One of the myriad unintended consequences of America’s bailout bonanza is the prospect of an international trade war. Though the WTO moves slowly, the European Union often takes a firm line on American subsidy regimes. And a report in Automotive News Europe [sub] indicates that the EU is prepared to take a firm line on automotive subsidies, as it has in the past with steel and agricultural protective measures. “Europe cannot just look on if someone offers subsidies and market forces are dispensed with,” declares German Chancellor Angela Merkel. “We have to watch carefully what the new president of the United States … will do with the American automotive industry,” growls EU Industry Commissioner Guenter Verheugen. But what’s this? Auto Motor und Sport reports the details of France’s latest 300m Euro effort to rescue the Renault and PSA Peugeot Citroen’s supply chains.
Category: Bailout Watch
Well, he should know. I mean, when the head of the United Auto Workers (UAW) says GM can’t satisfy Congress’ conditions for a second major suckle on Uncle Sam’s teat, you gotta listen. Big Ron Gettelfinger is the guy who has to agree to an equity-for-health-care-payment swap as one of the two major conditions for the cash. “Honestly,” Ron Gettelfinger says, signaling the spinmongery to come. “Most people that have looked at this from a realistic standpoint would say this timeline is almost unattainable. I said myself that I hope this wasn’t set up to intentionally fail… People have no idea of the magnitude of what they were asking these companies to do.” Or to paraphrase John F. Kennedy, ask not what the UAW can do for GM, ask what Congress can do for the UAW. Or to not paraphrase John F. Kennedy, “We’ve done everything we said we were going to do up to this point,” Gettelfinger maintained, assuming that no one will attempt to substantiate a single union “give back.” “We have ongoing discussions with the companies — but nothing formalized in any way shape or form.” No surprise, then, that Gettelfinger said there’d been “no real progress” on a new agreement. The charade continues– until the congressional deadline of February 17. And beyond!
Back when the CEOs of Chrysler, Ford and GM were “caught” flying corporate jets into Washington to beg for bailout billions, we cautioned our readers that the media scrum had made a great landing at the wrong airport. Yes, these execs were frittering away millions of dollars on their jet fleets. Yes, their Gulfstream travel violated their companies’ supposedly proletarian appeal; Henry Ford’s model T and all that. But blaming jet travel for the CEO’s woes was like blaming Harrison Ford’s limo for the travesty that was the fourth Indiana Jones movie. So yes, but no. Anyway, The Detroit News reports (of course) that Sunflower State senators have lifted the corporate jet ban from the non-automotive recipients of Congress’ recently-refilled, near-as-dammit trillion dollar trough. “Kansas is a center of aircraft manufacturing, and Kansas lawmakers complained that the provision could reduce aircraft orders and cost jobs. This week, House Financial Services Committee Chairman Barney Frank, D-Mass., author of the bill, lifted the jet ban. Could the DetN resist placing another mountainous chip upon the shoulder of their hometown heroes? Are you kidding? “So remember, folks: According to Congress, it’s only a waste of taxpayer money if auto execs are the ones flying private.”
Automotive News [sub] reports that President elect Barak Obama is calling on automakers to develop sustainable business models. Aparently, it would be unacceptable “to keep them on their lifeline through taxpayer dollars in perpetuity.” Although Obama admits he’s not an industry “expert”, he claimed making the bailout work means everybody, “from labor to management to creditors to shareholders, giving something up.” Specifically, taxpayers will now be sacrificing $1.5b to Chrysler Financial. And yes, it’s coming from the second half of TARP, so it has the O-man’s blessing. And so… “Zero percent interest financing will be [immediately] available on 11 Chrysler LLC vehicles, and in many cases for up to 60 months. Vehicles included in the program are Chrysler Town & Country, 300 and 300C, Jeep Grand Cherokee, Commander, Wrangler, Dodge Grand Caravan, Charger, Magnum, Challenger, Ram Pickup and Ram Heavy Duty.” Oh wait, that’s our sacrifice too. And isn’t this how we got in this mess in the first place?
Auto industry suppliers have been stuck between a rock (penny-squeezing OEMs) and a hard place (volatile commodity prices) for some time now. And though the Detroit Three argue relentlessly that their own bankruptcy would doom them in the eyes of consumers, bankruptcy protection has practically become the norm for their suppliers. Which is why supplier firms need a bailout of their own in order to give Detroit’s bailout a chance. Chrysler’s endless winter break, GM’s half-sized Q1 production plan and general industry turmoil is about to cause exactly what the bailout was supposed to prevent: cascading supplier bankruptcies. Bloomberg documents the doom in detail, concluding with American Axle’s Dick Dauch’s assessment that “there’s a shakeout occurring.” Unless…
Even before President Obama becomes President Obama, the democrats have put a light on that Hill (go Jumbos!). In other words, the bailout bucks are flowing freely, with House Democrats unveiling an $825b stimulus bill. Here’s a challenge: define “stimulus” without using the words “pork” or “special interest.” And one of those special interest groups that’s especially interested in sticking their snouts in the federal trough: the U.S. auto industry. Surprised? “The money for advanced battery support includes $2 billion — half in loans and half in grants — and $200 million to encourage electric vehicle technologies,” The Detroit News, no stranger to industry encouragement, reports. “The bill also calls for $300 million to retrofit older diesel engines and replace some diesel vehicles, such as school buses, and use $400 million to help state and local governments buy more efficient alternative-fuel vehicles. Additionally, the measure includes $600 million for the federal government to replace older vehicles with alternative-fuel automobiles.” And get this: Motown’s hometown heroes are feeling shortchanged.
