My first American girlfriend’s mother, a Manhattan slumlord, read the Kiplinger Letter. She drove a Ford. My American (former) mother-in-law (different person) read the Kiplinger Letter. She drove a Ford. Kiplinger’s paid circulation is a million; their website receives more unique visits than even TTAC, about 2m a month. When Kiplinger writes, America listens. And what’s on Kiplinger’s mind these days? “Should you buy a Detroit car?” Not a general question. They mean now, considering the dire circumstances. Kiplinger asks the question that is on the mind of the remaining 48.2 percent of Americans that still buy true blue American: “What are the risks of buying a vehicle from a carmaker that’s on the brink?”
GM has already announced that it’s trying to come up with no less than $5b in savings by the end of the calendar year. To assist these efforts, GM has put Jones Lang LaSalle in charge of 200m Euros worth of sell-offs and leasebacks. Together with its attempt to sell or lease its Renaissance Center headquarters, GM’s fire sale should bring in some $750m. Property Week reports that JLL’s portion of the sell-off will include non-manufacturing sites in Europe and the UK. On their selling block will be Saab’s properties in Gothenberg and Trollhatten, while Vauxhall’s Luton headquarters, GM’s headquarters in Dublin and other Chevy, GM, and Opel sites are said to be on the sale list. Including factories, GM is estimated to own some $43b in real estate around the globe.
While steering the artist formerly known as the world’s largest automaker into career suicide, GM CEO Rick Wagoner has steadfastly maintained that “bankruptcy is not an option.” As many members of TTAC’s Best and Brightest have pointed out, that kind of stonewalling A) Is insane and B) reveals guarantees a class action lawsuit against GM’s Board of Bystanders. The Wall Street Journal reports that the Board has released a statement which illustrates their feeble-mindedness, managerial paralysis, blantant cowardice and compelling desire not to end up folding shirts at a federal prison farm. “GM said the board had discussed bankruptcy but didn’t view it as a ‘viable solution to the company’s liquidity problems.’ The board “is committed to considering all options in light of circumstances as they may develop.” In other words, NO BANKRUPTCY. Unless there is. Meanwhile, the Journal hints at disagreements between Board members and Wagoner, the company’s CEO AND Chairman.
When I’m not busy boning-up on Mustangology on Autoblog (c’mon guys it’s been TWO DAYS!) I sometimes trace-back links to TTAC material. Today’s forensic surfing uncovered this little gem on MarketWatch. It’s a financial results press release from a company called CableOrganizer.com, claiming that they made “$21.2 billion more in profit than General Motors Corporation (GM) for the nine months ending September 30, 2008.” Yup, it’s a joke. “‘We are very pleased about our 2008 profitability and are obviously honored to have beaten GM by such a wide margin,’ said Paul Holstein, senior vice president of CableOrganizer.com, Inc. ‘Obviously we couldn’t match their revenue, but we were able to beat them handily on costs and expenses,’ notes Holstein. ‘For example, we put off buying a fleet of Gulfstream G5 private jets. That, right there, saved us millions of dollars.’ I called the company’s Marketing Coordinator, Juan Ribero. He was kind enough to send me the original press release, before MarketWatch’s editors toned it down.
I waited until now to repost this ABC report on “Jet-gate” because I wanted to put this story into some sort of context. While members of TTAC’s Best and Brightest have defended the CEO’s travel arrangements as either a drop in the bucket or CEO SOP, that’s not the kind of context I’m talking about. I mean the wider issue of the mainstream media’s (MSM) treatment of the auto industry. The change in tenor is palpable. Before the Congressional hearings, the MSM treated the automakers with kid gloves. And no wonder. Back in the day (less than six months ago), GM pumped over $2b into advertising. Add in the budgets for Chrysler and Ford and you can see how that whole hand, feed, bite prevention thing works. Now that The Big 2.8 have been unveiled as mortally wounded, the gloves are off. For some. Is it any coincidence that the jet chasing reporter hails from ABC, not CBS? I don’t think so. Where was Rush and Sean when this story was aborning? Driving promo cars from “our friends at GM” and slipping mentions into their rants. So be it. These days, the MSM “gets it”– if only because they can afford to do so. More importantly, there’s the internet. Not only can you read the real deal here on TTAC, but there’s now a worldwide webwise conspiracy of souls digging, prodding and rooting for the truth. We live in terrible, wonderful times.
