 10.3 million in November. Now THAT’S even worse. The rate had not fallen to 10 million since October 1982. Meaning: The worst is yet ahead. If the non-buying trend continues, the confused souls will be right next year and we could see only 10m units sold in 2009. China wanted to sell 10m units in 2008, a target they will not reach. With a little luck, and an economic stimulus program that works, China could make the target next year and, horror of horrors, turn into the world’s largest auto market.

PS: According to the China Association of Automobile Manufacturers (CAAM), Chinese auto makers produced about 8.7m automobiles and sold more than 8.6m from January to November. They will close out the year in the mid 9m.

TTAC could have saved Congress a ton of time and billions of dollars if the politicos had just read these pages over the last few years. We’ve diagnosed the patients, begged them to seek help, outlined some cures, and prayed that our worst fears would never be realized. And yet, here we are – in the midst of the biggest industrial meltdown of all times for the US auto industry. So again, we’ll just try to neatly summarize the actions that Congress needs to take now. It’s not pretty, probably isn’t politically correct, and will piss off a whole bunch of people. We’re hoping to influence you – our audience – to spread the word to ensure that Congress makes the right moves. After all, this is a democracy. The press – which includes TTAC – can make a difference in getting to the truth, and that’s what Congress needs to know today.

The U.S. needs its own, viable automobile industry. Ignore the fact that there are foreign companies assembling vehicles in the South (mostly). Assembly is just one link in the entire chain of automotive production. The first chain starts with design and engineering, and that comes from both the automaker and its supply chain. More than ever, that’s really a high-tech skill, with more software, “smart parts” and intellectual property than ever before.

That skill set needs to stay here with Americans, not outsourced to foreigners. There will be a new future in personal transportation.  One that depends on new powertrains, energy sources and design. And the U.S. cannot afford to fall behind. It would be the same as watching foreign-made movies without our Hollywood.

Having said that, it’s not “Big Three” or bust. There shouldn’t be a mindset that says Congress needs to make an “all or none” decision. Each company needs to be measured on its own merits, in the same way that Bear Stearns was “rescued” while Lehman was fed to the wolves. And our analysis recommends a different “bail out” formula for each– not a “one-size-fits-all” solution.

For starters, if Cerberus Capital doesn’t care to provide Chrysler with the capital it needs, the automaker should just disappear. Cerberus is a private equity group with extremely deep pockets. When it purchased Chrysler from Daimler, owner Steven Feinberg claimed his company was in it for the long term. It was a blatant lie. But Mr. Feinberg should live or die by his word. If Cerberus wants to save the company, it should be on its own nickel, not ours. Chrysler has no business sidling-up to the public trough. None.

But worse, Chrysler’s resurrection plan contains nothing more than a bunch of promises, none of which can be realized. There are no “future” products of merit– just redesigns of a bunch of lousy vehicles in its already weak product portfolio. its new Phoenix engine family can’t make bad design and cheap interiors sell better. Why would anyone think that Chrysler’s immediate future is going to be any different that its immediate past? This company was gutted by Daimler and Cerberus, leaving it with no ability to engineer future products without alliances or partnerships. But again, it should be up to Cerberus to make the call, not the taxpayers.

GM gave Congress another “muddle through” plan, an attempt to preserve as much of the kingdom as possible. It’s ridiculous to believe that getting rid of HUMMER, Saab, and Saturn will allow its executive team to better focus on the remaining brands and products. GM never spent a shred of effort on Saturn or Saab for the past 15 years. And Pontiac as a “niche” brand? Talk about a distraction.

But the hubris of GM to even suggest that the Volt and hydrogen fuel cell technology will work at any time in the near future stretches the limits of credulity to breaking point. How dare they suggest that “Flex Fuel” vehicles will make a difference in sales, especially if the ethanol subsidies go away (as Prez-elect Obama has stated)? No one cared before, and they won’t in the future. Making more hybrid vehicles– 15 models by 2012-– when the current GM hybrids barely sell today, makes no sense. GM’s plan is a sham.

GM’s comeback depends entirely on its ability to preserve its market share AND recapitalize the balance sheet through a massive debt exchange. And the UAW has to make some key concessions too, especially on the VEBA and JOBS Bank. GM’s Congressional submission is a “bet on the come” that this will all happen. GM wants the so-called “Oversight Board” to do the dirty work of forcing the cram-downs. That’s not their job– but it puts the onus on the Government, not management, to make the hard decisions. If GM CEO Rick Wagoner and the Board of Directors had a set, they’d be telling these parties exactly what they need to do– or else.

Congress should tell GM to go away and come back with a real plan. A plan that outlines exactly what happens to HUMMER, Saab, and Saturn and when. It’s not enough to say “strategic review,”  kill Pontiac and be done with it.

As for the financial side, GM should not come back to Congress unless and until it has signed agreements from its lenders and the UAW. Real, live contract terms. A pro forma balance sheet that independent business brains can analyze to see if it make sense. Only then Congress can and should determine whether GM is worthy of financial assistance.

The big pill: whether Congress can trust Rick Wagoner and the current BoD with public money. To which the obvious answer is no. GM needs new executive leadership; the current plan proves beyond a shadow of doubt that this is the case. As it stands now, GM’s leadership still doesn’t understand that the company needs a thorough overhaul. The plan presented doesn’t even get GM where the company should have been a few years ago. It’s more of the same: promises without guidelines, goalposts or accountability.

Unlike the other two Detroit companies, Ford has executed on its plan. While Ford has stabilized its market share, and we have seen its future in America when we look to Ford Europe, the $9b question remains: will U.S. consumers will buy into smaller Ford vehicles at higher price points?

