After the United Auto Workers (UAW) ratified their new contract with GM, the automaker's stock price soared to $40.06 per share. The Detroit Free Press now reports that GM's stock price fell nearly four percent on Tuesday, as Wall Street has begun re-considering the whole GM/UAW/VEBA thing. Morgan Stanley analyst Jonathan Steinmetz is having second thoughts about the wisdom of establishing The Mother of All Health Care Tax-Free Funds. "Funding terms appear somewhat less attractive than initially envisioned," Steinmetz prevaricated. "GM has settled a $47-billion liability for the equivalent of $37 billion, or about 78 cents on the dollar." Analyst Peter Nesvold from Bear Sterns says GM's UAW contract is potentially transformational… longer term. Meanwhile "GM shares are at a potential peak and on the way down." 

When Cerberus rescued Daimler bought Chrysler, pundits predicted a radical reinvention. Oh well. But that hasn't stopped the irrepressible Jason Vines. Chrysler's Spinmeister's got another story to tell, and The Financial Times is happy to tell it: "Chrysler cuts a dash with speed and decisiveness." Aside from the six-hour resolution to the United Auto Workers' strikelet, "signs of the new urgency include a swift move to bring down swollen inventories of slow-selling models. Five plants were idled last week, and four will shut this week… According to Mr Press, the production cutback was sealed during a seven-minute conference call between Mr Nardelli and a Cerberus executive." (Did we tell you that phone call would be PR fodder?) Other than that, "Frank Klegon, head of product development, observes that Mr Nardelli 'lets me know what he thinks, a lot.'" And Steven Landry, head of North American sales, says “they want to fix things quick." The FT buries the real bombshell (as have we) for the end of the piece. Speaking at the National Automobile Dealers Association in Vegas, Chrysler CEO Bob Nardelli answered a dealer's questions about the possibility of Cerberus "spinning off" Chrysler bits and pieces. "While he did not exclude a future spin-off, he said Cerberus would wait at least until Chrysler is once again profitable." Huh.  

ReportonBusiness.com reports that Canada’s automakers are united against a new trade agreement with South Korean– unless the Asian country removes its “non tariff” barriers to Canadian auto exports. The news comes ahead of Canadian free-trade officials’ eleventh meeting with their South Korean counterparts. It also arrives against a backdrop of a radical shift in Canada’s balance of payments. According to a Canadian Auto Workers (CAW) paper on the subject, our neighbors to the North are now importing more cars than they’re exporting. CAW economist Jim Stanford sounds the alarm: “What was once a unique success story regarding Canada's high-value participation in world markets has turned remarkably quickly into an industrial nightmare.” While the CAW report also claims The Big 2.8’s restructuring efforts have “wiped out thousands of jobs,” (hey why not mention it?), the main focus is on getting tough with Korea: “This is the wrong time for our own government to expose this still-crucial export industry to even more damage from low-cost, one-sided imports.” So when would be a good time?

BMW and Mercedes have been rivals since 1929, but Detroit News columnist Christine Tierney reckons the two automakers are eyeing each other across the dance floor. Tierney points-out that Daimler-Benz (Mercedes to you and me) hooked-up with Chrysler to fend off the possibility of a hostile takeover. Now that the Chrysler divorce is going through, they're even more vulnerable than before. What's more, Tierney says the folks sheltering under the three-pointed star are "increasingly threatened" by Porsche's takeover of the VW Group. As Mercedes needs to off-load some of their R&D costs, and BMW CEO Norbert Reithofer just declared his intention to "wring out" $8b in savings to bolster his company's margins, and BMW is working with GM and Mercedes on hybrid powertrains… We reckon this Yenta's got a yen for mischief, and under-estimates the weight of history and the bad blood that flows between the Germans. Still, just ask Dr. Z; stranger things have happened.

Yesterday, we reported on a Canadian class action lawsuit claiming carmakers and dealers conspired to violate “competition and consumer protection laws” to artificially inflate new car prices. Today, the National Post reports that Porsche is lowering prices on its 2008 models in Canada by more that 10 percent– plus an additional 2 percent on an “equipment adjusted basis” when compared to an ’07 model. "We cannot ignore our customers and dealers in Canada who can look to the U.S. and recognize a substantial price difference," says the president and CEO of Porsche North America. Yes, but– the price of a new Porsche will remain higher than those sold in the US. Assuming the loonie is at parity with the US dollar, a 2008 Cayenne will still cost some 27 percent more in Canada (C$55,200) than German sport trucks sold south of the border (US$43,400). Still, Porsche’s Schwarzenbauer's back remains patted: "We listened to the market and did what is best for our customers in Canada."

