I’m sorry. I know. I should move on. I’d like to move on. But the more I read about the federal government’s $6b “investment” in troubled auto and mortgage lender GMAC, the more deranged the deal becomes. Fans of this series (?) will know that Uncle Sugar now effectively owns GMAC. If I were the head of Ford or Toyota or Honda’s lending unit, I would be mighty pissed. As a journalist, I find the cloak of secrecy surrounding the arrangement, from the timing of the Fed’s pre-approval for GMAC to morph into a bank, to the fine print of how this is all supposed to work. A regulatory filing unearthed by Forbes reveals that GMAC has “amended,” but not canceled, its exclusivity agreement with GM. “Purportedly, GM may now offer incentives such as low-interest loans through other financial outfits with increasing flexibility over the next 24 months. While the filing seemed to imply that private competition may be entering the government-backed lender’s universe, both the auto manufactorer and its banker seemed to indicate that nothing material had changed and the two had only altered their pact to satisfy the Federal Reserve’s demands.” Oh, that’s alright then. Or is it?
Category: Bailout Watch
Department of Energy “retooling loans” – $25b
GM and Chrysler “bridging loans” – $17.4b
U.S. Treasury “investment”in GMAC – $5b
U.S. Treasury supplement to GM for GMAC – $1b
TOTAL – $48.4b
“GM has received the first tranche of $4B from the Federal Government and we look forward to working with the government on all elements of the loan agreement and our viability plan. We appreciate the Administration extending a financial bridge to GM at this critical time for the U.S. auto industry.
“GM remains committed to providing great cars, trucks and crossovers, as well as leading technologies, to our customers. We are committed to successfully executing the plan we submitted on December 2 and remain confident in the future of General Motors.”
Auburn Hills, Mich., Dec 31, 2008 – “We recognize the magnitude of the effort by the Treasury Department to complete these multiple financial arrangements quickly and sequentially. The discussions relating to Chrysler LLC have been positive and productive, and we look forward to finalizing the details of our financial assistance in the immediate future.”
Click on over to Chrysler’s blog for a look at the anger unleashed by the ailing automaker’s full-page (and Google key word) “Thank You” ads. (Either glasnost has suddenly infected ChryCo’s secretive owners or, more likely, the site’s moderator took the week off.) The first comment by RightKlik.net: “Hey Chrysler! You’re not welcome. You took my hard earned tax dollars without congressional approval. This is not the time for a ‘thank you.’ This would be a good time for a refund…and an apology.” With a few notable though still critical exceptions, it gets progressively angry from there. spalind: “Bunch of scumbags…Nardopey and Cerberdolts can stick it…the VAST majority of the American public is against any sort of bailout for you or GM and yet you steal our money anyway…Are you and the other CEOs and investment bankers going to come bail me out when I lose my job?? Didn’t think so… I’ll NEVER buy a Chrysler or GM product–EVER–and either will any of my current or future family members I will make sure of it…” There is only a handful of positive response, like this one by corie: “think the Thank you was a great idea. It would be nice for every person connected to employment in the automotive industry to say thank you to every person driving an american made car. Thank you to those who BUY AMERICAN!” But as this non-scientific sampling indicates, there’s a bailout blowback blowin’ in the wind. When GM, Chrysler and then Ford return to the well, they’d do well to play their PR cards more carefully than this early and deeply reviled attempt.
Now that the frog– fog of war is beginning to lift from the deal between the federal government and troubled auto and mortgage lender GMAC, a few key facts have emerged. First and foremost, Business Week (BW) reminds us that the U.S. Treasury’s $6b “investment” in GMAC leaves it as the lender’s largest shareholder. Not to put too fine a point on it, the federal government owns GMAC. Second, BW reckons that means a boardroom shake-up is on its way. “GMAC’s 12-member board of directors, of which [J. Ezra] Merkin is chairman, is expected to be clipped to seven directors. Cerberus has four executives on the current board, but will get only one voting director on the new board… GM will go from having four voting executives on the board to just one, nonvoting executive.” In other words, GM can’t manipulate GMAC to move the metal. Or can it? More [non-Dodge] ramifications after the jump.