Congress should extend a lifeline to Ford. The company has demonstrated executive leadership competency to make necessary reforms, a comprehensive product plan and achievable fuel efficiency gains with existing technologies. As we’ve said before, there are no guarantees that this plan will work. But that’s a business and timing risk, not a bunch of empty promises.

In summary, Chrysler needs to look to its owners for money. GM needs a real plan and Ford needs careful oversight and a firm time limit. But above all, Congress needs to realize the difference between intervention and enabling.

Detroit’s financial predicament today rests squarely on the shoulders of its executive leadership going back nearly four decades. The American auto industry failed mostly in its will to succeed in a changing business environment marked by the entrance of new competition, adoption of new technologies, and demands for greater fuel efficiency. Had Detroit taken those actions necessary to be leaders, rather than laggards, its overall situation of falling market share, reputation for poor quality (in comparison to certain foreign competitors like Toyota and Honda mostly), and weakening financials might have been avoided.

The automotive industry undergoes significant changes as measured over any ten year period. Each decade since the beginning of the automotive era starting in 1900 has witnessed rapid and unpredictable volatility due to market forces, economics, new technology, and more recently, vehicle production economics and global competition. This has tested the ability of each auto company to adapt to these elements of change. The equity markets place a premium on those auto companies that have organizational, product and production flexibility to best respond. No forecaster can accurately predict the most basic aspects of the industry from the actual sales volume of the next decade to the model mix and market share distribution or profitability from any individual automobile manufacturer. Over the last 100 years, auto companies succeeded or failed on the appeal of their vehicles, their corporate resources and the talent of their managements, which reduced the field of U.S. assemblers to only four (GM, Ford, Chrysler, and AMC) some forty years ago from a much larger field of competitors.

But in the forty years since then, profound and rapid changes in the US domestic auto market have occurred unlike in the past. Two factors stand out: oscillation in energy prices and the growth of foreign brands. And in response to both, Detroit failed. It could not repel the Japanese invasion as a result of the first and second oil crisis in the 1970s with its lack of will to build competitive small, fuel efficient vehicles. Then, as imports grew in scale and scope of product offerings, Detroit looked elsewhere for profit opportunities without fixing its core North American auto business.

At the same time, Detroit often blamed a host of factors beyond its control for its shortfalls. To wit, currency manipulation, rising health care costs, unfair trade, and labor intransigency would be cited. But the sad fact remains that Detroit is still losing market share as consumers gravitate to the import brands. Strangely, it is not a matter of pricing – Detroit vehicles, especially in passenger cars and CUVs, are less expensive to acquire than those from mainstream competitors. The Wall Street Journal recently ran a story documenting the price differential between the Honda Civic and comparable offerings from Detroit.

Now with GM’s and Chrysler’s admissions of impending failure, a firestorm of debate has erupted as to whether Detroit is deserving of government assistance. That is not the question. In fact, there should be no debate as to whether the United States, as a modern economy, should have its own domestic automotive industry. Without it, we sacrifice our ability to determine our own solutions to future transportation needs. In fact, the current crisis offers a historic opportunity to complete recast the direction of this industry to prepare it for the future. It now remains a question of how many US automakers will make it to the next decade and who should lead them.

I submit that the US should have two remaining auto companies: General Motors and Ford. Chrysler is not viable as an auto company as it lacks future product development capabilities having its engineering capabilities mostly gutted by Daimler and Cerberus.

General Motors does have prodigious engineering talents worldwide which it can leverage. What’s been missing has been executive will to apply this talent to its North American business in recent decades. Only recently have we seen a slow rejuvenation of some products, but the overall portfolio of vehicles remains too broad and non-descript. “Too little, too late” might be the most apt description. In addition, the company has never addressed its multiplicity of overlapping brands, vehicles, and dealers. All of its efforts so far have mostly been to reduce installed production capacity.

With any government assistance to GM, one key requirement should be for wholesale reform of its Board of Directors and top executive management team. They should all be jettisoned for their failure to address known and obvious problems. This is not an ad hominem attack; rather the results of the business in North America over the last forty years mostly prove the point. What’s needed are new executives willing and enabled to make those hard decisions, not beholden to the past practices and culture within this giant corporation. Giving money to executives schooled in the past is no recipe for future success.

Ford Motor Company was, until 2006 and the arrival of Alan Mulally as CEO, in exactly the same situation as GM today. But as an outsider, Mr. Mulally took a fresh look at the company and its operations. By the time of his arrival, Ford had implemented the first of its “Way Forward” plan – which was to reduce installed capacity. But this would prove to be ineffective. Instead, Mr. Mulally outlined his “One Ford” plan – which jettisoned extraneous brands (Jaguar/Land Rover already and Volvo soon) while integrating vehicle platforms between Europe and America. Moreover, with new executive talent recruited from other auto companies/distributors, Mr. Mulally has reoriented his management team with fresh thinking.

Ford, unlike GM, does not face immediate prospects of demise (barring a bankruptcy of General Motors). It has outlined for the industry a view of its future, its new products, and the expectation that by 2013, there will be 100% commonality of its European and American platforms. I credit Bill Ford Jr. with understanding his company’s need to place a skilled executive at the helm, with the full backing of the Board to make the painful but requisite actions. So in Ford, we have seen an example of how a change in top leadership can make a difference – though profitable results may be years off and interim government financing may be necessary.

So for the American auto industry to survive and prosper, we need Congress to understand that importance of a domestic auto industry. Second, Congress should recognize that it too must make some hard decisions with taxpayer money. This would be to allow Chrysler to fail and be sold in pieces to others. It must also recognize that labor cannot be protected to any more degree than other creditors. Jobs will still be lost; VEBA’s underfunded for the time being. Third, Congress needs to craft a funding program tailored to the needs of the remaining two automakers. In the case of GM, even without a bankruptcy, a complete recapitalization and restructuring of the company must occur. This will require new leadership at the Board and executive management levels with the will to succeed. And Ford just needs time and a little bit of money.

