I’ve been watching the polemics coming from the media within Fortress Detroit with increasing fascination. As the bailout bill has stumbled, faltered and face planted; the hometown cheerleaders’ tone has evolved from arrogant and bombastic, to arrogant and vindictive, to plain old vindictive. Detroit News carmudgeon Daniel Howes has always been one of the less aggressive of this cohort. His commentary has consisted of equal parts commiseration, head shaking and exhortation. Now that the Detroit bailout bill is DOA, Howes is struggling to put what Jalopnik calls the “carpocolpyse” into palatable perspective. Last night’s column, written as the bill went up in flames, frames the defeat as a North – South deal. “[The unions’ Political Action Committees] ignored the Republicans, even auto state Republicans, who represent the so-called ‘New American Manufacturers’ in places such as Kentucky, Tennessee and Alabama… Stripped bare and put in the regional context of union vs. nonunion and domestic vs. foreign, the toughened conditions pushed by Sen. Bob Corker, R-Tenn., are legislative cruise missiles aimed directly at Detroit’s business model, the UAW’s Solidarity House and 70 years of Big Three bargaining tradition.” While Howes considers Southern senators’ attempt to force the UAW to modernize is “understandable,” given “given Detroit’s glacial pace of change,” he predicts bad, bad things. In that “don’t tug on the tiger’s tail” kinda way…

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The New York Times is reporting that the auto bailout bill passed by the House “appears dead in the Senate” today. Opposition from Republican senators is well summarized in an op-ed by Senator Bob Corker in today’s Detroit News. But another reason the bill might fail has emerged only recently, as the Times also reports that the House version of the bill was packed with pork shortly before passage. A provision in the bill asks the government to help municipal transit agencies by guaranteeing the economics of a complex tax shelter known as SILO (Sale In, Lease Out), despite years of efforts by the Treasury Department and the Internal Revenue Service to shut it down and collect billions of dollars of unpaid taxes, interest and penalties. SILO involves buying and then leasing back depreciation rights and assets at the transit agencies, in yet another poorly-understood derivatives scheme. According to the Times “Many of the deals are faltering because of the credit crisis and have put the agencies at risk of having to make large payments to banks and insurers. Last month, the agencies asked the government to back their role in the deals. The I.R.S., which banned the shelter in 2004, offered a so-called amnesty in August to more than 45 corporations that engaged in more than 1,000 Silo deals involving municipal property.” The House bailout bill also includes a cost-of-living pay increase for Federal district judges, reports the Wall Street Journal. In lieu of (what might be an all-too obvious) editorial commentary, let me simply say that if and when this bill fails, the world will not end. The American economy is incredibly resilient, and real opportunities will arise from the creative destruction of a GM reorganization. It won’t be easy, but it couldn’t be more necessary. Good afternoon, and good luck.

Automotive News [AN} reports that the U.S. House of Representatives has passed H.R. 7321 by a margin of 237-170. Thirty-two Republicans and 205 Democrats approved the measure. The bailout bill authorizes the Department of Energy to loan General Motors and Chrysler $14b (in total) at a rate of five percent for the first five years and nine percent thereafter (until?). The car czar is a go! Under the terms of the legislation, the de facto bankruptcy judge can “compel automakers, their creditors, workers, suppliers and dealers to agree on restructuring for long-term viability– or emergency loans would have to be returned.” Collateral? An equity stake for taxpayers and “go to the head of the line” debtor repayment positioning. Prohibition against payment of stock dividends, no corporate jets, limits on executive compensation, yada yada yada. If they are to return to the Hill to say the magic words (please sir, can I have some more?), General Motors and ChryCo must bend to the will of the car czar by March 31. Or April 30, depending on… the car czar. So where does this leave the bailout bill?

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I’m not a constitutional law expert. But I’m a fan (of the document, not the lawyers). And I’m extremely uneasy at the prospect of the United States government assuming control of Chrysler, GM and (maybe) Ford ahead of the company’s legal owners AND its creditors. Of course, I’m not the only one. And, once again, we turn to the just plain folks at The Heritage Foundation for a heads-up on a bailout-related issue. “A key provision of proposed legislation to bailout the General Motors and Chrysler, which say they are on the brink of insolvency, may be an unconstitutional taking of private property… General Motors and Chrysler already carry significant loads of ‘senior’ debt with priority over other claims, and it is a standard feature of such debt agreements that borrows cannot subordinate this senior debt—that is, as a condition of the loan, the borrower agrees not take on additional debt that has a higher priority and would therefore imperil the senior debt. But that’s precisely what the bailout bill purports to do.” In other words, “Without providing any compensation to senior creditors, the bailout legislation would convert their loans to junior debt, increasing the likelihood that they will not be paid, which amounts to a partial or total taking. There is also a real question as to whether this taking would be for a ‘public use,’ as also required by the Constitution.”

