Hakan Samuelsson thought he had it all figured out. In 2006, the CEO of German commercial truck manufacturer MAN schemed to take over his former employer and Swedish rival, Scania. He had the banks behind him. VW owned 30 percent of Scania; they had to agree to the takeover. And why not? Volkswagen had no use for Scania, as VW’s commercial truck division only operates in South America. So Hakan Samuelsson made a deal with Bernd Pischetsrieder, then head of Volkswagen. Unfortunately for Mr. Samuelsson, he talked to the wrong guy. Ferdinand Piech, the person pulling the strings over in Wolfsburg, had different plans . . .

Before we get to what happened, let‘s take a small detour and look at where Piech‘s story began.

In fact, let‘s begin with his grandfather Ferdinand Porsche, one of the most gifted engineers in the history of the automobile. Before he founded the car company that not only carries his name but also his title, Porsche was a freelance engineer. Amongst other things, Porsche constructed the first hybrid car in 1900, and, most significantly, the VW Beetle.

When Porsche got into legal trouble with Daimler-Benz over a contract in the 1920s, he hired Anton Piech, a young lawyer from Vienna. Piech soon became his son-in-law and, later, Porsche’s business partner. During the war years, Anton Piech headed the Volkswagenwerk G.m.b.H., the precursor of Volkswagen. After the war, he was CEO of the Porsche Holding, one of Europe‘s biggest car dealing networks, specializing in Volkswagen and Porsche cars.

No wonder, then, that young Ferdinand Piech grew up with a sense of entitlement. Like his grandpa, Piech became an engineer (he‘s proud that he‘s not one of those MBA guys running a car company). Piech‘s Master Thesis was on the development of a Formula 1 engine. When he entered the “Dr. Ing. h. c. F. Porsche AG” in 1963, he soon climbed in rank.

During his time at Porsche, Piech’s most noteworthy accomplishment was probably the development of the iconic Porsche 917 race car and Le Mans winner. Legend says that after the completion of the first prototype, he crawled underneath the 917 equipped with a magnet and wherever this magnet would cling to the car, he ordered his engineers to replace that part with something lighter.

By 1971, Piech was director of engineering and a hot prospect for CEO. However, dark clouds were gathering over Piech’s career. The Porsche and Piech halves of the family (each of which held 50 percent) became increasingly fractious. In 1972, the Porsche family decided that no family member (from either side) should be involved in company’s day-to-day operations. Ferdinand Piech’s uncle Ferry Porsche stepped down as CEO. All remaining family members also left the company for a back seat on the supervisory board.

Piech’s ambitions had been thwarted.

So Piech left the sanctuary of the family to earn his spurs at Audi, the same company for which his famous grandfather designed the legendary Auto Union Type C racing car. Piech worked in the R&D department where he masterminded the development of the famous Audi S1 rally car. Piech became a key figure in re-inventing Audi. He introduced the TDI and Quattro drive—making them Audi trademarks—and slowly turned Audi into a legitimate Mercedes/BMW competitor. Ferdinand Piech was appointed CEO of Audi in 1988.

While Audi was doing increasingly well, parent company Volkswagen ran into deep problems. Piech was called to the rescue. In 1993, he took over Europe’s biggest car manufacturer. Problem. To rule Volkswagen, you need to be more than an engineer. You need to be a politician. Volkswagen was controlled by the state of Lower Saxony and the Unions. Piech, ever the alpha dog, needed to learn the art of consensus.

Piech turned out to be a master in building networks and majorities to support him. By the time he had to retire as CEO in 2002 because of age constraints, Piech had placed his guys into every powerful position and earned the support of the government and the unions. Many newspaper editorials hailed the retirement of this absolutist monarch of Volkswagen, but they didn’t see the whole picture. Piech was still in charge.

So what happened to MAN and Scania? Pischetsrieder labored under the illusion he was running the show. When Piech found out about the Scania deal, he was fuming as he wasn’t consulted about the proposal in advance. For this act of treachery, Pischetsrieder had to go. With support of the unions, Piech sacked Pischestreider. Then, instead of selling VW’s share in Scania, VW went on to buy a 30 percent share in MAN—as well as the remaining Scania stocks owned by the Swedish Wallenberg family. Don Piech made them an offer they couldn’t refuse.

Well, the worm has turned properly on government intervention in the auto industry, as General Motors now seems to fear a government takeover more than bankruptcy. Too bad the choice isn’t either-or. Recent 10-Q filings with the SEC indicate that GM accepts the inevitability of a Chapter 11 filing, but describes the ramifications of a possible government ownership stake with fear and horror. “In the future we may also become subject to new and additional government regulations regarding various aspects of our business as a result of the U.S. government’s ownership in (and financing of) our business. These regulations could make it more difficult for us to compete with other companies that are not subject to similar regulations,” figure GM’s professional worrywarts. These still waters of paranoia run deep.

