From GM PR: “Record-setting sales performance in GM’s Latin America, Africa and Middle East and Asia Pacific regions during the third quarter of 2008 helped General Motors sell more than 2.1 million vehicles globally during the third quarter 2008. Compared with the third quarter of 2007, GM’s total sales were down 11.4 percent, reflecting continuing economic pressures in the U.S. market, which pushed North America sales down 18.9 percent, and growing pressure in Europe, where sales were down 12.3 percent. Sales of 1.286 million vehicles outside the U.S. accounted for nearly 61 percent of GM’s total global sales volume compared with just over 56 percent a year ago.” And that’s how you spin ’em boys. Meanwhile, every one of GM’s eight U.S. brands cratered, big time [all stats Q3 losses, year-to-date]: Buick (-19.1), Cadillac (-15.6), Chevrolet (-15), GMC (-19.3), HUMMER (-46.4), Pontiac (-14.7), Saab (-31.9), Saturn (-16.9). Take fleet sales out of that mix, consider discounts relative to profits… There’s blood in the water folks.
Category: Chapter 11
I was wondering why this morning’s Automotive News [sub] was revisiting the story on GM’s product development cutback. True: it was THE story of last week. And the new quote from analytical superstar John Casesa is pregnant with foreboding. “It’s really the last resort and underscores how dire the liquidity situation has become.” And now, the money shot: “According to one informed estimate, GM may have about $17 billion in cash left. Since the company needs $11 billion to $14 billion on hand to maintain normal operations, it may face a cash-flow crisis this winter.” MAY? GM’s burning through a billion a month. Without special write-offs or cash calls, The General will run out of liquidity by January. As with Chrysler, even approaching a cash conflagration flame-out puts the ailing American automaker in dire straits. Suppliers, who are busy going to the wall, may demand cash up front, whittling GM’s “pad” down to, well, nothing. If there’s a “run on the bank,” GM’s suppliers could throw GM into C11.
Is the F150 a Phoenix rising from the ashes or an Icarus once again flying too close to the sun? The Wall Street Journal tell us Ford is betting on a revival of the living dead by “rehiring 1,000 workers to build the company’s 2009 F-150 pickup” at the long suffering Dearborn Truck plant. Perhaps this is an attempt to spin the company’s upcoming November 7th epic horror film release, um I mean quarterly financial announcement. Said quarterly results are going to be horrifically bad. Barn-burner October clearances sales brought truck’s US market share back up over 13.9 percent, a stunning recovery from the sub 9 percent range of this summer and back on track with the rates of this time last year. But those trucks were blown out the door at prices which don’t make money. A horrible economic environment, reduced total sales and high fixed costs mean rivers of red ink. The only good news: Ford’s end of October truck inventories were down from June’s 130k to a skinny 50k. As long ago as August, Edmunds was reporting that buyer research behavior was already moving back away from small cars. Likewise, GM recently cancelled Saturday overtime plans at the Lordstown Cobalt plant. Gas prices are back down in the mid $2s, thanks for a record monthly drop in oil prices. Ford is betting that at least some Americans will revert to type and get themselves a new pickup, even if there isn’t a double scoop of cash on the hood. Meanwhile, FoMoCo CEO Alan Mulally remains committed to small cars…
In a “web exclusive,” Newsweek scribe Keith Naughton pens a post-mortem on ChryCo that could have been lifted whole from these very e-pages, right down to the headline (“Chrysler R.I.P“). Former ChryCo CEO Lee Iaccoca’s refusal to talk about his ex-employer’s looming extinction due to melancholy, apparently, is pretty much the only factoid of interest to TTACers. But there’s a forest-from-the-trees thing happening here. If Newsweek’s editors had placed Naughton’s eulogy on the mag’s front cover, the story would have broken-out of its financial press backwaters into the media mainstream. And that would be the final nail in Chrysler’s coffin. Lest we forget, Joe the Carbuyer is still unaware that purchasing a Chrysler product is akin to booking a steerage-class cabin on the Titanic. Which is wrong. Once again, a major media outlet is protecting its advertisers at the cost of its readers’ best interests. Someone should tell potential Chrysler buyers the obvious dangers they face. You know, other than little old us.
Remember when the rumor dujour was a Ford GM hook-up? That didn’t last long, thanks to Fords deep lack of interest. But as the LA Times points out, rejecting GM’s advances was just step one in Ford’s survival scheme. In fact, Ford is letting GM take the lead on bailout beg-a-thons, UAW negotiation and more. Once GM gets the feds to profer the appropriate mammaries, The Blue Oval Boyz simply waltz in and ask for their turn. “If they’re going to give money or other benefits to GM, there’s no way that Ford won’t be asking for those, too,” says Aaron Bragman, auto industry analyst for Global Insight. “Their argument is that if one company gets access to low-interest loans, so should we.” Ford VP Mark Shields puts it into bailout speak for us: “Whatever happens in the industry, there should be parity.” Ford is taking the “you go first” approach because it has cash to conserve, whereas GM has no choice but to go begging. (Or declare bankruptcy, of course.) But if the GM-Chrysler merger goes through, the UAW VEBA contract will likely be renegotiated. When it is, Ford will be able to apply any concessions to its own business with the UAW without paying for any of the negotiation. And while it outsources negotiation and federal fundraising to GM, Ford is focused on bringing its European lineup of fuel-efficient vehicles stateside. Can you say last man standing?
