Long time readers will know I've been advising them to watch GM's cash flow. The fact that the automaker has been selling everything that wasn't nailed down– propping-up their bottom line with tens of billions of dollars worth of  "income" from former assets– was/is a sure sign GM was/is hurting for life-sustaining liquidity. Last week, I posted that "Our spies tell us GM's set to top-up its cash hoard by $10b– which would raises its debt to $50b." Confirmation came today via Bloomberg. "General Motors may borrow $10 billion as early as next quarter because rising commodity costs and falling U.S. sales are crimping cash flow, an analyst at JPMorgan Chase & Co. said. The largest U.S. automaker may secure a bank loan by borrowing against foreign operations, inventory, trademarks or its stake in lender GMAC." GMAC? I don't think so. CNNMoney reports that Moody's has just downgraded GMAC deeper into "junk status" (to B3 from B2). Lest we forget, GMAC recently obtained a new $11.4b credit line, partly to lend Residential Capital (resCap) $3.5b to keep their mortgage subsidiary solvent. GMAC's exposure to ResCap has increased from $750m to $4.6b. If ResCap fails… Meanwhile, even worse, "The downgrade also reflects growing pressure on the profitability of GMAC's auto finance operations, arising from higher average borrowing costs and weakening asset quality." Fan. Excrement. Collision. 

Back when Daimler was flogging Chrysler, Canada's Magna Corporation was supposedly hot to acquire the [soon to be ailing] American automaker. Given today's news– Chrysler is suing Magna for damages over defective seat heaters–  look for Frank Stronach's boys to help Chrysler out of a jam– by kicking Cererbus' bitch down the stairs. The background… For some time now, ambulance-chasers have been lining-up to suck some cash from Chrysler after heated seats in 1999 and '00 Chrysler minivans [allegedly] burned some butts. In a latter to the National Highway Traffic Safety Administration in '04, "DaimlerChrysler said it had received 221 customer complaints about minivan seats overheating. Of those complaints, 26 were allegations of minor injuries and 33 were alleged fires. Five complaints resulted in lawsuits." That was then. As Automotive News [sub] reports, Chrysler spinmeister Michael Palese now says his employer had "only one reported case of injuries caused by the defective minivan seats." Chrysler's lawsuit demands that Magna take responsibility (i.e. pay for) for the recalls, after Magna "disputed any obligation to reimburse Chrysler for costs incurred in remedying the allegedly [?] defective heated seat assemblies." Palese was plenty testy on the advisability of suing a key supplier: "We're not a charity. If we deserve compensation or consideration, we will pursue it." As will the lawyers suing Chrysler, whether they deserve it or not.

Let's start with the end of The Detroit News' HUMMER-related "analysis" and work our way backwards. "So, does Hummer stay or does it go? Right now, your guess is probably as good as GM Chairman Rick Wagoner's." WTF? If the man at the helm of GM, an executive pulling down $14.4m per year (plus) doesn't know whether or not he's killed HUMMER, let's hope his bankruptcy-prof health care bennies include Alzheimer's medication. Meanwhile, columnist Mark Phelan needs to adjust his own meds, or whatever it is that stops him from facing reality (his paycheck?). "With dealers in 37 countries and assembly in South Africa as well as the United States, 'the potential for global growth is a huge opportunity. It's one of Hummer's strengths,' spokeswoman Joanne Krell said. Developing markets in Asia, Central and Eastern Europe look particularly promising." Once again, GM is spinning the idea that its foreign ops will save North America. Once again, Phelan is happy to broadcast the corporate line (hook and sinker included). Phelan also forwards the idiotic idea that HUMMER could be re-jigged to build green vehicles, and the possibility of an overseas buyer. Let it go Mark. Just let it go.