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Poor Wendelin “walk-on-water” Wiedeking is getting it from all sides. Yesterday, he was the Jesus Christ of the automotive world. Only He could perform the miracle of having more profits than sales—two times in a row. The multiplication of bread and dead fishes is mere amateur hour compared to the unnatural act of turning sales of €3bn into profits of €7.34bn. But will the man be revered until eternity? Just the opposite is true: After bringing in the bacon, Wiedeking is being led to the slaughterhouse, squeaking for his dear life. And yet, Wiedeking’s troubles are just the surface scatter of a brutal family feud that makes the War of the Roses look like flower power. They even brought in the Feds . . .

Automobilwoche [sub] tells its aghast (or smirking) readership that BAFIN, Germany’s equivalent of the SEC, finally opened an investigation into Porsche for stock manipulation, something they had carefully avoided. In March, Berlin’s financial watchpuppies had declared they would not investigate, due to a lack of evidence. However, last week, BAFIN got a smoking gun dropped into their lap and was forced to take action.

The German magazine Wirtschaftswoche just happened to come across the transcript of a clandestine meeting held in early February 2008 between two Porsche executives, their lawyers, and a ranking representative of the government of Lower Saxony, holder of 20% of the VW shares.

In that meeting, Porsche had announced their intent to buy 75 percent of Volkswagen. Not only that, they said they wanted to make sweeping changes at VW, and to strip Lower Saxony of its controlling minority, courtesy of the “Volkswagen Gesetz.” If that piece of news would have become public, the stock would have skyrocketed. Absent of news, the stock dropped. A month later, Porsche denied that it intended to acquire 75 percent of the VW shares. The VW share treaded water.

In October 2008, the news of a global car meltdown attracted short sellers to the VW stock. Unbelievably, it traded at €400. In a few days, it plunged to slightly over €200—still way overpriced in light of the ensuing carmageddon. Just when the VW share had dropped to the level where it previously had languished for a year, Porsche let it be known that they wanted 75 percent of the stock—and were already in control of most of the available shares, one way or the other. Frantic short covering drove the VW stock to vertigo-inducing heights of over €1K a piece. Big hedge funds were NFSWed. Pandemonium. Now, the stock is back in its old €200 range.

Ever since, the humiliated hedgies have been busy seeking revenge, and preferably hefty damage payments from Porsche. Care to guess who leaked the menacing meeting memo to the magazine?

Not too fast. The leaks could have come from another side. Ever since the lurid tale of hookers for union leaders was leaked, conveniently timed before a crucial election, the people working on the top floor of the Volkswagen Hochhaus had gained the respect of professional plumbers and leakers for adroitly using information, the media, and law enforcement—should it come to that.

Even BAFIN is listening for the drip-drip of a leak: BAFIN doesn’t want to bring criminal charges against Porsche . . . yet. They want to conclude their investigation first. Because, so said a speakstress of the agency in charge of financial oversight, it cannot be ruled out that someone has put out the information with the intent of harming Porsche. Sharp thinking!

Porsche of course vehemently denies all charges. Now, Porsche and VW, or make that Piech and Wiedeking, are on a war footing. Porsche even took the chain off an unlikely attack dog: Uwe Hück, head of the Porsche workers council, fired a salvo in the direction of Wolfsburg and said he had hired lawyers to check into reporting Volkswagen’s Ferdinand Piech to the authorities, on grounds of yet to be specified violations of securities laws.

A few weeks ago, we reported that Wendelin Wiedeking and his derivative-wielding CFO, Holger Härter, had been sent to death row after a sitdown by the Porsche Family. The Porsche/Piech clan found themselves suddenly perilously short of funds. All the while everybody had thought they had amassed untold riches with puts, shorts, straddles, long condors and short butterflies, Porsche was running out of dough. They had to go begging to the banks, who grumpily loaned them €10 billion with draconian conditions attached.

This was the minute of Napoleonic (in stature and cunning) Ferdinand Piech, who grabbed his chance to put Wiedeking and Härter back in their box after they had done their deed. The takeover of VW by Porsche morphed into a takeover of Porsche by Volkswagen which is owned by the Porsche Family.

Now, Piech is doing what he does best: slow execution of a top executive by a thousand cuts. At the sidelines of a presentation of the new Polo in Sardinia (befittingly home of the “culture of vendetta, in which clans mete out their own justice with no deference to any state or to any organization,” as Pino Arlacchi’s wrote in his book “Why There’s No Mafia in Sardinia”), Piech pulled out his paring knife and started slicing. Gerhard Mauerer of Automobilwoche [sub] stood close by and took notes.

Usually, Piech doesn’t say much. Questions are often answered with a sardonic grin. In Sardinia, Piech suddenly turned into a verbal waterfall. A simple merger with Porsche is out of the question, “because it would mean the loss of existing rights of Volkswagen” said Piech, head of VW’s supervisory board and capo di tutti capi of the Piech faction of the Porsche/Piech clan. He then said that he also doesn’t want to limit the rights of the state of Lower Saxony, always a trusted Piech ally, especially since Lower Saxony had been ruled by the conservative CDU.

