Now that self-styled AutoExtremist has acknowledged that his hometown heroes have screwed the proverbial pooch, Peter DeLorenzo wants the left and right coast elites to know they can’t afford to let Motown take a dirt nap. Rant #469 (my favorite title so far) makes it clear that the American automobile industry IS Detroit, and Detroit IS America’s industrial pillar. “Free-market theorizing aside [ED: sure , why not?], we have long since passed the point of no return in this matter. If this country allows one of its key manufacturing pillars to slip into insolvency, it would set-off a dark chain of events that would reach into every sector of the economy and would not only devastate the states where Detroit has its manufacturing and parts facilities, but it would affect every state of the union too.” That means you, bub. To avoid this “looming economic disaster,” Sweet Pete thinks the GM – Chrysler merger’s kinda neat. “Even though I am absolutely convinced that the idea of GM acquiring Chrysler is absolutely fraught with opportunities for abject failure on a grand scale, the White House will make the decision that a managed dissolution of Chrysler over time under GM’s stewardship would be preferable than an immediate corporate blow-up.” Especially before a presidential election, eh? Having finished this adventure into realpolitik, DeLorenzo’s got a plan for America, Inc. Counter-attack!
Category: Chapter 11
OK, that’s scary. While we fully expect Ford to be Detroit’s last man standing, those are the exact same words uttered by the man who’s been busy ramming GM into an iceberg– repeatedly. Well, at least FoMoCo CEO Alan Mulally acknowledged the competition. “People aren’t going to buy cars from bankrupt companies when they have great choices.” Big Al’s “stay the course” cry is a bit more credible than Red Ink Rick’s; Ford tanked-up up on cash before the excrement and air movement device collided. But October’s sales results, and Ford’s next financial quarter, are going to be super-brutto. Here’s Automotive News‘ [sub] nutshell analysis: “During the first half of 2008, Ford lost $8.6 billion, and analysts expect further losses in the third and fourth quarters. In May, Ford abandoned its plan to restore profits in 2009. Since 1995, the company has shed U.S. market share annually. This year, its sales have plunged 18 percent.” So what the new new way Fordward? We “absolutely stay on this plan and restructure to get back to profitability as quickly as we can in this changing world,” Big Al soothed. “And continue to invest in the new products for near- and longer-term growth and value creation. We’re just going to do whatever it takes to do that.” Given that the Euro-Fords are still a year out and GM’s just delayed all its product plans, simply not dying is about as good as it gets for The Blue Oval Boyz. And it may well be enough.
Well you kinda knew GM was pulling the plug on its cap ex (capital expenditure) when they announced the Chevrolet Cruze would be delayed a year (to 2013). The Cruze was supposed to be The General’s next big small thing. The great wheeled hope. The economy car that would put GM back in the non-SUV game. Fuhgeddaboutit. Or, as the Brits would say, GM’s dropped the other shoe. Automotive News [sub] reports that the cash-strapped American automaker is postponing “nearly all of its spending on product development in 2009 and 2010.” According to an unnamed source, “The 2009 stuff that’s too late to cancel is coming out, then everything else gets pushed out anywhere between three months and up to a year. It’s not just capital budget; it’s also engineering, design… everything that would cause money to flow out in 2009.” Except, of course, executive salaries. So what else is spared? The Camaro, the Hail Mary-shaped plug-in electric – gas Chevrolet Volt, the “restyled” Buick LaCrosse (whew!) and, maybe, just maybe, the Cadillac CTS Wagon (thank God!). And here’s the really scary part. “General Motors is taking drastic action to avoid running out of money sometime next year. With its product delays, GM hopes to save as much as $1.5 billion, said the source.” Just $1.5b? That’s only a month-and-a-half’s worth of GM’s current cash burn. Desperate days.