Carlos Ghosn wants your help, and he isn’t shy about asking for it. In an interview yesterday with The Wall Street Journal, the Renault-Nissan chief announced his intentions to obtain a €40b ($50b) loan package from the French government, in addition to some undisclosed additional quantity of yen from their Japanese counterparts. Today, before a packed house during his keynote address at the LA Auto Show, Ghosn continued along this path, turning his attention to obtaining tax credits and other government assistance here Stateside. Citing October 2008 as the worst month for US car sales in the last 25 years, Ghosn claimed that the severity of current economic conditions were “putting the usual rules of business up in the air” and that “nobody knows” how long these conditions would continue. As he tore a page from Detroit’s eco-efficiency bailout pitch book, Ghosn stressed retooling for the development of Earth-friendly technology as a key driver for receiving state support.
We’ve said it before. We’ll say it again. Before The Big 2.8’s bailout begging blitz, the average American had no idea how close Ford, Chrysler and GM were/are to bankruptcy. And now, today, they do. So when it comes to buying a new car, well, it’s either a sympathy you-know-what (as if) or “Maybe we should look at a Toyota this time.” As much as Detroit’s sales sucked in October, the numbers will be nothing (something?) compared to November. By December, a black hole will tear-open the time-space continuum above Detroit and swallow The Big 2.8 whole.
Peter Valdes-Dapena is not what you’d call the sharpest automotive journalist on the blog. In fact, you could say that CNNMoney’s Automotive Editor has about as much killer instinct as Codium setchelli. In case you’re not up on your algae, this is the scribe who wrote a piece entitled “Why we need big hybrid SUVs.” So, now that Forbes Autos is out of the top ten slide show biz– in fact, out of biz entirely– Valdes-Dapena has decided to fill the gap. “What’s really killing Detroit” You want insight? We’ll give you insight! V-D identifies six issues confronting Detroit and gives six reasons why it’s no big friggin’ deal (i.e. why we shouldn’t let Motown’s meltdown get in the way of bailout billions). You got your SUV addiction (“They remain an important market segment for domestic automakers”); lack of small cars (“GM will also begin selling the new Chevrolet Cruze here in 2010”); lousy quality (“There’s no doubt that quality will continue to improve”); lack of hybrids (“GM now offers as more [sic] hybrid models – seven in all – than Toyota, which offers six”); union workers (“Pay isn’t the problem, it’s benefits. But the UAW has made significant concessions”); and your fat executive paychecks (“If big automakers do want help from Uncle Sam, they may have to agree to cuts in compensation). So what’s really killing Detroit? Photo captions like this: “GM CEO Rick Wagoner leads a company in trouble, but could anyone else have done better?” I know Pacific sea slugs that qualify.
As GM’s CEO tires to find federal cash to feed his company’s conflagration, his minions are busy throwing furniture into the fire. The AP reports that Buick has yanked courtesy car provision from its PGA sponsorship. “Buick will no longer supply include the U.S. Bank Championship in Milwaukee, the AT&T National in Washington and the Transitions Championship outside Tampa, Fla. The Shell Houston Open remains hopeful of keeping its Buick courtesy car deal.” Talk to Larry… “We’re taking a hard look at everything right now,” admitted Larry Peck, golf marketing manager for Buick. Ah, the good old days… “In some cases, the company provided 180 courtesy cars and a cash donation, receiving spots in the pro-am for Buick clients, car displays throughout the golf course and hospitality tents on the 18th green. At the John Deere Classic, Peterson said Buick donated a car for auction in its “Birdies of Charity” program.” And now…
WardsAuto.com reports that Ford is following up on its pledge to cut fourth quarter production by, wait for it, 211k units. That’s a 35 percent drop from year-ago manufacturing levels. To implement the cuts, FoMoCo is “temporarily” idling nine plants:Louisville, KY; St. Paul, MN; Oakville and St. Thomas, ON, Canada; Kansas City, MO; Avon Lake, OH; Flat Rock and Wayne, MI; and Hermosillo, Mexico. In terms of the who what when where and for how long and how much longer than normal, and whether or not people are getting paid to work (jobs bank-wise), Ford spokesfolk Angie Kozleski was slightly… vague. “In terms of down weeks, some may have been scheduled and some are new,” says Kozleski. “But we’ll continue to adjust production capacity to demand.” True enough, but it’s not the most reassuring thing a spinmeister has ever said.
Did we miss something? After repeating the inherently suspicious Center for Automotive Research stats on the impact of a Motown meltdown, and sharing the history of the federally-sponsored Chrysler comeback, AutoLine Detroit apologist and Autoblog columnist John McElroy is ready to share the upside of another federal bailout for Detroit. “Most people seem to miss the fact that they are on the verge of a massive turnaround. If the Big Three get a government bailout this time, I see history repeating itself. Most people seem to miss the fact that they are on the verge of a massive turnaround. I’m not trying to be a rah-rah cheerleader here [as if!]. I’m persuaded simply by the facts.” McElroy is laboring under the impression that the eventual savings from the last United Auto Workers’ contract is The One. Less cost, less over-production– less means more! “That means they’ll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!” Huzzah! Where do I sign? “What this means is that when the economy finally starts to recover and the car market begins to grow again, GM, Ford and Chrysler will be in an extremely competitive position, one they haven’t been in for more than 40 years. And that’s why those who say giving them a bailout is just throwing good money after bad are dead wrong. The Big Three are not only on the verge of a roaring comeback, I predict that in the next decade they’ll go on to hit record profits.” I wonder if John’s a betting man?
