With brand new ’08 Dodge trucks going for 40 percent off sticker, and fleet sales standing between Chrysler and collapse, Auburn Hills’ decision to raise ’09 vehicle prices by $500 seems somehow… irrelevant. Which, in fact, it is. (Aside from offering a larger-looking discount to gullible customers.) The strange part of this story: Automotive News‘ [sub] decision to headline the phantom price increase– rather than Chrysler Financial’s move to raise interest rates on dealer floorplan costs (loans that finance new vehicle inventories). Even if it’s a relatively small increase (unspecified by AN), the hike will hit dealers where it hurts. With sales cratering by 34 percent in September, and no popular products in tune with the times (at least to retail customers), Chrysler dealers are already hurting. A rise in the interest rate on floorplan costs will send some dealers off the cliff. Which may be no bad thing, as far as the corporate mothership is concerned.

If that’s true, if federal bailout billions can’t regrease the palms wheels of the American auto industry, this sucker will grind to a halt before that most magical of years, 2010. I mean, is Big Al for real? Can Ford really have enough cash money to weather that kind of downturn– which is, let’s remember, getting worse. “The downturn is longer and deeper than we foresaw a year ago,” Mulally admitted to Automotive News [sub]. But Ford “had the liquidity to deal with it.” HAD? Mulally told AN that The Blue Oval Boyz have “a good small car collection that would give it a global product line-up to cater to the various markets, in the United States, Europe and Asia, where customers now were asking for these vehicles.” GOOD? WOULD? I know Mulally’s a low-key kinda guy. But I reckon Ford’s catastrophic U.S. market share/sales slide and European cutbacks (a 10 to 15 percent production reduction for starters) require a more Churchillian response. “Continuous effort – not strength or intelligence – is the key to unlocking our potential.” Uh, maybe not… Anyway, speaking to The Wall Street Journal, Mulally ruled out a Chapter 11 filing. Or is that “positioned himself in a non-bankruptcy-related context?” Exact words: “Bankruptcy “is not in our consideration.”

“Support the Emergency Economic Stabilization Package
We need to protect the U.S. economy and American jobs.

• The problems in the credit markets affect everyone, not just investment banks and big global financial institutions.
• Every day trillions of dollars flow in a circle of credit among small banks, credit unions, regional banks, and large firms.
• If a small town bank cannot borrow funds in the overnight interbank market—say to meet its reserve requirements—it could be forced to call in loans or deny new credit, such as car loans, mortgages, and student loans.
• If millions of Americans suddenly cannot get loans for cars, home improvements or new appliances, business that produce these goods and services will be forced to cut back and lay off workers.
• These layoffs would quickly boomerang throughout the whole U.S. economy, leading to ever bigger rounds of layoffs.
We need to protect the life savings of millions of American workers.
• Nearly 66 million Americans have 401k plans with their retirement savings. The most recent Department of Labor data show that these 401k plans have assets of $2.4 trillion. And Americans hold nearly $20 trillion in equities altogether.
• Almost 2/3rd of 401(k) assets are invested in stocks, with hundreds of billions of dollars of IRA assets held in banks and thrifts.
• The gathering financial crisis undermines confidence in the U.S. financial system and in the U.S. economy.
• The delay in passage of a financial rescue package has contributed to the sharp plunge in the stock markets we are seeing both in the U.S. and around the world.
• Yesterday (September 29th) alone, the Dow fell by 777 points, the largest one day drop in history. In this single day more than $1.1 trillion in U.S. equity wealth was wiped out—from 401k plans and investment accounts both large and small. This loss of wealth was half again larger than the proposed rescue package.
• Congressional action is needed to restore confidence to the financial markets, stop the panic selling of stocks, and allow normalcy to return to valuations.
We need to heed the lessons of history.
• One of the most important lessons in economic history, from the Great Depression, is that a banking and liquidity crisis can become a self-fulfilling prophecy.
• When financial institutions large and small do not have confidence that their deals will be honored, they hunker down and reduce their loans. The result is lost sales, cancelled orders, and foregone consumption.
• The economic rot can spread quickly if it is not addressed by policymakers, especially if panic sets in as appears to be the case now.
• Job losses can cumulate quickly. People may forget that during the Great Depression the unemployment rate hit nearly 25%.
• We simply cannot repeat the mistakes of that era, especially now that we know how that story ended.”

And there I was thinking America runs on Dunkin’.

