Ah, the first snow of the year.  The frozen blanket transforms even the ugliest landscapes into crystalline sanctuaries. Crisp air fills the lungs and the inevitable homey smell of a wood fire tells of a distant warming hearth. Earth’s annual metamorphosis triggers a few moments when we get to live a dream stolen from the cover of an old December issue Saturday Evening Post. But for too many, this winter wonderland fantasy is abruptly cut short by the sickening sound of exploding metal, glass and plastic, because the first snow of winter also invites a rash of traffic accidents.

I spent ten winters in northern Utah. Every year, highways ground to a halt from hundreds of traffic accidents on the first day that snow accumulated on road surfaces. I thought, these are Utahans, they should know how to drive on snow. What’s the deal?

Driving on snow and ice requires a recalibration of our timing. By the end of the summer, we don’t think about how long it’s going to take us to brake for an upcoming stop sign on naked pavement; we feel it. Our ingrained habits betray us when water, snow and ice rudely come between us and the road surface. We need practice.

Coming from Texas, I feel disadvantaged driving through white-capped Wasatch Mountains. As George Strait crooned, there’s no Snow in San Antonio. So at the first accumulation of snow, I hop into my old Camry and head for empty parking lots and sparsely traveled back roads for a little automotive me-time.

With no other cars around, I experiment to find out how fast I can corner and stop. I also test to see how steep a road I can safely climb or descend. I re-learn how to finesse both brake and throttle. Back in traffic I’m rightly adjusted to slow-up and allow for proper intervals.

Each year, I repeat this practice ritual at first snow fall. it’s kept me accident-free through rough Rocky Mountain winters.

But despite the drill, getting caught in a blizzard in my trusty old front-wheel drive Toyota still took its toll. I vividly remember white knuckling my way through several snow storms on the road home from grandmother’s house (literally) with my wife and small kids, as I struggled to keep the car on the road and avoid hitting or being hit by other drivers. While the greatest winter driving safety device is the lump of fat and knot of neurons floating between a driver’s ears, equipment also plays a role.

First and foremost are the right tires. On snow and ice, a good pair of snow tires can make even the worst rear wheel-drive (RWD) car a significantly more competent machine. Conversely, the most advanced all wheel-drive systems are rendered impotent with summer meats or worn treads.

Traction control (TC) has emerged as a great equalizer for RWD cars. TC uses either the Anti-lock Brake System or electronically controlled clutches to transfer engine torque to the wheel with the best traction. Last winter I drove a convertible Mustang (top up) through a Chicago snow storm. Despite the superabundance of torque, the pony car’s rear-end stayed safely behind me at all times, without so much as a slip or stall. With the TC off, I turned enough doughnuts to feed the entire Chicago PD.

It would seem that AWD or four-wheel drive cars and trucks are less safe than FWD. Very often we see that the first drivers to slide off the road when the weather turns bad are at the wheel of these “super capable” cars and trucks. But overconfidence is a form of driver error, not equipment failure.

This is an important distinction. When Jack Frost catches a cold, technically the best-equipped cars and truck for safely driving are AWD and 4WDs with appropriate tires.

In low-friction environments, being able to put power to all four wheels can provide up to four times greater traction while acceleration or pulling through a corner over a RWD or FWD car without traction control. To an extent, 4WDs also help in braking due to increased power train drag that allows drivers to moderate their speed without hitting the brakes.

On the down side, these systems add weight and neither improves braking or cornering (except while accelerating). And that’s where lame brain drivers get in trouble. The ability to accelerate on the slippery stuff seems to drain IQ points from drivers.

And so we come full circle. While equipment can help aid drivers, the greatest factor is the man or woman gripping the steering wheel. I love the change in seasons and look forward to winter sports, or just messing around in the snow. But when it gets icy and dicey, nothing beats proper snow tires steered by a calm, practiced, alert and sensible driver.

There’s still time left for the Senate Republicans to stop the insanity. The Detroit bailout plan is a hastily written piece of legislation that gives an open-ended commitment to government support of the domestic auto industry. One that makes a single individual responsible for “determin(ing) appropriate measures for assessing the progress of each eligible automobile manufacturer in transforming the plan submitted by such manufacturer to the Congress on December 2, 2008, into the long-term restructuring plan to be submitted.” And that same individual also will help negotiate a restructuring program “between the interested parties” and will then determine within a date certain whether the plans themselves lead to the expected outcome of financial viability. If not, this same individual can pull the plug by calling the loans and forcing a bankruptcy. If he or she does that, I hope they get Secret Service protection. And a Medal of Honor…

In truth, the car czar idea is patently ridiculous. One player-to-be-named-later will have the power to set the terms, negotiate the deal, and then make a final determination whether he’s done it right. Why not put Stalin in charge? This nonsense destroys the rights and interests of the parties to negotiate themselves-– or under the existing framework of the bankruptcy judicial process. Worse, there’s enormous political pressure to incorporate wacky concepts (from the Pelosi wing of the Democrat party) into the restructuring plans. We’re talking green cars, no jets, limits on exec compensation and other political aims that hamstring prudent allocations of capital.

Bad landing, wrong airport.

Other than CEO Rick Wagoner and the GM Board of Directors, the biggest stumbling block to GM’s root-and-branch restructuring remains the costs of terminating brands and dealers. GM’s latest plan to “rightsize” same is a lame attempt to pull the wool over the eyes of Congress (but not TTAC). It feebly states that GM will sell Saab and HUMMER (to whom? when? for what price?). It places Saturn in “strategic review.” Pontiac becomes a “niche brand” (as if it isn’t already a niche of nothing).

GM’s dancing around the issue: it needs a wholesale slaughter of brands and dealers, including the Buick/Pontiac/GMC “sales channel.” HUMMER, Saab, Saturn? Kill them all. Only GT can’t do it outside of bankruptcy; dealers would bury them in lawsuits from all 50 states’ franchise laws.

If Congress wants to rewrite the rules for its friends in Detroit, they should simply pass legislation that gives a one-time authority for any of The Big 2.8 to terminate brands and dealers with limited liability. The nuclear utility industry has an entire act devoted to limiting its liability in the event of catastrophe (the Price Anderson Act, passed in 1957 and renewed ever since). Why not do the same for Chrysler, Ford and GM? Just cap the amount of corporate liability in the event of franchise terminations during this restructuring period. Problem solved.

If GM really wants meaningful restructuring, it has to eliminate six of its eight brands. STAT. Focus on Chevrolet and Cadillac only. Yes a lot of dealers will disappear; some 3k or more. But it must be done and it can’t be done outside of bankruptcy. The dealers will never cooperate. It’s their livelihoods and personal assets at stake. Screw sacrifice they’ll say, we’ve already given enough.

Other than that…

Yesterday, we proposed a simpler solution. Give The Big 2.8 the bailout money they need to keep the doors open and lights on for 45 days or so. A finite amount of money, fully collateralized by assets. No risk to the taxpayers. Make these companies come up with their own plan, one that makes them viable enterprises: healthy balance sheets, limited debt and an opportunity to make profits and generate cash soon, not never. If they can’t do that outside of bankruptcy in this time period, then they’ll have to file no matter what. Put them under the Sword of Damocles.

But we’re going to add a caveat to this. There will be no additional government money. Any restructuring program must meet the tests of commercial lenders. Let the market determine whether they’ve gone far enough in restructuring, not Congress. And certainly not some “be all, know all” car czar. Let’s be sure to keep the politics out of this where we can. Otherwise it will be an endless circus. The commercial finance market will jump at an opportunity to finance a healthy automaker, perhaps with a “nudge” from Treasury.

We urge Congress to seek a “market-based” approach to solving the problems in Detroit. Any legislated attempt to loan money under conditions will certainly fail. It opens the door to political interference, and places the burden on a single individual to determine the merits of any restructuring. The horror! We say the market can function effectively if Congress lets it do so-– with a little piece of legislative help to limit liability. And a little bit of money just to get there.

The last hope. We’re making a final appeal. Senate Republicans, led by Jim Shelby (R-AL) and Bob Corker (R-TN), need to send the proposed loan program to Detroit into the dustbin of history. As constructed, the legislation represents a waste of taxpayer money. It’s a pretend piece: A bridge to nowhere. The bill’s based on the false hopes of a new car czar, entrusted to negotiate a restructuring outside of court for General Motors and Chrysler. That won’t happen-– and shouldn’t happen. Only the party of Lincoln can stop this foolishness now.