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Marketwatch reports that the federal appointment of a “Car Czar” could trigger a “credit event” for Ford and GM’s credit-default swaps, according to Bank of America Securities analyst Glen Taksler. Taksler points out that the International Swaps and Derivatives Association, the trade association that acts as a standard-setter for credit derivatives trading, says one trigger for a bankruptcy credit event is the appointment of an administrator, trustee or similar official to oversee all or most of an entity’s assets. But it’s unclear whether the potential car czar’s powers would correspond with the ISDA definition. The authority to review and prohibit certain transactions, or what’s been discussed in one piece of draft legislation, is different from having control over assets, Taksler noted. “The result may depend on the exact wording of a potential bailout package,” he wrote in a report made public late Tuesday. “We find arguments both for and against an autos czar triggering CDS,” he said, adding: “The actual process is likely to be determined through ISDA.” MW concludes that if the auto maker bailout does amount to a credit event, it would create another shock in the $50 trillion market for credit default swaps. Talk about unintended consequences! Stay tuned…

From Politico, we have a counter-proposal on auto industry assistance by House Republicans, led by Rep John Boehner. In essence, it advocates for a pre-packaged bankruptcy with major concessions from all sides. More importantly, it suggests that instead of $15b in interim financing and a Czar to keep things in line, the government should “provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50% of the losses of new investment in the case of default, helping to unlock immediate private investment (not unlike debtor in possession financing). Such insurance would expire on March 31, 2009.” Hit the jump for a complete statement from Boehner and more details.

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End of Days’ Sale, I guess. Seriously, there is some strange shit going down in the autoblogosphere today. Automotive News [sub] pegs my WTF meter with “Midwest credit unions pledge $10 billion in auto loans to help GM.” According to AN, here’s the deal. “A group of credit unions from Michigan, Ohio, Indiana and Illinois is pledging $10 billion in low-cost auto financing to its more than 12 million members for the purchase of General Motors vehicles.” Hmm. Low cost? Like HOW low-cost? Zero percent? Once again, AN fails to provide the money shot (so to speak). So I click onto the relevant website: ilovemycreditunion.org. Rates? Nada. But there is a GM discount, revealed in the article as… wait for it… $250. OK, click on the credit union discount button. Whoa! $250 bucks PLUS “supplier pricing.” Click on Contact Us, call the toll free number and voila! I’m through to GM. The rep wants to give me an authorization number. Yes, but what about the finance rates? Hang on, I’ll transfer you to GMAC. So, it’s like that is it? Yes, it is. Oh and the two-mode Saturn Vue hybrid is excluded. Go figure.

The story of Ford hawking Volvo to China is getting curiouser and curiouser. That story appeared first in China’s respected National Business Daily. Then, via TTAC, it hit the fan, the wires, and the MSM. The story made the rounds from Forbes to the Chicago Tribune, even the DetNews headlined: “Ford partner in China considering buying Volvo.” Ford’s partner in China is Changan. The codependent joint venture produces Volvo cars for the Chinese markets. Buying the Volvo brand outright would enable Changan to enter the lucrative export market with an established brand at a competitive price point. And now, the denials.

Today, Gasgoo reads the Wall Street Journal Asia. To everybody’s surprise, the WSJA found “a person familiar with the matter.” The familiar person says that Ford and Changan have not talked about a sale of Volvo. WSJA’s deep throat comes up with a rather flimsy story: According to Mr. Mole, Ford execs had met Changan execs simply to inform them “as a courtesy” that Ford was looking for a Volvo buyer. As in “We just happened to be in Chongqing, so we thought, we come by, say hello, and by the way, we are looking for a buyer for Volvo. Know anyone who might be interested?” A search of the WSJ database comes up empty. Strange. It’ll get stranger …

