Automotive News [sub] reports that Uncle Sam is set to transfer $4b worth of taxpayer funds to GM and Chrysler. Each. The e-checks were due to be signed by close of play today, but got hung-up on “technical issues.” So, tomorrow then. This is, of course, only the first installment. GM scarfs another $9.4b early next year, $4b of which will require congressional approval. “The automakers must file plans by Feb. 17 describing how they will restructure to become viable for the long term. Unless the agreement is changed by the Obama administration, a president’s designee, or car czar, is to decide by March 31 if an automaker’s restructuring plan is sufficient. If not, the first loans will be called in, possibly forcing the company into bankruptcy.” Possibly? Anyway, I am disgusted that this deal went down without public scrutiny of GM or Chrysler’s books– or a call for the MSM for same. While our duly elected representatives supposedly saw the “real” books– but couldn’t reveal the information for “commercial reasons”– last week’s Wall Street Journal story on Cerberus’ ownership of ChryCo’s HQ indicates that there’s ample reason to believe there’s something rotten in the fortress of Detroit. You know, other than President’s Bush bald-faced usurpation of Congressional power and federal funds to prop-up two dying commercial (non-banking) enterprises. The Bailout Watch continues.
Category: Bailout Watch
I’m sorry to keep harping-on about this. But I am flabbergasted by Fortress Detroit’s reaction to the bailout. Today’s the day that GM and Chrysler actually get their checks. And today’s the day that the doyenne of Motown media Keith Crain continues his incessant, indignant whining. The headline of his Automotive News [sub] column asks “Does it matter anymore?” Intriguing. Does what matter anymore? The $60b or so Uncle Sam’s pissing away to sustain a brace of unsustainable automakers? That would, of course, make sense. As the Brits might say, those of you looking for sense should look away now. “Across the globe, governments are reaching out to help their auto companies survive. Other governments are giving assistance without any of the theatrics that the Detroit 3 had to endure to get bridge loans. And General Motors and Chrysler will be required to return to Washington for more hearings so all the politicians can have more TV time, which they find invaluable.” Yeah, ain’t democracy a drag? There’s more of Crain’s paranoid passive aggressive paternalistic pandering after the jump…
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,” we saw how the Detroit News encouraged hometown supporters to boycott the South (provided, presumably, those supporters aren’t in the South). I was laboring under the impression that we’d could tick the race thing of the list as well, as African American automotive carmudgeon Warren Brown had previously postulated that Detroit deserved the bailout bucks by dint of its contribution to the creation of America’s black middle class. But I guess The DetN couldn’t resist adding fuel to the pyre. “Auto woes rock black work force” makes the case that Detroit’s tough times are tougher on blacks than white folks. And here’s proof:
Well, at least their hometown media. Our hypermiling pal Sam “Is there a draft out here?” Abuelsamid at Autoblog linked me to the straw that broke this camel’s back: a Christmas Eve column by The Detroit News’ John McCormick. “Maybe it’s time to turn the tables on the South” the title proclaims, proving that prevarication is the first refuge of a journalistic scoundrel. “The unnecessarily long and painful path toward the approval of government bridging loans for General Motors Corp. and Chrysler LLC has exposed a new threat to Detroit. It’s one that Michigan consumers may want to keep in mind as they consider their expenditures, vacation options and even retirement plans.” Breathe Farago. Gentlemen, you won. You got your money. I’m sorry if you found the $66.2b raid on the public purse was a bit… tedious. And embarrassing. But you want to start a boycott? You do realize you’re going back to Uncle Sugar in March, right? Southerners buy a lot of your trucks, yes? Maybe it would be best to just shut the Hell up and be glad that President Bush felt free to ride roughshod over the United States Congress (not to mention the U.S. Constitution). But no. Insult added to injury after the jump.
“Hoover” as in the English expression for vacuum or suck-up– not the U.S. President at the helm when American slid into [what became known as] The Great Depression. Anyway, that brings Uncle Sugar’s contribution to the Detroit cause to $66.2b: $25b for retooling loans, $17.4b for direct-to-manufacturer bailout bucks and $23.8b for GMAC aid. OK, I’m exaggerating. Bloomberg reports that GMAC is “only” in line for $6.3b in cash money. The rest– $17.5b– will arrive in the form of federally guaranteed debt, under the Temporary Liquidity Guarantee Program. If you remove that choice morsel from the recipe for, what was it again? Oh right: turnaround. Recovery. That sort of thing. Then it’s a mere $48.7b. So far. GMAC still faces a midnight deadline to swap debt for equity to qualify as a bank, but it shouldn’t be much of a problem, given that the Fed has pre-approved the bank transformation process under its “emegency powers.” As far as GMAC’s future management is concerned, Bloomberg scribe David Mildenberg doesn’t “get it.” If Red Ink Rick Wagoner can hold onto the reins of power at GM, what’s the bet GMAC Chairman Ezra Merkin, “whose funds invested in Bernard Madoff’s alleged $50 billion Ponzi scheme,” will keep on keeping on?
