A TTAC source has pinged us: “‘I’ve just heard 2nd hand that the Delphi OnStar team has had all their GM contracts canceled. It seems that GM may be getting rid of OnStar completely, but it isn’t clear when that would happen. This sounds like a pretty good business decision to me since cell phones have become so widely adopted, and navigation systems are getting cheaper.” This tip flies in the face of a recent Reuters report, in which the head of said OnStar claimed the service was wildly profitable. OK, “highly.” Which is the same as “wildly,” given GM’s current slide into C11. Anyway, “GM does not break out its revenue or profits from OnStar, but had said the division had turned profitable in 2003 and has been steadily and more profitable since. The division receives part of its revenues from consumer subscription fees.” One possible explanation (just in): GM is simply “de-sourcing” Delphi as OnStar supplier, as it prepares to deep-six the bankrupt parts-maker’s contracts. Or something. But wait! More tipster action from an ex-OnStar employee after the jump.
Detroit apologists—who sincerely believe that GM was headed for turnaround town when gas prices ascended and the worldwide economic tsunami hit—will take pleasure in the fact that Toyota reckons it’ll spill $8.6 billion worth of red ink on the corporate carpet. No doubt, the Japanese automaker is “struggling” to cope with the loss of one million units from their worldwide balance sheet. During the January to March Japanese fourth quarter, the formerly unassailable automaker got assailed but good, losing $6.9 billion. As we’ve reported previously, the US and Japanese markets are ToMoCo’s big hole, switching from huge profits to equally enormous losses without much of anything in between. As Automotive News[sub] reports, the head of the ailing automaker had a completely different response to the news of his employer’s sinking fortunes than, say, anyone who works for GM. [GM cheat sheet: the secret word is “accountability”.] “Of course the external environment doesn’t help,” Toyota president Katsuaki Watanabe told reporters. “But we were lacking in the scope and speed of dealing with various problems and issues, and for that I am sorry.” So . . . now what?
Hey, he warned us. When the president announced Chrysler’s C11, he mentioned in passing that the feds would provide GMAC with “fresh funds” to take over ChryCo dealer and retail financing (from Chrysler Finance). Well, Uncle Sam’s gonna need to back-up a dump truck to git ‘er done. Bloomberg reports that the former lender (now bank) will require an $11 billion “top up” just to not go tits up. That’s after a last-minute, rule-changing $5 billion infusion (plus $1 billion bestowed upon GM to help them help GMAC). And before The Presidential Task Force on Autos figures out how much more money GMAC needs to finance customer purchases and keep Chrysler dealers solvent. Ah, but do they want to avoid dealer death? As we’ve reported previously, GMAC has been busy pulling financing from selected GM dealers—an end run around GM’s franchise agreements designed to avoid the threat of dealer lawsuits against the mothership for termination. Can we expect the same for Chrysler dealers? Already happening.
Considerare l’aritmetica, asks Rob Cox at breakingviews.com. Sure, the Chrysler freebee deal has sent Fiat stock soaring, but if you strip away the non-auto components of the Fiat group and factor in the firm’s $8 billion in debt, and what’s left is worth only $5.5 billion, according to Cox’s math. Which means Fiat will face some major challenges in cobbling together its 5 million annual global sales empire, a fact we’ve already explored here. And based on Chrysler’s insatiable appetite for taxpayer dollars, Fiat’s going to have a tough time just feeding the cash-burn beast.
One of our sources reports that Chase has just told Chrysler dealers that it will no longer loan them money to buy Chrysler products.
Just got the call. Chase has officially terminated the floorplanning of Chrysler vehicles. Given the freeze at CFC [Chrysler Finance], now nobody can buy cars. Supposedly the haulers won’t deliver units because of payment concerns. A suggestion: see if the sales projections match the dealer network. My take is they aren’t even close . . . meaning, the expected losses to the taxpayer are going to be through the roof.
Volvo has released its “Focus on the future of Volvo Car Corporation in the 2008/09 Corporate Report” (download “pocket version” pdf here). The report is stuffed with useful information for any private equity firm or car company looking for a nice little Swedish number. For example, it’s nice to know that safety is still on top of the Volvo food pyramid. And don’t expect Volvo to tie one on; the carmaker has one employee in Thailand. And here’s news: the Swedish automaker’s second largest market (after the US) is . . . Sweden, accounting for 47,750 sales in ’08. NOW how much would you pay? Of course, it’s quite the buyer’s market for car brands these days, what with GM jettisoning Saturn, Saab, HUMMER, Pontiac and, perhaps, Opel and Vauxhall. Maybe Holden. What the hell: make an offer for the whole company. Meanwhile, motoring moguls fancying Volvo should address all enquiries to “Big Al” Mulally at Ford Motor Company. You also might want to cc the US Treasury Department, just to be on the safe side.