Before Volkswagen and Porsche can merge, Piech went on to say, Porsche (as in Wiedeking) has to solve its own financial problems. Piech opined that Porsche (as in Wiedeking) is having a hard time finding money, Volkswagen (as in Piech) on the other hand doesn’t suffer from financial anorexia. Therefore, said the Chairman, it is not unthinkable that Volkswagen buys Porsche: “That’s one of the possible solutions. Our favorite is what is fast and painless,” said the purveyor of slow and painful death. As for how much VW’s Piech would be willing to pay Porsche/Piech for Porsche (are we confused yet?) Piech doesn’t think it’s much: “VW only will pay what Porsche is worth.” Translation: Not a whole lot. Maybe a few Euro more than what Fiat pays for Chrysler.

Asked about Wiedeking, Piech didn’t grin. He pulled out his whetstone, carefully honed his cutlery, and then slowly sunk it in, twisting the blade: “Currently” Wiedeking still has his trust, he said. And just in case someone hadn’t listened, Piech added: “Did I say ‘currently?’ Strike that.” And on he went to throw Wiedekind to the curb, literally: “He’s trying hard to fix the blown tire.” Unsaid, but understood by anybody who knows Piech: Wiedeking will blow it again, and then he will be blown away by the Machiavellian (in cunning and intrigue) Piech. From Lopez through Pischetsrieder and Bernhard: Piech’s career path is littered with corpses, which he uses as helpful stepping stones.

While applying cuts, Piech couldn’t help himself from filleting the Fiatsco. A possible joint Fiat-Chrysler-Opel doesn’t cost the Chairman much sleep, he said. It had taken Volkswagen and Audi 15 long years to truly merge, Piech said.

And he should know, he ruled both. He did everything to keep Volkswagen at a distance when he ruled Audi. And the true merger came to pass only after Piech took the helm at Volkswagen, surrounded by trusted men from his Audi times.

Never short of a quotable line, Piech quipped: “Two or even three sick people in one bed don’t make a healthy one.” Going back down memory lane, Piech added: “The people who are right now thinking about these mergers won’t have 15 years time, I’m sure.”

Gotta go. I’ll talk to my lawyer about getting the movie rights.

Jim from Regina, Saskatchewan, asks:

Automatic transmissions obviously require some upkeep to keep them in good condition. What about manual transmissions? What sort of maintenance needs to be performed on them, if any, to maximize their life? Is the reliability of them higher enough that more drivers should be considering them? I’ve owned five cars with manual transmissions (transaxles really), and only one of them ever gave me trouble. It was a 1990 Hyundai Excel (I can see the readers’ eyes rolling already). With almost 190,000 km on the clock, it became impossible to downshift into second without double clutching. I have learned enough about manual trannies since then to think that it was probably a failed synchro, and my mechanic’s advice at the time (“Live with it.”) was probably good, considering the likely cost of correcting it and the value of the car.

I drive manuals because I like the control, and the lower purchase cost is a bonus, but I imagine in my head that I’m going to get a longer service life, too. I wonder how accurate my assessment is.

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The moment the Chrysler – Fiat hookup was announced, savvy pistonheads nasally ejected their coffee. Chrysler and FIAT? That’s like throwing a drowning man an anvil. Ignoring the brands’ histories of complete crapitude, the mainstream media took the idea seriously. Their complicity/complacency has done wonders for the executives and elected officials in charge of this epic non-starter, but it does nothing to serve the public interest. After all, we’ve got to pay for this turkey. Now that Chrysler is about to axe dealers, permanently shutter plants, fire union workers and ditch a big ass chunk of their pensions and benefits, the MSM is beginning to consider the possibility that the deal sucks. Or, as the ever-faithful Detroit News puts it, “After bankruptcy, Chrysler still faces uncertain future.” Ya think?

After bankruptcy court, the Auburn Hills-based automaker must survive on American and Canadian loans now pegged at $6 billion until vehicles inspired by its new partner, Fiat SpA, begin rolling off North American assembly lines in 2011.

Let’s see . . . It’s 2009. Chrysler lost $4.7 billion this year AND sucked-up $6 billion in kiss-’em-goodbye “bridge loans” and $4 billion in federal zombie maintenance payments. So now they’re going to stretch $6 billion over two years. Riiiiight.

Key actions Chrysler must take to bridge the gap include slimming its dealer network, further reducing its hourly work force, piggybacking on Fiat’s foreign dealer network and global buying power, and hustling some Fiat technology to Chrysler’s U.S. assembly lines.

So Chrysler is going to save money by using Fiat suppliers and Fiat’s going to sell Chrysler’s abroad. Riiiight.

At the same time, car sales can’t take a dramatic plunge from the 10 million vehicles predicted for this year. And gas prices can’t spike, since Chrysler’s product line is tilted heavily toward pickups, sport utility vehicles and minivans.

Notice the word “dramatic.” And says who? David Cole! The head of the Center for Automotive Research, whose chicken little study laid the foundation for this $65 billion—and counting—boondoggle.

“Chrysler has lowered its structural costs, reduced its break-even point and put itself in a position to be very profitable in the midterm with a Fiat alliance,” Cole said.