I know the following letter, first published in the Park Rapids [Minnesota] Enterprise, contains some highly contentious attacks on The Big 2.8 and slurs upon the United Auto Workers. It’s also a bit lacking in the factuality department. But I’m republishing it because I believe the miffed missive mailer represents more than one consumer’s antipathy towards the domestic automakers. If the broad strokes painted here are in any way reflective of a segment of the car-buying public, if that sentiment swells as longtime D2.8 critics become more vocal and visible, well, it’s an abandoned airfield full of not good. And if GM, Chrysler and then Ford belly-up to the bailout buffet for yet more billions, they could well be evoking the law of diminishing returns. (Or endless socialism.) After all, at some point, they have to sell cars to someone.
Thanks to its enthusiastic participation in the sub-prime mortgage market and billions in low-interest, low-FICO score auto loans, GMAC was headed for bankruptcy. There was only one way out: convert to a bank and suckle on the federal teat labeled Trouble Asset Relief Program (TARP). Only… GMAC couldn’t convince enough of its investors to swap debt for equity to meet the Fed’s regs for the transformation. To forestall GMAC’s C11, and the domino destruction of General Motors, the Fed did what comes natural to our August federal institutions these days: they changed the rules. The Wall Street Journal reports that The Fed has granted GMAC bank status– despite its failure to meet the letter of the law. As the Fed’s statement clearly indicates, they’re making it up as they go along. “As part of the approval, the Fed is requiring GM and Cerberus Capital Management LP to reduce their ownership stakes in Detroit-based GMAC. GM must reduce its ownership interest in GMAC to less than 10% in voting shares and total equity. Cerberus, which owns Chrysler, must reduce its interest to a maximum of 14.9% in voting shares and 33% in total equity.” And that ain’t all…
By taking a quid-pro-quo (cash for a new model) approach to its automaker bailout, the Australian government and Holden have opened themselves for significant criticism. And it’s starting to pile on. From The Australian we have reports of backlash from, among others, Australia’s Green party. And their scathing remarks are centered on the GM Cruze variant that received specific subsidization. Greens senator Christine Milne questioned why the “green car innovation fund” was being spent on something that was “neither particularly green, nor in any way innovative.” Says Milne of the SubsiCruze, “even if it is an efficient four-cylinder car, that is hardly green innovation. This is keeping the Australian car industry on life support instead of giving it a new lease of life.” Sound familiar? Getting tired of that question? Apparently Australia’s Greens expected something more revolutionary than a boring ICE compact. According to Senator Nick Xenophon, there is “nothing green about a petrol car. You can make it more efficient but that is just fiddling at the margins.” Incidentally, Xenephon goes on to destroy his credibility by suggesting Australia’s government subsidize a local version of GM’s Volt. Now we’re getting realistic! In other news from the exciting world of The New Mercantilism, Canadians are beginning to worry that their own bailout “is a very difficult situation, because we’ve got a financial plan without a business plan, and that’s the wrong way to do things,” according to Joe D’Cruz, a professor at the University of Toronto’s Rotman School of Management. How did nobody see this coming? Oh wait. (Thanks to JT for the tip)
A new CNN/Opinion Research poll brings Detroit one of those good news/bad news deals. The survey of 1000 voters reveals that “63% of Americans said they supported the government’s automaker bailout unveiled Friday. But if the companies ask the government for any more money, 70% said Washington should let the companies enter bankruptcy rather than give them any additional assistance.” To paraphrase the Temptations, get ready, ’cause here it comes! Uncle Sugar is set to dole out an additional $4b, already promised under the terms of the deal. Not to mention the $25b retooling loans– which seem to have disappeared off the outrage radar. And when the final final reckoning arrives in March… “With the current credit situation, it has been very hard getting debtor protection financing, so any automaker bankruptcy would have to be assisted by the government,” said David Weiss, chief economist at Standard and Poor’s. “If one of them enters Chapter 11, they would still need government funding to avoid failing.” CNN dutifully reports that “Some analysts estimate that the cost of an auto bailout will eventually run as high as $125 billion.” MORE? You want MORE? And there’s a twist to this tale…
Well, someone had to do it. Automotive News [sub] reports that the Fed will use its $200b Term Asset-Backed Securities Loan Facility to provide new-car dealers floorplan loans. It’s been understood since its November 25th spawning that TALF would “secure” auto loans, but a Fed FAQ released today reveals that “for TALF purposes, auto loans include retail loans and leases relating to cars, light trucks, or motorcycles and auto dealer floorplan loans.” In news that won’t thrill the small-town dealerships, the minimum TALF loan size is $10m with a three year maturity. Sorry, credit card debt is not eligible. Suzuki Motor Company announced that it would discontinue floorplan financing precisely (if you believe Automotive News [sub]) four minutes after the announcement. Coincidence?