As an unwilling investor in Chrysler Corporation, a zombie automaker owned by a bullet-dodging private equity company, I’d like to ask a simple question: can we let the ailing American automaker die already? I know there are tens of thousands of workers whose livelihoods are threatened by a ChryCo C7, but their jobs were already sacrificed on the altar of corporate malfeasance, back when Daimler was calling the shots. Watching this end game is as excruciating as clocking the twenty-ninth move of the first game of the 1972 Fischer Spassky tournament. Anyway, here’s the carmaker’s latest attempt to escape/prolong the inevitable. “Chrysler LLC will extend shutdowns at five factories one week beyond the scheduled reopening date of Monday, Jan. 19,” Automotive News [sub] reports. “Plants in Belvidere, Ill.; Sterling Heights, Mich.; and Toluca, Mexico, will reopen Jan. 26, the company said today. Chrysler’s Global Engine Manufacturing Alliance engine joint venture and its Trenton, Mich., engine plant also will take an extra week and reopen Jan. 26.” You could say this is a cynical move to blackmail Uncle Sugar to cough-up the second installment of Chrysler’s $7b teat suckle, but it’s most likely a simply cash flow problem. You know: no income, lots of expenditure, no cash. Oh and get this: to cheer everyone up, Chrysler also announced it will reopen its Windsor, Ontario (minivan) and Conner Avenue, Detroit (Viper) plants as scheduled on Feb. 2. Of all the vehicles to start building again…
GM has revised the estimate for U.S. new car sales in submitted to Congress in December. At the time, the company predicted the U.S. market would account for 12m new vehicles in ’09 (a goodly amount from their factories), The General now reckons the number will be closer to 10.5m. As CNNMoney indicates, GM’s second sales revision in as many months suggests that they’re preparing to increase their mega-suckle on Uncle Sugar’s teat when they return to the pig sty in February and/or March. “According to the turnaround plan, GM said it might need $15 billion in federal help by the end of March if estimated industrywide sales fell to the 10.5 million level.” And here we are. But the numbers are a double-edged sword. On one hand, they substantiate GM’s Curley defense. On the other, there isn’t an accountant outside of Dearborn who thinks GM can even break even if sales remain at anything near that level. Prop-up a vital industry for a year or more at the cost of hundreds of billions of taxpayer dollars, or cut bait and fish? The battle lines are drawn.
You remember The Center for Automotive Research (CAR). They’re the Detroit-based automaker and union-funded think tank that progated the “soup lines beckon if you don’t bailout Detroit” study. The mainstream media repeated CAR’s stats– debunked on TTAC by both myself and our Best and Brightest— as gospel. Now that CAR has had its wicked way with $17.4b of your tax money, they’re back from hiatus with fresh apocalyptic visions for policy makers. Only this time, they’re right. “McAlinden, director-economics research for the Center for Automotive Research, predicts auto makers will sell 11.5 million units in 2009, down from 13.2 million last year and 16.2 million in 2007,” Ward’s Dealer Business reports. ‘The U.S. will not see 14 million new-vehicle sales again until 2012 and 16 million in 2013. The downturn will last a long time.'” OK, so… “Whether the two auto makers can meet the loan requirements set by the Bush Admin. remains to be seen. However he does not believe GM can meet the obligations as they are written now, adding, the ‘conditions will be changed so GM can keep them.'” Make no mistake: McAlinden has no faith in GM’s recovery plans.
The Detroit Free Press reports that Ron Gettelfinger is confused. Yes, the United Auto Workers (UAW) boss is waiting for “clarification on loan impact.” You know the loans, right? The $17.4b hoovered from your tax money to prop-up the bankrupt automakers known as GM and Chrysler (not to mention the $25b retooling loans, which seem to have dropped off the MSM’s radar). The same “bridge to nowhere” loans that require the UAW to agree to wage and benefit parity with Toyota, Honda and Nissan’s American workers before the rest of the money– however many billions that will be– can be shoveled in Motown’s direction. “During an interview on WDET-FM (101.9), Gettelfinger reiterated his complaint that the loan terms dealing with the union are unclear.” What is it with Ron and radio? Why can’t he give the print boys his best stuff? And what doesn’t Big Ron understand about “parity?” “There’s a lot of provisions in the loan guarantees that the companies had to sign,” Gettelfinger said. “We don’t really have any documents to work from other than their loan agreements, so we’re waiting to see until President-elect Obama gets in power, then we’ll see how this thing comes out.” Badly. I assure you. Maybe not in January or February or March. But soon. And forever.