I guess we’re putting our money where Cole’s mouth is. Again. Meanwhile, The Wall Street Journal has discovered that Chrysler’s propensity for building horrible cars could be a problem on the sales side of things.

Michelle Payan loves the styling and roominess of her 2006 Chrysler 300 sedan, but a defective air conditioner and transmission have turned her against the brand. “I’m not buying another Chrysler,” says Ms. Payan, a 26-year-old insurance-claims adjuster in Phoenix.

In announcing Chrysler LLC’s government-negotiated bankruptcy filing, President Obama expressed the hope that new-car seekers would consider buying American. But new car buyers are less accustomed to seeking advice from the president than from Consumer Reports. In its annual automotive issue last month, Consumer Reports recommended 166 models—not one of them a Chrysler, Dodge or Jeep, the three Chrysler nameplates.

Uh-oh! It looks like we have a perception gap perception gap.  

But while Ford and GM are largely battling outdated perceptions of questionable reliability, “at Chrysler it’s a reality,” says George Peterson, president of AutoPacific Inc., which each year surveys about 40,000 car owners. “To survive, Chrysler needs to get its quality at least to the level of Ford and GM.”

This reliance on cross-town qualitative measurement has isolated GM and Chrysler execs from reality, and destroyed their ability to compete. Despite C11, Motown’s media lap dogs continue to enable this suicidal self-delusion. The WSJ article, which starts with a bit of Hai Karate, ends-up on its back, feet wiggling the air. Shame on them all.

The government-directed reorganization plan of Chrysler calls for it to merge with Fiat and start making Fiats in the U.S. In Europe, Fiat has received low rankings in reliability studies, but its performance has been improving.

Meanwhile, Chrysler will continue making trucks and SUVs. Its Jeep Wrangler and Jeep Grand Cherokee, by nearly all accounts, lead the pack in off-road performance, and both sport an iconic design that sets them apart. Similarly distinctive is the mammoth Dodge Ram pickup. But all of those models have suffered reliability problems. Of seven full-size pickups reviewed by Consumer Reports, only one — the Dodge Ram — failed to make the recommended list.

Yet there is hope. The redesigned 2009 Dodge Ram is winning rave reviews for performance and style, and is expected to win endorsements if it proves largely free of defects.

And Chrysler has a history of staging comebacks from product-driven financial quandaries. The quality problems of the Dodge Aspen (and its sister, the Plymouth Volare) contributed to the crisis that led Chrysler to seek a government loan in 1979. After recovering from that brush with bankruptcy, Chrysler entered a nearly two-decade period of winning kudos for its cars, trucks and minivans.

And so the cycle continues . . .

Mike from Rhode Island writes:

I have a ’99 Nissan Maxima purchased new with 124,000 miles which runs like new. I have had to recently replace the starter/battery and it has had several electrical issues in the past such as starter coils. Engine oil is changed at 5,000 miles with synthetic and book is used on all other fluid changes.

The total repair costs have been averaging app. $1,000 per year for at least 2-3 years now. Since major parts are original such as transmission, water pump/radiator, etc., I feel it is only a matter of time that a big item will require a major repair bill.

At what dollar price point is it reasonable to keep spending money on repairs for a 10 yr old car, per year? I am not mechanically handy.

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I apologize. The pictures of this beautiful Manta are crap. I let myself get carried away. Hanging around with that pugnacious little Fiat 850 infected me with a burning desire to catch an Opel: Chrysler-Fiat-Opel, the new Holy Trinity. Part of me knew better; I had enough on my plate already. And I haven’t seen an Opel in Eugene in ages. But my desire was downright Napoleonic. As is the result. Read More >

Chris writes:

Hi, Sajeev. I’ve got a Piston Slap question for you. I have a 2003 Jetta with a 1.8 L turbo engine. Recently, the water pump failed (at about 68k miles). My imminently competent and trustworthy local independent garage replaced the water pump and told me that they heard a tapping sound coming from the engine. They changed the oil and the sound seems to have gone away, but I was advised by them to trade the car in right away if the sound comes back. Do you have any intelligence on 1.8T VW’s and what their longevity is after overheating?

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Back in the day, I recommended Chapter 11 for GM and Chrysler. With court protection, the American automakers could ditch non-competitive union contracts, pare bloated dealer networks, terminate extraneous products and sell-off non-core brands. In ’05, consumer confidence was strong. All three automakers had plenty of cash and assets. If they had filed then, they could have reinvented themselves and . . . Forget it. I was wrong. These automakers are so poorly run that an earlier bankruptcy would only have prolonged the misery. How could I think otherwise when Chrysler and GM’s idea of a “surgical” bankruptcy is to swing an axe at the patient’s diseased limbs, laugh at their next of kin, storm out of the operating theater, hand the case over to another doctor and repair to Aruba?

Earlier today, GM CEO Fritz Henderson mirrored a previous statement by Chrysler Co-Prez Jim Press. Henderson revealed that GM also had no idea which dealers would get the old heave-ho and which would help the “new” automaker pay back American taxpayers for their [next not previous] multi-billion dollar “investment” in American jobs (or some such thing). Like Press, Henderson assured his store owners that the cuts were definitely on his “to do” list.