The Wall Street Journal reports that Chrysler is bumping-up list prices on their new Chrysler, Dodge and Jeep vehicles by two percent, effective June 16th. I fail to see the point when dealers are slapping cash on the hood in ever higher piles amidst a crash in demand. Not to mention the fact that Chrysler has yet to announce their much-ballyhooed across-the-board-model cuts. The official justification for the price hike: "[Chrysler spokesman Stuart] Schorr said at the beginning of this model year Chrysler put in an average increase of $1,200 in content per vehicle without raising prices," Automotive News [sub] reports. Just in case you were thinking Schorr was referring to significantly upgraded interiors, "the executives said increasing commodity prices, including steel, pushed the company to raise prices." Yes, well, you have to wonder just how many more 2008 Chrysler products are going to come out of the factories between June 16th and the start of 2009 model year production. This all seems like a bizarre going-through-the-motions exercise, perhaps intended to convince a future buyer that Chrysler is what's commonly referred to as a "going concern." Tick tock.

So, now that the feds are forking-out $30m of your hard-earned tax dollars to GM, Ford and Chrysler/GE for plug-in hybrid battery technology research, auto industry observers are asking the obvious question: what the Hell's that going to do? As reported previously, GM's paying $3b in a year interest on their loans. Ford's in hock up their logo (no, really). Chrysler's so hard-up for cash they're stiffing their suppliers. Our friends at Wired make the kvetch from deep left field. "What'd it do — scrounge change from couch cushions in the Pentagon? EV advocates were quick to thank Uncle Sam for the money but said it's going to take a whole lot more than that to wean us from oil — which, by the way, will collect $17 billion in tax breaks during the next decade." BTW? C'mon, you know what comes next (assuming you've read the headline). "David Sandalow, a senior fellow at the Brookings Institution and former Clinton Administration official, says we could transform the nation's vehicle fleet if we spent about $18.5 billion over the next decade." We're talking $5b for "retooling," $12b for plug-in hybrid buyer tax credits, $1b for 30k plug-in hybrids per year for 10 years for Uncle Sam's fleet and $500m to "underwrite warranties on lithium-ion batteries until the technology is proven." And if your business needs new investment to compete? Ha! 

Earlier today, TTAC commentator Joe ShpoilShport asked if we had any good news. Here it is [via Business Week]: "If the company [GM] can gut it out through today's miserable car market, GM will reap billions in savings from last fall's landmark labor contract and come out a real moneymaker in about three years." Unfortunately, that's the theory. In practice… "Since last fall, its hoard has shrunk from $30 billion to less than $24 billion. And given the accelerating decline in sales of pickup trucks… one analyst figures that GM's cash pile could dwindle to $14 billion by the end of 2009. That's not much more than GM needs monthly to buy the parts and materials to keep its assembly lines rolling." Our spies tell us GM's set to top-up its cash hoard by $10b– which would raises its debt to $50b. Yes, GM owes $40b. It pays $3b a year in interest. BW floats the "Delphi strategy" (mooted here previously): hive-off GM's international ops and throw NA into C11. Meanwhile, in the magic year 2010, GM will have to pay $4.7b into its union's $37.5b health care VEBA. "Company insiders say GM might get the union to agree to let them pay its bill at a later date." And if you believe that, you'll believe that COO Frederick A. "Fritz" Henderson's contention that GM will learn to "generate bigger profits on smaller vehicles."

The AP reports America's second largest automotive hauler is giving up. Thanks to a Teamster's strike, Performance Transportation Services (PTS) is calling it quits. PTS was already operating under Chapter 11 reorganization caused by the double whammy of imploding demand and skyrocketing fuel costs. Perhaps the fact that PTS was not a participant in the "national car haulers contract" with the Teamsters are negotiating with other major suppliers had something to do with what went down. CEO Jeff Cornish concluded that "the leadership of the union had a different agenda [other than PTS' workers' paychecks]." Oh well. The company that "delivered more than 4 million new and used cars annually from 24 facilities nationwide with its fleet of 1,800 trucks" is now gone for good. Expect to see more cars on freight trains. Or maybe Toyota wants to mop-up some of it's extra cash and put 1800 rolling billboards on the highway with it's own-branded delivery fleet. The four Horsemen of the Apocalypse continue to gallop through the American automotive industry's supplier base.

