In a follow up to E. Niedermeyer’s previous post, details have emerged about the scheme to give rebates to buyers who trade “clunkers” for new, fuel-efficient vehicles. FT.com (Financial Times) reports that the program will cost taxpayers about $4 billion and will spur, according Brian Johnson, an analyst at Barclays Capital, the sale of 3 million units in the “near term” (whatever that means). With the US’ SAAR projected at approximately 9 million, this is a very optimistic prediction.
Who would have guessed it? As soon as we start reflecting on what exactly this little government foray into the auto sector will cost us, DC goes and prepares to bump up the sum. From ABC News comes a report that Democrat wranglings on the upcoming climate bill have yielded a compromise on forthcoming “cash-for-clunker” provisions. Details are still sketchy, but according to ABC, “under the new agreement, consumers will be able to trade in a “clunker”—a car that gets 18 miles per gallon or less—for a voucher for a new fuel-efficient car. The amount of the voucher will range from $3,500 to $4,500, depending upon the fuel efficiency of the new vehicle.” Want more details? Too bad. All you get for now are the assurances of one John Dingell (D-MI) that “it’s a good agreement. It means sales of autos, it means fuel efficiency and it means progress.” No word on cost to taxpayers, limits, “buy-American” clauses or other potential sources of trouble.
In “General Motors Death Watch 251,” I suggested that The Presidential Task Force on Automobiles (PTFOA) terminate GM’s entire management “team” and replace them with fresh talent. Easier said than done. The number of people qualified to run a car company may stretch to a couple of dozen. But it may not. The number of executives who’d want to run GM—or Chrysler or GMAC—is some fraction of that number. Finding board members for these federally administered companies will easier, but not easy. As The Wall Street Journal‘s pet expert points out, “Executives and directors at these companies will have to balance obligations to taxpayers and other shareholders, all the while under close scrutiny by Congress and the media. Directors ‘are in an impossible position,’ said Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware’s business school. ‘No one who has much sense will want to put themselves in that position.'” Oh, and did we mention? Your salary would be capped. Can’t upset the voters. Evil bankers and all that. Still, that’s why recruiters SpencerStuart and Ennis Knupp & Associates get the big bucks, courtesy of you-know-who (hint: you).
With TARP money, of course. Or so says our man on the inside of Chrysler’s bankruptcy proceedings. And apparently the holdouts will get even more than the already TARPed bondholders. Which means that although Obama may not “stand with” the “hedge fund holdouts,” apparently he’s OK with writing them a check for their trouble(d assets). Or maybe someone in the Treasury just made the connection: the only people who aren’t playing ball in this ends-justify-the-means “bankruptcy” call themselves “The Non-TARP Bondholders.” TARP money has made everyone else compliant with Treasury’s union, so obviously the solution is to buy out the holdouts with just a little more TARP. After all, does anyone think Fiat, the UAW or the already-TARPed bondholders would be embarking on this ship of fools if government cash weren’t paying the way?
Some Detroiters honest-to-God believe that Chrysler and GM will repay the money “loaned” to them by the federal government. That’s a leap of faith that would have taken Evil Knievel across the Grand Canyon (proper) and on to Maui. But you know what? In all this excitement, I’ve lost track of how many billions we’re actually talking about. I reckon the government’s to-date contribution towards keeping the zombies alive lies just north of $37 billion. That doesn’t include the duo’s share of the $25 billion Department of Energy retooling loans (should they live that long). Or the $5 billion blessed upon GMAC. And the $1.5 billion loaned to the now-defunct Chrysler Financial. Or Canada’s contribution to the kerfuffle. Or the cost of running a 25-member Presidential Task Force on Automobiles. And the phalanx of lawyers employed by same. And the community organizer assigned to help out affected communities with, wait for it, federal funds. And now . . . the rest.
“This transaction represents a constructive and important solution to the problems that have plagued not just Chrysler in recent years, but the global automotive industry as a whole. Bringing together Fiat’s world-class technology, platforms and power-trains for small and medium sized cars, and its extensive distribution network in Latin America and Europe with Chrysler’s rich heritage, strong North American presence and talented and dedicated workforce will create a powerful new automotive company, while helping preserve jobs and a manufacturing industry that is critically important to the U.S. and Canadian economies.”