TTAC does not want Detroit to fail. (Ok, Chrysler should fail – unless its rich Daddy wants to continue their foolishness.) There are lots of good, honest people in the auto industry who have been sold out by decades of GM, Ford, and Chrysler mismanagement. Executive leadership working under a bubble of opaque glass, ignorant to the changes in the real world of auto sales.

As legions of American consumers departed for Japanese, German, and Korean iron, these Detroit managers found comfort in placing blame squarely outside of their control: foreign currency, unfair trade, health care, etc. In truth, their decisions and indecision lead to vehicles that failed to deliver the goods. Had it not been for the ascent of truck-based vehicles and cheap gas in the 1990s, Detroit would have been dead years ago.

Today, again. Rick Wagoner and his GM minions continue to claim that they were victims of circumstance, sandbagged by lousy economic conditions caused by  Wall Street’s disastrous mortgage orgy. Nothing could be further from the truth. Any student of Detroit has known for years-– and as repeatedly documented by TTAC– that GM and its cohorts have been headed for disaster for decades. The economic crisis is simply the  straw that broke the camel’s back.

Against a backdrop of soaring unemployment, Democrats in Congress decided it could not adjourn without doing something, anything, for Detroit. And so it’s created an even bigger economic disaster, lying in state for the new President. The current President doesn’t want to leave office as “the President who killed Detroit.” So it’s up to the final bastion of rationale thinking– the Senate Republicans– to kill this deeply flawed, hugely wasteful piece of legislation.

We propose something different. And simpler. Something that might satisfy all of the political demands and protect American taxpayers.

Just give GM six billion dollars and Chrysler four billion dollars. No strings attached, other than a requirement for collateral to back it up. If there’s no equity at Chrysler (there isn’t), the automaker’s private equity owners Cerberus should step up. By their own testimony, Ford doesn’t need money now. So don’t give them any.

Don’t try to craft any solution involving government terms and conditions beyond collateral. No warrants, no car czar, no “green car” requirements. And get rid of that stupid “no jet” clause. How the heck can you run a multi-national company without one or two?

Under this plan, Congress will force The Big 2.8-– and their creditors-– to craft their own reorganization now, rather than waiting for the car czar to propose one. Better, it’s all accomplished outside of court, without any political overtones. Best, it sets an immediate time limit on a resolution.

The money provided today will run out-– that’s a guaranteed fact. And then it will become Obama’s problem to decide if he wants to continue funding corporate welfare. But by then we’ll know the truth about any restructuring progress. Whether Rick Wagoner and Bob Nardelli are the men they say they are.

In the end, a straightforward, no-strings-attached loan will prove with all finality that there can be no restructuring of GM outside of court. We highly doubt that GM really understands the depth of its problems; it will refuse to take the painful but necessary medicine unless dragged kicking and screaming into bankruptcy court.It’s now owned by its creditors and the UAW, not its shareholders. Just hand them the keys.

Chrysler cannot function as an automaker going forward. Cerberus’ plan for its baby to become merely a distributor for other products-– while keeping the financing-– didn’t work. Time for liquidation.

We hope Senators Shelby and Corker read this. They understand that giving these companies funding today under the proposed legislation will become an endless money pit, with no restructuring accomplished under government purview. Not one creditor will accede to the haircuts required without compensation– from the taxpayers, not the companies. We’ll hear future requests, with half-baked restructuring plans, none of which will work.

Instead, just give these companies a lifeline today without fuss or muss, and let them make their own way out of the wilderness if they can.

And if they do come back with a restructuring program that truly works, then Congress and the new POTUS can craft a loan program with necessary government oversight. But why try and figure that out now? Someone needs to teach Congress how to negotiate. We’ve done our best.

GM’s plan to Congress for its long term financial viability results in GM being insolvent in 2012 in amounts ranging from $30-43 billion. It’s not much of  a plan for long term viability. UAW management points out that GM’s plan leaves some creditors making no concessions and correctly asks why it should re-schedule payments or make other concessions when other creditor groups make no concessions. While chapter 11 is no panacea, it is far better to fully restructure GM in chapter 11 than to support the half-baked plan now before Congress. Some of the problems with GM’s current plan…

GM  says it will negotiate with some stakeholders to reduce liabilities, and will try to conclude negotiations by March 31, 2009. The plan also requires taxpayers to give GM $10 billion before March 31, which lessens the incentives creditors have to make concessions. So, who benefits and who gets hurt under the GM plan?

— trade creditors (owed $28 billion) make no concessions, even though today their claims are worth about 20 cents on the dollar, roughly the amount at which GM’s bonds trade. The trade claims have the same value because, like bonds, they are unsecured claims and have the same level of priority. Why should the UAW retiree trust or bondholders reschedule payments when suppliers make no concessions?

— the UAW and the retiree trust make no concessions in the amount of $20 billion owed to the trust, and the GM plan is silent on any deferral of the $10 billion of payments due to the retiree trust in 2010, although it appears that re-scheduling of payments is on the table, but only if GM can present a truly viable balance sheet, which it has not yet done

— Bondholders benefit by getting current interest payments, since there is no discussion of deferring current  interest payments to GM bondholders. Does GM think labor should reduce its wages so that interest payments can be made to bondholders?

The plan indicates that bondholders are expected to convert $20-30 billion of debt into either other debt or equity in what some are calling a “distressed exchange.” No mention by GM of what happens to the remaining $23 billion of bondholder debt which will go into default unless taxpayers fund the interest payments, a waste of taxpayer money.

There should not be a partial restructuring of GM’s bond debt when it clearly is unable to support the debt or afford to pay interest on it without taxpayer support. There is no discussion of why any bondholder would convert its debt to equity when after GM’s plan is fully implemented the company will still be insolvent in 2012 by at least $30 billion.

— Under the GM plan taxpayers will be funding current payments to retirees, interest payments on debt, and payments to trade creditors/suppliers, none of which would have to be paid in a pre-negotiated chapter 11 case.

— GM seems prepared to give taxpayers “senior status,” but not a senior security interest in all of its assets, which would be junior only to the existing $6 billion of secured debt. GM’s suggestion that taxpayers should invest $18 billion as preferred stock, junior to the existing claims of retirees, suppliers and bondholders, is ridiculous.

— The GM plan envisions no significant wage concessions from the UAW, although the UAW appears ready to negotiate, assuming all other creditors come to the table and make concessions

— Under the GM plan “full labor competitiveness” is inexplicably delayed until 2012

— The GM plan is based on an unrealistic hockey stick sales projection, assuming 16 million unit sales units in 2012 , disingenuously characterized as “more typical” than lower annual sales units in the 14 million range.

— The GM plan is more focused on what it calls “liquidity” rather that profitability, and taxpayers have been denied access to detailed profit projections prepared according to generally accepted accounting principles.

— Labor and bondholders should not be expected to support GM’s current plan which in 2012 leaves GM still unprofitable, still insolvent, and still unable to issue investment grade debt

GM Opposes  an Expedited Chapter 11 reorganization

GM opposes chapter 11 reorganization for five reasons: too much delay, too many stakeholders, high administrative costs, possible lack of chapter 11 (DIP) funding, and lost sales because of the stigma attached to chapter 11.

— Delay. A pre-negotiated chapter 11 reorganization can be completed before March 31, 2009, the date GM envisions for completing its partial out of court restructuring. Specific provisions of the Bankruptcy Code authorize expedited procedures for voting on and approval of a chapter 11 reorganization plan. By assigning multiple judges to handle different aspects of a GM reorganization case, I believe GM could get approval of its plan in 100 days.

— Too many stakeholders. In chapter 11 the vote of the majority of a class of creditors binds the minority if the majority holds at least 2/3rds of the total claims in the class. For example, assuming GM has $40 billion of short and long term debt which is placed in one class, holders of $26.8 billion of the debt can bind the minority as long as those holders also constitute a majority of the bondholders actually voting on the plan.

Because GM’s bonds are likely to be concentrated in the hands of distressed debt investors, holdouts are not likely to be able to block approval of a reorganization plan. Voting in a chapter 11 case will be expedited. Outside of bankruptcy the problem caused by bondholders who do not cooperate with GM will be greater because GM has no way to force dissenting bondholders to accept its restructuring plan.