If you think about flying to Stuttgart tomorrow, better book now. It will be a full house tomorrow at Porsche’s annual “Bilanzpressekonferenz.” The presentation of annual numbers to the press. At this confab, the information-hungry media will be fed with finger food and glossy brochures, drowned in champagne and a sea of PowerPoint charts. Why would anyone be interested in a small maker of sports cars that was nearly bankrupt when Wendelin Wiedeking took over? How did P.J.O’Rourke put it so nicely? “In the gutter in front of the razed crack houses was a brand-new Porsche 928 flipped on its back and wadded like Kleenex.”

That was then, this is now. Now, Wiedeking promises to reveal his timetable for the takeover of Volkswagen. “Waitaminute,” I hear you say. “Don’t they own VeeDub already?”

Not exactly. Currently, Porsche holds 42.6 percent of the common stock of Volkswagen. It is also written that Porsche owns 31.5 percent in VW options, strike price and time to expiration unknown. Will Wiedeking say tomorrow when they’ll finally go for the whole shebang? We doubt it. Will they go over 50 percent this year, as planned? Will they go to 75 percent soon as rumored? We believe, Wiedeking will keep everybody guessing. Despite the fact that Porsche is rolling in money, they are Swabian.

Swabians are rumored to be Scots who had been extradited for being too stingy. Wiedeking already said that he will only buy Volkswagen if the stock isn’t too high. Of course, this was forgotten when, last month, the VW share traded above €1000, due to adroit machinations by Wiedeking and his CFO Holger Härter. The definitely non-dummkopf duo had engineered the classical short squeeze. Hedge funds all over the world unwittingly financed Porsche’s takeover of the world’s third largest auto maker.

Die Welt already calls Porsche “a bank with a subsidiary that makes cars.” Wiedeking’s take-home salary is widely guessed at $100m a year, not quite in Wagoner’s league, but close. And considering that G.M. sold 9.4m units in 2007, while Porsche sold a measly 98K of what P.J.O’Rourke called … but you know that by now. What makes the difference: Porsche had a pre-tax gain of €8.6b last year, on sales of just €7.5b, whereas Wagoner … but you know that by now. Will we know tomorrow where Porsche is going?

At the peril of repeating ourselves: We don’t think so. If Volkswagen would be a regular German company, and if Porsche would own 75 percent, then Porsche could book all of VW’s profits as theirs and rule Wolfsburg from Zuffenhausen. But there is that nasty “Volkswagen-Gesetz” which precludes the Porsche power grab. It gives the State of Lower Saxony (holder of 20.1 percent of VW’s shares) veto power. Brussel said it’s illegal. Berlin passed a new “Volkswagen-Gesetz.” Brussels says it’s still as illegal as the old one. Brussels wants to take Berlin to court over it. But the wheels of justice will grind a few years before the matter is settled. Then, there are the workers. The workers are represented in the Supervisory Board and tend to ally with the State of Lower Saxony in matters of keeping jobs and money in Lower Saxony. So, if you would be Porsche, why buy more shares than necessary? Would go against the grain of any true Swabian.

Last Friday, the Supervisory Board of Volkswagen convened, Ferdinand Piech presiding. Piech is part of the Porsche clan, but thickheaded. When Wiedeking suggested that Piech’s pet projects, like the Phaeton or the Bugatti should make some money, Piech was not amused. At Supervisory Board meetings, Piech’s vote is never a given for Porsche. This time, Piech didn’t even need to intervene: The Porsche clan wanted to kill a committee that controls (and in Porsche’s eyes, torpedoes) “business relationships between stockholders” – meaning, at the moment, dealings between Porsche and Audi. The Porsche faction couldn’t get rid of the pesky committee. The factions representing the unions united with the factions representing the State of Lower Saxony and said “nein.”

“Labor representatives forced Porsche to seek board approval from the special committee each time it planned a cooperation with VW’s luxury unit Audi — a potential rival to Porsche’s own business,” said Reuters. “The move to keep the committee came as a surprise on Friday, since Porsche less than a month ago said Volkswagen’s chairman Ferdinand Piech would table a motion to dissolve the committee.” Volkswagen, a world full of surprises.

The committee remains. It will be “optimized.” In VW’s euphemism factory, “optimize” usually stands for “eliminate.” Such doesn’t seem to be the case this time. If Porsche wants to do business with Volkswagen or Audi, or, lo and behold, influence anything (such as Audi’s sports car aspirations,) Porsche must ask the committee. And the committee, loaded with representatives of the unions and Lower Saxony, will go: “Tut-tut, bad boys.”

It looks like there will be many more chapters to this never-ending saga. It doesn’t look like the timetable revealed tomorrow will have many high speed trains in it. At least there was another bit of good news for Porsche today: The Volkswagen stock lost 13 percent at noontime. The VW stock sold for €286.69 at noon. Well on its way to become affordable, even for a Swabian. Automobilwoche asked an analyst of the Norddeutsche Landesbank, and he thinks, €100 or lower would be a fair price. Wendelin Wiedeking would probably agree.

The most ardent fans of Detroit accuse those who don’t buy domestic cars of being disloyal, if not downright un-American. But loyalty only makes sense when it runs in both directions. And Detroit has not been loyal to Americans, whether they be its workers, its suppliers, or its customers. But, assuming General Motors and Ford survive the current crisis, it’s not too late. Let’s focus on car buyers. What might Detroit do differently to deserve our loyalty?

