Chrysler's told its suppliers to cut their prices by 25 percent and get the Hell out of Dodge. ChryCo Purchasing Czar John Campi unveiled his employer's latest supplier initiative to hundreds of Chrysler suppliers. Here the deal [via Automotive News, sub]… ChryCo promises to give its suppliers 30 days' notice of its production schedule (rather than seven), share more parts among nameplates, and reduce late engineering changes. Suppliers will split the savings with Chrysler– unless they fail to reduce component costs by 25 percent. If not, they'll have to cut prices and eat the loss. (The 25 percent reduction benchmark applies to parts both old and new.) With "the vast majority" of Chrysler components coming from America, Campi is encouraging suppliers to move operations overseas to facilitate the costs. Holy shit! It's bad enough that Chrysler's driving itself into the ground, but owners Cerberus seem hell-bent on taking its entire American supply chain down with it. You can't squeeze blood from a stone; with the price of nearly every raw material rising, Chrysler's audacious cost-cutting will only yield more bankruptcies. And lower quality products. And American job losses. This will not make Chrysler any friends when it hits the bankruptcy buffers, nor should it.

Three months later and enough bluster to buffet a Cape Cod winter resident for a decade, and the United Auto Workers (UAW) have reached a tentative agreement with GM parts supplier (and former GM Division) American Axle. Automotive News [sub] reports that, uh, the UAW have reached a tentative agreement with GM. That and the fact that ratification is "scheduled" for next week. I sure hope they tell the workers. And where are AN's vaunted "inside sources" when you need them? Of course, AN pads out its story with a little background/analysis. The good news? The strike "gave GM a chance to run down overstocked inventory for slower-selling models including its Chevrolet Silverado pickup." [Frank William's report on this "run down" on Monday.] The bad news? "GM, which books revenue when it produces vehicles, also said that the strike had cost it $800 million in the first quarter and 230,000 units of lost production as of April. GM had also shut or partly idled over 30 facilities and put thousands of its own hourly workers on lay-off due to parts shortages caused by the strike." Ramping-up production ain't like flicking a switch neither; so expect that cash burn to smolder a while. What's more, GM will no longer have any excuses. They'll have to face the fact that their truck and SUV business has rolled over and died.

Can a guy get weekend off? Jeez. You put your proverbial pen down for five minutes and the next thing you know Automotive News is tossing the alerts at you like a Vegas knife thrower. Most of the time, it's GM trying to sneak in some bad news (e.g. Rick Wagoner's $14.4m pay packet) while non-OCD reporters and stock market traders pursue what's euphemistically called "a life." OK, so, first up: auto supplier Delphi have sued investors Appaloosa [AN, sub] and eight co-conspirators for walking away from a bankruptcy exit plan for the troubled (and how) former GM division. "Delphi is alleging a breach of contract and fraud, and is asking the court to provide up to $2.55 billion in equity funding and to pay compensatory and punitive damages in an amount to be determined at trial." (Of course, that's just bad writing; the court doesn't have $2,55b. But you get the idea.) Any such court case would ehance Delphi's United Auto Workers' ire and feed TTAC's grist mill; like this little gem from Delphi Veep David Sherbin. "The plan investors vigorously pursued a prominent role in our restructuring, received over $60 million in fees for their commitments." Wow! Add in the lawyers fees– which could easily eclipse that amount– and there's no question Delphi's ignoring the wise British maxim "When you're in a hole, the first thing you do is stop digging." In any case, once again, it looks like a GM – Delphi bailout could well be the cash burn that finally sets The General's hair on fire, helping secure their seat next to Delphi in federal bankruptcy court. Next up: the UAW "settlement" at American Axle… 

In my imagination, GM execs start every major meeting cranking-up the Talking Heads' "Burning down the House" and dancing in that awkward style peculiar to drunk 50-somethings at the latter part of their daughter's wedding. In real life, they probably exchange worried glances over highly polished tables every now and then and continue their "work" with grim, monotone determination. Well here's an arched eyebrow for you guys: The Wall Street Journal reports that GM CFO Ray Young is "open to raising additional financing to weather the auto industry's current downturn and other challenges facing the company" at the same time that he "remains confident in its liquidity for 2008." I love a mixed message in morning. Smells like… bankruptcy. "If the current adverse economic conditions persist or deteriorate further we would consider a wide range of actions," Mr. Young said. On Ray's To-Do list: "opportunistically" tapping credit markets, including funding sources in the U.S., selling "noncore" assets and/or "reprioritizing" its capital spending. Question: what credit markets? GM credit ratings sucks. Cerberus' struggles with Chrysler have polluted the private equity pond and GM's already spending $2b on interest payments. What non-core assets? GM's already sold off everything it's got of any real value. And what do you mean by "reprioritizing" cap ex? Cutting back on product development? And I wonder why this article neglected to mention the newly released information that GM's cash burn for the year is estimated at $8b– and counting.  $24b (claimed liquidity) – $10b (float) – $8b (current cash burn) – ? = C11. [thanks to jthorner for the tip]

