You may remember project D: Chrysler’s plan to build something better than the world’s worst car for the mid-size segment. As it continues its campaign to replace the definition of the word gullible in Webster’s dictionary, Autobloggreen breathlessly reports that the fruit of Project D might be an electric vehicle! Tracing the story back to Automotive News [sub], it’s clear that this entirely theoretical car or cars might also run on unicorn farts. “Chrysler LLC will decide by late winter whether to partner with another automaker on its global mid-sized car platform, known as Project D, says CEO Bob Nardelli. Chrysler must decide whether to engineer the platform in-house and build vehicles at its own factories or work with another carmaker. The company has indicated it would prefer a partner. Chrysler said it has to decide ‘in three, four, five months,’ Nardelli said last week in an interview at Chrysler headquarters in suburban Detroit. ‘We have costed out the in-house version, and we’re still working with two or three platform providers.'” What’s the rush? Chrysler will be tango uniform long before any rubber can meet the rental car parking lot. Oh right, the alt power bit…
Category: Chapter 11
The autoblogosphere’s self-styled Autoextremist normally posts every Wednesday. So you know things are OOC when Peter DeLorenzo feels compelled to unleash his weekly rant on a Monday. A good thing too; Sweet Pete knocks one out of the park. “Let me get this straight right off the bat,” DeLorenzo writes late in the fifth inning. “The reality of a merger between GM and Chrysler would be an unmitigated disaster of incalculable proportion, one that would decimate both companies… When you have one company that has too many models, too many divisions and too many dealers, how could you possibly think that combining that company with another company that has too many models, too many divisions and too many dealers would be a good idea?” Beats me. Having dispensed with that little piece of business, DeLorenzo is ready to predict ChryCo’s T.O.D. “With Cerberus being ‘done’ with Chrysler, the fate of the auto company based in Auburn Hills has been set. Within six months, Chrysler will be taken over or ‘parted out.’ Either way, Chrysler will cease to exist as we know it by next spring, if not sooner.” From there, it’s GM’s turn…
Regular readers of this site will know that America’s domestic automakers and their captive finance units are not on speaking terms with the truth. The estrangement continues with news that GMAC (a GM – Chrysler co-production) is tightening-up its lending practices. GMAC spins the announcement as some kind of reflection on their sense of fiduciary responsibility: “GMAC Financial Services today implemented a more conservative purchase policy for consumer auto financing in the U.S. as a result of the lack of stability in the global capital and credit markets. The changes include limiting purchases to contracts with a credit score of 700 or above. Additionally, the company will restrict contracts with higher advance rates and longer terms.” As Automotive News [sub] points out, this is hardly an onerous “limitation.” “For the first seven months of 2008, prime customers with scores exceeding 700 represented 74.3 percent of the U.S. auto loan market.” But the real story is the story behind the story.
According to [yet more] unnamed sources for The Wall Street Journal, General Motors’ Board of Bystanders put the kibosh on a Chrysler merger deal. “Despite huge losses over the past four years, a plunge in GM’s stock price and growing worries about whether the auto maker has enough cash to turn itself around, GM’s board has continued to support Chairman and Chief Executive Rick Wagoner.” Nice set-up. “But the board’s cautious reaction to the proposed merger suggests it may assert itself more than in the past if Mr. Wagoner and his team try to move ahead with a Chrysler deal.” You would think that in times like this the board would be asserting its authority in, I dunno, setting the strategic direction for the company, rather than, say, simply reacting to the latest thoughts of the CEO whose wiped tens of billions off the company’s worth and plunged it into a terminal nosedive. But then again, reacting instead of leading is the GM way from top to bottom. Anyway, as that’s that, let’s hear what AutoNation’s CEO Michael “No Not That One” Jackson has to say about all this meshugas. Jump!
Toyota’s been pulling its punches in the U.S. market for years– to avoid the political backlash and lowered profits that a Chrysler, Ford and GM’s collapse would create. Surveying the damage left by a 32 percent drop in September sales, ToMoCo is now saying fuck that shit [paraphrasing]. “The ‘Saved by Zero’ ad campaign began Oct. 2,” Automotive News [sub] reports. “It promotes a 0 percent financing program on 11 vehicles. Dealers say Toyota will shell out at least $250 million this month to cover the cost of the subsidized loans and to fill the airwaves with commercials. Calling it ‘mind-boggling,’ one dealer who asked not to be named said he doesn’t believe Toyota has ever spent so much in a single month on incentives and advertising.'” [That’s what passes for independent, authoritative sources these days.] As one of only two AAA-rated auto lenders (GE Capital is the other) left in the biz, Toyota Financial can do what its competition can’t. And even though U.S. consumer confidence has hit the skids, whatever’s left will soon be headed ToMoCo’s way. In other words, the Japanese automaker is about to eat the lunch AND dinner of the aforementioned domestics.