— Administrative costs. The legal and accounting work needed to do an out of court restructuring and a bond exchange offer is similar in cost to what is incurred in a chapter 11 case. However, chapter 11 gives the debtor the right to initiate proceedings to reject collective bargaining agreements or to reduce retiree benefits, and the cost of those proceedings would be higher because those legal rights only exist in chapter 11.

If GM can negotiate concessions from the UAW without the threat of a court approved rejection of the labor agreements, and get all other creditor groups to make meaningful concessions, then an out-of-court restructuring may work. Any increase in administrative costs of chapter 11 reorganization will be offset by the fact that once GM is in chapter 11 it does not have to use cash to pay dealer termination claims or other unsecured claims.

— Possible lack of funding. Elsewhere we have suggested that the government guarantee a DIP loan to GM made by a consortium of lenders with experience lending to and monitoring chapter 11 debtors. In chapter 11 GM will be able to conserve cash payments it otherwise would have to make to bondholders, suppliers, the UAW and retirees. In addition, the bankruptcy court can give “super-priority” to any government loan, which would make the loan junior only to GM’s existing $6 billion secured debt.

This is better taxpayer protection than the vague “senior status” proposed by GM. GM needs government financing, whether in or out of bankruptcy, so this risk is essentially identical and is not a reason to avoid chapter 11.

–Stigma attached to chapter 11. After GM’s plan is fully implemented GM is still insolvent by at least $30 billion, hardly reassuring to car buyers. GM could complete its chapter 11 reorganization in 100 days and come out of chapter 11 with a totally restructured balance sheet that really would reassure customers. GM’s current plan to viability is not reassuring to consumers because it does not return GM to profitability.

Deleveraging GM’s balance sheet.

GM proposes to reduce its debt from $62 billion to $30 billion, a reduction of only  $30 billion, which leaves GM insolvent (negative book equity) by at least $30 billion. GM proposes that there be no reduction of the $28 billion of debt owed to suppliers, and has missed an opportunity to further reduce its bondholder debt. GM should disclose to taxpayers the amounts owed to each supplier so that taxpayers can make their own judgment about who deserves to be paid.

GM also needs to disclose the names of its 100 largest bondholders. No doubt that the UAW will insist on receiving this information and demand that suppliers make concessions and bondholders make more concessions before the UAW even considers temporary wage reductions.

If GM is going to make payments to truly critical suppliers, it should at least insist that suppliers extend new trade credit to GM in the same amount as any payments made on the old claims.

GM’s bond debt of $40 billion needs to be completely converted to equity and GM needs to announce that it is ceasing interest payments on the debt, acknowledging that taxpayers should not be asked to fund interest payments. GM needs to convert $14 billion of supplier claims to equity. By further reducing existing unsecured claims and debt GM can create a balance sheet in which it is solvent.

Lack of taxpayer protection outside of a chapter 11 case

GM proposes to give taxpayer loans “senior status”, which raises the question: senior to what? Taxpayers need a security interest in all of GM’s assets, not an amorphous senior status. Making taxpayer loans immediately “callable” if plan benchmarks are not met is meaningless because GM wants $10 billion in the next 3 months, well before GM’s suggested deadline of March 31 , 2009 for obtaining concessions from bondholders, the UAW and retirees. Once the taxpayer loans are made the other parties have no incentive to make concessions.

In chapter 11 bondholders have huge incentives to act quickly to support and expedite a GM reorganization. Obviously, to de-leverage its balance sheet (i.e. to reduce its  debt) GM is going to have to convert debt into equity, most likely common shares. Because the new common shares will have a value based on GM’s restructured balance sheet, distressed debt investors will support a debt conversion that enhances the future going concern value of GM. Converting debt to equity in a chapter 11 case is an efficient way for distressed debt investors to convert their debt holdings into cash by selling the common stock they are likely to receive under GM’s chapter 11 plan.

A 100-day plan for a GM chapter 11 reorganization.

December 16,2008  GM presents its detailed financial projections to bondholders, suppliers, the UAW and the retiree trust. Bondholders and suppliers form a joint committee of creditors holding the 20 largest claims and the committee engages legal counsel and restructuring advisors to assist the committee in negotiating with GM. The UAW and the trustee representatives of the retiree trust form their own committee and retain advisors. GM begins daily meeting with the Committees and shares financial information, projections and other data needed by the Committees to represent their constituents

January 2, 2009  Congress announces agreement in principle to guarantee a $20 billion secured DIP loan to GM, subject to stringent conditions and the written agreement of the two Committees to support GM’s revised restructuring plan.

January 5  Treasury/Commerce Department convenes a meeting of the Committees and of creditors, and GM presents detailed term sheets for an expedited restructuring in chapter 11.

January 15  Treasury completes drafts of financing documents for GM to be implemented in GM’s chapter 11 reorganization, subject to review by GM and the Committees.

January 25  After receiving comments, the secured DIP financing arrangements for GM are fully documented, subject to the consent of the two Committees and the existing secured creditor.

January 31  Committees complete negotiations on the detailed term sheets to be implemented in a chapter 11 reorganization. Individual committee members agree in writing to support the plan after it is filed.

February 5  GM files its pre-negotiated chapter 11 case, including a detailed plan of reorganization and a disclosure statement which will include financial projections.

The first draw  of $5 billion on the DIP loan is approved on Day 1. The two Committees are approved as the official committees in GM’s chapter 11 reorganization.

On Day 1  The arrangements needed to guarantee or pay customer warranty claims in the ordinary course of business are presented to the court and approved. The DIP loan has a specific carve out of $2 billion to permit immediate use of taxpayer money for payment of consumer warranty claims. GM agrees to honor all warranty claims and the court orders GM to honor warranty claims.  GM and the Committees release a schedule showing the timeline for completion of the chapter 11 case no later than March 31, 2009

February 15  Court approves the GM documents needed to solicit votes on the plan from bondholders, trade creditors/suppliers, the UAW and the retiree trust. The plan incorporates any UAW concessions and any changes in payments to the retiree trust. The two Committees and each committee member agree to vote for the plan and recommend the plan to other creditors.

February 17  Court approves the balance ($15 billion) of DIP financing, and preliminary approval of an additional $20 billion line of credit for post-chapter 11 financing.

The provisions for continued government financing of GM are also included in the plan and will be implemented once the plan is approved. In total, $40 billion of loans or lines of credit are available to GM.

February 28  Votes on the GM plan are counted and the plan is approved.

March 10  Court hearing held to approve the GM reorganization plan.

March 26  GM reorganization plan is implemented and initial distributions begin to creditors holding undisputed claims. GM distributes warrants to the US Treasury as compensation for making the DIP loan and extending the line of credit.

After the plan is implemented the court will retain jurisdiction to rule on disputed claims, including any dealer termination claims, as well as retain the authority to decide a host of other matters and disputes. Because the plan will have a reserve that takes into account disputed claims, distributions to creditors will be made in one or more distributions as disputed claims are resolved.

By using expedited chapter 11 procedures GM can bind all stakeholders, including holdouts that object to the plan, holdout for preferential treatment, or do not bother to vote. GM can come out of chapter 11 as a solvent company, a far better result than what is proposed under GM’s current plan. Jobs at a properly restructured GM will be secure jobs. Government funding of GM will be better protected in chapter 11, and the refinancing of  government loans is more likely if GM is solvent and truly viable in the long term.

Jalopnik’s Editor and I have had some major differences of opinion. Ray Wert recently opined that a Chrysler-GM merger made good business sense. I disagreed. When Jalopnik sold “Save GM” t-shirts and claimed it was ironic, I said it was absurd. Today, Wert posted an editorial entitled “The Case for GM CEO Rick Wagoner.” Again, I disagree. The rant is deeply misguided, the logic and conclusions just plain wrong. And in a twist of [yet more] unintended irony, the editorial stinks of the sloth and corner-cutting that’s brought GM to its knees.

“While we’ve been a vocal critic [sic] of GM’s glacial restructuring effort,” Wert writes. “We’ve got to say the automaker probably should stick with the girl they brought with ’em to the ball — no matter how ugly.” This is no argument at all– unless you find the admonition against ‘changing horses mid-stream’ inherently compelling. General Motors has followed this non-strategy– stick with the same tired brands, the same poor products and planning, and the same incompetent management– for the past four decades. To no avail.