Uncle Sugar has completed the transfer of the first $4b of a $13.4b loan to General Motors, under the Troubled Asset Relief Program (TARP). Despite CEO Rick Wagoner’s previous pronouncement that his employer had enough cash to last through 2009, the artist once known as the world’s largest automaker (and the world’s most profitable corporation) was in danger of running out of money. And now it isn’t. Until later. Meanwhile, you might think that a $13.4b “investment” in GM would buy the U.S. taxpayer a little something called “transparency.” As The LA Times reports, you’d think wrong. “The cash-strapped Detroit company plans to use the money for continuing its operations… GM is obligated to make a large payment to a major supplier in early January; it has declined to offer details on the amount it owes or to which supplier.” And there are more strange doings over at Chrysler. (The automaker’s owned by Cerberus Capital, a private equity firm with close ties to the federal government, increasingly famous for bending rules to its advantage while operating under the cover of darkness.) “Auburn Hills, Mich.-based Chrysler is expecting $4 billion in cash as well, but the Treasury has yet to announce the closing of the first round of loan money. ‘We’re working expeditiously with Chrysler to finalize that transaction and we remain committed to closing it on a timeline that will meet near-term funding needs,’ [Treasury spokeswoman Brooklyn] McLaughlin said. Isn’t it wonderful how responsive our federal government is to the public’s– I mean, private industry’s needs? But wait! There’s more! Lots more!
We’ve already flagged the fact that Delphi may be lining-up at the federal bailout buffet, what with GM depending on it for its survival, and the survival of GM and Chrysler being all that matters when it comes to taxpayer trough snuffling. Our TTAC radar is picking up more blips on the domestic auto industry bailout bucks front. In a report revealing that Chrysler is having a little trouble finishing the paperwork on their $4b bonanza, Wall Street Journal writer Jeff Bennett drops this little McNugget in the middle of his piece (just below the snooze button): “Meanwhile, the Treasury Department said it will decide on a case-by-case basis whether other companies connected to the struggling automotive industry should be provided emergency aid from the $700 billion bailout pot.” So that’s not a no. Of course, that depends on the Treasury Department receiving congressional authorization for the second tranche from the aforementioned trillion dollar-ish Troubled Asset Relief Program fund. ‘Cause they already “spent”– sorry, “invested” $354b of the $350b previously authorized. Paperwork, eh? Meanwhile, what’s the WTO going to make of all this?
Well why not? If the the Fed can justify “emergency” approval of GMAC’s switch to bank status as a necessary step to save GM, it’s not that much of a leap to suggest that bankrupt parts maker and GM spin-off Delphi’s next in line for some bailout bucks. As we’ve said here before, no Delphi, no GM. Bloomberg puts it this way: “GM has already spent more than $11 billion to help Delphi, the largest U.S. auto-parts maker, exit bankruptcy. Delphi has been unable to get further loans to help it leave court protection because of stricter credit requirements and declining revenue from slow auto sales.” And now… “We would not be surprised to see additional government funds to GM to support a Delphi solution,” JPMorgan Chase & Co. analyst Himanshu Patel said in a report today. As JP is up to its eyebillions in GM, Chrysler, Chrysler Financial and GMAC, it’s a good bet this is more of a trial balloon than mere conjecture. Bloomberg points out that the idea of throwing some cash at, I mean arranging some loans for Delphi is no longer beyond the remit of the increasingly vaguely remitted $700b Troubled Asset Relief Program.
Not for us though. We’ve had the luxury of several pre-bailout months of foreknowledge of this particular $33m white elephant. The kids at Fox News, on the other hand, seem to have only just found out about the UAW’s Reuther Family Education Center, and they’re downright apoplectic. The $33m resort, nestled on “1,000 heavily forested acres” has lost $23m over the past five years, despite charging as much as $85 in green fees. Besides improving the UAW’s collective handicap, the Family Education Center provides accomodations for retreats and conferences which give members “a deeper understanding of the UAW and the union movement away from the routine of their daily lives,” according to the Center’s website. All of which has Fox reaching for the “union-basher” volume of its rolodex.
I know this is The Truth About Cars, not the inside baseball truth about the finance companies that prop-up the domestic automobile manufacturers. Dot com. But we’ve been following this story because, well, if GMAC had gone down, GM would have gone down and GM still makes cars. Well, after the holidays. And the shenanigans involving the federal government’s rescue of GMAC have been nothing less than shameful. First, Uncle Sugar signals GMAC in no uncertain terms that if the bankruptcy-bound lender doesn’t convert 75 percent of their debt into equity they can go ahead and fail. Then, on Christmas Eve, before we learn the results of that d-for-e swap, the Fed says, never mind, you can be a bank. We’ll just use our “emergency” (as opposed to superhero) powers to bend our own rules. And still GMAC doesn’t reveal the success or failure of the swap, claiming they needed time to tabulate the results. And now… we know. Surprise! Not. The Wall Street Journal reports “Struggling finance firm GMAC LLC said Wednesday that bondholders tendered $21.2 billion in notes in its bid to raise capital for its new status as a bank-holding company. The lender’s goal had been to raise $30 billion by converting 75% of its issued debt into preferred stock holdings. The offer expired Friday after having been extended four times.” So they received prior approval AND a $6b federal (that’s your taxes) investment and they STILL missed the legally mandated target by $8.8b. One rule for you, one for former U.S. Treasury Secretary and current Cerberus Chairman John Snow.