Well, a few things. But the most significant would be providing customer care that deserves the name. Most of those who refuse to “Buy American” do so because they were burned by an “American” car, sometimes multiple times. In these cases, not only did the car require too many repairs—which was bad enough in itself—but the manufacturer did little or nothing to accept responsibility for the design or manufacturing defect and take care of the affected car buyer. If Detroit does nothing to assist car buyers when design or manufacturing defects lead to expensive repairs, then why should car buyers support Detroit when it needs assistance?

Some of Detroit’s apologists pretend that these experiences occurred decades ago, with cars like the Vega and Pinto, and that at this point Detroit deserves to be forgiven. This simply isn’t true. Operating TrueDelta’s Car Reliability Survey, I continue to learn of new horror stories. And in the past five years I’ve had the misfortune to experience both Ford’s and Chrysler’s “customer care” first hand.

In one case, a 1996 Ford Contour V6 lost compression in three cylinders at 66,000 miles. I learned from an insider that the most likely cause was a known engineering defect. When engineers had learned of the defect a few years earlier, they had recommended recalling the entire model year. Management had balked because of the potential cost; instead, they had authorized only a partial recall. My car fell outside the dates of the recall. As a result, the recall was not performed, the known failure occurred, the engine was badly damaged, and I took a big hit when I traded the car.

In the second case, the wheels on a 3.5-year-old 2002 Chrysler PT Cruiser (wife wanted one) required replacement because they corroded so much they could not form an airtight seal with the tires. Then the torque converter grenaded, taking the transmission pump with it, with only 52,000 miles on the car. Then the control arm bushings failed. Chrysler picked up half the cost of the wheels, and none of the cost of the other repairs.

Of course, neither company had a legal obligation to pick up any of these repair costs. After all, the warranty had expired. But, when a warranty is strictly enforced, the implication is that the car buyer accepts responsibility for any design or manufacturing defects that reveal themselves after the warranty expires.

Put another way, the car buyer is forced to bet on the quality of the manufacturer’s work. It has not served Detroit well to force car buyers to decide whether or not to place this bet. More and more Americans have “left the casino” after losing this bet a time or two. When speaking with Ford’s and Chrysler’s “Customer Care” people, I presented this logic. I asked them what they’d do if they had to choose between picking up the cost of the repair and losing a customer. Both said they’d rather lose the customer.

Customer care deserving of the name wouldn’t mean paying for any and all repairs indefinitely. But whenever a known design or manufacturing defect results in thousands of repairs, it’s time for the manufacturer to accept responsibility and cover the costs. And not on a case by case basis—they already do this much—but as a matter of publicly-stated policy. A reasonable trigger might be a failure rate of 10 percent before 100,000 miles, or 20 percent before 120,000 miles. As long as cases are decided arbitrarily rather than by such a clear, publicized rule, confidence in the manufacturer won’t receive much of a boost.

Now, it’s not clear that Detroit’s customer care is significantly worse than that of foreign manufacturers. Horror stories exist for any model, foreign as well as domestic. Oil sludge in Toyotas and failing transmissions in Hondas come to mind. But Toyota and Honda aren’t desperately in need of car buyers’ loyalty at the moment. General Motors and Ford are. (Chrysler’s independent existence is all but over at this point.) Pretending that horror stories are all in the distant past isn’t going to do the trick. If Detroit wants earn forgiveness for its sins, and regain the loyalty of American car buyers, it must put what little money it has left where its mouth is and provide customer care that can be counted on.

So, the Motown millionaire’s beggars’ banquet blew town, retreating from Washington’s corridors of power to their Detroit lairs to lick their wounds. To say the CEOs of Chrysler, Ford and GM were unsuccessful in their televised attempts to “liberate” $25b from the Troubled Asset Recovery Program would be like saying the Detroit Lions are struggling to get to the Superbowl. In many ways, it was over before it started. The CEOs arrived woefully unprepared, and left with admonishments to return next month after, how do I put this delicately, getting their shit together. House Speaker Nancy Pelosi and Senate Leader Harry Reid switched into CYA mode. As part of their campaign, they’ve written a letter to Detoit, telling that what needs doing the second time ’round. Having secured a copy of this missive, TTAC contacted our own Ken Elias to read between the lines on your behalf. As the automakers run out of cash, it all comes down to this.

November 21, 2008
Dear Messrs Wagoner, Mulally, and Nardelli:

Ronnie G. – You have no standing at the table. Get lost. You should have killed the JOBS bank years ago. Yea, we love your union dollars but you’d vote for us anyways.

We recognize the importance of the domestic automobile industry and are committed to working with you to ensure its viability in the years to come. One in 10 American jobs is related to auto manufacturing; our national security depends on the industry’s technologies and manufacturing capacity; and our competitiveness in a global economy depends on its pursuit of excellence.

Boiler plate mostly, just shows that Congress does care…kind of.

As you know, Congress has provided President Bush, the Chairman of the Federal Reserve, and the Treasury Department the authority they need under the Emergency Economic Stabilization Act (EESA) as well as other authorities to provide short-term financial assistance to the auto companies.

If Bush was your friend, you might have convinced him.  But he didn’t act, thank god.  That would have been truly stupid to give your companies money with no strings.  See below.  You’ll have to stick with the Dems now, and we’re going to prove to the public that we aren’t just “tax and spend” liberals.  There’s a new sheriff in town boys.

Unfortunately, the Bush Administration and the Federal Reserve have thus far declined to use their powers to improve our nation’s financial stability by assisting the auto industry. Notwithstanding existing authorities, this Congress is prepared to consider additional legislation that would give the assistance you seek, provided that you submit a credible restructuring plan that results in a viable industry, with quality jobs, and economic opportunity for the 21st century while protecting taxpayer investments.