So what’s the justification, in Wert’s mind, for backing a loser? “Mostly because we can’t name anyone better who’d understand the product and the bureaucracy of the General.” Obviously, Wert’s inability to name a suitable replacement for GM CEO RIck Wagoner doesn’t preclude the possibility of his or her existence. In fact, it underscores the paucity of imagination suffered by the pro-Big 3 establishment collectively; demonstrating General Motors’ longstanding assumption that if they can’t do it, it’s not possible. Remember when GM said it was nearly impossible to make money on small cars?

Is it really that hard to find an executive that meets Wert’s supposed requirements, understanding GM’s product and bureaucracy? Even I understand GM’s products, and I have no managerial skills above the level of lemonade stand. As for grokking the complexity of GM’s bureaucracy, this is a double-edged sword. Any executive that comes from within GM doesn’t just understand the bureaucracy– they are the bureaucracy. While the FBI recruits mobsters to act as informants because they understand the mafia, it doesn’t recruit mobsters to work as actual FBI agents.

Wert opposes bringing in someone outside of GM because “… to bring in someone completely new to figure out that bureaucracy takes time GM just doesn’t have without tens of billions more in public monies.” But that’s the real issue here. This is public money. And while the taxpayers don’t get stock certificates (perhaps they should), why would we want the same management that carelessly squandered billions of dollars of GM’s privately-raised money? We have no reason to believe that Rick Wagoner’s cronies will be more careful now than they were before.

As for figuring-out bureaucracy, a new CEO doesn’t need immediately understanding of the company’s bureaucracy. They need to keep the company running more than the “two months” that Wert over-pessimistically prognosticates GM has left.

The “better scheme” that Mr. Wert then proffers reads like a sort of class president campaign flyer. “What this automaker needs … [is] an external force moving the current leadership to change quickly.” They also need 1000 mile-per-gallon sports cars. Neither is possible. Neither is orbiting possible. General Motors does not change quickly, and Rick Wagoner has never shown any proclivity for the kind of fast action the company so desperately needs. Hanging-up the phone on Carlos Ghosn doesn’t count as fast business action any more than driving to DC.

Not all that surprisingly, Mr. Wert’s pipe dream plan of adding yet another layer of bureaucracy to General Motors isn’t even internally consistent. Too little oversight of Wagoner, and we’re at the status quo, with public funding down the drain. If a board of independent assessors is going to scrutinize Wagoner’s every decision, why have him there at all? You lose the purported benefits of Wagoner “knowing his way around GM’s bureaucracy.” And in so doing, you actually amplify GM’s traditional problems.

I certainly don’t think Red Ink deserves all the blame for decades of chronic mismanagement at General Motors. But he’s the man in charge of the firm now. The executive who’s been CEO for eight and a half years. Prior to that, since 1992, Wagoner  high level executive positions. So he deserve plenty of blame. And he can no doubt survive taking one for the team with the small fortune he’s banked over the past 16 years.

It’s intriguing that GM posted a mea culpa to the Facts and Fiction site a few days ago. But absent major action, it’s meaningless. Mr. Wert can’t sprinkle their support for the status quo with a handful of criticisms and think it properly qualifies his opinions; that is the very definition of an apologist.

The “Case for Rick Wagoner” ignores reality. GM’s CEO is a failure. What’s more, he’s the public face of a company that needs a complete change of direction AND identity. General Motors must ditch Wagoner to tell all the disenchanted former GM owners and all those opposing the bailout that things really are going to be different. For GM, keeping Wagoner would insist on the status quo. For Mr. Wert’s part, he fills the role of accomplice journalist fairly well.

The nominations for TTAC’s Ten Worst Vehicles 2008 are in. All of last year’s winners [still in production] garnered repeat nominations. In total, there are 121 automobiles that TTAC’s Best and Brightest consider to be the Worst and Dullest. Our capable writing staff (and the rest of them) now has the difficult task of separating the merely bad from the inexcusably execrable. While we wait on their verdict, here’s a summary of what we have so far, and why.

In spite of the love heaped on hybrids by the “me-too” media, Hollywood hollowheads, auto execs looking for handouts and politicians going for green (of one sort or another), the gas – electric genre took it on the chin. The discussion on the Toyota Prius’ whitebreadiatitude almost came to cyber-blows (don’t ask). Meanwhile, commentators nominated several vehicles’ hybrid version (GMT-900s, Vue, Malibu, Aura, Aspen and Durango). So what’s wrong with these fuel misers?

On the GMT-900s (including the ever-popular Cadillac Escalade Hybrid), psarhjinian says, “A Venn diagram with environmentalists in one circle and full-size BOF truck buyers in another wouldn’t be a Venn diagram. It’d be two separate circles. On two different pages. Probably in two different books. Possibly not even in the same building.”

Jaje feels Chrysler missed the same boat with their Chrysler Aspen and Dodge Durango two-mode gas – electric models: “Chrysler again late to the game answered a question nobody ever cared about.”

Kurt B thinks the Vue Hybrid goes overboard on trying for the green image. “How many HYBRID stickers and badges can you put on one vehicle??? Owners should be supplied with a hair dryer, fishing wire and a can of WD-40.”

And GM’s lackadaisical attempt with the Malibu and Aura Hybrids struck Stevelovescars as just plain wrong. “They are a weak effort and the new 6-speed auto/4-cylinder engine delivers nearly identical mileage for less money. I bet they could sell you little “hybrid” badges to glue on the fenders of the base Malibu for $200 and it would make a bigger difference in attracting green-minded buyers to their showrooms.”

Hybrid anti-hype aside, commentators nominated vehicles for a variety of reasons. Some felt that bad marketing was reason enough for a vehicle to earn its date with infamy. The VW Routan (“Stick a VW badge on a Voyager and call it “German Engineering”? Oh please!” – Giltibo) and Jeep Compass (“a so-so small CUV that has NO place in a Jeep showroom” – Red Stapler) lead that particular pack.

Others felt that abject blandness justified a place on the list. In this, the Toyota Corolla was the pabulum poster child: “Most boring car I have ever driven. Looked at one for my fiance and she said the same thing (and she generally has no opinion about cars.” – shabatski.

No question: TTAC’s Best and Brightest go their own way in matters automotive. Four of Car and Driver’s 10Best were nominated for TTAC’s Ten Worst. These were the BMW 3-series (“The bigger is better theory has bloated the once nimble 3 series into former 5 series territory” – JTParts), the Honda Accord (“Japanese re-incarnation of the Ford Taurus. Overweight, too large, poor dash materials and bad styling.” – wolffman), the Honda Fit (“in typical Honda fashion, the outgoing model had better fuel economy… Even in the same Honda showroom you can get a Civic with more power and better fuel economy for the same price as a Fit.” – njoneer), and the Porsche Boxster (“Have crank will travel. Feel comfortable on the camskin while you wait for the tow truck to arrive.” – Bubba Gump).

You have to wonder what criteria C/D uses to select their “Best” when an informed group of gearheads thinks 40 percent of them actually belong among the “Worst.” Or, in C/D’s case, not. Anyway, the non-hits keep happening…

Seth L took Acura to task for the aesthetics of their latest offerings: “The new TL and TSX are ugly, bloated, and worse then their predecessors in most ways.” Steve Lang waxed eloquent about the car everyone loves to hate: “The Sebring though is just a hideous creature made out of 1700 Tonka toys. If it were any more plastic, it would be made in Hollywood.”  And y2kdcar’s progeny wondered what was going in BMW’s styling studios: “I pointed [an X6] out to my 12-year-old son, who immediately dissed it for being as ugly as the Pontiac Aztek and asked why a company would design something so hideous. I didn’t have a good answer for him.”

Historically, the previous year’s winners have been the front runners in the nominations process. So will the Chevrolet Aveo, HUMMER H2, Saab 9-7X, Chrysler Aspen and Jeep Compass make it a three-peat? Or has someone managed to come-up with something so abysmal it’ll usurp these perennial favorites? We’ll know soon. Voting to select TTAC’s Ten Worst Vehicles for 2008 commences on Friday.