We've reported that Delphi was a little tardy on making its required pension contributions. Some $323m short, to be precise. Even so, Delphi said it wouldn't be transferring its obligations to the Pension Benefit Guarantee Company (PCBG). The Detroit News reports that the PBGC is switching into proactive mode. "We will act forcefully to protect Delphi's pension plans," the PCBG's director warned. "Especially in light of the company's decision not to seek renewal of its pension funding waivers." Charles E.F. Millard ain't just whistling Dixie. "We will draw down certain letters of credit and keep liens in place on the company's assets until Delphi has successfully emerged and made its pension plans whole." As Delphi won't be seeking an extension of it's pension-funding obligation waiver from the IRS, the PBGC will cash some $173m in Delphi credit when the deadline expires (23rd of May). Delphi spokesfolks say the company "expects to be able to meet its pension funding strategy through a combination of cash contributions and transfers of certain unfunded pension liabilities to a plan sponsored by GM." Delphi's skipped $2.3b in pension contributions since declaring bankruptcy in 2005. At the end of 2007, the former GM parts division was carrying an unfunded pension obligation of $3.3b. So who's gonna end up with that hot potato? 

FT.com reports that Jerry York– car industry veteran and investor Kirk Kerkorian's Number One– apologized to Ford executives for shooting from the lip. Apparently, the Grand Old Duke of York regrets advising The Blue Oval Boyz to sell Volvo and give Mercury the needle. "Tracinda, Mr Kerkorian's holding company, disclosed in a regulatory filing that Mr York had backtracked on his 'off-the-cuff' remarks." When was the last time Jerry York apologized for anything? He and Captain Kirk are well known for their stock shenanigans, notably the one which pushed Chrysler into being bought by a merger of equals with Daimler– which resulted in dismantling of the vaunted Chrysler management team. We're still waiting for that apology, Jerry. Let's not forget you were the CEO of Micro Warehouse, which went Chapter 11 a few years back. On the flip side, Lutz got his golden parachute, rode Exide into Chapter 11 as well, then got hired by GM where he went on to win his own award here at TTAC. [Check out John Horner's take on Captain Kirk in Ford Death Watch 44. And TTAC welcomes longtime contributor and tipster Richard Chen into the blogging fold.]

If GM keeps all its brands and most of its vehicles, there is no road map to longer term success. In the end, there just isn't enough money or market share to justify or support The General's North American operations as they exist today– even in their downsized, strike-afflicted form. At some point, preferably ten years ago, GM needs wholesale consolidation to focus on three brands: Chevy, Caddy, and Saturn. Everything else is superfluous. The problem at the RenCen: they can't figure out how to shed brands/products. Alan Mulally has shown the way Fordward, but he's dismembering recently purchased assets. GM's decades old "damaged" brands can't be sold individually, and can't be terminated. Short of C11, GM's going to have to bite the bullet and tell its BPG (Buick, Pontiac, GMC) AND Saab and Hummer dealers that the corporate mothership will honor existing franchise agreements  until they expire, but they will not be renewed. Sure, it'll be the letter that'll launch a thousand lawsuits. But there's no other way for GM to survive in NA. None. 

General Motors has stopped production of the lion's share of their 2008 truck line-up. Automotive News [AN, sub] reports that GM's told its dealers that "the allocation volume for the Dealer Order Submission Process cycles beginning May 8, 2008, and May 15, 2008, have been canceled." Translation: the American automaker will no longer fill orders for the vehicles listed above. The General blames the shutdown on the ongoing United Auto Workers (UAW) strike at American Axle, which has caused a paucity of parts. The situation could be worse for GM, but it's hard to see how. Even thought the strike and resulting shutdown provide a convenient excuse for GM to cut production on an entire genre of vehicles– vehicles that can't be sold at a profit, or, indeed, sold– GM's cash burn demands some kind of cash flow. From one perspective, there is no end in sight to General Motors' North American profit drought. "If the [American Axle] strike continues, there might be additional production cuts," GM spokeswoman Susan Garontakos admitted to AN. From another perspective…

As we reported last week, this is not a good time to be making pickups. At all. As we predicted ever since the new Toyota Tundra got into the game, the incentives wars on pickup trucks are getting bloody. Automotive News [sub] brings us the tale of a Folsom Lake Dodge store selling a Dodge Ram 1500 Quad Cab SLT 4×2 for $19,995. That's $12,800 off the $32,795 sticker price. At Swift Dodge, also in Sacramento, desperate dealers are offering $13k discounts on the same model. And still the trucks sit. Or, more precisely, pile-up. Dodge has a 109-day average supply of Rams. (The word on the street is that Chrysler has more Rams to ship and no one willing to take them.) Could it get any worse? You betcha. The pickup market cratered by 21 percent in April; well below the -16.6 percent year-to-date total. And now, the new Ram is set to appear, with the new Ford F-150 hot on its tailgate. To clear the deck, Chrysler will have to reach even deeper into its threadbare pockets for even greater discounts on the old trucks. Will they even sell then? One things for sure: there's precious little milk left in the Dodge Boys' cash cow. Without a plan B in the wings, Chrysler is headed straight for plan C11.