The Detroit Free Press confirms what we've been reporting: Chrysler is forcing a five percent price cut and change from Net 45 to Net 60 on their indirect suppliers. A "company document obtained by the Free Press" states Chrysler predicts they'll save $100m over the next 12 months by doing this. Chrysler wouldn't comment on the document, saying somewhat redundantly "The type of information described would be considered confidential. … We do not discuss confidential information on a public basis." The document acknowledges they'll piss off their suppliers: "It seems that this action is in direct conflict with Chrysler's desire to rebuild relations with suppliers… [but] Chrysler is committed to improving its relationships with suppliers through open, honest communication — no matter how difficult the subject." I don't know which school of management teaches this kind of logic, but common sense says the way to improve your relationship with someone you're buying stuff from is to pay them on time and at the agreed price, not name your own price and pay when you're jolly well ready. Just sayin'.

"Chrysler LLC reduced its number of U.S. dealerships by 196 in the past year and increased the percentage of outlets selling all of its brands, as the automaker tries to create a stronger sales network." That's one way to look at it. The alternative theory– that the "reduced" dealers simply went belly-up– doesn't get a look in from Bloomberg. Reading between the lines… "The pace of consolidation may be quickening as falling real estate values and declining auto sales convince more of the Auburn Hills, Michigan-based company's dealers to sell," ChryCo executive vice president of sales for North America Landry told Bloomies. It would be interesting to know to whom these dealers sold. Meanwhile, the ailing American automaker claims 3,488 outlets at the end of May, a decline of 5.3 percent from a year earlier. So what of Project Genesis, Chrysler's attempt to consolidate its dealers into tri-branded stores? The hard numbers are notable by their absence. But we do get anecdotal evidence of the plan's progress. "John Gunning, owner of Manassas Dodge in Manassas, Virginia, said many Chrysler dealers in his area can't afford the risk of borrowing money to buy another franchise and build a new dealership as auto sales decline." Hey! Maybe Chrysler could buy-out the dealers? Uh, maybe not.

Now that Chrysler CEO Bob Nardelli has recovered from his back injury (after bending over backwards to assure his employer that the ailing American automaker wasn't about to implode), Boot 'Em Bob's amped-up the PR. (No, I don't attribute the end of the radio silence to yesterday's Chrysler Suicide Watch.) Nardelli appeared on CNBC [reported via Bloomberg] to tell the world that ChryCo "had" $9b in the kitty last year. Let's see… a $1.6b loss last year, a catastrophic sales decline this year, the need for a multi-billion dollar float to keep the lights on, massive capital investment in competitive new small car products– oh wait, scratch that. The bottom line? "We're still in very good shape," Nardelli told the network. Yes, well, he would say that, wouldn't he? But what about this? "I have to take charge to get us through 2008 and make sure we are better positioned to 2009," Nardelli said. I have to take charge? Not I am taking charge? Uh-oh. Continuing the theme of decisiveness, Nardelli revealed to Reuters that Chrysler "may have to go back and resize" production. Ya think? The truck-heavy company's sales declined 19 percent so far this year.

Just when Detroit thought it was safe to go back into the red ink-stained waters, the Teamster's union has stolen their swimsuits. (Or something like that.) Automotive News [sub] pinged-us with news of a strike at the nation's number two car delivery hauler: Performance Transportation Services (PTS). "The action comes after a bankruptcy court judge gave the suburban Detroit company permission to cut the pay of its union drivers by 15 percent. PTS is operating under Chapter 11 bankruptcy protection for the second time in three years." This time 'round, it ain't just The Big 2.8 who could get slammed by a strike. PTS delivers an unknown percentage of its four million cars shipped annually to Honda, Hyundai, Kia, Mercedes, Mitsubishi, Suzuki and Toyota dealers. 

Chrysler is no longer "asking" suppliers for a five percent cost cut across the board– they're just taking it. More ominously, they've changed their payment terms. We just received this information from a reader (independently confirmed) who wishes to keep his name and company confidential for obvious reasons:

On June 3 we received revised purchase orders (PO's) indicating Chrysler will now be taking five percent off all PO's and will take 60 days to pay instead of 45. The trouble is they are doing it to all existing orders, not just future orders. I was told by Chrysler purchasing they were trying to keep their cash flow together and there was nothing they could do about the PO changes. I think that might be all for Chrysler unfortunately. They also told me the new rules were going to include PO's shipped after June 1 even if they hadn't bothered to change the order.