Dems will take credit, not Bush. Just another chance for us to stab Bush. God I hate that man! We’ll blame him for not funding you guys…although it’s clear from this letter that you flunked the test we gave you in your first go around at the well. It took a lot of chutzpah to come in Gulfstream jets and ask for money.

In order for Congress to act in a timely manner, this plan must be presented to Congress by December 2nd, specifically to Senate Banking Committee Chairman Christopher Dodd and Financial Services Committee Chairman Barney Frank.

These Committees already grilled you. Think it’s gonna’ be any easier this time?

It is critical that you meet this deadline since we have announced we are prepared to come back into session the week of December 8 to consider legislation to assist your industry. We intend to give pertinent agencies within the executive branch, the Government Accountability Office, the Board of Governors of the Federal Reserve, as well as outside experts, the opportunity to comment on your work.

Yea, we’re going to get other people involved in reviewing your plans. Like folks who can read an income statement and balance sheet. And the big question is “who are these outside experts?” You don’t want to know since none of them will have ever been on your payrolls.

The plan must:

• Provide a forthright, documented assessment of the auto companies’ current operating cash position, short-term liquidity needs to continue operations as a going-concern, and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability as they retool for the future;

You’re going to give us a current cash balance as of November 30th and tell us in plain English how much cash you need to keep the lights on. That’s all the money you’re going to get.  And I know that none of you can get additional financing for a turn around. So either get your lenders and everyone else who you owe money take a lot less cash, or else file for bankruptcy. Yea, that’s right. Even though I said that’s a last resort, well, it is.

provide varying estimates of the terms of the loan requested with varying assumptions including that of automobile sales at current rates, at slightly improved rates, and at worse rates;

Don’t show Congress a plan based on a wing and a prayer of some “normalized” sales rate. This economy isn’t turning around any time soon. And smart people, like TTAC, have told my aids that you can’t possibly become profitable at 11MM SAAR. So do what you need to do…no matter how much it hurts. Hey Bob Nardelli – I remember what you did to those workers at Home Depot, cutting their wages while enriching yourself. And you thought I forgot!

• Provide for specific measures designed to ensure transparency and accountability, including regular reporting to, and information-sharing with, any federal government oversight mechanisms established to safeguard taxpayer investments;

No more hiding for Cerberus. And since the taxpayers are the public, you’re going to have to show the world that you’re really not the smartest guys in the room. Heck, we’re squeezing you so tight that you might have to liquidate Chrysler.

protect taxpayers by granting the most senior status for any government loans provided, ensuring that taxpayers get paid back first;

The only way to do this is to get approval from your senior lenders. For them to allow this, they’ll want a plan that works too. But if you’re going to ask for subordination from your lenders, you might as well ask them for a debt for equity exchange. This is your opening for the cram down. Don’t blow it now.

• Assure that taxpayers benefit as corporate conditions improve and shareholder value increases through the provision of warrants or other mechanisms;

Dilution to current shareholders for sure.

• Bar the payment of dividends and excessive executive compensation, including bonuses and golden parachutes by companies receiving taxpayer assistance;

Limit CEO compensation at $1MM/year.  And Rick you should probably quit now, your arrogance in front of the committees was just too much to bear. Asking a Senator if he could guarantee when the economy would come back…what balls! I’m giving you a chance to take that parachute today.  Just go away. Nardelli, you agreed to a dollar salary, so just do it. I feel bad for Mulally, he made a deal to leave Boeing, and he’s probably worth the money having inherited a mess he’s been asked to clean up. But the public will insist on a salary cap – so do it.

include proposals to address the payment of health care and pension obligations;

That’s right, the UAW needs a cram down too on the VEBA. Learn to live with the same benefits everyone else gets (except us of course). And we want those pension obligations funded out of current operating cash flow – don’t show us a plan where taxpayer dollars fund those obligations.

• Demonstrate the auto companies’ ability to achieve the fuel efficiency requirements set forth in the Energy Independence and Security Act of 2007, and become a long-term global leader in the production of energy-efficient advanced technology vehicles; and

The Greens are holding you accountable to your promises. I’m also telling you that the funding mechanism will be out of the Energy Department funds we already appropriated – which means a limit of $25 billion total to be put out by the government. The Republicans won’t challenge us too much as there’s no new money involved. And if that’s not enough dough for GM or Chrysler to have a go forward plan, then you need to figure something else out.

require that government loans be immediately callable if long-term plan benchmarks are not met.

It means the government can force a bk any time it wants. Get over it.

The auto companies’ shareholders, business partners, and prospective benefactors—the American people—deserve to see a plan that is accountable to taxpayers and that is viable for the long-term. In return for their additional burden, taxpayers also deserve to see top automobile executives making significant sacrifices and major changes to their way of doing business.

Yo’ Rick W.  Wake up…that means you. Change your business in a big way now.

The auto companies’ shareholders, business partners, and prospective benefactors—the American people—deserve to see a plan that is accountable to taxpayers and that is viable for the long-term. In return for their additional burden, taxpayers also deserve to see top automobile executives making significant sacrifices and major changes to their way of doing business.

Get it now?  Sacrifices. Major changes in how you do business – like restructure now. This will force the cramdown at GM and it might just liquidate Chrysler. It’s what needs to happen, and most of the public will think we did the right thing and not blow their money. Ford – you sure you can really make it as you’re capitalized today? You better have a good case.

We look forward to working with you to ensure a viable American automobile manufacturing sector for decades to come. If we are successful, we can ensure a brighter future for the automobile industry, our nation, and our planet.

