We've been saying 2010 is the domestic industry's Holy Grail since 2007. Official confirmation comes at the bottom of a Detroit Free Press article entitled "Detroit 3 ready to focus on future." In fact, the TTAC narrative is all over this thing. "U.S. automakers didn't really adapt after Hurricane Katrina in 2005 sent gas prices above $3 a gallon and consumers started changing their purchasing habits — and it's costing them now. 'That's enough time to change, said Mark Warnsman, an auto analyst for Calyon Securities.'" And now… "All eyes are on 2010." Yes, "If the automakers can make it to the end of the decade, they should at least have a chance to start making money again." If? At least a chance? Seems Detroit's cheerleaders are running out of pep. "By 2010, economists are forecasting recovery in the U.S. housing market and that the economy, hopefully, will be back into growth mode… But after seeing record losses at Detroit's public automakers — $50 billion at GM over the last three years, $15 billion at Ford over the last two — optimism about 2010 is guarded. 'That's a make-or-break year,' economist at the Center for Automotive Research Sean McAlinden said. '2010 is the big question mark.'"

If you're one of those people who believes GM has a coherent turnaround plan, or in fact believe in this unspecified, entirely elastic strategy for a return to profitability, you might want to take note of the fact that General Motors is locked in the PR version of Groundhog Day. As we've pointed-out many times, GM PR always saves its bad news for a Friday and/or makes major announcement on the same day it gets hit with disastrous numbers. This coming Tuesday (June 3) will be no exception. Automotive News [AN, sub] reports that GM CEO Rick Wagoner will reveal his new new turnaround plan (cut!) on the same day the company's May sales figures hit the wires. Amidst a predicted 10 percent overal U.S. new car sales drop, "analysts expect sales to drop 22 to 25 percent at GM and as much as 22 percent at Ford. Sales at Chrysler are also expected to be down by more than a fifth, according to analyst forecasts." As bad as those numbers will be, they won't be so bad for the transplants. Honda will post a gain, and "Toyota Motor Corp. is expected to reach a record market share… expected to reach 18.1 percent, up from 17.3 percent in the same month last year and 17.5 percent from last month." In other words, GM– and the rest of The Big 2.8– are losing sales and share. Gas prices, market shift, down economy, great sales in Russia; yada yada yada. As some point, the spin will stop. 

TTAC has confirmation from three trusted, independent sources that Chrysler is delaying payments to its suppliers– to the point where certain suppliers have refused to ship parts until the embattled American automaker settles its bill. Even so, we are filing this report as Wild Ass Rumor because none of these sources will go on record. (Hardly surprising consider the economic self-interest involved.) It is equally true that there's no way for TTAC to accurately gauge the full extent of Chrysler's delayed payment situation. IF, as we suspect, Chrysler's owner Cerberus is readying to file for C11 during its company-wide summer holiday, or, as some suggest, preparing for the long-delayed "strip and flip," delayed payments would indicate, at best, ChryCo cash flow problems. We invite both Chrysler and its suppliers (guaranteed anonymity) to use the comments section below or contact us via email to clarify this issue.

The Wall Street Journal [sub] has been busy reporting CEO Rick Wagoner's new new turnaround plan, which looks an awful lot like his last turnaround plan, which is based on the principle "Yes, you CAN cut your way to prosperity." Set for unveiling next Tuesday (June 3), "New restructuring actions could include the elimination of some slow-selling models. Mr. Wagoner also will unveil plans to boost revenue." For this you buy a subscription? Obviously not. At the bottom of the report, we get the money shot: "Some analysts, however, fear GM may be headed for rougher waters given its dwindling cash position. As of March 31, GM reported $24 billion, or $6 billion less than what was on hand September 31." Holy cash conflagration Batman! I make that a $1b per month cash burn. Do the math. Or hear this: "Mr. Gilbert [a fixed income analyst at Principal Global Investors] said that if GM doesn't figure out a solution, it may be headed down the same road as the airline industry, which saw several carriers file for bankruptcy protection in recent years. 'Liquidity is the one thing that always separated the two (industries)… If that goes away, the two will look a lot more similar.'"

