Alternative headline: “Extortionists Are People Too”

“It’s worth wondering why Detroit’s automakers are still having such a tough time winning public support. Do Americans still not grasp the consequences of a GM bankruptcy? Have the companies so soured confidence in their products that Americans think them unworthy corporations? Are their CEOs so uninspiring that Americans just don’t trust that they’ll turn things around?

Hard to figure how these companies, which employ millions, and whose spinoff industries reach into every nook of the manufacturing sector nationwide, can’t get more support than they are. They’ve got detailed plans. They’ve been forthcoming about their circumstances.

Do people really believe the nation would be better off if they didn’t survive?”

The Washington Post reports that “many analysts say the [TARP] pot isn’t big enough to address current plans to fix the financial system, let alone prop up the auto industry.” Since the first round of auto industry bailouts came from TARP, many considered the Toxic Asset Recovery Program the logical source for tranche deux. But if that money is needed for banks, as analysts indicate, the Obama Administration may have to return to congress for more funds. “From where I sit, it’s an executive decision,” says Republican Senator and bailout critic Bob Corker. “[The Treasury] fully understands we’re coming in with additional requirements,” said GM’s Ray Young after GM’s viability plan was released on Tuesday. “It will come as no surprise.” Who looks surprised?

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GM’s Jill Lajdziak has written a letter (PDF) to Saturn dealers and customers warning that the General is actively pursuing a spin-off for its “different kind of car company.” Explaining that Saturn Distribution Corporation is “already an independent subsidiary,” Lajdziak says that Saturn dealers would be able to source GM products until 2011, and “if successful, SDC at that point would source products from other manufacturers.” Meanwhile, sit tight and enjoy the ride. “GM will support the continued availability of Saturn parts and service as needed,” says Lajdziak. So while Saturn struggles along under the toxic stench of rejection by GM, let the speculation begin! Will a German government-backed Opel take on the distribution net? Will an upstart Chinese firm see this as a cheap entry to the American market? Or is 2011 the end of the road for Roger Smith’s experiment?

Looks like President Obama’s team has a loose grasp on the realities of the U.S. automotive market, as in who builds what where. Either that or a firm grip on what the public needs to hear to sign-off on the roughly $100b’s worth of taxpayer money headed in Motown’s direction, pissed away trying to resurrect the dead and forestall the inevitable. I mean, preserving an important part of America’s industrial base and protecting America’s middle class.

Detroit’s hometown newspapers are reacting positively to the most recent requests for another round of automaker bailouts. Shocking, I know. After all, Detroit’s media is fast becoming the most notorious bailout boosters on the block. But titling an editorial “U.S. auto producers make a solid case for federal aid” is really stretching things, even by Detroit News standards. And as conditions worsen, the rose-colored-glasses act is really wearing thin. To paraphrase an old Soviet joke, there are two ways Detroit can be turned around: the natural and the miraculous. The natural way is that the Archangel Michael and his bands of angels descend to earth and work 24 hours a day to save the city’s economy. The miraculous way is that the automakers do it themselves. Detroit’s local media clearly believes in miracles.

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“The submission of restructuring plans by GM and Chrysler represents the next step in what has been a difficult and disappointing chapter for the American economy, but I hope will become the transformation of our domestic automobile industry into a viable, technologically advanced, and globally competitive manufacturing force.

“In the coming weeks, the Obama Administration will review these plans and assess whether the shared sacrifice required of all stakeholders affected by the auto companies’ current conditions—workers, executives, bondholders, and shareholders—will result in reasonably restructured corporations, with good, high-paying jobs for the future.

“Congress looks forward to working with the Obama Administration on any future actions that may be needed to move our domestic automobile industry on a path of global competitiveness and advanced energy efficiency technologies, while ensuring accountability to the taxpayers.”

The Detroit Free Press is reporting that the United Auto Workers have reached a “tentative” agreement to modify its 2007 employment contract. But wait! “The UAW is withholding the terms of the tentative understanding pending completion of the VEBA discussions and ratification of the agreements,” says UAW boss Ron Gettelfinger. But give them the money anyway, is the clear subtext. Or, as the Freep puts it “the announcement by the UAW on Tuesday shows that the union and the companies are making significant progress.” When asked by the Freep, GM’s Rick Wagoner couldn’t even give a number just now. Wagoner claims that they went into talks with “ambitious” plans. And now there are now details. But everything’s peachy! GM’s take (from the viability plan): “As of February 17, the Company and the UAW have made significant progress on costs/work rules, which represent major steps in narrowing the 8 competitive gap. However, these revisions do not achieve all of the labor cost savings comprehended in the Company‘s financial projections.”