We’ve already covered Detroit News columnist Daniel Howes’ Road to Damascus moment, when the hometown paper’s seriously smart scribe finally acknowledged that the domestics are going down. But Danny’s latest column indicates a bit of backsliding. “Fed help for GM merits tough terms” promises guidelines to protect taxpayer’s interests. You know something along the lines of Ken Elias’ recent General Motors Death Watch post. Of course, any such prescription would have to include a call for the dismissal of the Harvard-educated idiots runing GM, the Home Despots atop Chrysler and UAW jeffe Big Ron Gettelfinger. But that’s a bridge too far for the Detn’s Motown maven. “…the guys atop GM, Ford, Chrysler and the UAW with their collective hands out should be prepared to accept some onerous conditions in exchange for the federal dough — up to and including putting their jobs, legacies and golden parachutes on the line.” Putting them on the line? Danny, these guys needs to go (save that nice Mr. Mulally who rang us up the other day and totally coopted our coverage). Full marks for asking the right questions (albeit a bit late). Now, how about some answers?
As Moody’s has downgraded GM and GMAC to Caa2, it only makes sense that the ratings agency has assigned potential “partner” Chrysler and Chrysler Financial the exact same rating. MarketWatch reports that the ChryCo Bros. are now at Caa2. Folks, Caa2 is the third circle of junk credit Hell, only a blink away from the last part of this category (Caa3). In other words, “Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk, and have extremely poor credit quality.” There are only two ratings lower: Ca and then C. And then… game over. Bottom line: Chrysler’s “plenty o’ cash contention” was the complete B.S. anyone with industry insight knew it to be. Or, as Moody’s puts it, “The downgrade of the Chrysler rating reflects the increased pressure on the company’s liquidity position due to the precipitous decline in US automotive demand and the likelihood that shipment levels will remain depressed through 2009.” Bottom line II: the only institution that will lend GM. GMAC, Chrysler and Chrysler Financial is you (a.k.a. the U.S. government). That said, Chrysler’s owners Cerberus have plenty deep pockets. According to their website: “Cerberus holds controlling or significant minority interests in companies around the world. In aggregate, these companies currently generate over $100 billion in annual revenues [emphasis added].” But Feinberg’s Boyz know better than to throw good money after bad.
Down the rabbit hole our tax money goes, as a “merger” has become a “rescue.” Reuters reports General Motors and Cerberus Capital Management have asked the U.S. government for roughly $10b in an “unprecedented rescue package” to support a merger between GM and Chrysler, according to “two sources with direct knowledge of the talks.” But don’t worry, because only $3b of that would buy Uncle Sam preferred stock in the merged automaker, “according to one of the sources, who was not authorized to discuss the matter publicly.” You may have qualms about government ownership of a large slice of the American auto industry, but Reuters writers are down with that. “It would… give U.S. taxpayers a large stake in the turnaround of a struggling auto industry that employs over 350,000 American workers and is credited with supporting employment for another 4.5 million in related fields.” So what of the remaining $7b?
News flash! Automotive News [AN sub] finally talks to someone on the record! And it’s no less a personage than GM Marketing Maven Mark LaNeve, the man in charge of managing The General’s declining ad budget. To celebrate the occasion, AN’s crack reporters resort to the lazy journalist’s best friend: Q & A. The resulting edit begins with the usual “these grapes are not sour, there must be something wrong with your taste buds” waffle. LaNeve would have us believe that the new media is so wicked cool GM doesn’t really need to spend as much money as it did before the last of the corporate cash pile went up the chimney. “When a lot of the digital technology was new, all marketers were learning. As you learn, you get more efficient and you spend less money to get the same results, the same impact, the same reach in the marketplace. That is why I am comfortable with some of the cuts we are making. We are a whole lot better at search, at digital, at working with our third-party partners like Edmunds.com and The Truth About Cars.” Just kidding. About TTAC. Anyway, AN raises the spectre of GM’s octo-brand stretch. Pah! “We prioritize the launches. The key launches are the Chevrolet Traverse, Camaro and Equinox. Cadillac has the CTS wagon, CTS-V series and CTS coupe on the horizon. And the Buick LaCrosse and GMC Terrain are two big launches.” THOSE are GM’s priorities? My children’s children’s children’s tax money is so dead. More revelations after the jump.