Now having read this letter, if you can’t see Obama’s hands in this, then you’re really stupid. Don’t think the Messiah will treat you any better – because THIS IS HIS PLAN!

Thank you for your prompt attention to this matter.

Prompt means by December 2nd, don’t stall.  I really don’t want to call Congress back but I’m willing to do it IF I see you made some really big changes – and got your creditors and the UAW to contribute. Capiche?

Sincerely,
Nancy Pelosi Harry Reid
Speaker of the House Senate Majority Leader

There may be another nasty aspect to the bailout: a full-scale trade war, launched by countries that don’t (or even do) bail out their auto industries themselves. Bloomberg writes that “a U.S.-triggered spate of global carmaker-bailout proposals may spark trade disputes over whether the Americans are unfairly trying to subsidize their industry.” Egged-on by the US bailout money that may, or may not, or may, or may not be in the offing, manufacturers all over the globe are holding up their tin cups. At the same time, the European Union threatens to lodge a complaint against any U.S. bailout on the grounds that it’s unfair to the auto makers in the rest of the world, not to mention Renault, Fiat, Volkswagen, Daimler, BMW et al. China also may complain, although their complaints will ring a bit hollow, as the government owns most of the big automakers already.  Probably won’t stop them. “Now that we are in the WTO, we might as well use it.” Payback is a bitch.

The U.S. has long bitched about foreign governments subsidizing their industries. Airbus comes to mind. GM, Ford and Chrysler never missed a chance to kvetch about unfair state-financed health-care, retirement benefits, currency policies and whatnot. (Did they/could they build American products specifically tuned to these “exclusionary” markets at a price the locals could afford? China JVs excepted, they did not.) During his presidential campaign, Senator Obama complained that South Korea created disadvantages for American car makers– even as GM imported Korean-made Aveos to bolster their otherwise impoverished small car lineup.

If you think that all this xenophobic, America-first rhetoric was lost on foreign automakers and governments, think again. An American bailout package will be taken apart– and to court–  if it violates WTO rules. How could it not? Under these rules, certain kinds of subsidies are allowed. For instance those to protect the environment (hence the additional green sheen on most offers of green). Other subsidies–specifically the alteration of the U.S. Department of Energy’s fuel-efficiency -oriented $25b loans for “liquidity-enhancement”– are completely against WTO law.

If other countries do give bail money, then it’s “stones and glass houses,” according to Garel Rhys, professor of automotive economics at Cardiff Business School in Wales “Everybody has been at this game for their own interests; nobody is pure.” Anti-bailout-warfare could be complicated by the industry’s web of cross-border subsidiaries. Imagine: Germany closes down Opel in retaliation to US bailout of GM, and then sends money to save Opel’s jobs. War is hell.

However, the European Union’s antitrust chief Neelie Kroes admonishes the bloc’s 27 nations to avoid the “costly trap of a subsidy race” that would give some countries unfair advantages. If his warnings are heeded, the coast would be clear for a backlash against American bailouts. As noted in today’s WAS, Ford Germany is not eager for government Euros. Even Opel did a sudden 180, and said they didn’t really mean it. Any politically motivated bailout, such as from Opel’s home state Hessen, could be withdrawn with no political backlash: “Brussels made us do it.” Noses clean, Europe could use the WTO to kick Detroit while Detroit is down.

Already, proponents of intergalactic trade warfare are building a fifth column stateside. David Littmann, economist for the Mackinac Center for Public Policy in Michigan, calls the U.S. bailout a “hypocrisy at the economic level and the political level. We tell others to open up their markets and reduce barriers, and we are doing the opposite.” A WTO wrench thrown into the slow-moving gears of Washington. What’s the next chapter in that saga? Chapter 11? Or skip back to Chapter 7?

Loans and leases are getting hard to come by for anyone interested in a car or truck from GM, Chrysler or Ford. Banks now routinely put out lists with “red lines” through makes and models they no longer want to finance. Those products are increasingly domestic in origin.  Redlined vehicles are harder to sell, forcing down values, rendering loans even more unattractive, making those cars and trucks even harder to sell, forcing down… you can see where this is going. Major lenders in the US are not waiting for The Big 2.8 to file for bankruptcy. They’re treating them like it’s a done deal.

To be fair, the money supply has tightened for everyone– whether you’re buying a Maytag or a Mitsubishi. Credit scores of 750 used to mean no problem, your car will be ready in a hour. That’s no longer the case. Banks have become mice at a falconry tournament, and it’s not hard to see why. They never really knew what their mortgage tranches were worth, and that bit them good. They thought they knew what SUVs were worth. Ouch again. Twice bitten is what? Four times shy?

SUVs and trucks first caused banks to uncap their red pens way back in the beginning of 2008, as gas prices began deflating values. By July, independent lenders like NBT Bank shut off leases for a litany of vehicles, citing gas prices as the raison du rouge. Their list included the still decent selling Porsche Cayenne and went on: No Ford trucks or SUVS, Chevrolet SUVs or Toyota SUVs. Then they started to broaden their negative horizons. No Chryslers, Jeeps, Hummers, GMCs, or Cadillacs. A little lending war had begun with Detroit. While this seemed extreme at the time, other money men followed suit, though not always with the same card.

Bank of America, for instance, does not say no. It’s more like not so much. They cut back on the amount of money they will front for certain vehicles. For example, last year you could finance 120 percent of the cost of your Suburban. This year, 110 percent. While this doesn’t seem too draconian, it’s yet another way of making some products harder to buy than others. Again, those hard-to-buy cars and trucks are turning out to be domestics.

Other lenders, like U.S. Bank, take yet a different approach. On November 1, they hiked their rates on Chrysler, Dodge and Jeep products, across the board. Unsure of what those products might be worth six months, let alone 48 months, from now, they’ve gotten skittish. They now rate Chrysler iron high-risk and price their loans accordingly.