"Despite GM's troubles, Mr. Fisher, a former Eastman Kodak Co. chairman, said the board supports Mr. Wagoner and believes GM has the 'best management team to get us through these difficult times,'" reports The Wall Street Journal [sub]. "He pointed to solid products and strong international growth as benchmarks of Mr. Wagoner's success." George Fisher retired as CEO of Eastman Kodak in 1999. From The New York Times on the eve of that auspicious occasion: "Q. There are those who view your tenure at Kodak as a terrible disappointment. Do you feel you've failed? A. Not at all. I remember telling Roberto it would take three years to get Kodak on track. He said it would take five, and O.K., it's taken closer to seven. But the fact is, I've accomplished everything I set out to do. I get angry when I get mail from people complaining about my performance, or when members of the press select the quotes they use to paint negative stories… Q. But you are losing $100 million a year in digital, and shareholders are clearly unimpressed. A. You call it losses, I call it investment." Back to the WSJ and GM: "Another GM board member, Kent Kresa, said in a phone conversation Tuesday night that GM 'management has a handle on the situation.'" Kresa was CEO of Northrop Grumman Corporation from 1990 to 2003. Kresa saved Northrop by merging it with Grumman, buying 15 other defense contractors and instituting ruthless cost-cutting. His faith in Wagoner's unspecified turnaround plan reflects Kresa's seat-of-the-pants, high stakes poker management style, and faith in political influence peddling. So now you know.   

There is a moral element to Detroit's woes, and it's not working in Motown's favor. As Ford, Chrysler and GM's decades-long mismanagement lead the giants to a disastrous denouement, the "buy American" voices— which could help the automakers secure government loans/guarantees– are growing fainter by the day. The fact that none of these American automakers have given a moment's thought to off-shoring parts and vehicle manufacturing does them no favors in this department. But an even more dangerous narrative is trickling through the media gestalt: Detroit dragged their feet on fuel economy and refused to heed the warnings provided by the first oil price shock. In other words, Detroit made their own damn bed and they should get ready to lie in it. Joseph Szczesny's piece in The Oakland Press represents the thinking, and no one gets out alive. "The industry's executives basically ignored fundamental warning signs and hung on to outdated prejudices and assumptions while the world was changing around them. The executives around Detroit have been eager to pass the blame for their current plight on expensive labor contracts, hostile regulators and an indifferent press. The fact is on the critical issues relating to energy policy and fuel economy now bedeviling the automakers the UAW had basically given up and followed the lead of the industry's top management." The thing of it is, Szczesny used to be a GM booster. Not anymore. 

[TTAC has heard of new GM ads touting the company's contribution to the U.S. economy. Has anyone seen one?] 

On Friday, after GM detailed the financial damage caused by the American Axle strike and union shutdowns at two of its plants, the American automaker's stock price slid to $17.38– it's lowest level since February 1982. Once again, GM saved bad news for the end of the week; the stock market couldn't fully react to the revelation. As the markets are closed for Memorial Day, it'll be Tuesday before investors [literally] take stock of the situation. They'll also take into account GM's busted accounts— a deficiency that caused numerous financial restatements, triggered an SEC investigation in October 2005, caused the ouster of CFO John Devine in December 2005, and forced the "resignation" of controller Paul W. Schmidt and chief accounting officer Peter R. Bible in May 2006. Meanwhile, in the here and now, the U.S. new car market is moribund (to say the least) and there's little prospect of immediate recovery. GM's high-profit trucks and SUVs are dead in the water. Suppliers are up against the wall, with a "run on the bank" scenario (cash on the nail, please) looming large, The stock market is waking-up to the perfect storm we've been predicting for months if not years.

UPDATE:  GM stock hovering at $17; down three to four percent. 