Canadian Prime Minister Stephen Harper drafted former Molsons boss Jim Arnett less than three weeks ago to advise on auto industry policy. Now that Canada has commited $4b Canadian ($3.25b American) to Chrysler and GM, Arnett has resigned his position. The Star reports that “the Conservative government never really saw eye-to-eye with Arnett on what needed to be done,” but that Arnett will continue to advise the Ontario provincial government. Arnett, who advised the government on the 2004-2006 steel industry restructuring, was not available to comment on why he quit. Sources say Arnett “couldn’t reach the appropriate terms of reference” with the federal government. If we had to guess why Arnett might have left, we’d say it probably has something to do with Harper’s seemingly boundless enthusiasm for handing taxpayer money to Detroit. “I will not fool you. There is obviously money at risk here and there may be, well, more money as we go forward,” Harper told reporters when the Canadian bailout plan was announced.
Mark LaNeve is GM’s Vice President, North America Vehicle Sales, Service and Marketing. Still. As such, the marketing maven must motivate the masses of metal movers who are morose at the moribund market. Of course, LaNeve has a major victory to report: the corporate mothership no longer depends on its dealers for its immediate and, let’s face it, longer term survival. That sponsorship has been transferred to the U.S. taxpayer. Still, in a letter to the stores [full text below], LaNeve reminded the troops what it’s all about. “I pledge to all of you that my team and I will continue to work together with you as we make the necessary structural changes to prove the viability of a new General Motors –to the current and incoming Administration, to Congress and, most of all, to our current and future customers.” Ah, customers. Now you’re talking!
With GM, the bailout is pretty straightforward. Give us money or the economy dies. With Chrysler, it’s a lot more… complicated. In case you hadn’t noticed, ChrCyo owner Cerberus is looking for an exit strategy. Give us the money and we’ll sell/give our 80 percent share of the company to someone else. The United Auto Workers. Suppliers. Someone. Anyone. The New York Times quotes the official statement: “Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to effect the restructuring.” How… magnanimous. Meanwhile, president Bush is throwing a quartet of billions Chrysler’s way– without anything resembling a specific plan for recovery (’cause there ain’t one). And here’s the [non] money shot, from the privat eequity firm’s own mouth : “Unless Chrysler’s labor costs can achieve parity with the foreign transplants and without the restructuring of Chrysler’s debt,” Cerberus announced. “Chrysler cannot be restored to long-term health and the government loan will be unlikely to be repaid.” So, unless the UAW capitulates (which it won’t) and the feds bailout Chrysler Financial Services (which it will), you can kiss the Chrysler bailout bucks goodbye. It’s an extraordinary, and extraordinarily honest, admission. But it seems that honesty’s got nothing to do with it…
As we’ve pointed out ad infinitum, Cerberus is a deep-pocketed private equity firm with assets out the ying-yang. Why should Uncle Sam send their ailing automotive arm a $4b Christmas present? “In a statement today, Cerberus responded to that criticism,” Automotive News [sub] reports. “The company said it manages and allocates capital on behalf of its investors — including ‘retirees, teachers, municipal workers and ordinary citizens’ — and its charter limits how much it can put in any single investment. Said the statement: ‘Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies.'” So now you know.
Nothing like last minute preparations. Just as I waited until two hours before the first major snowstorm of the year to Blizzak my minivan, President Bush waited until the eleventh hour thirty to provide life-sustaining bailout bucks to Chrysler and GM. At first glance, the deal looks like something of a giveaway: here’s a $13.4b TARP under which you can shelter. Get back to us with the real plan in 90 days. I’m outahere. At second glance, it looks like the bailout is designed to fail. Our Torygraph friends across the pond get straight to the meat of the matter. “Bush’s Detroit bailout looks like a path to bankruptcy for General Motors and Chrysler. Billed as a way to give the two automakers breathing room, the deal actually imposes tough targets that must be hit in only three months. It’s likely the companies will fall short, which would force them to file for Chapter 11 protection. But that’s not necessarily bad – so long as they use the coming months to cut the deals with workers, creditors and others that they’ll need to get out of bankruptcy fast.”
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