The AP reports that “Senate Majority Leader Harry Reid says the Democrats’ plan to tap the Wall Street rescue fund to save U.S. automakers doesn’t have the votes to pass. One day after Detroit’s Big Three sent survival plans to Capitol Hill in an urgent plea for $34 billion in government aid, Reid said there’s still not enough support in Congress for using some of the $700 billion bailout to help the teetering carmakers.” So it looks like the plan to tap Tarp has tapped-out. Plan B: modify the terms of the Department of Energy’s $25b retooling loans, as suggested by President Bush. Only Detroit is now asking for $34b, and the rest (bailouts for the automakers’ credit divisions). Plan C: new “emergency legislation” to top-up the Big 2.8 until Barack Obama administration can ride to the rescue (or not). Only CNNMoney says 61% of the voting public opposes that plan, and 70 percent it won’t do a damn bit of good for the U.S. economy (sorry Detroit). Plan D: pre-packaged bankruptcy, as suggested and outlined here on TTAC by Richard Tilton. And lo and behold, Bloomberg reports General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout.” Volte-face.
Category: Bailout Watch
The United Auto Workers (UAW) brought all its chairmen and presidents of Detroit 3 locals together in Detroit yesterday for an “emergency meeting.” Translation: a publicity stunt to show the politicians in Washington that the union’s part of the solution, and not the problem. (Well, actually the unions were part of the problem, but that’s managements fault for giving in to union demands decades ago.) Afterwards, Big Ron told everyone that the UAW will “suspend the JOBS Bank” (money for nothing and your checks for free) and delay the VEBA funding payments (XXXL lootable health care fund). Woohoo! One slight problem: we still don’t know the truth about the “concessions.” All we know is that the 2007 contract won’t be re-opened, just slightly modified. In other words, fuhgedabout any major revisions JOBS Bank (your money for nothing and your checks for free) suspension might mean that the language in the contract stays, just that Big Ron will suspend it for a week or a month or until and unless Detroit gets a bailout. Yeah, big savings there. Not. And the delated GM payment into the health care VEBA superfund? Ok, fine. Detroit can make the payment later into the Mother of All Lootable Bank Accounts. But in the meantime, Detroit still must pay retiree healthcare in 2010 and beyond– until it can make the payment. So it’s just like before: an expensive drag on earnings. And yet the press is abuzz with talk of “concessions.” Fool them once…
Litigators use yes/no questions to focus witness testimony and prevent dodging, weaving and long-winded evasiveness. Here are 20 direct questions for Wagoner, Mulally and Nardelli. No doubt TTAC’s Best and Brightest have their own questions which they would like to have answered under oath.
1. Did you bring with you complete and current financial statements, including a balance sheet and financial projections?
2. Are all these financial statements and projections submitted to this committee also available to US taxpayers?
3. Have your financial statements and projections been shared with the UAW?
4. Have they been given to any of your bondholders?
5. Are your financial projections based on the “worst case” scenario?
6. Do you have other models/scenarios for financial projections? For example, is there a best case scenario?
7. Have you provided us with a written statement of all the assumptions you relied on in preparing the financial projections?
8. Did outside consultants/advisors assist in the preparation of your financial projections?
9. Based on the balance sheet presented to us, do your liabilities exceed your assets?
10. Have you spent more than $1 million in 2008 lobbying Congress for financial aid? More than $10 million? More than $20 million?
11. Have you had discussions with your largest bondholders about forgoing interest and principal payments until any taxpayer loan is repaid?
12. Have you asked any bondholders to convert their unsecured debt into common shares?
13. Have any bondholders agreed to convert their debt into common shares?
14. Have any of your bondholders formed a negotiating committee?
15. Do you intend to renegotiate your current labor agreements with the UAW?
16. Do you intend to reduce your dealer network?
17. Have you retained investment bankers to assist you in selling any assets?
18. Do you have collateral to secure repayment of any loan made by US taxpayers?
19. Do you personally have an employment agreement?
20. If your employment is terminated, are you entitled to a severance payment?
After recently appearing to edge away from his electorally necessary pro-bailout stance, it seems Obama is headed back towards his original position. “It appears based on reports that we’ve seen that this time out the executives from these automakers are putting forward a more serious set of plans,” the president elect tells Automotive News [sub]. “I’m glad that they recognize the expectations of Congress, certainly, my expectations that we should maintain a viable auto industry,” Obama said. “We should also make sure that any government assistance that’s provided… is based on realistic assessments of what the auto market is going to be and a realistic plan for how we’re going to make these companies viable over the long term.” When pressed for details, such as whether “bridge loans” should come from TARP or the already-approved $25b retooling loan package, Obama stays resolutely nonspecific. “At this point, I’m more interested in seeing whether or not there is a sound plan there,” he said. “Then I’ll be in discussions and listening about where the best sources of money are. But I think it’s premature to get into that issue.” So does President Bush according to Dow Jones (via CNN Money), although we know that he favors using the $25b fund. Of course, with the Detroit bill now coming in at $34b, that $25b will only go so far. Either way, Bush won’t make any kind of decision on the issue until after congressional testimony tomorrow and Friday… and Obama still has the better part of two months to test the waters.