Automotive News [sub] reports that GM is beginning its promised cutback in contract workers. “We are in the process of advising several temporary agencies that we are continuing to eliminate some contract jobs,” GM spokesman Dan Flores told Automotive News. He declined to say how many workers or the GM sites that are affected.” TTAC can fill in at least one of the blanks. A reader informs us that there are around 500 contract designers on staff at GM’s Warren, MI Tech Center. Approximately four-hundred got the axe. Friday is their last day. He also tells us that the remaining 100 workers will be gone by year’s end. Where does this leave GM’s hybrid design team? China. [thanks to you-know-who-you-are]

The Detroit News reports that previous reports reporting GM’s attempts to sell its Strasbourg factory– oh, and the HUMMER brand– missed a wider campaign by The General to throw the rest of the furniture at the cash conflagration burning down the house. “The Detroit automaker has sold hundreds of acres of land in recent months — including a plant where World War II fighter planes were built — and has several blockbuster deals in the works to sell shuttered facilities and land nationwide to net millions for the company. That’s money GM desperately needs to fund vehicle development and manufacturing, pay bills, and weather a credit crunch that has prevented some buyers from financing new cars, analysts said.” Hey! That’s us! But hang on; how can any real estate deal forged in the current market possibly be considered “blockbuster?” Anyway, the DetN has the full catalog, and, as you’d suspect, GM spinmeisters are whirling like dervishes. “When we can sell surplus property or get it off our books, there are certain benefits from a business standpoint,” GM spokesman Dan Flores told his hometown paper. “It allows us to reduce our operating costs. But our real estate strategy does not drive the business. The company’s focus is to generate cash. We’re not doing anything different than what we always do.” How scary is that?

Before Congress rejected the $700b Wall Street bailout bill, TTAC warned that its failure would send a spear through the heart of the domestic car industry. Unless Uncle Sam made good on The Big 2.8’s blizzard of bad paperand re-started the car loan snow machine, car buyers would crawl off into a deep, dark and cave and enter a period of extended hibernation (or something like that). And lo, it has come not to pass. The symbolic snow machine has become a plain old fan, with excrement heading towards it. “Absent intervention from Congress, the ability of manufacturers to finance motor vehicle sales may come to a halt,” affirms Chris Stinebert, president and CEO of the American Financial Services Association. (That’s the cash-dispensing machine trade group representing Detroit’s Big Three automakers’ finance arms, as well as major foreign auto finance companies.) The Democrat for Dearborn, chairman of the House Energy and Commerce Committee John Dingell, also knows the score (F-R-E-E, that spells free): “If access to credit continues to dry up, the automobile financing companies will be unable to keep vehicles on dealership lots and help customers obtain financing.” And then what? TTAC’s Ken Elias has his take on the prospects, and the Street has theirs. After the bailout bill vote, GM’s stock price plummeted 12.8 percent to $8.50, its lowest closing price since June 1954. Ford stock fell 13.3 percent to $4.17, its lowest level since February 1986. Chrysler is privately held. For now.

Even before it charts the changes, The Detroit News is ready with the excuses. In fact, the spin starts with the headline: “Soft economy drags on car sales; Analysts expect consumer jitters, effects of Hurricane Ike to stunt automakers’ numbers by 22 percent over last year.” Yes, yes; the whole market sucks. But which automakers are going to get hammered? (No prizes for correct answers.) Scribe Bryce G. Hoffman saves the money shot for paragraph 16. “GM, Ford and Chrysler LLC are expected to show continued erosion in U.S. market share compared to a year ago and sharper sales declines compared to their Asian rivals.” At least Hoffman reminds readers that GM CEO Rick Wagoner said September sales would be no worse than August’s. And earlier in the piece, Ford analyst Georgie Pipas pipes-up with “It will be one of the largest declines that we’ve seen for some time.” And just in case you thought Ford’s returned to its founder’s faith in plain speaking and hard decisions… “Pipas said it is too soon to tell how much the drama on Wall Street is affecting sales. ‘They can potentially shake consumer confidence,’ he said. ‘It definitely deserves close attention.'” Ya think?

A moment’s pause, if you will, to remember that the U.S. auto industry’s future depends in no small part on the “other bailout:” the $700b rescue plan for Wall Street. Motown’s sales have long relied on the art of the deal to move the metal. Bottom line: GMAC, Ford Motor Credit and Chrysler Financial all wrote a shit load of bad paper to keep the factories humming (not to mention GMAC’s ResCap mortgage unit’s adventures in subprime sugar). If the domestic automakers can’t tap into the bailout bucks to restore their ability to lend money to new car buyers, well, let’s call it an accelerant. While I cruise the internet looking for more grist for our metaphorical mill, I invite TTAC’s Best and Brighest to read the draft of the bill, or simply speculate, on the captive finance units’ chances of resuming louche lending practices. Hey. It’s what the President wants.

On Sunday, the Bill Heard dealer group filed for bankruptcy protection. Despite burying the deal on the Lord’s day of rest, the story received considerable play. While TTAC’s long maintained that the U.S. car industry’s domestic dealers are dropping like flies– thanks to the switch out of SUVs and pickups, the end of easy credit and sweet leasing deals, lackluster domestic automotive products, the failure of Big 2.8 branding and marketing, the success of the Asian manufacturers and the rise in floorplan costs– Bill Heard’s demise had a little something to do with the fact that his stores were staffed rapacious sons of bitches who would do ANYTHING to move the metal. There’s a long history of anti-Heard litigation, including an unresolvd $50m lawsuit. Yet the majority of the mainstream media coverage miss this salient detail, including Bloomberg, Automotive News [sub] and our friend Sharon Terlep at Dow Jones. The Atlanta Journal Constitution and The Orlando Sentinel get it right. Oh, and it’s only a matter of time before some class action suit draws GM into the equation, for knowingly shipping cars to a criminal and his cohorts.