Not far to go now. MarketWatch reports that “General Motors Corp.’s creditworthiness came under fire yet again on Monday, with Moody’s Investors Service slashing its debt even deeper into junk territory at Caa2, three rungs above the lowest possible rating.” Ready for some carefully-couched euphemistic double talk? You know you want it. “Moody’s cited its expectation that the erosion in the U.S. auto sector that ‘will severely outpace’ GM’s ability to respond adequately.” More directly, analyst Bruce Clark reckons the downgrade reflects “the risk that despite all of GM’s business restructuring and liquidity raising efforts to date, the magnitude of cash outflows due to ongoing operating losses, debt repayments, and other uses will consume the company’s available cash during 2009.”
Toyota outsold GM globally last year. Of course, GM took the low road and claimed they were still number one by dint of their minority partnerships with Chinese automakers. This year, ToMoCo will lift the crown as the world’s largest automaker– joint ventures or no. Anyway, here in the real world, that gig’s been up for a while. More than a year ago, GM CEO Rick Wagoner declared that Toyota’s title-taking didn’t matter. OK, it did, a bit. But it really didn’t; ’cause we don’t have time to worry about that shit [paraphrasing]. After all, we’ll be profitable by…. uh… hey! Is that an SSR? Well, Red Ink Rick’s going to get another chance to play spin the news. CNBC’s Phil LeBeau reports that Toyota’s three U.S. brands could outsell GM’s eight brands in October. “This week is not only the last one of the month. It’s also the week that could determine if GM holds on to the top spot in monthly auto sales in the U.S. Initial reports of October retail auto sales show Toyota outpacing GM and Ford. If that trend holds for the full month, we could be looking at the day many in Detroit have feared for years.” Even if GM doesn’t, Phil worries about the psychological impact of the smack-down.
As a website that started a General Motors Death Watch on April 3, 2005, and published its 208th episode this morning, TTAC is no stranger to the idea that GM has been heading for a Chapter 11 bankruptcy for quite some time. We’ve also reported that The General has refused to contemplate the possibility, nay, utter the word “bankruptcy” for lo these many years. About a month ago, we brought this Voldemort problem to our reader’s attention. And now GM Car Czar “Maximum” Bob Lutz brings it to ours [via the Detroit Free Press]. “Bankruptcy for GM certainly is not an option,” Lutz announced at the Public Relations Society of America. “The board has never talked about it… It’s not something that we consider would be constructive or would solve any problems for anyone.” While you’d expect an ex-marine aviator to tell the world “failure is not an option,” the idea that GM’s Board of Bystanders are sleep-walking towards disaster is as predictable as it is lamentable. [thanks to Polishdon for the link]
I agree. Merge in haste, repent at leisure. Or, as Maximum Bob puts it to The Detroit News, “There is no timeframe at all for having anything definitive.” This said following Lutz’ speech at the “2008 Public Relations Society of America International Conference” at the Renaissance Center. The what? A PR conference? Oh, no spin there, then. I mean, is there some timeframe to have something not so definitive? Meanwhile, we so totally believe that the “sources close to the deal” quoted by Mowton’s hometown paper aren’t GM itself. The DetN reports that these SCTTD have previously told them that “GM and Chrysler want to get a deal done before the presidential election on Nov. 4, when politicians may be more receptive to requests for federal aid to complete a merger.” I make that “Who’s your Mama, Obama” by rapper 2 Big 2 Fail. “Lutz would not comment on reports GM has approached the U.S. Treasury for help financing a deal with Chrysler owner Cerberus Capital Management LP.” In other words, MB doesn’t know, doesn’t care (golden parachute at the ready), doesn’t remember or ain’t sayin’. We’re still hearing that the deal’s going down on Halloween. No, really.