• GM’s liquidity situation is dire. According to the company’s restructuring plan that was submitted to Congress on Tuesday, it looks like GM burned another $7 billion in October and November, and should be about cash flow neutral in December; making Q4 another $7b burn quarter.
• As such, GM requires $4 billion of government loans immediately, with another $4 billion in January and an additional $2 billion by the end of 1Q09.
• At the end of 1Q09, GM will have drawn $10 billion under its base case assumption, and possibly as much as $15 billion under its downside demand assumption.
• The $18b in requested funding ($12b in loans and a $6b credit line) is in addition to the estimated $8.3 billion that GM is anticipating in Government loans under the ($25b) DOE program for fuel efficient powertrain technology investments.
• One of our primary concerns here is that the downside scenario is not much worse than the current run rate of sales (about 10 million units) and would still leave GM in the liquidity danger zone (with about $13 billion at the end of March) despite having drawn $15 billion in Federal funds.
• And what happens after that? If US sales remain in the 10-12m range and GM burns another $7 billion in 2Q09 it could see its liquidity drop to only $9 billion, even after drawing the final $3 billion in Government money (maxing out at the requested $18 billion). In this case, the Government may have to write another check before the end of 2Q09.
“There is very little in the way of new initiatives/efforts/changes to improve the cost structure or profitability of the company, in our view. Most of the document submitted to the Congress is an outline of the company’s existing ‘Plan’ and actions that either have already been taken or are slated to play out over the next couple of years (especially as it relates to new product development). Ford is now calling for its existing plan to deliver profitability of at or above breakeven by 2011 at both the corporate level and in North America. On a cash flow basis, the plan is to be breakeven or above on a Corporate basis by 2011 (no mention of North American cash flow). Ford’s base case US sales assumption for 2011 is 15.5 million total vehicle sales. Following are some things that we think are lacking in the plan:
The lead outside director at GM, George M.C. Fisher, informs the NYTimes that “Rick is the right guy to lead this management team through this crisis.” Acting on the assumption that GM has any reputation left to lose, all thirteen outside directors are in agreement with the Master Accountant that “bankruptcy would ruin the company’s reputation.” Fisher and his co-directors are “pretty convinced as to the serious damage to the brand from bankruptcy.” He’s right on that score, but doesn’t touch upon whether the fact that GM has been insolvent for close to a decade has given him any pause during that period. Fisher blames the company’s troubles on the dire financial conditions that have blindsided this fine collection of managers extraordinaire – noting that the sales rate in November was the lowest since 1982.
United Auto Workers Boss Ron Gettelfinger held an emergency meeting with union local officials in Detroit today to discuss possible concessions aimed at bolstering the case for an automaker bailout. The result of that meeting was an agreement to suspend the union’s controversial Job Bank program, and to allow the D3 to delay making payments to the VEBA retiree health care trust in 2010. The VEBA fund has long been posited as a potential solution to Detroit’s liquidity issues. Reuters reports that the UAW would consider other changes to the 2007 labor contract with the American automakers, but that all changes must still be approved by union members. Gettelfinger called the decision “the responsible thing to do,” noting that discussions with the automakers are ongoing.
As the battle over bailout bucks rages, it’s easy to get the impression that Fortress Detroit is unanimous in its support for the home team. As usual though, there’s more to the story than just the loudest voices. The New York Times conducted interviews across the state over the last two weeks, and found that opposition to the bailout, if only in private. “There are plenty of people who are rolling their eyes,” said Bill Ballenger, editor of Inside Michigan Politics newsletter. “You keep your head down if you’re one of them, but they’re out there.” And much of the opposition seems to come from Michigan residents who lost their jobs before the automakers even came begging for a bailout. “How many other, small companies would like a bailout?” asks Heather Davison, an unemployed graphic designer who lost her job at a real estate publication a year ago. “It seems to me that the car companies saw the banks getting a bailout and said, ‘Oh, let’s go!’”
The Wall Street Journal’s Evan Newmark takes a look at GM’s Congressional bailout begging term paper. To paraphrase, “we are amused” (in a deeply cynical, bemused sort of way). More specifically, “The restructuring plan comes up short on the most fundamental question. Will this company actually make money? Just look at the details — or what details are lacking. GM says it plans to focus on only four brands. So why does the number of models only drop from 48 to 40? GM has 6,600 dealers, which it says it will cut to 4,700 by 2012. Honda has 1,300 dealers. Even Ford has only 4,100 — which it will cut further. And nowhere in the document does GM lay out, year by year, its own projected market share. This is perhaps the most critical part of any business plan. The kind of thing you learn in the first day of business school.” Yup, the WSJ gets it– in the same place the American taxpayer will… well you get my drift. More mill grist for left-brained nay-sayers after the jump.