According to Canada’s Financial Post, Toyota and and Honda are freaking-out about the potential failure of Detroit’s three car companies. “We’re very concerned” about a Detroit meltdown, ToMoCo spokesman Mike Goss told the Post. “In the past couple of days I’ve been asked ‘Wouldn’t it be great for Toyota if others fail?’ We think the opposite is true.” Toyota is concerned about a Motown meltdown’s catastrophic effect on its NA supplier base; “The vehicles Toyota builds in North America contain an average of 75% domestically sourced parts and systems, and Toyota is reliant on many of the same suppliers used by GM, Ford Motor Co. or Chrysler LLC. The Japanese automakers are working to identify which suppliers have the biggest exposure to the Detroit firms. They are also developing emergency plans in the event they need to replace a company providing them with parts. “Everything’s on the table about what we might have to do,” Mr. Goss said. Meanwhile, the industry shills at the Center for Automotive Research seized on the comments to predict, you guessed it, carmageddon…
Here’s a crazy idea. Instead of relying on a bunch of politicians with little to no business experience to sort out GM’s problems, let’s find out what someone who actually turns around failing companies for a living would do. How about, say, William Ackman of Pershing Square Capital? After all, his Fannie/Freddie restructuring ideas seemed pretty well put-together. What say you, Mr Ackman? “GM should be allowed to succeed, and the only way GM can succeed is if it has a balance sheet its business can support,” Ackman tells Reuters. He goes on to say that he would expect GM to get to that position by agreeing to a “prepackaged bankruptcy in which GM’s creditors erase large amounts of liabilities in exchange for equity in the newly restructured GM.” Should a newly restructured GM still need more liquidity for its balance sheet, “then the government can play an important role while protecting taxpayers from losing money.” This, in a nutshell, is why Treasury Secretary Hank Paulson refused to let GM into his TARP. Unless GM massively corrects its balance sheet blues, any federal loans will just be so much good money thrown after bad. Restructuring means jobs will be lost, but if the alternative is subsidizing jobs for their own sakes, then we’ve reached an impasse. Now, all GM and the UAW need to do is stop worrying and learn to love the bankruptcy court.
In a new report covered by Automotive News [sub], Goldman Sachs says GM will end the year with $12.5 billion in cash, and will need at least $22b in government money to survive. Goldman is suspending GM’s rating, putting the automaker on a “wait-and-see” basis until further bailout details emerge. Meanwhile, JP Morgan cut its GM rating to “neutral” from “overweight” saying the automaker needs “something immediately” to make it through the end of the year. Morgan also slashed GM’s stock price target, from $3.08 to $1.84, about a dollar off its trading price of $2.89 at the time of this writing. And while Goldman set the bailout minimum at $22b, Morgan reckons the bill for righting the General “could easily reach $30 billion unless GM reforms its vast liability structure.” GM stock is currently down about five percent on the day, although it’s shown resiliance to earlier Deutsche Bank analysis which valued the stock at precisely bupkis. Still, urgency is the common thread that ties all the analysis together, and if news doesn’t improve soon for GM, its stockholders could see their paper become worthless in short order. Rest assured, TTAC will have the latest developments as they occur.
My first American girlfriend’s mother, a Manhattan slumlord, read the Kiplinger Letter. She drove a Ford. My American (former) mother-in-law (different person) read the Kiplinger Letter. She drove a Ford. Kiplinger’s paid circulation is a million; their website receives more unique visits than even TTAC, about 2m a month. When Kiplinger writes, America listens. And what’s on Kiplinger’s mind these days? “Should you buy a Detroit car?” Not a general question. They mean now, considering the dire circumstances. Kiplinger asks the question that is on the mind of the remaining 48.2 percent of Americans that still buy true blue American: “What are the risks of buying a vehicle from a carmaker that’s on the brink?”
GM has already announced that it’s trying to come up with no less than $5b in savings by the end of the calendar year. To assist these efforts, GM has put Jones Lang LaSalle in charge of 200m Euros worth of sell-offs and leasebacks. Together with its attempt to sell or lease its Renaissance Center headquarters, GM’s fire sale should bring in some $750m. 
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