The net result of turmoil in Detroit, then, is more turmoil. Timorous lending has been across the board, but that affects domestic more than foreign marques. Reason one: as has been reported here frequently, a lot of the car-oriented money men (e.g. GMAC) had notoriously louche lending standards.  If a dealer had someone with shaky credit, that customer was pointed towards more Cobalts than Civics.

That’s over. The playing field has been leveled.  Whether or not a lender is playing favorites, there is no more easy money. An advantage that was Detroit’s is lost.

Reason two: money for trucks and SUVs constricted first and most severely. GM, Chrysler and Ford were (and are, relatively speaking) more dependent on these products than their competitors, both in terms of market share and return on investment. So Toyota loses, but The Big 2.8 lose bigger.

Reason three: new vehicle buyers– and there are still millions of them– are choosing a foreign car over a domestic because the transplants are “saved by zero.” Now is the time nul points financing can really move the metal. And now is the time the domestics can’t offer it. Here, Detroit doesn’t just lose, one of the competitors gains. They get to watch market share shift.

The biggest hit to Detroit is in the area of confidence. Banks are competitive. They don’t all get together every couple of months and decide to simultaneously screw a couple of major US corporations. They are each arriving at the same conclusion separately. GM, Ford and Chrysler products are difficult to value.  The only safe thing to do: cover the bet. Even better, stay away completely.

You can hardly blame the average consumer for taking the same stance. Mainstream cars and trucks are mostly fungible. If you can’t get bought on a Malibu, step this way. Hows about a Camry/Ultima/6/Accord/Galant/Sonata/I’m probably-forgetting-a-few? For most people, the differences just aren’t that noticeable when compared to whether or not the company’s around this time next year. As a selling point, that probably ranks up there with the AUX jack, number of cup holders and ideas about patriotism.

So, if Wagoner, Nardelli and Mullally are worried about perception, they can now relax. The stench of bankruptcy has already set in, and set in good.

Informa Global Markets (IGM) “is a world-class international supplier of real-time news and analysis to market professionals in the fields of foreign exchange, sovereign fixed income and corporate bonds.”  It’s the stuff brokerage houses and investment bankers pay a lot of money for in order to look smart with their clients. Would definitely bust TTAC’s budget. Some of my friends in high finance still hold a job, and one of them (you know who you are) was nice enough to forward me yesterday’s IGM “Markets At Midday” issue. Reads like “Markets At Midway.” With the appropriate ending: The bad guys lose.

The issue deals with – you guessed it – our least favorite topic: GM. And what a blow it deals. The usually dryly written report starts with a headline that could have been typed by a tasteless scribe like yours truly: “Forget The TARP, Get A Body Bag”

The piece chronicles yesterday’s plummeting GM share price; it sank to a low not seen since the last Great Depression. It continued to fall to a penny off its all-time historical low: $1.69. That’s what a share of GM was worth on June 4, 1938 (a Hershey bar went for a nickel the same year.) The report further recounts yesterday’s rebound– to $3– on the news that a bipartisan group of Senators from states afflicted by the motor malaise reached a tentative deal on a bailout package. Three bucks a share would have bought 30 packs of Oreos in 1938; we’re talking major value here.

The analyst, and they are paying them big bucks for taking a contrarian view, doesn’t share the newfound optimism that rallied the share. The writer singles-out United Auto Workers boss Ron Gettelfinger. (We take a somehow broader approach, but hey, it’s still a free country.)

“Consider these ironies. According to Mr Gettelfinger, it takes 78 workers to produce 2,500 cars at GM, while at foreign manufacturer’s plant it only involves 33 workers. According to one auto analyst, last year when GM closed a plant in Linden,NJ, they were obligated to carry those idled workers on the payroll for an additional 40 days. It is estimated that every single car that rolls off the assembly line costs US automakers $1,500 to $2,000 in legacy costs.

“Why? Because of the same Mr. Gettelfinger who is figuratively blackmailing the government into expanding the parameters of TARP. The same Mr. Gettelfinger who, while wanting the taxpayers to save the Big Three, is unwilling to renegotiate terms of the union contracts. The same Mr. Gettelfinger who, over the years, has sucked the US auto industry dry to the point that you can no longer get blood from a stone.”

Gettelfinger doesn’t appear to be on the analyst’s Christmas list. And v.v. As bad as it is, all is not lost. Apparently.

“But while there is strong opposition on Capitol Hill to dip into the already-approved loan to jump-start the green, fuel efficient initiative, there are certainly others ways that, if absolutely necessary as Mr Gettelfinger maintains, to, not bail out, but lend aid to the auto industry mired in 20 years worth of mistakes.”

Unlike three private-jet-friendly CEOs we could name, the analyst has a plan to save the industry while appeasing those who are against “lending a helping hand to an industry that has literally driven itself into the ground.” He lays down five “suggestions and requirements for the automakers to receive $25b in aid.”

1) “Let them declare bankruptcy before handing over a dime.” It would keep GM alive, and allow them to reorganize, renegotiate contracts and raise capital. The latter would be a bit tricky, given the dire straits of the credit market. Hence the government loan.

2) “Let, or force, GM and Chrysler, or better yet, all three, to merge.” Cut costs, workforce and eliminate a glut of non-selling models.

3) “Replace top management at all three automakers with turnaround specialists.” Specialists with a proven track record. A track record which the analyst says the current executives don’t have. In other words: Fire them.

4) “Trim the workforce to the level of their foreign competitors (33 versus 78 per vehicle).” This in a last ditch effort to “save most of the 3m jobs that Mr. Gettelfinger says would be lost.”