The Presidential Task Force on Automobiles (PTFOA) has claimed its second Motown CEO scalp. Chrysler CEO Bob Nardelli announced his departure in paragraph eight of Chrysler’s official statement on the automaker’s Chapter 11 bankruptcy filing. “Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” said Nardelli. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.” (Star Wars fans need apply.) Our sources tell us what common sense suggests: PTFOA head Steve Rattner read Nardelli the riot act. Nardelli joins former GM CEO Rick Wagoner in that special place where pensions are bankruptcy-proof (insured by the company), and mythical share option fortunes are bemoaned from a place of complete financial security. While Wagoner was immediately replaced by his clone, former CFO Fritz Henderson, the PTFOA has not named Nardelli’s successor. The lack of speculation speaks volumes.
Or, as President Obama puts it, “a new lease on life.” Chrysler (“a company with a particular claim on our American identity”) will file for Chapter 11 bankruptcy in Manhattan court today, as Obama has promised $3.5 billion in federal aid over the next 30 days in hopes of hitching the troubled automaker to Fiat. The case will be handled by judge Arthur Gonzalez, a veteran of the Enron and WorldCom bankruptcies. When the deal is concluded and Chrysler emerges from bankruptcy, the federal government will inject another $4.7 billion. That more than doubles the current taxpayer investment in Chrysler, which had reached $4 billion (not counting ChryFi). See President Obama’s full statement at C-SPAN.
And that’s why we’ll give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement—and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollars to keep Chrysler in business.
TTAC Commentator 70 Chevelle SS454 raises some good points about rumors (perpetually perpetuated here) that the feds’ plan to combine Chrysler and GM into “American Leyland.” The clever member of our B&B wrote his analysis in response to John Horner’s comment, which addressed the UAW’s role should they parlay their (allegedly) forthcoming shares in Chrysler and GM into shares in the combination of the two.
100% mergers of competing companies are happening all the time, so I don’t think one entity having major ownership stakes in two competitors is going to run afoul of whatever is left of anti-trust enforcement.
70 Chevelle SS454‘s reply
No. That’s not how DOJ/FTC review of mergers goes. They look to see whether the resulting company would have power over price, or market power. There’s actually a formula that’s used to combine market shares and calculate the resulting company’s market power, called the Herfindahl-Hirschman Index (HHI). Anything with an HHI score above 1800 is considered “highly concentrated,” and is rarely approved.
(Via AP/Google)
Deb Price, Detroit News: Thank you, Mr. President. On the domestic auto industry, have you determined that bankruptcy is the only option to restructure Chrysler? And do you believe that the deep cuts in plant closings that were outlined this week by General Motors are sufficient?
Automotive News [sub] reports that GM’s bondholders have turned down the firm’s debt for equity offer of 225 shares of “new” GM stock per $1K of debt. The deal, which would have given bondholders a ten percent stake in a partnership with the UAW (39 percent) and the Government (50 percent) and existing shareholders (1 percent) was derided as “neither reasonable nor adequate” and “a blatant disregard of fairness” in a prepared statement. “The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue,” write advisers to GM’s ad hoc bondholder committee. “We are deeply concerned that GM waited until late April to make its offer.” Money quote? “This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court.” And how.
“Our ‘CC’ corporate credit rating on GM continues to reflect our opinion that there is a high likelihood that the company will undergo a distressed debt exchange (which we would consider tantamount to a default under our criteria) or file for bankruptcy protection toward the end of May or shortly thereafter.
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GM’s new new new new new new pre-bankruptcy turnaround plan calls for a dealer cull to end all dealer culls. Until the next dealer cull. “Working with its dealers, GM anticipates reducing its U.S. dealer count from 6,246 in 2008 to 3,605 by the end of 2010, a reduction of 42 percent. This is a further reduction of 500 dealers, and four years sooner, than in the February 17 Plan. The goal is to accomplish this reduction in an orderly, cost-effective, and customer-focused way. This reduction in U.S. dealers will allow for a more competitive dealer network and higher sales effectiveness in all markets. More details on these initiatives will be provided in May.” Yes, how about those details? While “working for dealers” is clear code for a payday, there’s no way GM—and by that I mean you and me—can take the hit any such payoff would require. Or could they? The mind boggles.
Well, they would, wouldn’t they? Makes sense. Why be caught flat-footed when the inevitable occurs? What makes less sense is that this story, hailing from our good friends over at Automotive News [AN, sub], doesn’t mention Chrysler or GM until the eighth paragraph, and then only in passing. And not before the scribes take a swipe at the Japanese automaker for abandoning The Toyota Way: “The moves violate Toyota’s vaunted ‘just in time’ production philosophy,” AN writes. “which views warehousing as a symbol of muda, or waste and inefficiency.” But hey it’s muda out there!
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