Automotive News [sub] has the latest in a stream of consultant reports on the on-again-off-again merger between Chrysler and GM. And things do not look good for Chrysler (duh). Remember back when we got all riled about the projected 70k job losses? The report from Grant Thornton LLP says we can actually expect between 100k and 200k job losses. Less tragically, the merger would also cut Chrysler’s entire lineup, except for “about seven core models.” And shockingly, the Sebring isn’t one of them! The report considers only the Ram, Caravan/T&C, Wrangler and Grand Cherokee safe in the event of a merger. Grant Thornton Principal Kimberly Rodriguez thinks that an agreement in principle between GM and Chrysler could be reached by election day, and damn the short-term bailout money that isn’t coming. “Despite the significant number of families that will be impacted, the benefits of combining the two companies are both structural and strategic,” figures Rodriguez. But long-term strategy will have a major short-term price. Much of the job loss from a merger will happen at suppliers, who are in bad shape already. “The suppliers have been hit by the financing crisis and the raw materials crisis and volumes falling off. This will be a final blow to many suppliers and that will be costly to all the OEMS, but in a controlled fashion, it’s something that the industry with access to financing should be able to weather,” says Rodriguez. Or not.
You may recall that Chrysler shut down the factory producing Hemi Hybrid Dodge Durangos and Chyrsler Aspens— despite ChyrCo spinmeister Scott Brown’s absurd contention that they had plenty of orders for same. Wee a GM hybrid guy talking to a Chryco hybrid guy told one of our guys that the ailing (as in zombie) American automaker built 400 gas – electric Durango/Aspens. Which are now headed for the crusher. Apparently, Chrysler doesn’t want to support only 400 vehicles in the system. Crushing vehicles is no biggie for an automaker; early press and other pre-production vehicles are routinely destroyed to avoid liability problems. This is the first time I’ve heard of a post-production vehicle suffering the same fate. You know; if you exclude the EV1.
Production maven Laurie Harbour-Flex has a guest column in Automotive News [sub] that could easily run as a Deathwatch editorial on any of The Big 2.8. Describing the tough conditions that automakers find themselves in, Harbour-Flex argues that flexible production lines will be key in determining who survives and who doesn’t. As the market for new cars swings from segment to segment, chasing volatile fuel prices, manufacturers who can shift production on the fly to meet changing demand will do well. The upshot? Japanese firms use flexible production, Detroit doesn’t. Sure, Chrysler (for example) can claim that its Belvedere, Ill plant is “fully flexible,” but the Patriot and Compass are built on identical platforms. True flexibility, argues Harbour-Flex, means the ability for a manufacturer to “produce any vehicle in their lineups within their body, paint and assembly shops.” And this actually happens. Honda’s Alliston, Ontario plant builds the Honda Civic and Ridgeline and the Acura CSX and MDX, while its East Liberty, Ohio plant produces the Honda CR-V, Civic and Element. Harbour-Flex identifies four key points that are necessary for truly flexible production.
Bloomberg reports that GMAC has sent “Dear John” letters to an unspecified number of GM dealers. One of the missives informs GM stores that the captive financier will no longer provide them with financing to buy vehicles. “Turbulence in the markets reduced our access to funds and increased the cost of funds where available,” GMAC Chief Executive Officer Al de Molina explains. “In response, we adjusted our credit policy to reflect the reduced level of funding availability.” GMAC has also sent notification to other dealers– which could include some of the previously mentioned ones– that the franchisees will have to start repaying their loans after financed vehicles have been on lots for 180 days. Hang on; is this part of a conspiracy by GMAC’s majority owners– Chrysler-owners Cerberus Capital– to force GM to buy ChyrCo? No se. Meanwhile, more details on the changes after the jump. Meanwhile, bye-bye GM dealers. “You’re increasing their payments or you’re taking away financing altogether for a lot of dealers, which basically has the effect of shutting many of them down,” said Denny Fitzpatrick, chairman of the California New Car Dealers Association and Fitzpatrick Chevrolet Hummer in Concord, California. “Dealers just don’t have that cash lying around.”