GM’s indecisiveness is almost understandable, given that not making decisions is a key part of their corporate culture. But Chrysler is the automaker whose private equity owners told us time and time again that their main advantage was speed (fast decisions, not amphetamines). Chrysler’s been in Chapter 11 for eleven days. And yet . . .

“Unfortunately, there will be dealers who will not go forward,” Press said on a conference call with retailers. “We do not have a finalized plan. We don’t have identification of who. We don’t know when. We don’t know how. We have nothing to announce today other than this is all in flux.”

In fact, it looks like Chrysler won’t be paying some 25 percent of its dealers for warranty work already performed or incentives already earned. Any possibility of either automakers creating some team spirit (a.k.a. “shared sacrifice”) down at the dealer level—to accompany the birth of the new Chrysler and new GM—has been strangled in its crib.

While aggrieved consumers have every reason to savor the fact that GM and Chrysler are doing the same thing to their dealers that their dealers did to them re: warranty claims—waffle, prevaricate and then tell them to FO&D—both GM and Chrysler’s survival depends on its stores. Keeping the franchisees in limbo is madness. These guys have lawyers, and they know how to use them.

As we reported earlier, Chrysler is bouncing checks to customers and recently suspended lemon law payments. We’ve also chronicled the red tape surrounding federally subsidized payments to GM and Chrysler’s beleaguered suppliers. And no one knows who’s gonna build what, when or where. Not to put too fine a point on it, Chrysler is disintegrating into chaos. GM is showing every sign of following suit.

All this before GM and Chrysler’s key suppliers go belly-up, and the real action starts down at the courthouse, when creditors do everything in their power to make sure they get a piece of whatever there is left to get a piece of. And then Chrysler and GM have to deal with integrating (i.e., surrendering) to their new foreign partners (i.e., masters). All while their competitors get leaner and meaner, and the American public learns than bankruptcy means never having to say you’re sorry.

Clearly, Chrysler and GM didn’t prepare for bankruptcy. Equally pellucid: neither automaker is equipped to deal with it now, or in the future, when things will get a whole lot more complicated. Then again, why would they?

Both automakers have the same schlemiels that got them into this mess trying to get them out. GM CEO Fritz Henderson is no less a product of the “GM Way” than ex-GM CEO’s Rick Wagoner, the man whose failure will be the fodder of business school curricula a hundred years hence. Henderson may be trying to make a good job of an impossible situation. But he isn’t.

Meanwhile, Chrysler CEO Bob Nardelli is . . . hey, where IS Chrysler CEO Bob Nardelli? Anyway, putting Nardelli in charge of the recovery would be like hiring the man who ran Home Depot into the ground to lead a major manufacturing company. Oh wait . . .

The blame for this mess—and by that I mean the current and future mess rather than the mess that lead to this mess—falls squarely on the shoulders of the Presidential Task Force on Automobiles (PTFOA). While I was against “bridge loans” to GM and Chrysler and oppose any further subsidy to these zombie automakers, the PTFOA had one chance and one chance only to “save” Detroit: appoint honest-to-God leaders at the top of both companies. They blew it. And now we’re all paying the price. Literally.

nweaver, longtime TTAC commentator, writes:

Assuming GM does go Chapter 11 and kills off Saturn, what happens to part support? I doubt it matters for my case, as a ’95 is old enough and common enough that its pretty much junkyard/recycled/remanufactured for anything major at this point anyway, but what happens to those with newer models?

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David A. Skeel Jr. is the S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School and author of “Icarus in the Boardroom” (Oxford University Press, 2005) and “Debt’s Dominion: A History of Bankruptcy Law in America” (Princeton University Press, 2001). In an article in the free market American Enterprise Institute’s house organ,  The American, Skeel says that while the Obama administration avowedly patterns itself after FDR’s New Deal, the deal that the President’s task force on autos has cooked up for Chrysler would actually “make a true New Dealer turn over in his grave.”

Prof. Skeel points out that a major aspect of the New Deal was reform of bankruptcy laws that permitted sham sales called “equity receiverships” to bondholders and other creditors.

New Dealers hated the process, which they saw as opaque and designed to foist a deal crafted by the insiders on everyone else. Jerome Frank, a lawyer who later headed an important New Deal agency and became a federal judge, complained in 1933 that the judicial sale in these cases “was a mockery and a sham.” He said, “A sale at which there can be only one bidder, is a sale in name only.”

In 1938, thanks to the handiwork of another prominent New Dealer, future Supreme Court Justice and then-SEC Chairman William Douglas, Congress dramatically altered the bankruptcy laws, eliminating the former practice.

The Obama administration blueprint for Chrysler’s bankruptcy looks startlingly like the artificial sales that the New Dealers so abhorred. Unlike a traditional reorganization, in which the parties negotiate the terms of a restructuring that is then voted on by each class of creditors and shareholders, the administration plans to quickly sell Chrysler’s most important assets to a new entity “New Chrysler” whose stock will be owned by Chrysler’s employees and Fiat.

