TTAC has secured a letter from GM’s purchasing department whereby the ailing American automaker informs its suppliers that it’s changed its payment terms. GM used to pay its indirect (i.e. non-production) suppliers “second day, second month;” roughly 35 days from receipt of goods. The new agreement stipulates payment will be made at 60 days from receipt of invoice. In effect, GM’s cash position has deteriorated to the point where it’s borrowing from its suppliers to survive. The letter was sent to GM suppliers on September 26. The new policy went into effect on October first, giving suppliers no chance to plan or prepare for the change. Their cash flow is now under threat; many won’t be able to arrange the financing needed to carry the cost. If this policy is widened to direct, production suppliers, the impact could be catastrophic. [Thanks to you know who you are]

Chrysler uses Getrag DSG transmissions in its Euro-market Journey, Avenger and 300C offerings, They’d planned on offering them on its American models as well. So much for that, at least for now. Chrysler is suing Getrag in Michigan for failing to raise $300m in debt financing for its new factory. Automotive News [sub] reports that the Tipton plant is the victim of a complex partnership disagreement that has delayed the 2009 production date and, now, casts the entire project into question. Like many a lawsuit, the conflict defies simplification, but Automotive News condenses it thusly: “The complaint says that Chrysler had agreed to a price increase on the transmissions to get Getrag to sign a definitive agreement for the project. Getrag had balked at the agreement and briefly stopped work at the construction site in December 2007, the lawsuit says. Chrysler alleges that Getrag had assured Chrysler that it could raise the debt financing. The lawsuit says Getrag did not make a good faith effort to get the money.The lawsuit indicates that Getrag had sought to line up the money from German banks as long as it was guaranteed by the German government. Chrysler argues that it should have been informed of that condition before signing the definitive agreement. As it turned out, the German government would only guarantee the debt if Chrysler set up a $300 million escrow account to assure repayment, the lawsuit says.” Simple.

TTAC has long warned of a “run on the bank” scenario, whereby GM suppliers demand cash up front for their wares, effectively eliminating the automaker’s cash pile, terminating its ability to build cars and driving the compay into C11. Over the last few weeks, it’s become increasingly clear to anyone paying attention that GM’s cash situation– hence its ability to pay its suppliers– is terminal. Its credit rating is CCC (the U.S. and international banking system is constipated anyway) and its tapped-out available credit lines. GM CEO Rick Wagoner has publicly declared that his employer has enough cash to last until the end 2009– telling the world that they don’t have enough money beyond that point. Jettisoning HUMMER– without a buyer– has sent all the wrong messages. Selling GM RenCen HQ, again without being ABLE to, is another enormous PR debacle. And if confidence in the company isn’t low enough, and it surely it is, Wall Street has finally lost faith. GM’s stock price has fallen below $10, below $8, below $5. So, we now hear that a major, overseas GM supplier has put its foot down. I can’t tell you who, what, when or where. But there’s a deadline for payment approaching, and GM can’t take the hit. Never mind the hits that follow. More info as and when. Meanwhile, check out the Chrysler/Getrag story. Now think about GM. How many billions does it buy from overseas suppliers? German banks want government guarantees; the Germans refuse unless there’s 100 percent cash collateral. This is how things fall apart.

Car manufacturers are transitioning from one disaster to another, as the economic meltdown makes high gas prices seems like a blessing. Automotive News [sub] reports that two of the top prognosticators in the biz have looked at the proverbial tea leaves for the year’s U.S. sales figures and come-up with a soup tureen of not good. J.D. Power says 13.6 million. Global Insight says 13.8 million. GM says who called the whole thing off? Nigel Griffiths, Global Insight group managing director of global forecasting, has the answer. “We are moving from a liquidity crisis to an insolvency crisis right now. There is increasing evidence that this has affected the real economy, and as we see the automotive industry as the heart of the real economy, we are really taking a hit now.” As opposed to the fake economy (i.e. sub-prime loans)? Makes sense to me. But here’s the weird part. “It’s worse than if we saw oil at $200 a barrel on a sustained basis. At least with that, there was a transfer of wealth to countries like Russia that are inclined to buy automobiles.” So much for GM and Ford depending on foreign markets to stay afloat. George Magliano, Global Insight director of automotive industry research for North America, says you ain’t seen nothing yet. Magliano said it could take until 2013 for sales to recover to 2006 levels.