[Click here for a pdf of all 121 nominees]

In the House Financial Services Committee hearings on loans to the auto industry, Rep. Maxine Waters hectored the CEOs of Chrysler, Ford and GM. The California democrat attacked the execs on behalf of “small” independent auto dealers on “Main Street.” “Is there a commitment by any of you to give support to these small independent dealerships that include a lot of minority dealerships that are going to close down?” Never mind how they replied. Implied but not stated: The Big Three are guilty of, at best, racial insensitivity. At worst, racism. It’s untrue, unfair and outrageous.

Rep. Waters is upset that GMAC, Ford Credit and Chrysler Financial Services are calling in notes– as opposed to perpetually extending credit– to minority car dealers. In the interests of fairness, let’s keep in mind that this is the same Congresswoman who, in 2003, informed us, “We do not have a crisis at Freddie Mac, and in particular at Fannie Mae.” So no surprise that Waters’ tirade about the domestics’ dealer reduction and consolidation plans misses the entire purpose of exercise: reducing surplus dealers to survive.

Once upon a time, Chrysler, Ford and GM owned the U.S. market. There were domestic dealerships and then there was… nothing. Minority dealer programs were first initiated by Henry Ford II because he thought it was good business and the right thing to do, not because of pressure from activists. Be that as it may, special considerations were extended to minorities. Through financial incentives and active recruitment, they were encouraged to own stores and train members of their community.

That was then. This is now. As the domestics’ market share has steadily decreased, the domestics’ dealer count became a gigantic anchor tied around their collective necks.

It costs a lot of money to supply and support all those dealers. Inter-dealer competition drives down average transaction prices, yielding lower average vehicle sales per dealer. And pandering to the plethora of stores has lead to the brand-diluting practice known as “badge engineering” resulting in yet further intra-store competition.

For example, at the moment, GM’s eight domestic brands account for 24 percent of the U.S. market. The General has well over 6k dealers. That’s down from the nearly 8k dealers back when GM’s brand portfolio accounted for over 35 percent of the U.S. market. But it’s still well over 4k more dealers than Toyota.

There is an upside to the domestics’ ubiquity: they are far better represented in rural areas and small towns than Toyota, Nissan, Honda, Hyundai and the rest of their transplanted competition.

Reading between the lines of Ford CEO Alan Mulally and GM CEO Rick Wagoner’s testimony in the hearings, both domestics [rightly] view their small town dealers as a strategic advantage. During his testimony, Mulally referred to Ford’s small town dealers: “We are woven into the fabric of every community that relies on our cars and trucks and the jobs our company supports.”

All of which means that Chrysler, Ford and GM are closing/losing proportionally more dealers in big cities than smaller cities and towns. Ford CEO Alan Mulally’s prepared remarks to Congress admitted as much, revealing that Ford has reduced dealers by a greater percentage in “large markets.”

There is no getting around the fact that the vast majority of minority-owned car dealers operate within large, urban markets. While there’s no reason to believe that minority-owned dealers are any less well-managed than other dealers, and many are indeed profitable, there’s also no reason to suggest that the domestics are targeting minority-owned dealers for closure. They’re simply in the wrong place at the wrong time.

To satisfy Rep. Waters’ desire to protect African-American dealers, to exempt them from the inevitable cull, Chrysler, Ford and GM would have to discriminate against both rural dealers and well-managed non-minority-owned urban dealers.

Of course, that’s exactly what Rep. Waters wants. She wants to make any loans to the domestic automakers contingent on their continued support of dealers that are part of their problems in the first place. “Do you believe that if we are to rescue these big automobile manufacturers we should insist or include in our language support for the small independent dealers?”

If there was a time when the automakers could afford to cater to the concept of political correctness, that time is past. In their fight for survival, to meet their obligation to return taxpayers’ money, the domestics’ must ruthlessly “right size” their operations. The bottom line is all.

The Detroit automakers are among the biggest private employers of minorities in the country. A larger number of minorities in the auto industry work within the domestics’ organizations than without. Rep. Waters needs to understand that if the Detroit automakers don’t consolidate their dealer networks, the automakers will not survive and a lot more African-Americans, Hispanics and other minorities will lose their jobs.

Detroit needs a thorough cleansing, from top to bottom. Think along this line and the answer to the question of how to handle the bail out becomes self-evident. But given an unemployment rate at 6.7 percent and growing, Congress hit the panic button and succumbed to the pleas for help from Detroit. Nancy Pelosi decided not to play scrooge with your money. And that’s not good. We’re not against saving jobs, and preserving holiday cheer. But it’s just plain dumb to give money to those who can’t manage their own businesses. It’s like giving crack as a Xmas present to a crack addict. Recovery just gets delayed.

Detroit doesn’t need three companies. It needs two: GM and Ford. Other than job subsidy, Chrysler has no reason to continue. Some 80 percent of its revenues come from the crowded and competitive North American market; not one of its products could be considered “leading” by any metric. Its vehicle quality– mostly lack thereof–is legendary. Worse, the company has no future products that will change its current trajectory into liquidation.

Why is the U.S. taxpayer on the hook for Chrysler? Unlike GM or Ford, Chrysler’s rich owner, a private equity fund with multi-billions in private capital available, has $7b to invest in its portfolio company. And the rest. Here’s the petard by which Cerberus should be hoisted. John Snow, Cerberus’ chairman, made these comments (excerpted with highlights) in Detroit in July 2007, shortly after the acquisition of Chrysler:

“Cerberus is one of the world’s leading private investment firms with approximately $26 billion under management. Our investors are primarily made up of pension plans, charitable endowments, insurance companies and other long-term savings and retirement programs, including many state pension funds.

Cerberus fixes up underperforming companies and rebuilds them. Our entire focus is on improving the performance of the companies we buy. We bring real operational expertise to bear on our investments, with a cadre of over 150 seasoned, senior-level proven executives who are able to provide a wealth of advice, as well as supplement management teams to produce superior results. We do this patiently, taking a long-term view on our investments. Unlike many purely private equity firms, Cerberus does not invest with an exit strategy in mind. We invest with a “find, fix and hold” strategy.

The prescription we offer is patient capital. Because our investors – a broad base that includes pension funds, state workers’ programs, and private individuals – have a long investment horizon, we can afford to have the long view…to do things right.

For a starved enterprise with a sound strategy, we can offer much needed investment in products and people, freeing captured value. We are able to inject equity directly, and also efficiently raise capital in the debt markets.

Over twenty-five years ago, when Chrysler faced bankruptcy, it turned to the United States government for assistance. Today, Chrysler again faces new financial challenges. But it is private investment stepping in to inject much needed support. Now, Cerberus has the opportunity to use the tremendous financial innovation of private investment to turn Chrysler around, to restore it to financial success, and to help it be a continuing source of good jobs for many Americans, as well as great products for American consumers.

Cerberus should be responsible for saving its investment in Chrysler. Period. Congress doesn’t see want to see union workers out in the cold and doesn’t want to pick winners and losers among the auto makers. So Chrysler gets dollars now too. Too bad for the taxpayers, but it’s the wrong decision Ms. Pelosi. Chrysler will only come back for more. There’s no way that $7b plus Section 136 billions (that’s the Energy Department program for fuel efficiency technology) gets this company to a profitable future. That takes years, not months, and a miracle that the public will find sudden virtue in the Chrysler badges. Are you outraged yet?

GM gets cash now, maybe $10b, to keep the lights on until March. And we hope that’s first priority funds, backed-up by every single un-hocked asset that GM has left. If Congress has real guts, they’ll tell GM to come back with a program, and not a plan, before March 31st. This program should look like a pre-packaged bankruptcy, with all the agreements in place from the creditors and the unions. But once the government opens its coffers, none of the creditors or the unions will be willing to take meaningful haircuts. They don’t need to– the government blinked first and will do so again. Why give now?

As for Ford, let’s face facts, Alan Mulally was only there to show support. He doesn’t want GM going into bankruptcy since Ford would go over the edge as suppliers fail. But with an assurance that funds will be available for The General, he can now rest at night as his suppliers can remain in business. But I’m sure he wished Congress would let Chrysler go down, he’d pick up a big chunk of their truck business sales– enough to alleviate his needs for future borrowings.

Pressed by time and rising unemployment. Congress took the easy way out. Ok, we get to watch the drama unfold this winter. Our job will be to continue leading the charge for meaningful restructuring at GM. We’ll root for Alan Mulally to accelerate Ford’s restructuring. And we’ll pray that Congress doesn’t advance another dime to Chrysler.