The European Court has announced judgment day for its ruling on the so-called "VW law" thwarting Porsche's takeover plans: 9:30am, October 23. Meanwhile, union bosses at the two automakers are duking it out in the court of public opinion. Just-auto [sub] reports that the head of the Porsche works council, Uwe Hück, has called his opposite number at VW, Bernd Osterloh, an "out of control boxer" [pugilist, not engine]. Hück was responding to Osterloh's assertion that Porsche management had refused to meet with him to discuss future VW worker representation on the Porsche Holding SE's supervisory board. Osterloh's beef: when if Porsche assumes control of VW, both unions get three seats on the new company's board. As far as Osterloh's concerned, this would give "Porsche employees" veto power over Volkswagen employees. As far as Hück is concerned, "Saying that a workforce of 324,000 carries more weight than one of 12,000 is capitalist talk. In a democratic social state, everyone has equal rights, whether they are big, small, fat or thin." What was that about divide and conquer?

Private equity firm Cerberus ain't had enough fun. Despite (or becuase of) their enormous investment in Chrysler, the business brains at the three-headed dog have just cut another billion dollar deal, scarfing Swedish paper maker Stora Enso Oyj's ailing North American operations. Adding paper mills in Wisconsin, Minnesota and Canada to their NewPage Holding Corp. unit cost Cerberus $2.07b. Analysts are not yet convinced that the big deal is a Big Deal. "It's encouraging as it's the first billion-plus deal we've seen in recent weeks,'' Peter Taylor told Bloomberg. The managing partner at buyout firm Duke Street Capital Ltd. notes that the deal is significant, but not necessarily trend-setting. "It's probably too early to say if it's a turning point. It's in a specialist industry in the U.S." IF the move means credit is loosening-up again, it will have important implications for the game of musical chairs over at Ford's Premier Automotive Group and… elsewhere. If not, not. 

The UAW could become a major player in the stock market. CNNMoney speculates if the union-administered VEBA health care superfund proposed by The Big 2.8 come to fruition, the UAW could have $60 to 70b to manage. The windfall would give the union "newfound clout to push its agenda" on Wall Street. To keep the VEBA healthy, the UAW would have to make investments which will return enough to cover whatever percentage of the total bill the money transferred from the automakers won't cover. AND they'll need to grow their nest egg to keep up with rapidly rising health care costs. So which stocks will they invest in? Will the UAW show solidarity with their active members and invest in GM, Ford and other unionized companies? Or will they do what's best for their retirees' health care fund and invest in healthy companies that actually turn a consistent profit, regardless of union affiliation?

Screw past performance. The most important factor in choosing a stock is… where the company does business. So says Jens Ehrhardt, Porsche-driving manager of Dr. Jens Ehrhardt Kapital AG, Germany's top international stock fund. Bloomberg reports Ehrhardt won't buy stock in the German automaker because about a third of its sales come from "debt-ridden Americans." He dropped almost all of his holdings in BMW because about one fourth of its sales come from the U.S., and dumped over half of his stock in ThyssenKrupp AG because they're putting a $4.2b steel plant in Alabama. Gunther Westen, head of asset allocation at at WestLB Mellon Asset Management in Dusseldorf disagrees: "I've heard doomsday scenarios on the U.S. since I've been in this business. I don't believe them." So where does Ehrhardt put his money? German companies doing business in China.

Pity the poor analysts over at Resource Investor. How do you measure current and projected oil importation and consumption in a country as enormous, secretive and chaotic as China? Still, this is one of the best reports on the subject I've seen. It includes a look at the country's rush to build new oil refineries and an explanation of the effect of "teapot" operations on supply. The bottom line's at the bottom: "Vehicle ownership in China is expected to double to about 55 million vehicles over the next five years, as falling prices encourage consumers to purchase cars… The ever increasing number of vehicles in China will help sustain the growth in both oil demand and transportation, driven by the country's rapid economic growth. Moreover, this will offset any efforts by the Chinese government to curb oil demand and imports." So rising international oil prices then? Depends on the supply, obviously. If the peak oil prognosticators are right… uh-oh.