For more than two years, TTAC’s been calling attention to the fallacy of GM’s claims that foreign ops will save the company from bankruptcy. Last week The Wall Street Journal highlighted a fact that caught our eye many moons ago: GM’s much-ballyhooed sales increases in China are relatively unimpressive. “In the first six months of the year, sales growth of GM brands in China lagged far behind the overall sales increase for passenger vehicles… Shanghai GM remains the largest single passenger-car maker in China, but its market share slipped to 8.9% in the first half of 2007, from 10% in the first six months of 2006. The decline has come amid an escalating price war as car makers scramble to entice buyers.” The problem? Same old shit: muddled branding, a rep for poor quality, over-production. The solution? Scary. “General Motors Corp.’s biggest China manufacturing joint venture said it would offer interest-free car loans, as the company maneuvers for advantage in the increasingly competitive China market and tries to encourage people in this cash-centered economy to borrow to buy cars.” Meanwhile, you know the Chinese market is hurting when the world’s largest automaker is cutting back. “The carmaker will reduce output of passenger cars by about 10 percent at its factory in Guangdong province,” Bloomberg reports. “Toyota will slow the pace of production for at least a few months… China’s passenger car sales fell 6.2 percent in August, the first decline in more than three years, as the Beijing Olympics and a slumping stock market prompted drivers to delay purchases”

Speaking at the Reuters 2008 Restructuring Summit, default expert Edward Altman dismissed the impact of $25b in low-interest federal retooling loans and pegged GM’s chances of avoiding C11 at 50 – 50. Or worse: 55 – 45. “A bankruptcy filing may be the best option for GM to protect its assets and further reduce costs, said Altman, professor of finance at New York University’s Leonard L. Stern School of Business. “If we have a global recession, you know autos are going to get hit and get hit hard, not just GM, and it’s looking more and more like a global recession.” To set the odds for GM’s ability to avoid C11, Altman used his “Z-Score.” The formula for predicting corporate bankruptcies pegs GM at “CCC-minus” or lower, one of the last rating categories above default. “Some [unnamed] studies have shown an accuracy rate of more than 80 percent for the Z-Score.” Which is obviously better than 50 – 50. Too bad the SEC says you can’t short GM (or Ford) until October 2. Anyway, GM responded with its usual iceberg, what iceberg? “We’ve been very clear that bankruptcy is not something that we’re considering,” spokeswoman Renee Rashid-Merem said.

As GM’s “captive finance unit,” as a division in which GM still holds 49 percent, GMAC’s arterial spray of red ink is causing all kinds of “challenges” for The General. For one thing, GMAC has been forced (by its own profligate ways) to raise floorplan costs to beleaguered dealers, driving a large number of said stores to the wall. And that’s just the good news. The bad news for the lender– whose ResCap mortgage unit wrote enough bad paper to Christo Rhode Island– is very bad indeed. “While Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke try to sell the [$700b bailout] package to Congress, Detroit-based GMAC is burning through cash and its bonds have fallen to a record low,” Bloomberg reports. “The biggest drain is GMAC’s Residential Capital LLC home-lending unit, which lost $1.9 billion in the second quarter — 2-1/2 times more than the auto loan unit.” The situation’s so bad, Mortgage Banking Solutions’ David Lykken’s almost been reduced to swearing. “Internally, everyone’s got to be hoping like heck they make it into the bailout program. That is probably the only option they have at this point.” Meanwhile, GMAC is more or less out of the leasing game, and GM can’t depend on them to offer zero percent financing to anyone with a pulse anymore. Hoisted. Petard. Own.

Did Ford Marketing Maven Jim Farley get Rick Wagoner high? How else do you explain the GM CEO’s Valley-speak whilst describing what will be incontrovertible evidence that the company he’s running has hit the wall? What’s that? What do you expect from an accountant who never uses the word “accountability?” Don’t be so churlish! “Last month, we also had tight credit, so I think there’s no question that it’s affecting automotive activity,” RW told Automotive News [sub]. That seems sort of kinda definitive. And then.. “I can’t tell you honestly as we sit here today that it seems worse than last month, but certainly no better.” Uh. OK. So what’s the plan? “Wagoner held out hope a federal auto loan package, tax breaks and a banking bailout, all pending in Congress, would support demand.” As opposed to, say, building vehicles people want to buy? I know, more churl. Anyway… “He also said the automaker, which is scrambling to shore up its cash position, was hoping for more liberal rules that would allow the loans to be used more widely. ‘We’d like to see them to include all new technologies with significant improvements in fuel efficiency, like our new Lambda-based CUVs, which get significantly better mileage than full-size SUVs.” See? I made that last bit up and you didn’t even notice.