If there is one man responsible for GM’s successful semi-suckle on Uncle Sam’s teat, it’s Steve Harris. I reckon GM’s PR mastermind moved the Congressional bailout hearings from the beginning of the week to the end. Tuesday’s catastrophic new vehicle sales numbers highlighted the fact that SOMETHING HAD TO BE DONE. Friday’s unemployment stats added the critical word NOW. Once Congress convinced itself that it could convince the American public that really bad shit was about to go down, the bailout was a done deal. In truth, it’s just the start. Harris knows it, you know it, and the American people know it.

A recent CNNMoney poll revealed an enormous gap between voters who don’t support the Detroit bailout (61 percent) and those who don’t support the Detroit bailout and think it won’t help the U.S. economy anyway (70 percent). In this latter assessment, for once, common sense prevailed. If $700b to the smartest minds on Wall Street didn’t stop the recession, why would handing over less than a tenth of that to a troika of failed companies have a salutatory effect?

I choose my words carefully. Despite The Big 2.8 and our (their?) elected representative’s concerted and sustained effort to make Motown a synonym for domestic automobile manufacture, the average Jorge and Juanita knows the difference between Chrysler, Ford and GM and “the American automobile industry.” They understand that they have alternatives. Hell, they like the alternatives. They bought the alternatives. And no one’s threatening to take those cars away. Which frees them to ask the obvious, inescapable question: “where’s MY bailout?”

Considering the source of Motown’s collective “bridge loan,” this IS their bailout. And if taxpayers aren’t happy about the tens of billions of dollars heading for The Big 2.8’s coffers now, just wait until March, when Detroit’s begging bowl brigade descends on DC for Round Three. The chance of them getting a second bite at the multi-billion dollar proverbial cherry grows dimmer by the day.

In their search for survival at any cost, Motown’s mavens have maneuvered themselves into a lose – lose situation.

For one thing, either the economy will be in a severe recession/depression by March or it won’t. If it is… see? The Detroit bailout didn’t work. Fairly or not, if the industry’s prospects still suck, Congress will have little luck trying to sell the electorate on the idea that the bailout was a “success” that deserves repetition. If Detroit’s prospects suck even more than before– a downgrade that occurred during the two-week bailout-begging interregnum– the pro-bailout position will grow even less tenable.

At that point, by March, bailout fatigue will be terminal. Voters will realize that this Detroit bailout thing was never about “us.” It was always about THEM. And sorry guys, you had your go. Sink or swim. We’re floundering in our own sea of troubles.

If, however, the U.S. economy is NOT any worse than it is now, the argument underpinning the bailout ALSO loses justification. Once again, the feds bailed someone out and… nothing happened. American voters aren’t like OCD sufferers constantly checking to make sure the gas is off. The fact that a cataclysmic event didn’t occur isn’t proof that Uncle Sam was right to devote his time and our money to making sure it didn’t happen. Triple negative aside, what the Hell was THAT all about? I’m not paying for THAT again!

If voters are P.O.ed that Wall Street “squandered” their $700b, how do you think they’ll feel about Chrysler, Ford and GM’s “progress” over the next two months? Let’s face it: The Big 2.8’s sales will continue to fall. Their share of the shrinking U.S. market will continue to erode. Union concessions, debt-for-equity swaps and (God forbid) management changes will do nothing to staunch the flow of red ink, or remove the big fat “L” tattooed on Motown’s collective forehead. No matter what they do or don’t do, this bailout brands them as losers; now and into the future.

To counteract this cancerous concept, GM PR will spend the next couple of months spinning their [same old] turnaround story. Ford will continue to trot-out their entirely disingenuous “What me worry?” insouciance. Chrysler? Fuhgeddaboutit. They’re already dead. Come March, they’ll just be deaderer. Maybe even officially.

There’s your wild card. On one hand, the remaining domestics could point to a Chrysler collapse as a cautionary tale. Fork over more money or stick a fork in us. Your choice. On the other hand, Chrysler’s extinction could provide a compelling argument for a GM (and thus Ford) Chapter 11 reorganization. See what happens when you try to bailout a lost cause? Abandon all hope of a non-C11 turnaround ye who enter these congressional halls.

And that’s how this will go down. Next week’s bailout billions will be the only pre-C11 money for Chrysler, Ford and GM. Anything after this will be a debtor-in-possession deal. Bankruptcy isn’t just the right thing for these automakers; it’s the only thing. Even Steve Harris knows that. And if he doesn’t, God help Detroit.

Between 1848 and 1852 telegraph line miles in the US increased by more than 1000 percent. By 1860, most of the companies that laid those lines were gone. The telegraph did not disappear, but the market for cable unraveled. Now that the CEOs of GM, Chrysler and Ford have sent a collective SOS to Congress, its relevant to step back and look not at the now, but the whole. The cycle’s called boom-bubble-bust. Not, bailout. Put another way, what kind of market does Detroit expect to find on the other end of their bridge loans?

As I’ve argued here before, this decade’s early average of 16.9m new vehicles sold per year was the result of cheap and easy credit. From 2001 to 2003, the Federal Reserve cut the funds rate from 3.5 percent to one percent. The lowest since the 1950s. Low-cost, low-security loans flooded the marketplace, inflating the housing market like a rented bouncy house. The automobile business poached off the same line of credit.

For most of the 00s, credit flowed like champagne at a Ritz reception. The car buying climate was the best it had ever been in history. Combined with relatively inexpensive gasoline, the market for cars and trucks grew to full bloom.

Between 2000 and 2006, the number of licensed drivers grew by 1.1 percent.  Car sales went up six percent over the same period, outpacing anyone’s expectations. In 1998, there were about 12m more vehicles than drivers. In 2006, we bought 34m extras. During this same period, median household income, adjusted for inflation, inched up only three percent.

So, the population didn’t boom and there wasn’t a huge influx of disposable income. During  the first half of this decade, people were not picking-up new rides based on need. That’s called a bubble, as in dot-com bubble or real estate bubble or any of a number of other past pop hits. Yes, there’s always a pop.

“We had above-trend years, some of which was caused by an incredible growth in household net wealth that later we found wasn’t real,” George Pipas, director of sales analysis and reporting for Ford Motor told BusinessWeek.

Bob Schnorbus, chief economist with J.D. Power & Associates added, “It’s going to take us many years to get back to a trend level of sales, let alone the levels you might hope to see.”

The boom-bubble-bust cycle is actually pretty common. It afflicted the telegraph industry, railroads, baseball cards. It’s surprising more auto industry executives didn’t see it coming-– or at least acknowledge its arrival. Even ultra-conservative Toyota ramped-up truck capacity as the bottom was falling out of the market.  Still, as long-time TTAC readers know, this downturn isn’t some kind of alien invasion. Lots of people shouted duck and cover.

Michael Mandel, at BusinessWeek, reported on the bubble in 2004. He reminds us on his blog, “Moreover, I also noted that the popping of the auto bubble could have harsher economic consequences than the end of the widely discussed housing bubble.”

Demand for all vehicles has contracted greatly, worldwide, in the last quarter. Current numbers are almost certainly an extreme. To where, exactly, the market may bounce back is not clear. A rough consensus of forcasters puts us at 16 million vehicles by 2012. Maybe.

That leaves the U.S. with excess auto production capacity. It’s that excess capacity they’re asking Congress to prop-up.

It can’t be sustained.  A third of the auto industry workers across the country are stuck in a Warner Bros. cartoon. The floor’s been blown out– they just haven’t fallen just yet.

In the end, bailing-out Detroit isn’t so much the issue. What is the market going to look like for the next handful of years? Are GM, Ford and Chrysler prepared for it? Are they, in fact, able to turn, flex and shift with the economy? A market becomes more competitive as it shrinks.

We didn’t bailout the hat-blocking industry back in 1960. There wasn’t much of a point. The market changed. The car market isn’t evaporating, but changes are in the works. If people’s tastes turn resolutely to more efficient vehicles, if people hang on to their iron a lot longer to avoid a financial inquisition (and resulting interest), if people flat-out can’t get a loan and decide to take the bike or bus (transit ridership is up 5.1 percent for the year), then money from Congress is feeding a ghost.

Western Union is still around. They don’t send telegrams. Bubbles can’t be re-blown.