“I’m disappointed to hear of the upcoming General Motors plant closings. Hardworking people are paying the price because our country’s leaders have put Washington corruption and Wall Street greed before Main Street’s interests for too long. Change is coming. I know families across America are hurting, and as president, I will lead members of both parties in a fight to keep and create good jobs in communities across the country. Now is not a time for words and platitudes. Now is a time for action. That is why I supported auto-industry loan guarantees and will continue to work to create opportunities for American auto companies to build the car of the 21st century and put Americans back to work.”
New York Times scribe Bill Vlasic set the U.S. automotive industry abuzz last night, reporting that GM and Chrysler were discussing a merger. Careful reading of the article revealed that the story had more holes than a block of Emmantal. It included unocorrobrated, unnamed sources; backpedalling a plenty and language couching that seemed carefully designed to maintain what Ronald Reagan’s administration famously called “plausible deniability.” Oh, and it didn’t make any sense. Today’s follow-up— declaring that GM and Ford were looking to hook-up– is even less credible, AND less equivocoal. [NB: Again with the “two people.”] “In July, G.M. approached Ford with a proposal to combine the operations of the two biggest American automakers. The talks involved several meetings between G.M.’s chairman, Rick Wagoner; its president, Frederick Henderson; Ford’s executive chairman, William C. Ford Jr.; and its chief executive, Alan R. Mulally, people with knowledge of the process said… Ford broke off the talks in September, these people said. Mr. Ford and Mr. Mulally were said to have concluded that their company had a better chance to reorganize on its own than in tandem with another automaker.” TTAC’s take: While such a high-level meeting may have taken place (and it may not), again, the automakers had plenty of things to talk about other than merging: federal loans, federal bailouts, federal regulation, etc. [thanks to Robert Schwartz for the link]
The scramble to raise cash over at Ford continues apace. Recent press rumors out of Japan [via The Associated Press] say The Blue Oval Boys are talking with the Zoom Zoom Zoom folks about selling all or part of the American automaker’s share of Mazda. Ford first invested in Mazda back in 1975. FoMoCo increased it’s stake to 33.4 percent in 1996. Mazda was on the ropes in 1975, thanks to having most of it’s chips on the Wankel-cycle rotary engine. The oil shocks of the 1970s killed the rotary engine and put Mazda on Death Watch. Ford rescued Mazda with cash and know-how. Since then, the Mazda-Ford partnership has been one of the most productive in the industry. Today the companies share platforms and drivetrain development on a global basis. For example, Ford’s four-cylinder engines are based on the Mazda MZR family and Mazda has standardized on Ford’s V-6 engines. The two companies also share factories in Thailand, China and the US. Considering these deep ties it isn’t surprising to hear that “Ford would maintain some of its stake in Mazda and management ties.” But, with Ford burning over $2b every quarter; there aren’t many good choices left. Ford has made it clear that they aren’t interested in handing Mazda over to a competing auto maker, but will they have any choice?
After our story on GM’s letter to its non-core suppliers changing payment terms to 60 days, I received a flurry of emails that asked, in effect, are you out of your fucking mind? For example, “I do not know of anyone in the Supplier, Engineering, Consultancy or Technical world who has EVER been paid by GM in anything less than 90 days.” And “a friend that owns a Tier Two company has to be a real pain in the ass to GM Purchasing to get paid anywhere near 90 days. They told him once on the phone ‘We pay everybody 180 days payable…that’s our policy, what makes you so special that you think you should be paid in less than 90 days?'” (Interestingly, when he stopped shipping Just-in-Time parts to GM, they overnighted him a check.) In general, we’ve learned that The General’s suppliers generally get paid in 60 to 90 days. And “Even 60 days is not so bad from an OEM.” TTAC apologizes for any misconception created by our earier report.
The Wall Street Journal had a look at the idea of a GM – Chrysler merger. They say “Central to the plan is private-equity firm Cerberus, which owns 80.1% of Chrysler and 51% of GMAC, an 89-year-old auto lender that has been seriously weakened by its moves into mortgage banking. Cerberus proposed a swap in which GM would acquire Chrysler’s automotive operations, and in turn give Cerberus its remaining 49% stake in GMAC, these people said.” This is true. BUT it occurred well over a year ago, when Cerberus was hot to merge Chrysler Finco with GMAC. (In fact, when Cerberus bought Chrysler, TTAC suggested that this play was the reason for the purchase.) GM said no. We can now reveal that later, when excrement and air movement device collided, Cerberus proposed the exact opposite deal: selling their share of GMAC back to GM. That also went nowhere. Today, both Chrysler and GM– and Chrysler Finance and GMAC– are dead companies walking. So deal or no deal? No deal.
