As predicted, the feds have bailed out bankrupt parts maker and former GM division Delphi, through GM, to the tune of $2.5 billion. That doesn’t include the $250 million direct subsidy from American taxpayers. On other hand, GM no longer needs to buy those five Delphi factories GM as previously reported. The cash for the Delphi buyout arrives via one of those “follow the money” deals, as the Wall Street Journalreports. “GM will provide more than $2.5 billion of the $3.6 billion necessary for Beverly Hills-based buyout firm Platinum Equity to gain control of Delphi, according to a person familiar with the matter . . . Under the terms of the transaction, Platinum is expected to invest no more than $750 million, according to the person familiar with the deal. GM would provide the balance in financing. Those financing commitments may or may not be drawn upon in the future, depending on how Delphi performs. The terms of the GM loans couldn’t be learned.” So much for GM CEO’s promise of transparency at yesterday’s Senate hearing.
Here’s an email making the rounds amongst GM’s remaining employees:
Just announced: Now through June 30, 2009, the GM Employee Discount for Friends program* lets you share employee pricing with anyone you know who owns a competitive vehicle. It’s the ideal way to get more friends into GM vehicles.
Bankrupt parts maker Delphi is set to finally leave bankruptcy, thanks to a little help from American taxpayers (who else?). OK, sure, technically, only a small fraction of Delphi’s just announced $3.6 billion dollar rescue pack will come from the federally funded “new” GM. We’re talking table scraps, at $250 million. Mind you, this cool quarter billion doesn’t include GM’s forthcoming purchase of five– count ’em five Delphi plants– at an undisclosed price. And if past history is a guide, well, let’s not forget that GM has taken more than $11 billion in charges against Delphi since they spun-off their money-losing division. As Automotive News [sub] reports, we don’t know how much Platinum Equity is paying to buy Delphi’s worldwide ops, or how much of the manufacturer they’ll actually own (i.e. how much we own). Although Bloomberg seized on Delphi’s exit strategy as sign that the auto industry has turned a corner, it’s probably more of a sign that the strip and flippers—cough Cerberus cough—-know a sucker when they see one.
Previously, on Who Wants to Own an Automaker, I estimated the Motown meltdown has sucked more than $100 billion from the taxpayers’ purse. I forgot to mention the tax breaks that the Treasury Department will bestow upon “new” Chrysler and “new” GM. The Desert Sun reports that GM will benefit from Uncle Sam’s new rules for bailout recipients—’cause we don’t want a government-owned/controlled/supported enterprise to pay taxes to the government, now do we? “The notices have the full effect of a law, even though they aren’t reviewed or approved by Congress. They also apply to banks and other financial firms receiving money from the Troubled Asset Relief Program, or TARP.” Remember “these are not ordinary times. The Treasury Department has, in effect, suspended long-standing tax rules for companies that receive bailout money, providing benefits not available to firms that don’t receive government help.” The Sun says GM could avoid some $12 billion in taxes. Wait; did you spot the loophole?
Bloomberg reports that the US Treasury has decided to bless post-C11 Fiat-controlled Chrysler with a $6.6 billion dowry. And just for S&G, the feds will write a check to pre-C11 GM for an “extra” $360.6 million, earmarked for its presidentially guaranteed warranty program. (That’s thanks to the Troubled Asset Relief Program, for some reason.) “The assistance brings to $19.76 billion the total that Detroit-based GM has received so far,” Bloomies tallies. Oh, and “new” Chrysler is also set to scarf an additional $350 million under a loss-sharing deal with GMAC LLC. Rounding it up a bit . . .
For taxpayers to be made whole, the new mini-G.M. would have to produce earnings sufficient to support an enterprise value of at least $95 billion, the sum of a $69 billion market cap and its $26 billion of debt and preferred stock under the restructuring plan. Using market valuation multiples of five times that means New G.M. must generate operating cash flow somewhere in the order of $19 billion annually.
That would require both increasing annual sales to some $150 billion, almost 50 percent more than the entire company, shorn of its various financial and international businesses, is expected to generate this year, and matching the whopping 14 percent operating cash flow margin that Toyota achieved in its best year ever. It requires a vast leap of faith to believe that can happen.
After taking plenty o’ heat for “helping” Chrysler and GM shit-can nearly 2000 car dealers, the Obama administration has arranged a little sugar for the remaining stores—and then some. They’ve created a federal loan guarantee program for dealer inventory financing that’s worth, you guessed it, billions. Automotive News [AN, sub] reveals that the Small Business Administration’s “pilot” program for car dealers (women and domestics first?) will run from July 1 to September 30, 2010. And what, pray tell, do the lucky, politically-connected car dealers get for our money?
No surprise there. GM needs its former in-house parts maker to survive, and Delphi is as dead as a doornail. After almost four years in bankruptcy, no one in their right mind would invest in Delphi. In other words, you’re up! Automotive News [sub] reports the glad tidings (without once threatening to connect the dots): GM is to re-absorb five Delphi plants. “General Motors has agreed to assume ownership of five Delphi Corp. plants in the United States and operate the UAW-manned factories as a wholly owned subsidiary, according to union highlights of the tentative new contract between GM and the UAW . . . Delphi spokesman Lindsey Williams said announcing the deal is premature. ‘Any agreement regarding Delphi assets is subject to approval by lenders who have loaned money to Delphi in bankruptcy as well as approval by the court,’ he said.” Premature in the sense that adding to GM’s bailout bill is not to the most politic of maneuvers. Premature in the sense that Delphi was due in court on Thursday to hash out its impending implosion. But true, nonetheless.