The senior lenders who objected to the government’s offer (which amounted to little more than 30 percent of their claims) will not have any vote on the sale. Their only option is the one they have pursued: objecting to the sale, and praying that bankruptcy judge Arthur Gonzalez takes a hard look at its terms even while the government is breathing down his neck and saying in a sense, he better approve or else.

The dissident bondholders made Judge Gonzalez’ job a little easier today when they folded after two of the remaining five holdouts withdrew from litigation. Still, Gonzalez has to approve the sale of whatever worthwhile remains among the dross of Chrysler.

What makes the Chrysler plan unique, and makes it similar to the receiverships of the New Dealers’ era, is that it is not really a sale at all. It is a pretend sale and its main purpose is to eliminate the pesky creditors who might otherwise interfere with the government’s plans. It also seems to flout bankruptcy’s priority rules by giving Chrysler’s employees (who are general creditors) a big stake in New Chrysler while forcing senior lenders to take a major haircut. The usual rule is that senior creditors must be paid in full before lower priority creditors are entitled to anything.

Skeel says that the judge can do two things to make sure the sale is appropriate. The first is to get an independent determination of the value of Chrysler. So far all the parties involved in valuing the assets have an interest in exaggerating or lowballing the company’s valuation. The second is to require a complete accounting of the deal so it’s absolutely transparent in terms of who is participating and who’s getting the shortest haircut.

Though much of the criticism of the Obama administration’s plans for Chrysler and GM has centered around government excesses, threats to the capital markets and the rule of law, it’s interesting that Prof. Skeel worries more for what it may portend in terms of bankruptcies in general.

The Chrysler sale looks like the latest of a series of government interventions that have run roughshod over ordinary legal rules, and it appears to be paving the way for a similar strategy in a General Motors bankruptcy. Much of what the government is doing allowing Chrysler to file for bankruptcy, promising to guarantee its warranty obligations is admirable. But the use of a sham sale of the sort the New Dealers thought they had forever eliminated will cause mischief in future bankruptcy cases.

Not only may the government go back to this well, but in the future private parties will conclude that sham sales are a legitimate tool in their own cases.

There are x+1 reasons GM is where it is today, with x being a very large number. Those reasons have been hacked and stacked here and elsewhere: a chief executive so hesitant it’s a wonder he didn’t daily swaddle himself in Cottonelle; a Board of Directors so frightened of change that they never swapped out the pine paneling and shag carpet in the board room; and a union stuck so far in the past that Bakelite seems to them unspeakably futuristic. To paraphrase JFK, while success may have a thousand fathers, GM’s defeat also has a thousand fathers—and a network of 6,200 dealers.

But to only blame the current crisis on management is to miss the broader picture: for more than a generation, with few exceptions, GM just hasn’t made cars that inspire people. While factors like fuel economy and build quality no doubt contributed to the slide, it’s been 30 years since GM had a stable of pulse-quickening, shorts-constricting cars. Consequently, GM failed to convert decades worth of excitable, reachable teens and young adults into the sort of loyalists and enthusiasts that sustained the company this long in the first place.

The more Geritol-ed among us remember a time when things were not thus. In the Harley-olithic Era, the good Lord saw fit to provide not just the ’53 Corvette (dayenu!), but also the Skylark, the Rocket 88, the ’57 Chevy, the ’59 Caddy and the Eldorado (dayenu times five!). Our bounty was, um, bountiful for the next ten or fifteen years, too, with the muscle car boom that gave us the GTO and Camaro. If you were lucky enough to come up then, GM was synonymous with sleek and sexy and bold and daring.

And then came the late ’70s, when GM brought us to the edge of the Great Mediocre Desert and, feeling the warmth of the sand, walked right in.

I was born in those lost years, and I’ve never known a time when GM wasn’t wandering the desert. My generation never got its GTO, its ’59 Caddy. We got Impalas, yes, but they were rusty and rickety, not cool and threatening. My friend’s creepy, chain-smoking dad drove the kind of Bonneville driven by creepy, chain-smoking dads. Our Olds were for the elderly.

Those cars thrummed exactly no one’s chords. Worse yet, they were as reliable as someone on Intervention.

In 1950, the Great and Powerful Earl said, “It is a matter of record that poor styling or improperly timed styling has proved financially disastrous to some automobile manufacturers.”

Now, I’m not the brightest rocket surgeon in the picnic shed, but it seems that was a lesson never learned. And during this Craptastic Period in came the Japanese. Honda and Toyota didn’t compete on design; they fought it out with quality. Perhaps their cars were less in—or aspirational—but at least you’d get out of the dealer’s driveway before your feet went through the floorboards. GM never fought that battle, and so when they all but gave up on design, too, the war was lost.

The proof is in the pudding, and the pudding is high school parking lots. Sure, you may still see some guys taking a Huggies to their babies, but you’ll definitely see row after row of Corollas, Elantras, and Whogivesashitimas. GM’s lost a generation of passionate brand loyalists—the sort of loyalists who popped their first boner over a ’58 Impala, not nakednymphs.net. To this generation, a car’s a car. A tranny with limited differential is just a guy in a dress who hasn’t cut off his nuts yet. The appliance-ification is basically complete.