It's been a while since we reported on Plastech's bankruptcy. But things are starting to get interesting once again. The Chrysler interior supplier and its creditors recently agreed on three options for bringing the troubled (as in that's MY tooling) partsmaker out of bankruptcy. Plan A: sell the whole kit and caboodle to one of its biggest customers, Johnson Controls (JCI).  Plan B: liquidation. Plan C: restructure and emerge as an independent company (never gonna happen). Meanwhile, Plastech's bankruptcy judge is set to rule on an $87m short-term finance plan (bankrolled by JCI and the Detroit automakers) to keep the lights on. Even though Plastech lawyers say the firm "won't make it past today" without the cash, there are (as ever) issues. For one thing, it doesn't cover up to $10m in administrative costs. For another, the UAW (them again!) says the plan doesn't include "funding for severance payments and other labor expenses related to the closing of any plants." Which reminds us that Plastech is, in fact, closing its Shreveport, LA plant and "one or two others." Bad juju. 

And this, folks, is just the beginning. Or the end. Or the beginning of the end. Whatever you call it, however you look at it, GM's $3.25b first quarter financial loss makes a mockery of CEO Rick Wagoner's $14.4m annual compensation, and eliminates any hope that GM's foreign markets can keep the corporate mothership afloat. As Bloomberg reports, the number would have been even more horrific if not for GM's international growth. "GM's European profit grew by more than 18 times to $75 million. The Asia-Pacific region and Latin America-Africa-Middle East region doubled earnings to $286 million and $517 million, respectively." Meanwhile, "GM had an $812 million pretax loss in North America, its largest region, wider than the $208 million deficit a year earlier." And if you think things will be better stateside in the second, third or fourth quarter, what with strikes and tanked SUV and pickup sales, you need to be working at GM. Otherwise, no one will believe you. [Read General Motors Death Watch 175: Phone Calls from the Dead for a full analysis.]

Earlier today, automotive analysts blamed a large chunk of Daimler's Q4 profits downturn on its remaining 19.9 percent share in Chrysler. According to their calculations, Chrysler inflicted a $2.7b drag on Daimler. Although Market Watch duly reported that "the German automaker cautioned against making that calculation, citing the differences between international and U.S. accounting," Chrysler PR switched into damage control. An email pointed-out that the results are for Chrysler Holding LLC, which includes both the automotive and financial services operations. What's more, that accounting thing is a big deal. "There are significant differences between IFRS and U.S. GAAP accounting standards. Major differences include the effects of the acquisition of Chrysler Holding LLC by Cerberus, including recent restructuring actions by Chrysler LLC and the accounting for pension costs under the 2007 UAW contract. Accordingly, the 2007 financial results of Chrysler LLC under U.S. GAAP are substantially better than the IFRS-based financial results utilized by Daimler." Chrysler flackmeister Katie Hepler told TTAC that ChryCo "enjoyed positive operational earnings during Q4." So what about CEO Bob Nardelli's statement back in December that his employer was "operationally bankrupt?" No comment.

I know we've already reported GM CEO Rick Wagoner and his cronies' '07 pay hikes, cynically released on a Friday to avoid full media scrutiny. But I thought it was worth repeating to place this compensation in perspective. To wit: Standard & Poor's is signaling [via Forbes] that the credit rating service "may as yet downgrade General Motors Corp. (GM), after the agency downgraded GM's 49 percent-owned units GMAC LLC and Residential Capital LLC. The downgrades were triggered by the resignation of the only independent directors at Residential Capital, and the union strikes at American Axle, which have shuttered 30 GM factories. Although we expect these labor issues to be resolved, the timing, and therefore the full extent, of their effect on GM's liquidity is unknown. We expect the American Axle strike to contribute to a very large use of cash in GM's first-quarter 2008 results, which GM will announce in the next few weeks, and the effect will be magnified by the timing of GM's payables and  receivables." If S&P downgrades GM, the extra cost of borrowing will add tens of millions to GM's cash burn. So those execs salaries are only the tip of the iceberg when it comes to measuring their true cost to shareholders, employees, suppliers, dealers and customers.