The latest TTAC Bailout Scorecard (PDF) is now available. Updates this week include:
• The US makes sales and excise taxes on new vehicles deductible on federal income taxes
• Chinese market sales were up 4.4% in January at least in part due to government incentives.
• German clunker culling incentives spur huge up-tick in smaller car sales.
• Spain unveils new €4.1B aid and incentive package.
Barack Obama’s plan to appoint a “car czar” to oversee the auto industry bailout has been shelved, reports the New York Times. Rather than appoint a single individual (presumably of Romanov extraction) to administer the government handout, the President has ordered Treasury Secretary Timothy Geithner and chairman of the National Economic Council, Lawrence Summers, to lead a “Presidential Panel on the Auto Industry.” Or Presidential Auto Task Force. Or Presidential Task Force on Autos. Or something. Either way, it’s time to start spreading the inevitable blame around. After all, GM’s top dogs have evaded responsibility for decades of disaster by embracing complexity. And it’s just so much harder to burn a committee in effigy.
Well, they would say that, wouldn’t they. I mean, you can’t very well say “no matter what kind of business plan Chrysler and GM present us, we’re not throwing these companies into Chapter 11,” not if you’re trying to appear tough on bailouts and the causes of bailouts. And The Detroit News is talking about politics, which is all about appearances.
“We’re going to need a restructuring of these companies. How that restructuring comes about is going to have to be determined,” said David Axelrod, a senior adviser to President Obama, said on NBC’s “Meet the Press.”
Axelrod’s comments came in response to questions about a Wall Street Journal report on Saturday that GM will offer two options when it files its federal restructuring plan on Tuesday: A continued infusion of federal aid to keep the company in business, or a government-financed bankruptcy . . .
“We need an auto industry in this country,” Axelrod said Sunday. “We have an interest in seeing the auto industry survive. But it’s going to take a real restructuring.”
If you recall, President Bush gave GM some money ($9.4b) and told them to come back later for more ($4b). The second tranche (as gourmands would say) depending on sorting out the United Auto Workers (UAW), convincing bondholders to swap debt for equity and rationalizing their brand portfolio. Anybody familiar with the UAW, rapacious capitalists (are there any other kind?) and General Motors knew that the chances of ANY of that happening were somewhere between none and the situation going in reverse. And so it hasn’t come to pass. After we learned that GM bondholders aren’t playing ball, Automotive News reports that the UAW has walked away from the ballpark. It seems the union isn’t happy with GM’s insistence that the union accept stock in lieu of cash for the GM-funded Mother of All Health Care Funds (a.k.a. VEBA). Did I say GM-funded? We’re on the hook now. Anyway, why would the UAW step up to the plate? The union would have to accept the idea that GM has a future when they, of all people, know it doesn’t.
Car analyst Erich Merkle was a cheery guy. A few days ago, as reported by mlive, he still believed Ford will thrive and GM will survive with government help. He had his doubts about Crisis LLC, but who hasn’t.
Now suddenly, Merkle joins the ranks of those who gather their maps to plot a path for the hills. The main problem of the car industry is that there aren’t enough buyers. There are fewer by the day. People are losing jobs. With more on the dole, there will be fewer in the showrooms. “I’m concerned about the job losses. The acceleration is pretty alarming, and that has to stabilize,” Merkle said to Reuters.
“If we don’t beat the second half of 2008 this year, then it could be all over,” said Merkle. “We’re all going to be peeling bark off trees and go back to being an agrarian society.”
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Oh, for Christ’s sake. Seriously. I’m a good Jewish boy, but so was Jesus (his mother thought he was God, he went into his father’s business, etc.) and he left some sage advice for auto industry suppliers looking to suckle on Uncle Sam’s bounteous breasts. And no, I’m not talking about neither a borrower or a lender be (bombus terrestris). ‘Cause Shakespeare said that. I speak (spake?) here of “Take heed, and beware of covetousness: for a man’s life consisteth not in the abundance of the things which he possesseth.” In other words, just because General Messup and the Crisis Corporation scored $13.4 billion in federal no to low-interest loans (excluding DOE boondogglage) is no reason to ask for $18.5 billion for your troubles. Although Automotive News [sub] says, “The loans will help suppliers survive until production rebounds,” it behooves these suppliers to admit that it will be many a moon before any bounding becomes re. As JC said, “do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.”
With the third deadline for Detroit’s viability plans rapidly approaching, President Obama needs something, anything, to work with. “My goal, consistently has been to offer serious help once a plan is in place that ensures long-term viability and that we’re not just kicking the can down the road,” Obama tells Reuters. “What the nature of what that help ends up looking like, I think is going to depend on the plan.” And at first blush, Detroit’s task appears to be an easy one: tell the President what you need to survive and he’ll give it to you. But there’s a catch. “If a plan is presented to us premised on 20 million sales when we just know that’s not going to happen, then we’re going to have to ask them to go back to the drawing board,” says Obama. Seriously though, isn’t a plan premised on 10m sales this year a bit overoptimistic?