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Before you delve into the fact and substance of this “new deal” for Detroit, note: Senate Republicans are threatening to torpedo this boat before it leaves harbor. The Detroit News reports “Some Republicans remain strongly against the idea of bailing out Detroit automakers. Sen. John Ensign, R-Nev., told CNBC on Tuesday he was considering trying to thwart a vote. “I think that not only myself, but several of us will be looking at possibly blocking this package,” Ensign said. White House chief of staff Josh Bolten plans to attend a Senate Republican lunch today to try and win over skeptical lawmakers. Democrats need 15 to 20 Republican votes to reach 60 in the Senate — the hurdle to end debate and proceed to a vote.” OK, the new “key provision:” the automakers must prove that they’re doing the right things to a car czar by March 31. Otherwise, it’s C11 for you bub. Oh wait, sorry. The czar has the power to grant a one month extension. And he or she could call back the loans at any time. And he or she must approve all transactions over $100m (up from a paltry $25m). Gentlemen, meet the new boss. Is there more? What do you think?

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With Bob Lutz pounding the media pavement for his credibility-challenged boss, it was only a matter of time before someone really hit the Maximum-quote jackpot. Chalk up a doozy for CNN, who snagged Lutz for its “American Morning” show, and got an interview which proves why Lutz was being kept away from bailout talk in the first place. The honesty flowed like single-malt in a boardroom from the very first question. When asked what GM would do with the $15b to ensure its survival, Lutz hedges, answering “this is simply a bridge loan which will get us into the next administration, where we hope we can do something more fundamental. Because the main problem is the lack of liquidity and the lack of revenue flowing in as we’re facing absolutely the lowest, lowest car market in history, and it’s not just the domestics.” AM anchor John Roberts, smelling blood in the water, presses Lutz. “You don’t see Toyota and Honda coming to the government for a handout. But based on what you said there — that this is just the beginning — you’re going to need more money next year?” To which Lutz replies “I think that’s a reasonable assumption.” Reasonable, eh? Read More >

TTAC’s Deep Throat sent us the heads-up: as predicted here, GM and Chrysler suppliers are now asking for cash in advance. “Both GM and Chrysler are responding with form letters denying such requests,” DT reports. “BUT – GM’s letter is full of obfuscation; Chrysler’s is more direct and forthcoming. I was read both letters sent in response to a supplier’s request. Unfortunately, I cannot supply these letters to you due to my source… The problem is that GM & Chrysler’s cash flow vanishes when dealers stop ordering new rigs – like now. Hence, bankruptcy is imminent for both companies and that’s why suppliers are starting to posture for cash on delivery. A bailout changes things. But only for a while…” True dat. Uncle Sugar’s “support” will put an end for cash-on-the-nail demands. But it’s important to keep in mind that both GM and Chrysler need a “float”– estimated at $10b for GM– to keep the parts flowing and the lights on. The instant taxpayer money looks to dry up (i.e. March), they’ll throw both companies into Chapter 11. In Chrysler’s case, maybe sooner.

Wow, that was quick. Even before we could get a hold of the new bailout bill, the name of the new “viability advisor” has emerged from the political fug hanging over Washington. And the man who will control the fate of America’s automakers is… Kenneth Feinberg. The MSM (e.g. AP) is touting the man who would be Czar as the “the lawyer oversaw the federal Sept. 11 victims’ compensation fund” (AP). Which is a strange, deeply foreboding background for this gig if you ask me. But you didn’t. So I asked Wikipedia to give me the inside dope on El Czarino. “Originally from Brockton, Massachusetts, he worked for five years as an administrative assistant and chief of staff for U.S. Senator Ted Kennedy, and as a prosecutor for the U.S. Attorney General. Before founding his own firm, The Feinberg Group, in 1993, he was a founding partner at the Washington office of Kaye Scholer LLP.” Feinberg wasl also a key figure in other major compensation disputes, including the use of Agent Orange in Vietnam and the Dalkon Shield birth-control device.

Here’s a copy of the draft Detroit bailout bill. While we digest it, here’s what we know so far… Automotive News [sub] says that yes indeed, there will be a car czar. Appointed by President Bush. The Freep is more specific. “Under the bill, automakers would have to submit a restructuring plan by March 31 to what’s being called a ‘financial viability advisor,’ who would have the power to set negotiations among the company, unions and creditors. If the advisor deems the company isn’t making progress, the loans could be called back.” In other words, he or she could throw The Big 2.8 into bankruptcy, without passing go, without collecting $34b (just some of it). Well, fair enough. But from there, things get seriously gnarly…

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