If Chrysler's cash flow is so precarious that they have to shortchange suppliers and take longer to do it, it doesn't bode well for the company's short-term prospects. It looks like the only thing that will pull them out of this death spiral is a healthy infusion of cash from Cerberus' deep pockets; the private equity firm isn't known for throwing good money after bad. Look for Chrysler to file for C11 before the end of August, when the statute of limitations expires for suing Daimler for false conveyance.

Automotive News [AN, sub] continues the Black Tuesday mop-up; this time they pickup on pickup profits. Or lack thereof. "The segment is expected to shrink by about 500,000 units this year to as low as 1.65 million. That's a far cry from the 2.5 million in the peak years of 2004 and 2005." Buried at the end of an article suggesting that now might not be the best time to be launching a new Ford F150 or Dodge Ram (if not now, when), AN reveal that F150 annual sales are tumbling from last year's 690,589 to, by Ford's admission, "well below 600,000 this year." Rounding that out to a 100k hit, at $8k – $10k profit per vehicle, that's $800m to $1b the cratering market's excising from FoMoCo's annual pretax profits. (That's profit folks, not turnover.) Using those same numbers, Ford's "horrendous" 142-day supply (226k) of F150s equates to $1.808,000 to 2.26b to worth of profit locked-up on the lots. AN doesn't run the numbers for GM and can't do the math for Chrysler (it's now mostly owned by private equity). Instead, they offer this helpful tidbit. "Chrysler remains hopeful for a turnaround. 'Whenever gasoline prices spike, there's a free fall in the truck segment,' said Mike Accavitti, director of the Dodge brand. 'But the market is still sizable.' 

GM's executive director of manufacturing quality Joe Mazzeo speaks the truth when he tells The Detroit News that GM's customers are oblivious to the threat to vehicle quality posed by GM's employee changeover. But they might care later, after GM replaces some 19k "top tier" union workers with half-price subs, expecting them to hit the assembly line after two week's training. "GM has been flooded with job seekers at many plants, but first crack at the jobs goes to idled employees of GM and Delphi Corp., the automaker's bankrupt former parts unit. The jobs then open up to outsiders, whose only shot at landing one is to be referred by someone who works at a factory." How reassuring. On the other hand, "GM is going to exhaustive lengths to ensure the shift doesn't erase hard-won improvements in factory efficiency and vehicle quality… [Workers] will be reminded that well-made vehicles keep consumers buying, which in turn leads to job security — and vice versa. Many workers will get a job shadowing assignment, and all of them will learn through simulated training done on assembly lines with fake cars made of two-by-fours and plywood." As for how many of those 19k union jobs are being axed and how many simply "downsized," the DetN is clear: "The automaker won't say." Oh, and those workers who are "transitioning" from one tier to the other get ten day's training– the same amount of education Disney requires for its "cast members." 

The post-Black Tuesday world is an interesting place for media junkies looking to gauge the U.S. automotive press' level of sycophancy. Yesterday, we reported on Motor Trend's take on May's sales collapse: blame the victim (the American consumer). Or CAFE regs (the feds). Today, we present Warren Brown's analysis. And the first thing the Washington Post car columnist wants you to know: greens can't take credit for the death of the great American gas guzzler. "It is the world Hummer-haters said they wanted. It is the one for which legions of environmentalists and believers in the corrective powers of regulation lobbied. But here's suggesting that they had little to do with the current situation. When it comes to change in a capital-intensive industry such as the car business, money talks, and politics walks." High gas prices did the deed? OK, we'll buy that for a dollar (or four). But we're a little less convinced by Warren's corollary: chill. Brown says the domestics are switching gears to make money in the brave new world of $4+ gas. All will be well. "They [the transplants] have, therefore, a temporary advantage over GM, Ford and Chrysler in the current market shift from trucks to cars. But 'temporary' means just that. Domestic car companies are adjusting to fuel-price-induced changes much more quickly than vehicle sales numbers or media reports indicate." In fact, "The GM-Hummer relationship was never meant to be permanent."