It won’t be long now: a parody ad of Chrysler’s thank you for your “investment” ad, to join the bailout parody ad and the anti-anti-bailout (i.e. Toyota) viral email. Meanwhile, Chrysler’s still catching heat for spending big bucks on the post-bailout ads in USA Today, The Wall Street Journal, The Atlanta Journal Constitution, online (even TTAC!) and other media. TTAC flagged the obvious waste ogf taxpayer money and condescension on the 23rd, but the MSM have just caught on. Autoblog reports today on Fox News’ Monday report slamming the automaker for the campaign. Their boy Newt’s minion does the dirty. “‘It’s quite ridiculous to be spending that kind of money,’ said Princella Smith, national spokeswoman for American Solutions, an organization headed by former Republican House Speaker Newt Gingrich. ‘Those ads are just a precise example of the fact that they do not get it … and it’s just in our faces.'” So, now how much did they pay? “A full-page ad in The Wall Street Journal runs between $206,000 and $264,000, and a full-page ad in USA Today runs between $112,000 and $217,000.” Wow. Still, $4b buys you a lot of ad space, if not a single class-leading automobile. Oh, and why haven’t MSM picked-up on the fact that the ad’s picture is a fake?
From the “there but for the grace of god go I” file comes the story of one GMAC debtor who can’t catch a break from the company that is catching breaks left and right. The New York Daily News profiles the plight of Chastity Strawder, an unemployed schoolteacher who is falling behind on lease payments for her Pontiac G6. Having leased two G6s (after all the usual credit checks), Strawder developed health problems and lost her job. Now falling behind on lease payments, Strawder is being treated to a series of angry phone calls from GMAC who want their freaking money, man. And Strawder seems to believe that since she and GMAC are in the same boat (“can’t make ends meet”), they might treat her with the same generosity that she (as a taxpayer) is showing them. Apparently not. $6b of public funding or not, GMAC is still in it for GMAC. Or is that Cerberus? Either way, the moral of the story is that bailouts won’t weaken the world’s most powerful force: compound interest.
Previously, on “We Can Confabulate the Managerial Incompetence Behind Motown’s Meltdown and Federal Cash Grab by Raising Issues About Race, Regionality, Class and (it’s coming) Religion,” Washington Post Carmudgeon Warren Brown argued for Motown bailout bucks as a “thank you” for the auto industry’s help to African Americans. The Detroit News said “amen” and added a little ditty about how black workers are more exposed to the Detroit “downturn” than their Caucasian union brothers. And now The New York Times is adding the official seal of approval of the “minorities need the bailout” meme, with “As Detroit Suffers, Black Workers Hurt.” Not surprisingly, Gray Lady scribe Mary M. Chapman follows DetN wordsmith Louis Aguilar’s template to the point of plagiarism– and beyond! Do these stats seem familiar? “By last month, nearly 20,000 African-American auto workers had lost jobs, a 13.9 percent decline in employment, since the recession began last December, according to government jobs data analyzed by the Economic Policy Institute, a liberal Washington research firm. That compares with a 4.4 percent decline for all workers in manufacturing.” First of all, define “lost jobs.” Does that include workers who took a buyout? Jobs bank? Second, let’s compare apples to apples; what’s the differential between black workers auto industry layoff rate and that of white workers with the same jobs? The Times offers more misleading stats and insinuations, but my work here is done.
CNNMoney is reporting that the U.S. Treasury will “invest” $5b in formerly bankruptcy-bound lender GMAC. In return, “GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised.” Presumably, the treasury provided your tax money after GMAC failed to convince enough of its bondholders to swap debt-for-equity to qualify for bank status (under the Fed’s “emergency powers”). Now that the Treasury has stepped in, GMAC can make the morph and hoover $6b plus from the Troubled Asset Relief Program and $17.5b in federally guaranteed debt. Folks, that little package right there comes to $28.8b. Oh wait; the Treasury has decided to “lend an additional $1 billion to GM so it could invest in GMAC as the financing company reorganizes.” So if you add GM’s $14.4b, Chrysler’s $4b, GMAC’s $28.8 and the Department of Energy’s $25b retooling loans, you end up with a $72.2b Detroit bailout “plan.” Way hey! GMAC press release after the jump.
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