This is one of those “news” alerts where I check to see if it’s April 1. Not so Ray Wert. Jalopnik’s main man is happy to hook, line and sinker the The New York Times‘ story that “General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.” There are three reasons why this story means WAR for TTAC. First, NYT scribe Bill Vlasic is a longstanding Detroit cheerleader. Second, the story backpedals in the second paragraph: “The talks between G.M. and Cerberus Capital Management… began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were ’50-50′ as of Friday and would most likely still take weeks to work out.” And this: why? What possible benefit would this deal be to anyone– save the consultants who’ve been paid millions to try to answer that question without laughing. The Times’ theory? “Given that both G.M. and Chrysler are struggling, the two sides may determine a merger may not be in their best interests.” Oops! Let’s try that again. “While G.M. and Chrysler may be hamstrung by labor contracts from cutting jobs, the two companies could combine dealers, product lines and advanced vehicle technology.” About a week ago, we heard that GM was considering buying Jeep to combine it with HUMMER. We didn’t repeat that absurdity (until now). But then, we’re not the New York Times. Or Jalopnik.
The lovable dudes at Jalopnik are usually too busy trying to shoehorn Hemis into Datsuns or photoshopping NSFW dragon-on-car action to comment at length on the sad state of the American car industry. When they do, Jalop-in-Chief Ray Wert is usually trying too hard to love all God’s internal-combustion children equally to live up to TTAC’s lofty standards of callin’-it-like-it-is. Hell, the “industry apologist” label might even stick on Wert, thanks to his proliferation of the “Not A Bailout” meme just a few short months ago. But time has a funny way of bringing even the most fun-loving of auto enthusiasts around to the TTAC perspective. In response to GM’s stock price free-fall, Wert has penned a lengthy piece calling on GM to declare bankruptcy. At least he had the decency to begin the piece by acknowledging “I’m not the first person to say it.” With that qualification aside, Wert proceeds to spit hot fire. “The pundits saying ‘bankruptcy is not an option’ are completely ignorant of the facts, living in an alternate reality or parroting the GM PR public line (a line I don’t begrudge GM for pushing given the need to be positive or else face a rush for the hills), because let’s be clear here — if the marketplace for credit does not change in the next year, bankruptcy is not only an option, it’s the only option.” And, says Wert channeling his inner Robert Farago (circa 2005), bankruptcy shouldn’t be feared. “Any form of court-mandated reorganization allows GM to reevaluate all sorts of deals — like the one recently signed with the UAW, with suppliers and most importantly, with creditors seeking repayment on the $43 billion in debt and $80 billion in other liabilities on the books at the General — potentially allowing the automaker to wipe some of that out.” Interminable sentences aside, Wert’s got a point. Better late than never.
“Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets,” GM said in a statement on Friday. “But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers.” Yes, well, Barclays analyst Brian Johnson wrote a note to investors yesterday. According to CNBC, Johnson estimated that GM would need to raise $10.3 billion to maintain liquidity of $14 billion through 2009. That figure was up from his earlier estimate that put GM’s cash-raising need at $7.3 billion over the same period.” But hey, what’s $3b between friends? Meamwhile, pressure continues to build on GM CEO Rick Wagoner and the otyher executives holed-up in GM’s RenCen bunker. After Standard & Poor’s put GM’s on Credit Watch, an the automaker’s share price dove to $4, S&P analyst Robert Schulz told Bloomberg Television this morning that the automaker may be forced to seek protection from creditors. “Macro factors could overwhelm them at some point.”
The S&P ratings agency has put both GM and its GMAC financing arm on its lowest possible rating: “creditwatch,” with negative implications. CNBC reports that “The ratings agency said the move reflected the rapid weakening of most of the world’s auto markets. It added that capital conditions in the sector would remain challenging for the ‘foreseeable future.'” The move follows hard on the heels of tumbling GM’s share price, pushed downwards by a weak overall market and the removal of a federal ban on “short selling” the automakers stock. The fact that Citigroup cut GM (and Ford) to “sell” ratings yesterday didn’t exactly help investor confidence, either. The next step– as predicted by TTAC’s Ken Elias— GM will be removed from the Dow Jones Industrial Average. From there it’s a relatively short trip to bankruptcy court. You know things are bad when CNNMoney/Fortune’s Alex Taylor III uses TTAC terminology. “The stock selloff effectively puts GM and Ford on death watch, and it’s easy to see why.” As it has been for many, many years.
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