OK, that’s it. No really. That’s the whole story.  Ford CEO Alan Mulally told reporters at the Paris Auto Show that he doesn’t regret selling-off Jaguar and Land Rover to Tata Motors for $2.3b. But you knew that, ’cause you read the headline. And you’re not brain dead. Pithy quote? Not really. “Our number one goal in Ford is to focus on Ford.” You know; aside from Lincoln, Mercury and Volvo. The real question: what in the world was Automotive News [sub] reporter John Revill thinking when he asked that question? So, Al, do you regret getting out of those money pits when there was still a sucker around willing to take them off your hands, or do you wish they were still in the FoMoCo portfolio, sucking bodily fluids from the emaciated body corporate? God forbid Revill should have asked Big Al excatly how many days’ worth of cash his employer has left. Or if GM files for Chapter 11, will you follow suit? Or… is your pension bankruptcy proof?

• GM filed after the close on Wednesday a brief, but in our view important, 8K regarding the status of the Settlement Agreement regarding UAW retiree healthcare coverage.
• Recall that this was the deal hammered out as part of the 2007 contract negotiation with the Union, that effectively will take GM out of the business of providing retiree healthcare (OPEB) beginning in 2010, in exchange for a hefty installment of cash
(upwards of $30 billion) into a new VEBA trust.
• The 8K reported that all conditions have been met and all appeals expired, allowing the deal to become effective (for all practical purposes) as planned on January 1, 2010.
• There was a very important word in the 8K that we think investors should not overlook: “Terminate.” As in, the retiree healthcare plan will be “terminated” on the final settlement date. This is distinct from a plan “amendment,” and as such will receive very different accounting treatment.
• The key distinction is that under settlement accounting (which applies for a termination) the gains/losses generated by the agreement (in this case, a “significant curtailment gain”) will be recognized all at once (in this case, in 3Q08), rather than amortized through the income statement over a period of years, as would have been the case under the amendment accounting treatment that GM was originally seeking (and how the 2005 benefit cut was handled).
• This is where it gets dicey. When GM originally outlined the expected 2010-2011 savings (P&L) that would result from the VEBA deal, which ranged from $2.6 – $3.4 billion per year, the company had assumed it would be amortizing a sizable gain as a result of amendment accounting. In other words, the initial ~$3b estimate included not only the elimination of service and interest cost, but also some extra (significant) help (non-cash, of course) from the amortization of that amendment gain.

[thanks to you know who you are]

With a conflagration raging through GM’s cash hoard, with enough debt and ongoing obligations to bury Bolivia, with its credit rating in the proverbial toilet (CCC), with the North America market fire hosing the company’s books with red ink, GM’s access to operating finance is, shall we say, “limited.” To feed the flames, GM’s already sold just about everything that’s not nailed down: subdivisions, 51 percent of captive financier GMAC, land, factories, shares in foreign automakers, etc. It’s not enough. Three months ago, GM CEO Rick Wagoner announced he’d raise $15b in cash through additional asset sales. The Detroit News reports that the company’s Renaissance Center headquarters is now on the block. “General Motors Corp. wants to borrow about $500 million from one or both of Detroit’s pension funds to refinance the Renaissance Center, the automaker’s iconic world headquarters, in a move that could pump cash into the financially strapped company’s coffers. GM officials are scheduled to make a preliminary investment pitch Thursday to the city’s Police & Fire Retirement System and are trying to schedule a meeting with the pension fund representing general city employees.” If not that, RenCen’s for sale. Does it strike you as odd that GM’s hitting-up the unions instead of banks or real estate investors? Does this have anything to do with the United Auto Workers’ forthcoming VEBA payment? Anyway, at $500m, GM’s looking at a $201m loss on the deal. In theory. “We’re not going to do it because we don’t have that kind of money,” said George Orzech, police and fire pension board member. “There’s no interest that I know of, but stranger things have happened.”