Full report now available at GM Media (pdf) (summary html).

Automotive News [sub] is reporting that GM’s new viability plan includes a request for an additional $22.5B in government funds. Without this money GM would run out of operating cash by sometime March. GM’s plan also calls for cutting 47,000 jobs globally by the end of 2009 and shuttering five unspecified US factories by 2012. GM CEO Rick Wagoner just thanked government officials “around the world” for “their openness.”

As Farago noted earlier, GM received tranche deux of its already-approved $13.4B loan today. They also request $4.6B per their December 2 request to round it all out to an even $18B. There’s also a request for $4.5B to pay of a revolving credit line that comes due in the fall of 2011. And then there’s the request for a $7.5B line of credit GM could tap “if” sales worsen over the next two years. This would bring GM’s taxpayer butcher’s bill to about $30B dollars. Incredibly, GM expects to begin repaying these loans by 2012.

GM also predicts that its North American operations will break even at an annual market rate of 11.5m to 12m units. Interesting. “The operating and balance sheet improvements outlined in GM’s viability plan are forecasted to result in a significant enterprise value and positive net present value, positive adjusted EBIT in 2010 and positive operating cash flow for its North American operations in the same year.”

The following institutional investors bought into Cerberus Institutional Partners IV (CIP4). That’s the $1b – $1.5b Cerberus-controlled fund established to provide part of the initial $7.2b payment to Daimler for Chrysler. Obviously, this list is far from complete. We call on our elected representatives to require Cerberus to provide a full and complete accounting of all participants in this fund before U.S. taxpayers extend Chrysler any more federal loans.

LA Police & Fire Pension

Public teachers of PA (PSERB) – $200m  

PA state retirement workers [SERS] – $75m

NY Common Retirement Fund – $50m

Charles Schwab Institutional 

Univ of CA – $40m

Univ of Tex – $25m

Idaho state employees – $40m  

Allstate

Glenmede Trust Co. (PA)

Franklin Templeton Investments

[thanks to Full Deck Analytics for the help]

It’s been a while since we’ve been graced with a good emotionally-charged argument for a “moral obligation” to bail Detroit out. These canards were a dime a dozen during the initial bailout push, as every Michigan-based opinion writer spilled ink by the barrel describing the myriad ways in which America owed Detroit big time. From winning WWII to spearheading racial tolerance. From fighting for the rights of the proletariat to exercises in moral relativism. It seemed that Detroit backers had leveraged every possible emotionally-charged issue to clear the way to the federal teat. But just when we thought that the flow of intellectually dishonest bailout blackmail had slowed to a trickle, we found one of the best examples yet.

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Our deadbeat automakers will turn in their viability plans today, but, according to a number of reports, these plans (like their predecessors) will be short on workable details. Which helps explain why GM and Chrysler will be turning in their plans after the close of the markets today. The Treasury will receive the “plans” electronically at 4 p.m. today, but a public press conference won’t happen until 5:30 p.m. Which is probably for the better. GM’s stock price has dropped by double digits today, despite reports that their second tranche of bailout cash has already been approved. But having “scored a trillion dollars” as Bowie puts it, there’s still plenty of panic in Detroit.

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Open letter from GM’s Union Leaders:

“Renaissance” plan for Europe is not viable. It will finish off the European GM brands and companies and includes unacceptable risks of litigation—the alternative is the spin off of the European operations

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To all General Motors Dealers:

On Tuesday, Feb. 17, GM will submit an updated viability plan to the U.S. Treasury.  The document will outline a significant restructuring of the company, along with demonstrating that we have a detailed plan for long-term, sustainable success as a viable, global enterprise.
 
Because this plan submission is of vital interest to you, I wanted to make you aware of some key activities regarding the plan submission: 

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The fix is in. Even before GM pressed “send” on their viability plan to Congress—justifying their additional call on the public purse—the Obama administration has decided to offer the ailing automaker the second tranche of a Bush-initiated $17.4B federal loan. That’s $4B to you and me. Literally. Reuters reports that “an aide” signaled the pre-approval approval. The Houston Chronicle carries a Bloomberg story that repeats the claim, citing “a person familiar with the plan.” If this story checks out, it’s a slap in the face of accountability; for both GM AND our elected representatives. Yes, the second check was scheduled for payment, but the timing and the disconnect is still startling. Here’s some more money, now let’s have a look at that plan for profitability by 2011. Oh and if we don’t like it, we’ll call the loan and down you go. In truth, no matter which way this goes, we’ll never see that money again. Nor the money after that.