Today’s Generals are certainly better than those of a few moons ago as far as reliability goes, but, man, Garrison Keillor is more exciting than the average Chevy. Were it not for the memory of those older, cooler cars—the fast and aggressive, the sleek and the styled, the innovative and inspirational—GM would not be around today.

That’s well worth noting, and quickly. GM makes a point of saying that their cars are now as reliable as anyone’s. But “as good” and “good enough” are not the same thing, and customers have 30 years of pent up distrust.  If GM is to get customers back into its (culled) showrooms, it needs to banish bland, or there won’t be another 30 years. A Malibu can’t be an Impala can’t be an Aveo can’t be a Cobalt. And this commitment can’t be just a Skystice here and a CTS there; if it’s true that the General’s motors earn them a tie with the imports, inspiring design running through their entire line should be what puts GM over the top.

Pretty will get customers in the door. Distinctive will earn GM another look. Erections will make people remember. If GM is to survive and (gulp) thrive, they have to set their designers free, and give them the freedom to live into Harley Earl’s legacy. They have to en-boner-fy or die.

Captainzerocool writes:

Sajeev, I’ve recently acquired a 1969 Ford F100. It is a solid truck with the 360FE and three on the tree. It does, however, have an electrical problem that I can’t nail down. Apparently, the key or the ignition switch isn’t needed to get the motor to attempt to turn over. Once I attach the positive terminal, the starter motor begins to rotate and will not quit until the battery is disconnected. The starter and starter solenoid have been replaced. Is there some random wire that isn’t/needs to be grounded? Any and all help is appreciated.

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All’s not well with Turtle Wax. To wit: in a recent Piston Slap article, numerous commentators made less-than-flattering remarks about the brand’s products and image, indicating that Turtle Wax is suffering a dramatic loss of brand equity. It’s a big problem at a bad time. Last October, 3M acquired Meguiar’s. Barry Meguiar is a tireless and charismatic promoter who’s deeply in tune with car care gestalt. With the normally staid Triple M’s enormous resources behind him, the Divine Mr. M could put a serious hurt on Tommy the Turtle. It’s time to put the terrapin’s marketing under the microscope.

The crux of Turtle Wax’s problem was apparent the moment I entered the company’s wood-paneled conference room. The company displayed a farrago of Turtle Wax branded products, sporting vastly different color schemes, graphics, containers and brand names. Why wasn’t everything in a “Turtle Wax Green” bottle, with Tommy the Turtle placed front and center?

Potato chips. Your local grocery store carries a huge variety of potato chips: regular, fat-free, low-calorie, ruffled, jalapeño, small bags, big bags, etc. Potato chip makers don’t like this product fragmentation; it’s expensive to create and stock new variations. But retailers want their shelves filled with as much variety as possible. If a potato chip maker doesn’t play the game, another manufacturer grabs their shelf space.

Same deal at AutoZone. They allocate shelf space according to product lines, not sales of individual products. In other words, the classic green bottle may account for 40 percent of Turtle Wax sales, but it doesn’t get 40 percent of Turtle Wax’s shelf space. The challenge: how do you create a huge “family” of car care products that look similar enough to extend the brand without triggering Stendhal Syndrome?

In this Meguiar’s has the edge. All of its products feature a large script of the brand name over a black/maroon background. In contrast, Turtle Wax has reduced Tommy to a polo shirt logo, and slapped him on all manner of color schemes and container types (thanks to the logo, they all include the word “wax”). AND there are completely Tommy-less Turtle Wax products, some of which have nothing to do with traditional Turtle Wax car care (e.g., CD2 Engine Treatment).

Turtle Wax is aware of their packaging problems. Their redesigned Zip Wax bottle shows progress towards a more unified front, but there’s no question that their band extensions are cannibals out of control. The Turtle Wax website has a prominent “Help Me Choose” function where you can select from three products that all do roughly the same thing—without being able to choose multiple preferences.

Turtle Wax’s ICE brand points to an even uglier truth: success doesn’t always breed success.

Thanks in part to a distribution deal with Wal-Mart, ICE is America’s number one car care product. But the product’s association with the massest of mass market retailers alienates a wealthier, more automotively diverse demographic of car enthusiasts. Which creates a perception gap large enough for the Zainos (via word-of-mouth), Mothers (with their über-exclusive Shine Award) and Barry Meguiars (Host of Car Crazy) of the world to cut into their business.

ICE’s mass market positioning—offering a product without prominent Turtle Wax branding—makes it vulnerable to attacks from below (cheap, no-name knock-offs) and above (premium products reaching down for sales). Turtle Wax reps said the recession is adding brand insensitive customers looking to shine their old ride. It’s not clear how co/re/de-branding a Turtle Wax product could be considered the best way to create future loyalty.