GM’s VP For R&D Larry Burns has a new post up at Fastlane, calling for a “partnership between the U.S. government, auto manufacturers and suppliers, the energy and infrastructure industries, and other key stakeholders focused on transforming the automobile.” After all, as Burns says “we all seem to be coming to the conclusion that the automobile as we know it — powered by a combustion engine — must eventually go the way of the horse and buggy. It is simply not sustainable.” And so Burns humbly offers GM’s solution: The Cadillac Converj, A concept car that is powered by electricity. Unless it wants to go more than 40 miles, in which case it’s back to the ol’ ICE. But luckily “significant challenges” are actually a good thing when you are going for government handouts and not the Standard Of The World.
The Wall Street Journal carries the surprising news that General Motors management might be starting to edge closer to reality: “Speaking at the North American International Auto Show in Detroit, Rick Wagoner, GM’s chairman and chief executive, said the company wants to avoid a Chapter 11 filing, but also said its viability is ‘not 100%’ certain at this point.” Rick backing away from the position that GM hasn’t even thought about C11 is news. “The Treasury Department has said GM must have a plan by March to become ‘viable’ and have ‘positive net value.'” Nobody actually expects GM to have worked out details with bondholders or the UAW before the March deadline. The March deadline was chosen by the current administration as a way to act tough while kicking the can over to the new team, and everyone involved knows it. The UAW says it isn’t clear what is being asked of it and hasn’t started negotiations. Meanwhile, regarding the bondholder negotiations; “GM Chief Operating Officer Frederick ‘Fritz; Henderson suggested Monday that it could be some time before substantive discussions can be held.” So, nothing is really happening with the UAW or the bondholders yet. How about pulling the plug on dead brands?
Ford’s El Presidente de las Americas has been out and about, doing the rounds, talking up the company’s prospects to the media. And Mark Fields has a good story to tell: Ford’s not Chrysler or GM. Thankfully, Bloomberg cuts through the chatter to ask the key question: at what point would FoMoCo tap into Uncle Sugar’s Blue Oval-shaped $9b bailout– I mean, line of credit? Fields said he’ll only proffer the begging bowl if “the economy continues to deteriorate well beyond our assumptions.” Define “well beyond.” Nope. Well, at least we get a look at Ford’s assumptions. “Ford Motor Co. is forecasting that this year’s U.S. sales of cars and light trucks may fall as much as 9 percent from 2008, when they reached a 16-year low. Industry sales will be 12 million to 12.5 million, with the first half weaker than the final six months.” “After the last couple years, we hope we’re at a bottom because it’s a pretty low level of activity for the industry,” Fields said. Again with the hope. Oh, and did I mention that Ford CEO Alan Mulally didn’t get the memo on the 12m bailout floor?
“I’ve never quite been in this situation before of getting a massive pay cut, no bonus, no longer allowed to stay in decent hotels, no corporate airplane,” GM Car Czar Bob Lutz tells NPR radio. “I have to stand in line at the Northwest counter. I’ve never quite experienced this before. I’ll let you know a year from now what it’s like.” Hopefully not. Meanwhile and before that, Maximum Bob was busy comparing the Chevy Malibu to the VW Phaeton. On one level, I’m down with that. The VW Phaeton was a stunning car, in an absurdly misbranded, high-tech kinda way. I mean, we’re talking about a vehicle that automatically adjusts the angle of its sunroof at speed to protect occupants from sonic distress. But during his don’t call it The Detroit Auto Show interview, GM Car Czar Bob Lutz proudly reveals that the Chevy Malibu took its styling cues from the ill-fated Phaeton. What styling cues? Of course, there’s more Maximum Bobage to be savored here.
The federal bailout bucks propping-up GM and Chrysler’s bankrupt businesses come with political strings attached– that will turn into piano wire with each successive snuffle at the trough. And so it begins… Yesterday’s New York Times editorial called for higher federally mandated fuel economy standards. “[Now that Bush is history] The Obama administration now has a free hand to set its own standards that will save consumers money at the pump, reduce oil dependency and greenhouse gases, and help make the American car companies more competitive. The 2007 energy bill required new cars and trucks to meet a fleetwide average of 35 miles per gallon by 2020, a 40 percent increase over today’s average of 25 m.p.g. Congress intended this as a floor, not a ceiling, and ordered the National Highway Traffic Safety Administration to write specific regulations.” Uh-oh…
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