General Motors has filed papers with the Securities and Exchange Commission detailing plans for financing the new, “good” GM. If/when realized, the scheme will wipe out GM’s current stock holders. The plan would:
* Increase the number of authorized shares to 62 billion
* Reduce the par value to one cent
* Effect a 100:1 reverse split for the existing shareholders (that’s one cent on a dollar)
TTAC commenter Bluecon points us to Bloomberg, who reveal the identities of some of the 100-odd Chrysler bondholders recently described by President Obama as “hedge fund holdouts.” Yale University, Oaktree Capital Management and assets managed for the University of Kentucky, Halliburton, Kraft Foods Master Retirement and the Bill and Melinda Gates Foundation top the name-recognition list. According to that report, the government plans to ask Judge Gonzalez to let it pay the creditors in that group $2 billion, or 29 cents on the dollar, to end their claims. That’s an interesting strategy, considering the “not-yet-TARPed” bondholders already turned down an offer at 33 cents on the dollar. Let’s see how forcefully the government “asks” Judge Gonzalez to allow the cramdown. Or whether rumblings of a better deal materialize. (Image from Computational Legal Studies‘ amazing interactive map of TARP recipient campaign donations and the US Senate)
“Chrysler’s bankruptcy,” according to President Obama’s statement today, “is not a sign of weakness.” The goal is not to radically restructure the business of a firm that has been failing for decades and currently makes some of the least desirable vehicles on the market. No, for Obama and his task force, this is about going after evil speculators. After lauding the noble sacrifices of the UAW (which will own 55 percent of New New Chrysler), JP Morgan (recipient of $25 billion in TARP funds) and Daimler (who raped Chrysler in the first place), Obama glowers at the mean, nasty speculators who are “forcing” Chrysler into bankruptcy. “In particular,” explains Obama, “a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them.” So who are these shadowy money men who just won’t let Chrysler run free of their oppressive debts?
GM’s major bondholders are asking for a 58 percent stake in a reconstituted General Motors, but there are a number of challenges facing any debt-swap to relieve GM’s crushing $28b debt load. First of all, the Freep reports that some $2.7 billion worth of GM debt is covered by credit-default swaps. Since this means that ten percent of GM’s bondholders stand to receive face value for their bonds, the odds that 90 percent of GM’s creditors will take up any haircut offer seem slim. Add a bunch of angry, populist small bondholders to the equation, and you have yet another obstacle to the restructuring goal.
Earlier today, I wrote an editorial about the U.S. Treasury Department’s plan to “sell” Chrysler Financial to former GM captive lender GMAC. Motive: Chrysler could continue to function (under union control, no less). The lender could keep lending money to ChryCo dealers to buy ChryCo cars. Means: what are you kidding? Your tax money. Opportunity: none. Well, legally. Legally, a Chrysler Financial–GMAC merger would imperil the bank, in direct contradiction of FDIC rules. Of course, the fact that GMAC is a bank in the first place is a violation of federal rules. OK, not technically. Technically, the Fed bent the rules for GMAC to qualify for bank status at the 11th hour, behind closed doors, screwing over recalcitrant debt holders but good. So anyway, I called the ChryCo Financial–GMAC merger a clusterfuck. (I know: I should stop sugar coating my analysis.) Turns out I had no idea how bad things are over at GMAC. But CNNMoney does . . .
Automotive News [sub] reports that GM’s bondholders have turned down the firm’s debt for equity offer of 225 shares of “new” GM stock per $1K of debt. The deal, which would have given bondholders a ten percent stake in a partnership with the UAW (39 percent) and the Government (50 percent) and existing shareholders (1 percent) was derided as “neither reasonable nor adequate” and “a blatant disregard of fairness” in a prepared statement. “The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue,” write advisers to GM’s ad hoc bondholder committee. “We are deeply concerned that GM waited until late April to make its offer.” Money quote? “This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court.” And how.
The Washington Post reports that the Treasury reached an agreement “in principle” with major Chrysler bondholders last night on the terms of their haircut. Under the deal, $6.9 billion in debt would be paid off with a mere $2 billion in cash once Chrysler completes restructuring. Unlike GM’s debt-swap effort and Chrysler’s UAW VEBA deal, the debt is not being swapped for equity in a reconstituted Chrysler. Which means Chrysler’s lenders would rather walk away with about 28 cents on the dollar than cast their lot in with the New, New Chrysler. The Treasury is still trying to keep Chrysler’s restructuring out of bankruptcy court, but officials emphasize that this deal does not guarantee that Chrysler won’t file. Also, about a third of Chrysler bondholders are still mulling the offer over.
When the historians chronicle Detroit’s decline and fall, Daimler’s rape and pillage of the storied American car brand will merit an entire tome. In short form, the Germans came, they saw, they laughed, they lunched, they left. And when they left, they maintained a 19.9 percent share in the hollowed-out American automaker. Wishful thinking? Tax law? A codicil from Cerberus to allow Chrysler’s new masters to sue the shit out of the Germans if things went badly? In any case, thanks to The Presidential Task Force on Automobiles determination to reconstitute Chrysler as a worker’s co-op, by Friday, Daimler gets to see Chrysler implode from afar. [NB: So much for the “The Big 2.8”.] Bloomberg reports that Daimler will “cede” its remaining its stake in “former U.S. division” (ouch) to Cerberus Capital Management LP. More to the point, the “transaction” will result in a $700 million write down in the second quarter. Oh, and Daimler will “forgive” $1.3 to $1.7 billion worth of “loans” to Chrysler. And “contribute” $600 million to the US automaker’s pension plans over the next three years. Meanwhile, Daimler’s own haus is on fire . . .
According toAutomotive News [sub], the United Auto Workers (UAW) agreement with Chrysler/Fiat would deliver unto the union a 55 percent share of the reborn Italian – American automaker. As in the proposed (but doomed) GM bondholder offer, ChryCo union workers will forego a multi-billion dollar payment into their Voluntary Employment Beneficiary Association (VEBA) health care fund in exchange for the equity stake. In Chrysler’s case, $6 billion buys them controlling interest in Chrysler. That’s all kind of nuts on all kinds of levels. And as we’re in tail wagging the dog territory . . .
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