5)”Instead of trusting the automakers to make good use of the $25b, a government-appointed trustee should dole out the funds.”  Some of the bailout bucks should go to dealerships to keep them afloat. Some should be used for a buyer incentive program (the discriminating, but non-discriminatory writer suggests $3k for a hybrid and $1k for a Tahoe.) Some should go into a government-guaranteed warranty program “to quell the fears of consumers buying a vehicle from a bankrupt company.” (Think FDIC for cars.) And, finally, “Take the liability of the pension and health care expenses of retirees off the hands of the automakers.”

[Unwritten, but obvious to the not so innocent bystander amongst IGM’s subscribers in the sovereign funds and private equity field:a company that underwent all five of the above would be a very juicy target for people with real money.]

“Don’t forget the toe tag,” the analyst’s piece ends.

Minutes later, the report was on the desks of market professionals in the fields of foreign exchange, sovereign fixed income and corporate bonds. But even as the analyst typed his last lines (remember, it was a mid-day report), the news broke that the bipartisan boondoggle was dead. GM’s stock promptly shed several Oreo packs (at 1938 prices) and closed at $2.88.

While Detroit News columnist Daniel Howes gently chides Motown’s hometown heroes– even as they continue to bleed to death all over his carpet– The Washington Post’s Dana Milbank kicks the Big 2.8’s CEO while they’re down. But good. The WaPo scribe warms-up with a few gentle toe jabs, simply repeating the Big 2.8’s testimony regarding their recent travel arrangements. “There’s a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands,’ Rep. Gary L. Ackerman (D-N.Y.) advised the pampered executives at a hearing yesterday. ‘It’s almost like seeing a guy show up at the soup kitchen in high-hat and tuxedo. . . . I mean, couldn’t you all have downgraded to first class or jet-pooled or something to get here?” Fortress Detroit please note: no one mentioned the rejuvenating possibilities of a “convenient plane crash.” Oops.

“I’m going to ask the three executives here to raise their hand if they flew here commercial,’ he [Ackerman] said. All still at the witness table. ‘Second,’ he continued, ‘I’m going ask you to raise your hand if you’re planning to sell your jet . . . and fly back commercial.’ More stillness. ‘Let the record show no hands went up,’ Sherman grandstanded.” After this extended session of petard-related self-hoisting, Milbank really puts the boot in…

“It was a display of stone-cold tone-deafness by the automaker chiefs. In their telling, they have no responsibility for the auto industry’s current mess. Threatening the nation with economic Armageddon if they are not given government aid, they spent much of the session declaring what a fine job they’ve been doing in Detroit.”

Ay, there’s the rub. As the old Jewish expression goes, if you’re so smart, how come you’re not rich?

TTAC identified this dilemma from the git-go. Our Ken Elias exhorted the execs to “man-up” and tell the truth. But how could they do that? Admitting failure publicly would be like admitting failure publicly. In the “pay no attention to that man behind the curtain” culture of Detroit, admitting weakness is like cutting open an artery in shark-infested waters. Or allowing Dorothy to douse you in a bucket of water. Or letting yourself get hit by a freight train. If you catch my drift.

Back to Daniel Howes for a moment, for it’s clear that even Detroit cheerleaders understand that there’s a disconnect between the CEO’s Pumba-like prevarications (“you gotta put your behind in your past”) and their abject inability to sell a brighter future to their intended public benefactors.

“Added Rep. Gary Ackerman, D-N.Y.: ‘When my wife has a problem with the foreign car she drives, they bend over backwards for her. You all aren’t responsive to your customers. You don’t want to put your last tourniquet to a dead guy. Tell me what’s going to be different in three months.'”

The fact that Howes doesn’t even bother to list their reply, or answer the question on the CEOs behalf is, perhaps, the most telling part of his commentary. In this Howes mirrors Motown’s progress through the stages of grief. They’re out of denial, asking the right questions of themselves. But they’re just now entering the bargaining phase. Acceptance and hope is a long, long way off.

Meanwhile, that bridge loan to a brighter day is about to collapse. If it hasn’t already.

As in any great tragedy, the fundamental flaw that’s assured Detroit’s doom is hubris. Right from the the beginning of this do-or-die bailout campaign, GM’s Rick Wagoner decided to be the smartest guy in the room. His newly developed eye twitch betrayed his suprise that his machine gun bullet point assault failed to find its mark. Not to mention his accountant’s inability to grasp the bigger political picture.

“When Rep. Paul Kanjorski (D-Pa.) tried to find out when GM would run out of cash, Wagoner hemmed and hawed until the lawmaker protested that “I don’t quite understand what the hell you just told me.” When Rep. Ed Perlmutter (D-Colo.) asked about GM’s outlook for the quarter, Wagoner informed him that “we don’t provide financial guidance in earnings.” Would Rick talk that way to a “normal” banker, as opposed to, say, the United State taxpayer? The sad part: yes, he would. The even sadder part: they listened. Well, right until they didn’t.

And them Milbank absolutely buries the troika of bailout beggars.

“So it was hard to feel sorry for the executives when Rep. Peter Roskam (R-Ill.), late in the hearing, reminded them again that “the symbolism of the private jet is difficult,” and mischievously asked the witnesses whether, in another symbolic gesture, they would be willing to work for $1 a year, as Nardelli has offered to do.

‘I don’t have a position on that today,’ demurred Wagoner (2007 total compensation: $15.7 million).

‘I understand the intent, but I think where we are is okay,’ said Mulally ($21.7 million).

‘I’m asking about you,’ Roskam pressed.

‘I think I’m okay where I am,’ Mulally said.”

Think again, boys. Think again.