It’s insane. Chrysler and GM’s executives run their companies into the ground, shedding billions of dollars worth of shareholder value, destroying tens of thousands of jobs, sucking-up taxpayer funds, and the public gets all bent out of shape about a couple of jet flights. Still, point taken. And TTAC can now reveal that two Pentastar chartered jets (a former Chrysler subsidiary) took off from Oakland County International Airport on the morning of December 2, two days before the hearings wherein Chrysler CEO Bob Nardelli appeared before Congress. (where all three Detroit auto execs made a big deal about driving to the hearing and arrived on the Hill in their company’s hybrid vehicles.) A Gulfstream G550 [aircraft pictured above], left at approximately 6 a.m. A Gulfstream IV [$5700 per hour], left at 8:45 a.m. Both planes flew to Teterboro Airport, NJ. Both planes were carrying Chrysler executives. We have reason to believe Chrysler CEO Bob Nardelli was on board one of the planes.
The more tax money GM asks for the more it seems to need. Starting at home, it had come to the attention of our elected leaders that their $13.4 billion bailout of GM would bump GM’s tax liability by $7-$10 billion dollars. Specifically, the loan terms (new equity structure) would have constituted a “change in ownership,” potentially triggering the massive tax bill under terms set to prevent companies from merging to avoid tax liability. Luckily for GM, the new compromise stimulus bill exempts TARP-receiving firms from these ownership requirements, reports MLive. Good luck digging through the 778-page bill to find the exact wording, though. Meanwhile, we’re still waiting on word from the International Swaps and Derivatives Association as to whether these same equity structure changes and government regulations will trigger GM’s default swaps. And while DC kisses $7-$10 billion in potential GM tax revenue goodbye (which should be reflected in the total bailout cost), GM has already moved on to the next trough.
A word to the wise (or The Detroit News): if you’re a cheerleader, stay away from irony. Irony is the discrepancy between expectation and reality. It’s a rapier specifically forged for cynical nasty bastards like . . . us. If you’re pro anything, it’s a blunderbuss for blundering buffoons. For example, The DetN’s automotive editor has penned a tongue-in-cheek essay on why he should be car czar. The result is earnest and scary, rather than droll and pointed. Our take: a federal car czar is a crazy cherry nesting in a gloppy pile of whipped insanity sitting atop a huge slice of death by delusion cake. Manny’s take:
The Detroit News reports that GM and Chrysler are working furiously behind the scenes to extend the March 31 government deadline re: meeting the conditions of their $13.4b bridge loan to nowhere bailout buffet. Surprise! The American automakers’ inability to take responsibility for their actions may be true-to-form, but that doesn’t make it any less nauseating. Nor does the News’ coverage of the company’s weaseling, which put the “sick” in “sycophancy.” The only satisfaction to be had from this lede is the use of the word “scurrying.”
As General Motors Corp. and Chrysler LLC are scurrying to put the finishing touches on their restructuring plans due next Tuesday to the Treasury, finance and auto industry experts say submitting plans is one thing, but getting bondholders and all other parties involved in a massive restructuring to agree to those plans by the March 31 deadline seems unrealistic.
Pass the Alka Seltzer, here we go . . .
The developed nations of the world have all seen local car demand drop by about a third in recent months and are scrambling to save the home teams. For example, France’s Sarkozy, despite his supposed “center-right” political leanings, is but one of many national politicians speaking in protectionist terms: “We want to stop factories from relocating abroad, and if possible bring them back home.” Despite grumblings and mumblings from the WTO, EU and other multi-national pseudo-governments, little can be done to stop the instinct amongst the nations to take care of their own first. Hence, a rolling thunder of loans, grants, clunker scraping bills and so on; all designed to keep as many people on the home team going to work as possible. Be prepared, this storm is only just getting going. Here’s your latest Bailout Scorecard (PDF).
The Freep reports that GM will not be offering the customary buyout offers to its white-collar employees as it seeks to cut its salaried ranks by double digit percentages. Huh? The General’s offering its UAW workers $20k and a $25k car voucher to bugger off. Turns out GM’s bailout agreement with the government prohibits the ailing automaker from using GM’s pension fund to pay for those kiss-off packages– as it has done in the past. Specifically, the loan states that “the prohibitions on benefit increases under this covenant include… a prohibition on the creation or… payment of any obligations associated with any plant shutdowns, permanent layoffs, attrition programs or other workforce-reduction programs after the effective date.” And guess what? With the pension fund piggy bank cut off, there’s nowhere else to get the money!
Bloomberg reports that the rumors circulating around the autobologosphere are true: Uncle Sam “forgot” to put itself ahead of other creditors before writing $17.4b worth of “bridge loans” to Chrysler and GM. Of course, doing so would have rewritten bankruptcy law and pretty much turned the feds into something roughly akin to Chile in the copper-bottomed days of 1972. But, hey, the buffet must go on! “U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements posted on the U.S. Treasury’s Web site.” Doh! And so the government hired the flying Cadwaladers to correct that little problem, who’ve let it be known throughout the land that “If federal officials fail to get a consensual agreement to change their position regarding repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid.” Well, they had that option all along. Anyway, what are the chances that the people holding the paper at Chrysler and GM won’t let Uncle Sam go to the head of the [they hope] theoretical queue? Actually, a lot higher than you might think . . .
As regular readers know, The Truth About Cars is working hard to try to find out who owns Chrysler—now that [ex] President Bush has provided $3b worth of no to low-interest loans to the technically bankrupt automaker. And now that this selfsame beneficiary of our government’s largess is looking for another $4b loan. And the rest. In our pursuit of this information, we are aided by members of our Best and Brightest who also believe that we should know exactly whom we are subsidizing. Are they the “retirees, teachers, municipal workers and ordinary citizens” that Cerberus claims? Or are the 100 or so unnamed investors members of hedge funds, perhaps from abroad?
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