“Earlier this week, industry sources said GM had asked for roughly $10 billion in an unprecedented government rescue package to support its acquisition of Chrysler from Cerberus Capital Management LP,” Automotive News [sub] reports. Today, we learn that “The U.S. Treasury Department is not negotiating with General Motors and the owners of Chrysler LLC on a request to provide direct government aid to their proposed merger, a Bush administration official said today.” Uncle Sam’s reluctance to grease the deal’s wheels puts it in serious doubt. As in kills it dead. Which raises a familiar question: what the Hell was the point of this merger thing, anyway? There are two main theories. 1) GM viewed Chrysler as a cash grab and 2) GM is/was/wanted to position itself for a massive federal bailout. Proponents of theory two suggested that the feds strongly favored a GM – Chrysler merger so they could then bailout two Dodos with one stone (or something like that), and “save” Chrysler’s jobs. When it became clear that no such jobs rescue was possible, the Treasury balked. Assuming the American Leyland deal doesn’t go down, all that’s left for Chrysler is Chapter 7 liquidation. Yesterday’s Wild Ass Rumor of the Day– which had GM and Renault/Nissan carving-up Chrysler– could well be ChryCo’s pre-C7 valuation process. As for GM, one way or another, they’ll get their own damn bailout. Too big so they failed is still seen in D.C. as too big too fail. At least until the election’s over…
Another day, another Cassandra-come-lately. Today we hear from Patrick Anderson, CEO of the Anderson Economic Group, who tells the Detroit News that the automotive market cannot support three Detroit car companies. “2008 marks the year when it became apparent to everyone that (providing products at a loss to maintain market share and keep plants at capacity) not possible. The days of zero-percent financing on a vehicle that was sold at a loss are over.” Anderson is unsurprisingly bearish on Chrysler, admitting that Auburn Hills is “not going to sit around and lose money for the next five years. They will consider auction and Chapter 11.” Of course, like so many of the grudging doomsayers recently emerging from the woodwork, Anderson somehow believes that an auction is preferable to a bankruptcy. “A merger of some type is likely to occur because the economics now are unsustainable for three Detroit automakers,” says Anderson, while admitting that “there is no scenario where GM and Chrysler avoid significant reductions in employment — none.” The real question is how close to the 70k expected losses will the final tally be. And whether a bail-and-merge would save any more of them than a bankruptcy. And how much that bail-and-merge might cost. And whether American Leyland will have any success. And on. And on.
A TTAC reader has emailed us a heads-up that the Michigan Economic Development Council (MDEC) has called an emergency meeting to prepare for the fallout from a GM – Chrysler merger. Warren, Michigan mayor James R. Fouts will chair the confab. Although Fouts is the only human on planet earth that’s more dour-looking than Alan Colmes, Hizzoner is apparently no stranger to hyperbole (even when it’s true). “I heard the Warren mayor interviewed on WJR a few minutes ago,” our informant informs. “He said the direct impact to the region is 145,000 jobs if the merger happens.” I guess you could say it’s that many jobs are on (or off) the line, all things considered. Which raises an interesting question: is this merger really going to receive federal backing given that the consolidation will create that kind of neutron-bomb style economic impact? Chances are, yes.
While the mainstream media focuses on the effects of Detroit’s downsizing (a.k.a. spectacular tumble into the abyss) on blue collar jobs, let it not be forgotten that tens of thousands of non-union white collar workers are already looking at a bleak Christmas season, with tens of thousands more realizing that this will be their last holiday period in their current employment. To wit: a TTAC reader tells us that GM R*Works is busy escorting workers to the door, after already shrinking from two dozen employees to ten. And no wonder… R*Works is a promotions company with one client: “Our vision: Use the power of promotion to provide General Motors with dynamic, unparalleled marketing initiatives that set the world’s number one automaker apart from its competitors. Secure GM R*Works position as our Client’s most valuable agency partner with ideas that enable GM to maintain its leadership role and grow market share.” Our reader reports that GM’s ’09 promotions budget have been slashed to levels insufficient to stage any major events. “Rumor now is that the entire company goes bye-bye by end of the month (which is not far off, obviously).” [thanks to you-know-who-you-are]
“We do not view the potential for any eventual transaction involving GM and Chrysler even in combination with government support, as a panacea for these companies’ credit concerns,” S&P analyst Robert Schulz said in a statement [via CNNMoney]. That’s a bottomless cup of not good. Hence Standard & Poor’s Ratings Service is keeping The General on credit watch for a possible downgrade, from “You Can’t Touch This” to “Toxic.” And the hits keep happening. “Our most fundamental and serious concerns regarding GM and Chrysler remain unchanged: the pressures on liquidity facing both automakers and their auto financing affiliates as a result of the rapid weakening of global auto markets and credit-market turmoil… Massive changes would be essential for any merger. That raises the possibility of a ‘strategic bankruptcy’ by one or more of the companies to carry out those changes.”
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