OK, the credit analyst presenting the timeline works for gimmecredit.com. Take that as you will. But Shelly Lombard has done the math (for BusinessWeek): “GM had $21 billion in cash at the end of June. The company has a further $5 billion in available credit and cash and plans to save $10 billion from cost cuts. Assuming GM can also tap $5 billion to $7 billion in federal loans that the federal government has approved, GM has up to $21 billion in excess liquidity on top of the $14 billion it needs to run the company… Given GM’s cash-burn rate of more than $3 billion a quarter, the company has five to seven quarters before it gets down below the bare minimum it needs to buy parts and keep factories humming, Lombard says. GM’s best bet is to tap the government’s loan program and hope the market turns up.” Not to mention hunkering down. Oh wait, that too. “Several sources inside the company say GM is looking at product delays to save cash, hoping the company can weather the weak economy and liquidity crisis and make it through to 2010. All but essential programs are at least getting a review, the sources said. Even the next-generation Chevrolet Malibu could be on the table. GM wants each of its cars to get a makeover every 5½ years, but it may have to stretch that to 7½ years for some models to stay in the black. A GM spokesman says the company is delaying some product programs but that nothing major has been held up yet.” Stay in the black? What black? Anyway, that’s not exactly how I remember it…

As Edward Niedermeyer reported earlier today, the re-organization plan for Delphi pegs the bankrupt parts maker and former GM division’s worth at $7.2b (down from $12.8b). Delphi’s “valuation” is ridiculous; the company is still highly dependent on GM’s biz. Banking on GM is like entrusting a quasi-governmental lender to Rep. Barney Frank. To wit: today’s market cap for General Motors was under $5b, after the American automaker’s stock tumbled to its lowest level ($8.24 a share) in more than 54 years. Bottom line: Delphi is unlikely to emerge from bankruptcy; it will be liquidated. Meanwhile, let”s hope misery loves company; Fitch Ratings downgraded Ford’s credit to GM’s sub-basement level: CCC. Oh, and Fitch dropped Ford Motor Credit to the same rating (explaining Mazda’s decision to cut bait and fish with their own auto loan sources). Bottom line: the credit crisis is hitting GM and Ford (and Chrysler) at both the sharp end (auto loans) AND the macro-level (access to working capital). The center will not hold.

The National Automobile Dealership Association (NADA) predicts that some 700 of 21,461 U.S. car dealers are going tits up this year. And you know what? It’s still not enough carnage for domestic automakers, whose bloated dealer networks are a major millstone around their neck. (Ford, Chevrolet and Chrysler started the year with around 4k stores vs. Toyota’s 1220 dealers.) Soaring floorplan costs– the interest charged by banks to fund a dealer’s inventory– have Darwined what The Big 2.8 learned not to do when GM paid a heavy price for terminating Oldsmobile. Automotive News [sub] reports that GMAC Financial Services, Ford Credit and Chrysler Financial are the major culprits; they’ve all raised their interest rates by roughly half a percentage point in a market where inventory just kinda sits there. But here’s the real story: “Some lenders are refusing to floorplan unprofitable dealerships, to the point of recalling their loans… Bank of America supplied two of [LA chain owner Mike] Kahn’s dealerships with $60 million in floorplanning, capital loans and mortgages. Last winter, Kahn says, the bank did not want to renew the loans and raised his floorplan interest rate through the roof. ‘I never felt so betrayed… You sign this agreement and they raise your rate. Or you don’t sign and they put you out of business.'” And now, file this one under “be careful what you wish for: “Last week, key lawmakers said the Federal Reserve also has authority under ‘extraordinary circumstances’ to make special loans for dealers’ inventory costs.”

The Wall Street Journal says FoMoCo burned through $2.1b dollars of cash in the second quarter, which ended way back in June of this year. Results for the July-August-September period haven’t been released yet. But given what we know about unit sales and sales mix, the cash burn almost certainly has gotten worse. Unlike mere mortals, a public corporation has the option to print-up more shares of stock and trade those for cash. Ford plans to sell $500m worth of freshly-minted common stock (not the special “Class B” shares which only family members get) to raise a bit of the needed cash. The crazy thing: half a billion dollars is a bucket of cold water to throw on the bonfires raging through the $26.6b (as of the 4th of July).  We’ll keep an eye out to see just how much of that went up in smoke over the summer. But wait, isn’t Ford going to be saved by it’s share of the $25b dollar government bailout? Not according to Standard and Poors, which said “that its negative rating on Ford would not be affected by the recent passage of a $25 billion low-interest loan package.” We shall see if the company’s finances are “Built Ford Tough” soon enough.