GM's annual report's out (just in time for the weekend!) and it's a shocker. The General's CEO, the company's former CFO, has admitted that the automaker's accounts are, how do we put this gently… unreliable. Here's the text: "Material weaknesses previously identified as of December 31, 2006 that continue to exist as of December 31, 2007: 1. Controls over the period-end financial reporting process were not effective. This has resulted in a significant number and magnitude of out-of-period adjustments to our consolidated financial statements and in previously reported restatements. Specifically, controls were not effective to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed, and monitored by competent accounting staff on a timely basis. Additionally, some of the adjustments that have been recorded relate to account reconciliations not being performed effectively… 2. Controls to ensure our consolidated financial statements comply with IRS No, 109, Accounting for Income Taxes were not effective… 3. Controls over the accounting for employee benefit arrangements were not effective. We lacked sufficient control procedures as well as adequate involvement of technical accounting resources to ensure that employee benefit arrangements were accounted for properly." It's hard to grasp the full implications of this revelation. If GM severely over-reported its liquidity, the situation could be dire. Full Death Watch on Monday. [thanks to Buickman for the heads-up]

"Pontiac is … car." And car is rebadging. Ipso facto. The Pontiac Torrent, G5, and G8 are blatant dirty rebadges. The G6 is a bit more unique looking, but same deal. And now… the Chevy Aveo! I mean Pontiac G3! The 2009 Pontiac G3 is listed on the fed's fueleconomy.gov site. Judging from its 1.6-liter engine, four-speed automatic, interior dimensions and 25/34 mpg, a rose by any other name will smell vaguely Korean (you might also say like dead dog, but I couldn't possibly comment). In Canada, the Pontiac version of the Aveo is called the Wave. but we're getting the G3– which raises a [relatively insignificant] question as to whether Pontiac is pursuing odd numbers or even numbers for its alphanumeric model names. Yes, this new model rounds out Pontiac's car collection as G3, G5, G6, and G8. Are we getting a G4 or G7? If I said yes, would you be interested? Meanwhile, the former excitement division will offer the G3 in sedan and hatchback versions. So is it going to suck? Why yes, thank you for asking. 

Jay Leno, NBC comedian and car fanatic, would like to offer Motown's maven some independent analysis. So he does, via msnbc.com. "The type of vehicles America makes best are, unfortunately, not the type of vehicles that people really want anymore… Where we seem to lose it is in the low-bucks econocar… I believe that, all things being equal, Americans will buy American. It just has to be as good as the competition; it doesn’t have to be better… If you look at the new line of G.M. cars, they are almost as good as what the Europeans are doing… America does technology well, and I think this is how the companies will bring those buyers back. I think cars like the Chevy Volt, which is entirely battery-powered, or hydrogen cars from Chrysler, Ford and G.M. will take off…. One last thing: No matter what happens, do not expect all American cars to go Eurosize. American buttocks are not getting any smaller." So, aside from Jay's belief that close enough for rock and roll is close enough for rock and roll, and setting aside the issue of what constitutes an American car (Aveo? Accord?), and the fact that the Volt is actually a hybrid and a whole bunch of other stuff, the funnyman nails it. What do you reckon: Bob Lutz Award nominee?

Another Friday, another bombshell from The General. Yes, once again, GM waits until the markets head-off for the Hamptons before revealing some bad news. Last time, out it was Rick Wagoner's $14.4m annual pay packet– which was good news for Mr. Wagoner and his heirs, bad news for management accountability. This time it's GM's SEC filing re: the cost of the American Axle strike. And there it is: $2.82b. Automotive News [sub] breaks it down this way: "GM estimated that it suffered a $1.8 billion impact in the second quarter alone. That's on top of $800 million from lost production during the first quarter and another $215 million in assistance GM offered to American Axle to finance employee buy-downs and buyouts." Two-hundred-and-fifteen? Hey, what's $15m between friends? Anyway, the total damage makes the cost of the United Auto Workers (UAW) strikes at two GM plants seem like a bargain, at just $200m. Yesterday, we totally missed that Standard & Poor's upped GM to a "B" rating, five levels below investment grade. Reuters reported "The outlook on GM remains negative, meaning a rating cut is still possible. The risk of a downgrade would increase if GM's lower-than-expected U.S. light-vehicle sales through 2009 result in pushing the company's liquidity toward 'undesirable levels,.'" And the next day, a Friday, GM reveals the hit. Huh.