As yesterday’s Senate hearings wound down, it was hard not to be impressed with how pragmatic the conversation had become. By DC standards, at any rate. But any hope that the second day of testimony would build on the previous day’s momentum was misguided. Far from picking up on the previous day’s progress, the House Financial Services Committee testimony and questioning returned the conversation to step one, in a flurry of irrelevant posturing and evasive non-answers. Backsliding and tangential wanderings notwithstanding, we did learn a little more from today’s hearings.

When Rep Barney Frank gaveled the House Financial Services Committee to order, he began by noting that consensus that had been reached on the need for reorganization, changes in product mix and union concessions. This positive start was followed by immediate disappointment. Frank spent the rest of his opening statement explaining that bankruptcy wasn’t an option, and that the financial bailout made it somehow morally impossible to turn Detroit down.

Following Frank’s opening salvo, Pennsylvania Democrat Paul Kanjorski highlighted Moody’s Money Man Mark Zandy’s estimate of a $75b-$125b total bailout price tag. “We need a solution, not a first payment,” Kanjorski said. He matched Frank rhetoric for rhetoric: a Detroit bailout would bring lines of businesses to DC’s demanding the same congressional favors. The divide between the speakers– from members of the same party, no less– showed just the distance traveled from yesterday’s apparent consensus.

Not that the witnesses were worried about the re-do. Rather than preparing new statements reflecting the previous day’s debates, all three executives and their UAW compadre recycled the exact same statements they’d made before the Senate the day previous. The folksy one-liners, such as Mullaly’s invitation to “come over and kick the tires” and Gettelfinger’s “bridge to a brighter future” bon mot, were repeated with the same insincerity.

But why would the supplicants remind the lower house of congress that their more distinguished colleagues had all but damned Detroit to a four-month crash reorganization? By returning to their opening bid, they allowed the committee members to break the discursive trajectory, and head in their most favored directions. This being the house of representatives, the oportunity was not ignored.

A particularly egregious example: the opening statement by Rep Donald Manzullo (R-IL). His suggestion that automaker plans should include a request for an auto demand stimulus would do nothing to address the core issues: short-term cash infusion and long-term reorganization. Luckily, his remarks were easy to ignore, thanks to his insistence that workers in his district built “the world’s finest compact autos, the Caliber, Patriot and Compass.”

Rep Ron Klein (D-FLA) raised the specter of American Leyland, arguing that research and development for The Big 2.8 should be brought “physically under one roof,” so the American taxpayer would “understand that they were getting something tangible.” Of course, rather than referencing the failed British state conglomerate, Klein introduced his proposal as Ye Olde Manhattan Project. Knowing it would never happen, the plan was enthusiastically endorsed by all three CEOs. GM’s Wagoner insisted that this kind of collaboration and government support is “why the leaders in battery technology are in Japan and Korea.”

On a more substantive front, several representatives were less-than-enthusiastic about GMAC and Chrysler Financial’s plans to attain bank holding company status to “liberate” Troubled Asset Relief (TARP) funds. As we’ve pointed out previously, Detroit has largely survived thus far by creating a “subprime auto loan” market which is no longer sustainable. Yes, well, Toyota and Volkswagen have lenders with bank status, so these concerns  disappeared in another blinding flash of relativism.

But for every Spencer Bachus and Barney Frank arguing for expediting bank status, there was a Manzullo saying “you’re there to make cars, not run a banking operation.”

Rep Thaddeus McCotter  made a run at the Bob Corker award, by proclaiming a “solomonic” [sic] compromise. Unlike Corker’s far-reaching, pragmatic proposal, McCotter simply suggested splitting the expense between TARP and the section 136 (D.O.E. retooling) money.

The man the DetN likened to Winston Churchill (although they don’t share an antipathy to passive construction and misplaced prepositions) pronounced that “opposition in Congress is not to the idea of helping the automakers but rather to where the money would come from.”

The fact that only $7b of the 136 money is currently available didn’t give McCotter pause. Nor will it stop Congress. In an earlier exchange, Frank swept aside concerns that rash action on debotr seniority could undermine the entire basis of America’s credit system. “We wrote the bankruptcy laws,” Frank snapped. “We can change them.”

Probably the only common thread from yesterday’s hearing was a deep contempt for Chrysler. At this point it seems fair to stick a fork in a certain well-cooked three-headed dog. Nardelli faced yet more contempt on the “if it’s such a great plan why don’t you get your Mr. Moneybags owners to put up the damn money?” front. His answer, “they haven’t shared that with me,” convinced no one.

Rep Kanjorski got all three failed automakers to agree that they could survive 90 days on $14b worth of “bridge bridge” loans, with Chrysler getting $4b, GM getting $10b and Ford getting nothing. This will allow a government brokered agreement. The Congress recognized that extracting the major concessions needed from all the automakers’ stakeholders (where did I put my Buffy?) to create a mega-bailout ain’tgonnahappen.com.

Expect these funds to be appropriated fairly quickly, with a government oversight board assigned to guiding major reforms. Based on the evidence of today’s hearing, there are no guarantees that a coherent vision for the industry will emerge in only three months. And so it goes.

With all the industry news we’ve been covering, the Ten Worst Vehicles Awards got pushed to the back burner. But now that the meltdown is underway and seems to be running on autopilot, it’s time to take a look at the jaundiced jalopies that contributed to the fiasco formerly known as the auto industry. For those of you who are new to the site, the Ten Worst Vehicles is TTAC’s homage to excessively egregious examples of vehicular vomitus the automakers puked on the car-buying public during the year.  TTACs Best and Brightest (that’s you) make the nominations, our crackhead team of writers narrow the field to 20 or so of the crappiest and then you vote on the top (or bottom) ten. Just to refresh your memories, here are the buckets of bolts you selected as the crème de la crap in 2007:

10. Saturn ION – Thankfully they finally rethinked this one right out of existence

9. Chrysler Aspen – A high-tech hybrid powertrain and massive incentives aren’t enough to revive this turkey.

8. Chevrolet TrailBlazer / GMC Envoy / Isuzu Ascender / Saab 9-7X  – All but dead.  Good riddance.

7. Hummer H2 –  Sells so poorly the entire division is on life support.

6. Hummer H3 – That’s not an exhaust note, it’s a death rattle.

5. Chevrolet Uplander – Dead and finally gone.  They even closed the plant.

4. Dodge Nitro – Fizzled like wet fireworks.

3. Chevrolet Aveo – The mouth breather grill won’t help this bottom feeder.

2. Chrysler Sebring – So bad even the rental companies aren’t buying it.

1. Jeep Compass – Jeep enthusiasts asked WTF and buyers agreed.

In case you’ve forgotten since last year, or you’re a Ten Worst virgin, here’s are the rules:

1.  Any car or light truck offered for sale as a new vehicle in the U.S. between January 1 and today is eligible for nomination. I know those of you in Canada and other countries feel left out, but we have to draw the line somewhere to keep this under control.  It doesn’t matter who built it or where, just that it’s sold legally in the States.

2.  All nominations have to be justified.  That doesn’t mean just saying it’s a POS car.  Tell us WHY it’s a POS car.  Nominations may be deleted unceremoniously and without warning for any of the following reasons:  insufficient justification, excessive verbosity or pontification, foul language or patent absurdity.

3.  All nominations must meet TTAC’s house rules on flaming or trolling (i.e., don’t).  Offensive comments about other readers will be summarily deleted and the writer could be banned from TTAC.  However, offensive observations about the nominees are encouraged.

4.  Blatantly badge-engineered siblings can be nominated jointly if they all suck equally (see winner #8 above).  Platform mates can be nominated separately, but may be combined at the whim of the editor for the final vote.

5.  If we can wake them up long enough, TTAC’s writers will select 20 finalists from the nominees, give or take a few.  The number of times a vehicle is nominated is irrelevant so don’t waste the pixels on typing “me too.”

6.  Readers will vote via an electronic survey on the 20 or so finalists to determine America’s Ten Worst Vehicles.  Multiple voting ain’t kosher so don’t even try.

7.  Nominations begin today and will continue until midnight EDT, Sunday December 8, with the 20 finalists presented for voting a few days afterwards.  The winners will be announced whenever we get around to it.  We have nothing to give the winners but our disdain, so the winning manufacturers will find out about it like everyone else.

How do you decide what crapmoblies are worthy of your attention?