India's Economic Times is reporting that automaker Mahindra & Mahindra (M&M) has decided not to buy the British bits of Ford's floundering folly, the Premium Automotive Group. According to The Times, unnamed "investment banking executives" say concerns about Ford's ability to supply competitive powertrains for future Landies and Jags gave the Indian suitor cold feet. In other words, new EU CO2 regulations will force the companies to ditch their current engine lineup for more efficient powerplants. This increasingly central concern suggests that Land Rover and Jaguar would be safer in the hands of an automaker ready to make the switch than the former FoMoCo-led private equity groups looking to buy the Brits. That could only be India's Tata Motors, whose partner FIAT says it's ready to provide "technical support" for Tata's overseas adventure. Still, at the end of the proverbial English day, Ford will most probably sell its damaged brands to… the highest bidder.

Contemplating yesterday's 2006 Census report on the average American's housing costs (via The New York Times), it appears that U.S. automakers' fears about the effects of the housing market on car sales are far from greatly exaggerated. The stats reveal that half of U.S. renters and more than one third of mortgage holders spent at least 30 percent of their gross income on housing. That's up two percent or 1.5 million households from '05. A staggering fourteen percent of mortgage-holders spent at least half their income on housing in 2006, up from 13 percent from the year previous. As The Grey Lady says, "The rising housing burden cuts into the money people have available for other expenses and anticipated the rise in foreclosures." To see how badly this trend will hit the auto industry, keep an eye on California sales. The Eureka state tops the list of mortgage borrowers forking over more than 30 percent of their income for housing.

Speaking to Handelsblatt magazine (via Forbes), Porsche's CEO set the stage for his company's on-again/off-again VW takeover. Wendelin Wiedeking claimed the fiercely independent sports car maker's products can't meet the EU's proposed 2012 carbon dioxide emissions regulations. While Wiedeking did include the qualifier "in their current form," he clearly stated that Stuttgart's finest couldn't satisfy Brussels regulators. "Realistically, emissions requirements can only be graded by vehicle segment. A common limit for everyone is a business generation plan for compact car makers." Which is what Porsche would be if when it assumes control of VW. Which Wiedeking will address no sooner that November, or whenever the European Court of Justice gets around to strking down the "VW law" that prohibits a change of controlling ownership. Hmmm. Sounds like a lock to us. Still…

The New York Times reports on freshly-minted Chrysler CEO Bob Nardelli's "coming out" (their words, I swear). Speaking at last Friday's Associated Press "Scribes who Lunch" affair, Nardelli tucked-in behind the other auto execs bemoaning America's cratering housing market as the bus they DO see coming. As for the one they don't, Boot'em Bob revealed that Chrysler's new board will meet in October to revise the revised turnaround plan authored by the recently demoted Tom "Jump!" LaSorda. Unlike GM's CEO Rick Wagoner's "we'll get there when we get there" timeline, Nardelli said Chrysler will be back in black in three years. As for new product, Nardelli says gimme ten. Meanwhile, for those who suspect that Chrysler owner Cerberus secretly wants to cash-out next Tuesday, Nardelli admitted there might be a little stripping– if no immediate flipping. Boot'em Bob "did not give any specifics about what might be sold but said, 'There is quite a long list.'"

Unlike enlightened TTAC readers, your average Wall Street type believes that The Big 2.8's survival recovery hinges on transferring their health care liabilities to a union-administered health care superfund (a.k.a. VEBA)– PROVIDED they pay somewhere around 60 to 70 cents per dollar of health care liability. BUT to do the deal, GM would have to find some $30b, Ford would need some $15b,and Chrysler around $7b. Guess what? They don't have that kind of money hanging around, and their current "distress" makes the cost of borrowing somewhere between "onerous" and "usurious." SO the automakers are looking at paying for the VEBA with a large percentage of their own stock– except for Chrysler who might want to pay cash on the installment plan instead. BUT the union doesn't like the idea of a health care fund paid for by stock or deferred payments all that much, because, well, what if the automaker goes belly-up? Only, again, Wall Street thinks they won't go bankrupt IF the carmakers create a health care VEBA. And THAT means if they do the deal the cost of borrowing to fund the deal would go down AND their stock would go up. And IF the union had agreed to take stock in lieu of cash money AND the stock goes up, the rise would cover the aforementioned discount on the full health care liability. That's IF the union cashes out at the top of the market and invests in something less volatile than their employers' stock. Like, I dunno, Toyota stock. Don't laugh. It could happen. Anyway, if you want to try that again, we recommend Kaisernetwork.org's summation.