Automotive News [sub] has seen an advance copy of an interview with president Obama on C-Span. Strangely, re: GM’s future, Barack doesn’t use the “b” word. But the prez does promise to return the automaker to private command and control. Eventually. “Ultimately, I think that GM is going to be a strong company, and we are going to be pulling out as soon as the economy recovers and they’ve completed their restructuring.” As my father is wont to say, how much is this boondoggle going to cost me? To recap . . . “The Obama administration has injected $19.4 billion to keep GM afloat since the beginning of the year, including another $4 billion on Friday. The government stake is commitment is expected to rise to $27 billion after June 1.” And the rest.
Bloomberg reports that General Motors drew $2 billion more than previously announced, feeding the cash burn raging amongst the company’s embers (or something like that). May’s federal payout brings The General’s monthly total to $4 billion. Not including the new $7.5 billion payment heading to its former captive still current lender GMAC. Which is on top of the $5 billion already propping-up the eleventh hour bank. And the $1 billion given to GM earmarked GMAC. Anyway, re: today’s $2 billion overdraft, GM is characteristically contrite. “Today’s loan draw is higher than the amount forecasted in the April 27, 2009 S-4 Filing for the Bond Exchange Offer and reflects updated timing of when certain expenses would be incurred. Total U.S. Treasury funding received by GM to date is $19.4 billion.”
According to the Detroit Free Press, opposition to the Presidential-Task-Force-on-Automobiles-administered Motown meltdown mishegos is “growing.” Who’d a thunk it? But wait! “They” are not voters fed up with dozens of bailout billions shoveled down a Chrysler and GM-shaped rathole. Nor are “they” free marketeers objecting to a sitting president telling a CEO to take a hike. Nope, the Freep is referring to Congress critters representing the Chrysler and GM dealers terminated with extreme prejudice. “Dealers were the focal point of a hearing by the House Judiciary Committee on Thursday under Chairman John Conyers, D-Mich., where industry critic Ralph Nader said the rescue plans were ‘a conclusive death star to tens of thousands of jobs.'” When asked by Rep. Lamar Smith, R-Texas, whether Obama’s auto task force was “unsafe at any speed,” Nader, author of a 1960s exposé by the same moniker on the dangers of the Chevy Corvair, replied: “Can we please stick with my metaphor?” No, seriously, he said, “Yes—worse than that.” Which is almost as nonsensical. [NB: Is there such a thing as a non-conclusive Death Star?] Anyway, here’s what makes this particular special interest group so special . . .
Anyone out there keeping track of how much money the federal government has plowed into GM, as the automaker downsizes to death? The Washington Post reckons that the next post-bankruptcy tranche—the debtor-in-possession financing needed to cleave GM into “good” and “bad” bits and keep both balls in the air—will be $30 billion. The paper also claims that this will bring taxpayer’s contributions to $45 billion. The $15 billion difference, originally sold as a “bridge loan”? Forgiven. Gone. In exchange for their largesse, “the government plans to take at least 50 percent of the restructured company . . . and the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.” Although this bailout madness began last year, if we use IHS Global Insight’s recently recalculated GM production figures (GM will build 1.7 million vehicles this year), $45 billion represents a federal contribution of $26,470 per car. That’s provided you don’t add-in Uncle Sam’s $13.5 billion “investment” in automotive lender GMAC. And all the other stuff.
More than a few TTAC commentators pooh-poohed the risk to the capital markets by Obama giving the UAW cuts ahead of senior creditors. Now the chickens are coming home to roost. There was that thing I sent you yesterday about Indiana, burned in the Chrysler bankruptcy, announcing the state won’t invest in bailout companies. Legislators giving tax incentives and other state aid to business is one thing, the state treasurer managing pension funds and state investments has a higher level of fiduciary (and legal) responsibility, and he’s not going to risk getting sued or worse. Today, Bloomberg reports that a bunch of hedge fund managers say they won’t invest in unionized businesses. Also, Jack Welch described the governments actions as “The creditors’ rights were trashed and the unions got 55 percent of the company.” People may not always be rational actors, but when you have everyone from economics professors to mom & pop investors asking “who will buy bonds if the terms are rewritten by the gov’t?”, it shouldn’t be any surprise that institutional investors act accordingly.
Reuters is reporting that GM’s bankruptcy plan is just like Chrysler’s . . . only without the Italian middleman. “A quick sale of the company’s healthy assets to a new company initially owned by the U.S. government,” is how the Reuters source puts it. “Bad GM” would linger in bankruptcy to help pay off claims. Meanwhile, the $15.4 billion we (the taxpayers) have already given GM will be “forgiven.” Not literally, of course, but GM won’t be paying taxpayers back. A new BOD will be set up with “the tacit approval of the government,” but Fritz Henderson is said to be staying as GM’s CEO. How long does the government plan on owning GM? What’s the endgame? Why are GM secured bondholders being paid off while Chrysler’s were demonized? Details are still emerging, but nothing answers these or a million other questions yet. Stand by.
Don’t look at me. I already gave at the office. Gentlemen, I refer you to the $5 billion already allocated to prop up automotive suppliers attached to domestic car makers with an umbilical chord made of piano wire. OK, that particular area of the bailout buffet table is shrouded in red tape at the moment. But do the suppliers seriously expect Uncle Sam to stump-up some $8.3 billion per year for the next four years to help them keep the lights on? That’s how much cash they’ll need, according to a new study by A.T. Kearney. And Kearney’s boys reckon they’ll get it. “A disorderly wind-down of key suppliers could also potentially shut other OEMs,” A.T. Kearney partner, Dan Cheng, said in the PR release accompanying the tome. And he expects the government will do “everything it can” to help the industry. Ready for the kicker?
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