For those who believe branding is bullshit and choose products for their attributes, consider this: after relaying TTAC commentator kurtamaxxguy’s query about the polymer quality of ICE versus its competitors, Turtle Wax indirectly admitted the differences are like consumer perception for Coke and Pepsi. And the (claimed) lukewarm reception to Proctor and Gamble’s excellent “Mr. Clean” system proves that better living through better chemistry isn’t The Truth About Turtle Wax.

Does any of this sound familiar? A company that adds sub-brands to expand its market share, and then loses market share to more focused competitors? The parallels with GM run even deeper.

Turtle Wax is big in China. Channeling their inner Buick, Turtle Wax does well at Chinese Sam’s Club outlets, selling the same ICE kit that you’ll find in the US for roughly five times more coin (about $100). Each store averages around 100 units annually. Meanwhile, Turtle Wax doesn’t sell their full product range in the PRC; the Chinese ICE brand (not Turtle Wax) has no fraternal or external competitors. For now.

Like GM, Turtle Wax’s future depends on recognizing and highlighting their core values and applying them across a more limited product spectrum, in a coherent, effective and instantly recognizable way.

[Turtle Wax paid for Sajeev’s airfare, transfers, hotel, meals and accommodation. They have also provided sample products for review at no charge.]

Saving Chrysler is just stupid. There isn’t one shred of pure economic logic—never mind basic business sense—to rescue this company from liquidation. Yet, here we are watching tax dollars garnered from real earners (individuals and corporations) tossed into a swirling morass circling the drain of history. It’s time to speak up against this misbegotten adventure. And, well, here I am.

My argument against saving Chrysler springs from one basic business premise: risk taken should be compensated by adequate reward. It should be intuitively obvious that all the capital invested into Chrysler since Daimler’s acquisition back in 1998 and Cerberus in 2007 has never earned an adequate return. So why should we think that the US Government will be smarter than a successful German automaker or a wealthy private equity firm? Does it really make sense to pour (past and future) $12 billion or more of taxpayer dollars into the same hole?

Let’s review. Daimler acquired Chrysler for $36 billion or so and spent billions more trying to make a go of it. Sure, Chrysler had some profitable years in the interim. But by the end, Daimler recognized that there would be no future and effectively walked away from the mess. The decision matrix in Stuttgart came down to this: there would never be a return on the investment in Chrysler. It was an experiment in globalization gone seriously awry.

Despite public announcements to enhance and restore an American icon (hey, Steve Feinberg, you don’t look so good in that American Flag outfit), Cerberus had no intentions of making Chrysler into a real company. Rather, it would be a strip and flip operation by reducing expenses, fobbing off vehicle development to others (Nissan, Mercedes, and anyone else) and make money from financing customers’ wheels. We know how well this business strategy worked. Cerberus lost $7 billion of someone’s money (we still don’t know whose). All gone forever.

And now the American taxpayer has become the next sucker in the game of Chrysler. What is the ante at the table so far? Some $6 billion and going higher. And for what? To continue the fallacy that Chrysler in the last two decades has been a great American icon? Even President Obama can’t polish that pig.

The lawyers in bankruptcy court have argued about absolute priority, lenders tainted by TARP funds, and diminution of value without a quick sale. But it’s really irrelevant. The fact remains that any dollars plowed into Chrysler will never provide an adequate return.

Let’s review the government’s plan with Chrysler . . . With a quick asset sale, a modified UAW labor agreement, Italian management today, small cars tomorrow, and perfecto! We’ll enter into an automotive utopia of profits and cash flow. Will someone please dial 911 to the White House and clue the Administration into reality please?

There are NO good assets of Chrysler cobbled together in any fashion that can be considered as a going concern. Recall that Chrysler has had little retail success in the past several years with its product line. Fleet sales likely made up at least 40% of all sales. Guess what? The New Chrysler will have the same product line. Does the President really believe that American consumers will now wake up and buy Chrysler products all of a sudden? If so, he’s sadly mistaken.

Some will argue that the New Chrysler has a competitive labor agreement. Yea, so what? Labor makes up less than 10% of the total cost of running a car company. And GM and Ford get the same deal—which matches mostly what all the transplants already have. No real advantage there.

But the coup de grâce rests with faith in the Italians to do a better job running this mess. C’mon now! Fiat is and always has been a second-tier automotive player in Europe. Its product reputation hasn’t brought it accolades. And why would Americans even consider small cars from Italy being superior to Ford’s new Fiesta (a raging best seller in Europe) or cars from Honda or Toyota already here? And small cars just don’t make the same profits. Go ask the Japanese for the truth on that one.

The bottom line should be clear. Putting money to work in Chrysler, even reconstituted as a new company, makes no sense. Pitting the same product line, same weak brands and future Italian-mobiles against strong competitors in the USA today just doesn’t compute. Not for the capital invested. In fact, no venture capitalist would do this deal. No private equity players show any willingness to take this on the come. And not one other automobile manufacturer wants to buy the rotting corpse of Chrysler. Only the American government—an entity already proven incapable of running its own shop successfully—has stepped up to the plate.

This will not end well.