January 13, 2008. Reuters. "Ford Chairman Bill Ford on Sunday said the automaker's plan to return its North American operations to profitability in 2009 is 'progressing very well.'" May 23, 2008. Automotive News [sub]. "Ford Motor Co. said today it will cut North American production and retreated from earlier profit outlooks, saying it expects only 'to be about break-even' before taxes in 2009." About? What's that, give or take a couple hundred million? Anyway, Ford's slicing North American production by 15 percent in the second quarter, down 20k units to 690k vehicles. And you can bet that the majority (if not all) of those not-produced vehicles will be high-profit trucks and SUVs. A statement from CEO Big Al Mulally just about said as much. "The challenge affecting the entire industry is the accelerating shift in consumer demand away from large trucks and SUVs to smaller cars and crossovers — combined with a steep rise in commodity prices and the weak U.S. economy." FoMoCo's "how low can you go" ain't done yet. The Blue Oval Boyz are dropping third quarter production by 15 to 20 percent and fourth-quarter production another two to eight percent. Or, come to think of it, more. 

How does a company with $1.3b in 2007 sales disappear by the second quarter of 2008? By trying to supply parts for the D3. The Detroit News reports that bankrupt parts supplier Plastech is extinct. The company will sell its manufacturing operations to Johnson Controls (JCI) and auction off the rest. Plastech will close plants in Ontario, Ohio, Indiana, Tennessee, Louisiana and Michigan, laying off some 1500 employees. Global Insight analyst Aaron Bragman says The Big 2.8 are "breathing a sigh of relief" at the decision: "they will be much happier to deal with JCI over Plastech." As to who will scarf-up Plastech's assets, Bragman expects a "Chinese or Russian buyer." "The root cause of these problems," says IRN's Merkle, "is that [the Big 2.8] will take a company out of business to squeeze 3 or 4 percent out of the price rather than looking at long-term interests." Look for more short term thinking as Chrysler works to slice 25 percent out of its supplier costs.

The harsh realities of a mature US automotive market are wrecking havoc on the plans and finances of all the players. The Wall Street Journal reports that 15 million units is about the best the industry can hope for in '08. That's back to the future, 1990s style. Even market share-gobbling Toyota senior executives admitted they have "about a full plant's worth of excess capacity in North America– not including the Tupelo plant due to open in 2010." Holy excess capital expenditures Batman! The master of production planning has hit the wall. Bottom line: the US is a stagnant, mature market where new cars are competing for replacement business, not growth. Meanwhile, more manufacturers are threatening to enter the US market. The Chinese and Indians (Tata) are chomping at the bit, and Alfa-Romeo has announced plans to return… soon. Analysts forecast a return to growth in the decade ahead. Still, clearly, not everyone's going to make it.

Just-auto [sub] reports that Morgan Stanley's head of automotive research doesn't have anything very nice to say about Chrysler's immediate prospects. But, surprisingly enough, Adam Jonas faced the delegates of an Automotive News European conference and told them that Cerberus will make an obscene amount of money [paraphrasing] when they break up the company and sell its parts. "I am actually bullish on the longer-term outlook for Chrysler. They have what a lot of people want. There is brand – particularly Jeep – and technology, design capability and US-based, dollar-based capacity that can hit the market relatively quickly." Say what? Oh, hang on. Morgan Stanley. That would be the company whose "Mergers and Acquisitions (M&A) department… excels in domestic and international transactions including acquisitions, divestitures, mergers, joint ventures, corporate restructurings, recapitalizations, spin-offs, exchange offers, leveraged buyouts and takeover defenses as well as shareholder relations."