– Styling so bad it could even make Stevie Wonder look the other way.

– A market misfit that makes you wonder what the product planners were smoking, drinking, shooting up or otherwise self-administering.

– Engineering malpractice that makes the vehicle practically undrivable or so bland you wouldn’t want to drive it.

– Something that you can’t quite put your finger on but gives you the urge to regurge anytime you think about it.

So now it’s in your court.  Make your nominations below and tell us which ones you think are really deserving of being named one of TTAC’s Ten Worst Vehicles for 2008.

Please note: Nominations will close at midnight EST Sunday, December 8.

The tone at today’s nearly six-hour congressional hearing on the auto industry bailout was markedly different than the now-infamous hearings of 11/18. Last time ’round, the automakers thought they were flying walking into a bailout-friendly environment, and maintained their PR-fluffed facade of a few good companies who had fallen on hard times and needed a hand to reach a glorious, fuel-efficient future. And though several representatives laid into the CEOs and their companies, those bashes were little more than populist sound and fury, signifying nothing. Today’s hearing was by no means devoid of politicking or disingenuousness, but a new sense of urgency was palpable. And for good reason. With Senators still far from a consensus, the automakers and their sidekicks had to abandon their long-held preferences in favor of the best available outcome. After all, saying “bankruptcy is not an option” only works when everyone agrees with you.

The seeds of an eventual outcome were sown by the first witness. GAO Comptroller General Gene Dodaro testified that collateral and an oversight board would be necessary in any publicly-funded outcome. Dodaro agreed with Chairman Chris Dodd (D-CT) that there was nothing in the Troubled Asset Relief Program (TARP) specifically preventing a manufacturing bailout. What’s more, the Federal Reserve has the authority to issue loans

Nardelli, Mulally and Wagoner must have felt considerable relief. Straight out of the gate, the question “if” was conspicuous by its absence. All conversation centered on “how.” In later testimony, all three CEOs agreed to any form of oversight the government wanted to impose short of a 350 lbs. minder. On the table: a 1979-Chrysler-style board or a single “car czar,” as suggested by Sen Chuck Schumer (D-NY). Yeah, sure, whatever.

And then the issue of collateral reared its ugly head. As in “what can you give us if we give you $34b?” The issue was discussed at great not to say interminable length. As the scope of Detroit’s indebtedness was examined, it became clear that the auto execs couldn’t promise anything more than some level of debt seniority.

Since everyone in the hearing room had agreed in principle to a government oversight body, the questions soon turned to restructuring and long-term viability.

Chrysler was treated to a withering analysis by (among others) Sen Bob Corker. The Tennessee republican pointed out that part of Chrysler’s viability plan depended on “getting married” to some other firm. Though Nardelli insisted that this meant getting contract work building Routans and Titans, Corker dismissed the equivocation saying “nobody alive thinks Chrysler is viable on its own.” He noted ChryCo is a “portfolio company” in a private equity fund that refuses to rescue it. This highly necessary statement of the obvious eventually brought back discussion of a possible GM-Chrysler “merger.”

Nardelli jumped on this. He trumpeted the fact that any such a merger would save $10b to $20b per year. Wagoner agreed that savings were there, but said that short-term cash flow needs had taken priority over the merger. When asked if they would support a merger if it was a condition of loans, Nardelli said that even though his job would be “the first to go,” he was willing to make that sacrifice to save the company.

This unexpected display of honor was a subtle but powerful tipping point in the proceedings. It was easily the most public display of vulnerability by any of the executives. For the first time, there was a real understanding that Detroit was no longer negotiating, but supplicating.

Not long after this astonishing display, Sen Corker again had the floor. He worked steadily towards a compromise based on reality. He pointed out that Gettelfinger could not force his union brothers to accept any sacrifices unless “bankruptcy is the endgame.” His solution: force the UAW to reduce its labor costs to transplant levels and turn at least half of VEBA into equity and get GM bondholders to drop their debt at 30 cents on the dollar by March 31, at which point the federal government would assume debtor-in-possession financing for a reorganization. He also recommended that Chrysler merge with GM.

This appears to be the consensus exiting the meeting. Which means that Cerberus faces a choice of either liquidating Chrysler or merging with GM. Ford will have to survive until retooling loans come available, although there is some chance they’ll get a small credit line with some restrictions.

Meanwhile, General Motors and the United Auto Workers face about 30 years worth of necessary change in just under four months, still absent any guarantees that they’ll even survive that long. There will be further testimony at tomorrow’s hearings before the House Financial Services Committee. TTAC will be watching.

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.

If you need proof that GM’s management hasn’t changed, consider the fact that the company is preparing not one but two rescue plans for Congress, The automaker claims it needs both a public plan and a top secret “for their eyes only” brief because sharing “proprietary information” in a public forum could be “problematic.” Total hogwash. There is only one reason GM won’t let the public view detailed information about its future– it doesn’t have one. With or without a look at the fine print, the truth remains: GM’s restructuring plan as presented to Congress will never work.

GM’s 10 to 12 page public document will cover, in broad strokes, the changes the otherwise and in any case C11-bound carmaker promises to make in return for some $12b worth of government loan guarantees. We already know most of what the document will include: a long-range vision of fewer brands and dealers, UAW concessions on the JOBS bank, and a “plan” to do a partial debt for equity exchange with its bondholders. We might even get to see a pro forma balance sheet and income statement that “proves” the plan works. We will definitely see GM’s PR maestro Steve Harris’ hand, ensuring that the headlines offer journalists a vision of Zion from the top of the RenCen.

Bullshit. Without specifics GM’s public plan is a sham. It’s a PR exercise designed to convince Congress that GM has “gone back to the drawing board” while hiding the truth of the company’s prospects (such as they are) from those of us who earn a living dissecting these “promised land” statements. There will be nothing in the public report that will prove that GM has the capacity to restructure in such a way to become profitable.

As always, the devil is in the details. Yes, brands will be dropped. But the termination will occur as already planned: over time, not immediately. And those brands chopped will be part of an existing sales channel; dealers will lose a franchise, not their dealership. More specifically, Pontiac will die–- leaving most dealers with Buick and GMC. Saab and Hummer go away, leaving Cadillac to stand on its own. Saturn will be “re-energized” somehow, not killed. Add that up and it’s a whole lot of nothing. Literally.

Yes, the JOBS bank will disappear. United Auto Workers boss Ron Gettelfinger finally got the message that most Americans find it beyond ridiculous that union workers get 95 percent of their salary for doing nothing. The part we won’t see: JOBS bank members will get paid to not get paid not to work. Think of it as forced buyouts instead of voluntary; which also conforms existing attrition plans. As for the Mother of All Health Care Funds (a.k.a. VEBA), the UAW will agree to delay the $7b payment due– in lieu of immediate shortfall health-care compensation. Congress will miss the nuance of shifting a balance sheet liability to an operating expense.

Yes, there will be debt exchange. In theory. GM will say it needs federal money now to buy time to arrange the exchange. But there’s not a chance in the world that GM has gotten agreement from those bondholders in the two-week period since the disaster on the Hill– especially as GM’s plan for a restructuring won’t work. In any case, we’ve already written (and Porsche’s CEO agrees) that GM would have to surrender the company to the hedge funds if any such exchange takes place. GM’s dead if they do, dead if they don’t.

The secret plan we won’t see will prove to those knowledgeable about such things that GM’s new new new new new new turnaround plan can never work outside of bankruptcy. But those in-the-know will keep their mouths shut. All we’ll get are headlines about the “New GM.” Proof that GM is and will be making the “hard decisions” necessary to achieve profitability. Executives taking pay cuts. Dealers calving-off worthless brands (while still trying to flog “badge engineered” copycats from Chevrolet and Cadillac). A new, more compliant UAW.  And bondholders “indicating” willingness to do an exchange-– without it actually being done.

Congress is about to risk $25b of OUR money on GM and their cross-town frenemies. We need to contact our representatives and demand that they give us the whole GM recovery plan, nothing less. Let the public see the fine print and render OUR opinion. Maybe the plan will contain some details we didn’t think about. Maybe it offers a remote chance of working. But given GM’s history of unrealized promises of turnarounds and great new products, the secrecy indicates that the truth is both unprofitable and unpalatable.

[If you have access, please email the “secret plan” to robert.farago@thetruthaboutcars.com]