WASHINGTON (MarketWatch) — The U.S. recession will be “significantly deeper” than they previously thought, Goldman Sachs economists predicted Friday in a research note. The economy will probably show no growth at all between the middle of 2008 and the middle of 2009, with gross domestic product falling 2% this quarter and 1% next, they said. Two other quarters will show 0% GDP growth. The unemployment rate will likely rise to 8% by the end of next year from 6.1% currently. “We now also see at least another 100 basis points of monetary easing from the Federal Reserve, aggressive measures to stabilize the money markets, and a possible further easing of fiscal policy under a new administration,” wrote Jan Hatzius and his team of economists.

An eagle-eyed TTAC commentator unearthed this little gem from AutoWeek of April ’07. Like Mr. Chen, I think it’s sufficiently germane (House Bunny!) to last month’s Flex sales that it deserves resurrection. “The pivotal moment in the Flex’s development came, Ford design chief J Mays said, when he and his North American lieutenant, Peter Horbury, convinced the rest of the organization that rear sliding doors cost too much. Even though the Fairlane concept that inspired the Flex had suicide doors, the production vehicle was being planned with rear sliders. ‘When we took the sliding doors off, suddenly there was money in the product program freed up magically to put higher-grade materials, fantastic-quality leather, 8-inch DVD drop-down screen in the back, optional refrigerator, glass roof,’ Mays said. “Suddenly money was falling from the heavens because we didn’t have those damn sliding doors on it anymore.” So, Ford says it sold 1,959 Flexes in September, 7552 year-to-date. (Early sales stats were pinned on a slow roll-out.) Meanwhile, Ford’s “other crossovers” have tanked. The Ford Edge slipped 43 percent for the month, while the Taurus X was down 63 percent. Should the Flex have been a minivan? Or… not bothered in the first place, and promoted the Hell out of the X instead?

The logic of fixing the effects of over-liberal lending with a $700b “loan” from U.S. taxpayers– which includes enough boondogglage to keep the snack food industry in pork rinds for a thousand years– escapes me. But one thing is for sure: Motown’s magnates viewed the bailout bill important enough to mount a massive muscle flexing campaign to assure its passage. We’ve already published GM CEO Rick Wagoner’s pre-vote SOS to dealers. The Detroit News now reveals that ChryCo CEO Bob Nardelli called all MI’s reps and provided his employees with a toll-free 800 number to do the same. And just as the $25b Department of Energy low-interest auto industry loans, this is not a done deal. “While the department made no promises, [Representative] Knollenberg got a letter Friday from the Treasury Department. It confirmed that ‘automobile loans can be purchased in circumstances where the secretary and chairman of the Federal Reserve conclude that doing so would be necessary to promote financial market stability,’ wrote Kevin Fromer, assistant secretary for legislative affairs at the Treasury Department, in a letter obtained by The Detroit News.'” The DetN reveals the stakes. “Nearly 4 in 10 auto buyers have been unable to get financing for new vehicles, because of tougher requirements from lenders. A survey released this week said 64 percent of new car buyers had been approved for loans through Sept. 20 this year, down from 83 percent during the same period last year” And this is a bad thing because? Oh right, bad paper is good for business.

Now that Ford CEO Alan Mulally has written-off the chances of an auto industry sales receovery for 2009, his Detroit brethren have decided to join the Greek chorus bemoaning their fate. Bloomberg caught up with former Toyota and current Chrysler Prez Jim Press in Paris to hear the bad news. “I don’t see any `whys’ why it’s going to be any better,” Press announced. “We’re already adjusting to this level pretty well. We’re learning how to fight through it. It’s hand-to-hand combat. It’s tough.” Especially if you don’t have a golden parachute strapped to your back. GM’s Fritz Henderson, also not staying at a Timhotel, was slightly less pessimistic about the year ahead. “Even if [the $700b federal bailout plan] does pass, I still think that ’09 will be weaker,” the COO told Business Week. “I don’t see anything which would suggest that you’d see a significant rebound, at least in the first half.” And then Fritz says some scary ass shit. “If the situation deteriorates further, we’ll have to look at further actions, but we don’t have anything planned today.” And… “Henderson said GM’s liquidity plan was based on a forecast of industrywide U.S. car sales of 14 million this year and next. ‘At the time we felt that was a conservative level. Given what’s happened, I’m glad we chose a conservative level because that could well be the level it lands at.’ Uh, Dude, we’re looking at sales WELL under 13m, maybe closer to 12. To paraphrase Sweet Pete, that’s a spittoon full of not good.