Back when I started the General Motors Death Watch, I had no idea that I’d also be starting a Ford Death Watch. Or a Chrysler Suicide Watch. If you’d told me that they’d all be staring down the barrel of Chapter 11 at the same time, I would have found the suggestion highly improbable. As Edna Mole said to Mrs. Incredible, “And yet Darling, here we are.” And here’s Ford’s federally-mandate bailout plan. Automotive News [sub] headlines their summary “Ford tells Congress profit may be restored in 2011,” but that’s all kinds of misleading. In fact, Ford’s plan says The Blue Oval Boys won’t be profitable until at least 2011. And the cover sheet is covered with caveats, from continued decline in market share (ya think?) to “New or increased credit, consumer or data protection or other regulations resulting in higher costs and/or additional financing restrictions.” Well, at least Ford knows what political buttons to press to get Congressional democrats behind them…
So here it is: Chrysler’s turnaround plan. And while you’re digesting that, Automotive News [sub] gives us the takeway: ChyCo will have $2.5 in cash by the end of the month. That’s not enough money to pay its suppliers, never mind anything else. “The bridge loan will help cover an estimated $11.6 billion in expenditures it [Chrysler] will have in the first quarter of 2009. The biggest chunk of those expenditures will be an estimated $8 billion tab from component suppliers.” Hang on; $2.5b plus $7b is $9.5b minus $8b is $1.5b. So, by it’s own reckoning, Chrysler will be back for more money by the second quarter of 2009. And why wouldn’t it? Profit! “Chrysler assumes it will have a 10.4 percent share of the U.S. market in 2009 and 10.7 percent in each of the next three years after that. Based on those numbers, Chrysler estimates it will have operating profits of $400 million in 2009, $2.6 billion in 2010, $2.0 billion in 2011 and $1.8 billion in 2012.” That’s IF the suppliers play ball and DON’T demand cash on the nail. But wait! There’s more! “Nardelli cautioned that the federal loan will work only if Chrysler Financial can support Chrysler with wholesale and retail lending. ‘Chrysler Financial is in need of immediate liquidity support,’ the Chrysler statement said.” So how much is THAT boondoggle going to cost us? Not specified, but I wouldn’t bother checking your wallet for twenties. Anyway, why isn’t Cerberus paying for all this? They can afford it. Anyone? Bueller?
As GM’s 41 percent November sales drop sinks into the public consciousness, The General’s generals have not-so-coincidentally released their not-secret bailout request. And here it is. Judging from the state of things, Rick Wagoner might need to fly to DC– before it’s too late. “General Motors said Tuesday it needs $4 billion in government loans this month and a total of $12 billion by late March to keep operating,” MSNBC reports. “Altogether, the auto giant is seeking up to $18 billion in government funding — including a $6 billion line of credit in case market conditions worsen.” Jeez, that doesn’t leave much for Ford or Chrysler! I make that $7b between them. A pittance really. Unless… they’re planning on asking for more. Could it be?
ABC News— originators of “Jet-gate”– report that both Ford and GM have decided to sell their corporate aircraft. GM’s press release on the subject was uncharacteristically terse, and characteristically timed (released on the same day as November’s abysmal sales stats). “GM… is ceasing operations at General Motors Air Transportation Services (GMATS) at Detroit Metro Airport. Due to significant cutbacks over the past months, GM travel volume no longer justifies a dedicated corporate aircraft operation.” So where does that leave The General’s transport? The automaker is “currently exploring options for transferring its aircraft to another operator” and “pursuing sale of four of the aircraft so it can terminate the leases. GM will shutter the facility at Metro Airport effective January 1, 2009. GM will work with the airport to seek a tenant for the balance of the lease, which expires in 2009.” Zero percent finance available? Meanwhile, Ford’s decision to sell four jets (Volvo thrown in) didn’t make its press site. But we can now reveal that GM CEO Rick Wagoner will be racing Alan Mulally’s Escape Hybrid to Washington in a Malibu hybrid. ChryCo’s CEO will also be driving to DC, but his exact mode of transport is a state secret, for security reasons.
Ford has released its nonclassified report to the Senate Banking Committee today, as CEO Alan Mullaly escapes from Detroit in his Escape hybrid. The Detroit Free Press has posted the entire report in PDF format, and it’s 33 pages of good stuff. The big news: despite insisting that federal funds are a “backstop,” Ford is asking for more money than it did last time Mr. Mullaly went to Washington. Specifically, Ford offers three scenarios, ranging from a short-term recovery (14.5m total US market in 2010 = $5b in support), to normal (12.5m in 2010 = $9b) to short-term worsening (11m units in 2010 = $13b). Ford’s “recommended terms of the loan would be: (i) at government borrowing rates; (ii) a revolving credit line with a ten year duration; and (iii) with additional conditions consistent with the TARP legislation.” When was the last time you “proposed” your own loan terms?
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