As Ken Elias points out in his latest General Motors Death Watch, GM is asking the feds for money to fund their merger (now buyout?) plans for Chrysler. The Wall Street Journal [sub] tells the tale, highlight analyst Ron Lache’s “come to Jesus” moment re: the automakers’ cash conflagration. “”Without external intervention, from consolidation or government assistance, we expect GM to reach its minimum cash position in under 12 months,” Deutsche Bank auto analyst Rod Lache wrote last week. In an interview, Mr. Lache added that Chrysler is also running dangerously low on funds. “We believe Chrysler is in the same position. It’s either August 2009 or December 2009 they run out. Both have a limited runway.” OK, so, now, bring on the anonymous source! “GM and Chrysler ‘are basically waiting on the government,’ said one person involved in the merger talks. ‘The three choices are bankruptcy, a big intervention from the government or some big deal like this that has massive cost-cutting possibilities,’ this person said. ‘That’s it. And even the big deal may require government help.'” Or… the feds could do nothing. You know, theoretically. But wait! It gets worse!
Forget End of Days. I reckon this is The Beginning of Speculation. The Sunday Times [UK] is pulling rank on the ranks of the autoblogosphere’s recent anonymous attribution afffliction, quoting “senior car-industry sources” for their “story” that FoMoCo is busy selling Volvo to BMW. “Sources close to Ford and BMW said yesterday that there had been preliminary talks between the two automotive giants, although that was denied by the companies. ‘No talks have taken place,’ said a BMW spokesman.” As the non-news spread through the Sunday internet, Ford felt obliged to quash the rumors. Speaking to the Associated Press, Ford spokesman Tom Hoyt said the American automaker wasn’t commenting on speculation about Volvo’s future. Later in the day, he commented, issuing a denial that the Ford was selling their cash-sucking Swedish unit. “To my knowledge, we are not in negotiations with anyone about the future of Volvo,” Hoyt almost clarified.
Thoze of you who were wondering why Chevy would build both the Cobalt AND the new Cruze have stopped wondering by now. Last Thursday, Business Week speculated about cash conflagration-caused cuts to GM product development, including the possibile delay of the new new new Malibu and, perhaps, GM’s Next Small Thing, the Chevy Cruze. The typographically-challenged eGMCarTech.com now reports the Cruze delay as a done deal. I mean, a not done deal. “As times get worse, GM is doing all it can from laying off salaried workers, selling brands and closing plants. Latest reports from sources say that the much anticipated 2011 Chevrolet Cruze, which was supposed to be GM’s major opportunity to lure in fuel-efficient conscious customers, will be delayed almost a year. The 2011 Chevrolet Cruze was originally set to arrive in April of 2010 as a replacement to the Cobalt. Sources now say it has been pushed back to 2011.” What about that $500m investment in Lordstown for Cruze engine production? That’s SO two months ago. Hmmm. For a business operating on five-year product cycles, how bad must thingz be for the General to make such a quick– and public– about-face? Very bad indeed.
We’ve identified NYT (and former Detroit News) scribe Bill Vlasic as a Motown cheerleader ever since ever. Bill’s not happy with that assessment. Can’t see it. Which is kind of strange. I mean, read this piece in The Times chronicling GM’s slide into bankruptcy and try and find one– one– instance where Vlasic takes CEO Rick Wagoner and Co. to task for running what was once the world’s largest automaker into the ground. It’s full of the usual weasel words and waffle. To wit: the headline. “Driven to the brink.” Not driving over the brink. Driven to the brink (by external events, of course). Vlasic and his partner lead their “story” with the termination of GM’s CXX SUV program (you hurt your what?). “‘It would have been very difficult in today’s environment to spend a couple of billion dollars to do a replacement [for the GMT900 SUVs],’ said Robert A. Lutz, G.M.’s vice chairman and head of product development. ‘Reality had set in.'” And when did Maximum Bob get this wake-up call? May. Of this year. There’s more, but those of you who easily offended by GM’s mismanagement and media stooges should avoid the jump.
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