Automotive News [sub] reports that Toyota’s profits took a dive in Q3, as sales in its North American and European markets dried-up and blew away. “North America slumped to a $335.9 million operating loss in the April-September fiscal first half. Sales there slid 9.4 percent to 1.357 million vehicles in the period. For the full year, Toyota lowered its ambitions 2.420 million units, an 18.2 percent fall off.” Bottom line? “Toyota now expects global operating profit to plummet 73.6 percent to 600.0 billion yen ($5.83 billion) in the fiscal year ending March 31, 2008. Just three months ago, Toyota had forecast operating profit to decline a comparatively modest 29.5 percent to $15.5 billion. The new goal would be Toyota’s lowest operating profit since the company began calculating in U.S. accounting standards in 1998.” But it is, let’s face it, a profit. If GM and Ford report similar revenue drops tomorrow– and why wouldn’t they be worse?– excrement and air movement device will collide. (As everyone and their mother are predicting.) Meanwhile, back to Toyota…
Category: High Finance
TTAC has intercepted a memo from GM PR Spinmeister-in-Chief Steve Harris to the troops. [Full text of missive after the jump.] In the message, Harris advises GM employees to tune-in to the internal TV channel for an announcement from GM CEO Rick Wagoner and COO Fritz Henderson (former CFO and Harvard MBAs both) that will “share third quarter results and tell employees about important changes to our business to address the challenges brought on by the volatile global economic situation.” At this point, we have no idea what’s going down (other than GM’s cash reserves, stock price, credit-worthiness, etc.). Our best guess is the one we made for Monday (which didn’t materialize as predicted): a few GM brands are about about to go away. But it could be the GM Chrysler merger. Or… I dunno. Anyone with a lead can email me at robert.farago@thetruthaboutcars.com or place their idle speculation below.
Ever since it lost its new hotness, TTAC has been reporting that the Chinese car market has lost its new hotness. TTAC also gave its readers a heads-up that China won’t save U.S. carmakers’ butts, as the Middle Kingdom had done in the past, when skyrocketing sales in China buttressed anorexic auto sales elsewhere on the planet (i.e. North America). Yesterday, that bit of news finally reached The Wall Street Journal [sub]. “China’s Car Market Loses Luster for Foreign Firms,” alliterates the WSJ, surprising everybody except TTAC’s B&B. “Growth in China’s once-roaring auto market has slowed to a near-crawl, casting doubt on the country’s status as industry savior,” writes Patricia Jiayi Ho. Previously, Patricia penned articles titled “Ex-Tuskeege Airman Moore dies at age 82,” or “Badminton club to open in Arcadia,” so she’s clearly qualified to report on expiring markets, and the back-and-forth of the world economy. Patricia’s prose continues: “Foreign giants like General Motors and Ford Motor Co. have increasingly been looking to emerging markets like China and India to provide a much needed fillip to declining sales at home.” And look they did…
Initially, GM CEO Rick Wagoner’s sale of 51 percent of The General’s captive finance unit to Cerberus Financial (Chrysler’s new owners) seemed like a well-timed stroke of luck. Anyone paying close attention (i.e. reading this site) would have realized that Red Ink Rick was simply throwing GM’s furniture into the cash conflagration consuming the company; GMAC was just about all that was left worth burning. But GM had used GMAC as the engine for its car sales. When GMAC’s ResCap’s (Residential Capital) sub-division found itself (to be polite) deeply mired in the subprime mess, the lender couldn’t– can’t– lend squat, either on the house OR the automotive front. Not too put too fine a point on it, GM’s getting screwed from both ends. Bloomberg reports that GMAC’s taken a $2.52b hit in Q3, which brings us to $4.6b for the year. “Total net revenue declined 43 percent to $1.72 billion. The Residential Capital home-loan unit lost $1.9 billion during the quarter, while GMAC’s auto finance unit lost $294 million.” Even GMAC admits– in that “give us a bailout” kinda way– that it’s towel-throwing-in time. “Substantial doubt exists regarding ResCap’s ability to continue as a going concern,” GMAC said in today’s statement.If ResCap dies, GMAC dies. If GMAC dies, well, we’re almost there already. GM’s 45 percent sales drop in October reflects the loss of low credit score in-house financing. Hear that sound? It’s Uncle Sam’s wallet creaking open…
Goldman Sachs is preparing the public for horrific news: a possible loss in the fourth quarter. At least that’s what Merrill Lynch analyst Guy Moszkowski told Reuters. Since Goldman Sachs went public, they’ve never had a loss. Merrill’s Guy fingered the usual suspects: “large corporate private-equity portfolio, equity proprietary trading business and exposure to Chinese equities.” Yadda yadda yadda. Bloomberg said that “a Goldman Sachs Group Inc. fund has lost $990 million since it started in January.” Wall Street has been abuzz with speculation that Goldman Sachs and Morgan Stanley may have a large exposure to the Porsche/Volkswagen machinations. Last Wednesday, Morgan Stanley fell as much as 26 percent in New York trading; rival Goldman Sachs dropped as much as 11 percent “amid speculation a surge in Volkswagen AG shares may have saddled some banks with losses” as Bloomberg put it. When that hit the wire, CNBC called the usual “unidentified Goldman employees with knowledge of the situation,” and they said it’s all wrong: “No significant losses tied to Volkswagen.” Yeah right…
You might say that this plan– getting Uncle Sam to subsidize new car payments– is a warm-up for the main event: the big ass bailout. And you’d be both wrong and right. Right, because Detroit is using all the political leverage it can muster to extract whatever drops of sustenance it can secure from the federal teat. In that effort, Motown’s running all sorts of ideas up the proverbial flagpole, including perverting manipulating the federal tax code. And lo and behold, Toyota saluted it! “Toyota would be supportive of moves such as tax deductibility of auto loans,” ToMoCo’s U.S. Veep for corporate affairs said on his post- October-bloodbath conference call. Needless to say, GM was non-committally committed to the idea, in a general sort of way. “It’s really critical for the governments and the banks to aggressively help us to revive the credit market and facilitate consumer lending activities,” Mike DiGiovanni, a GM sales analyst, said on his conference call reported by Bloomberg. As for the “wrong” part, this measure, and the “cash for clunkers” initiative making the rounds, wouldn’t provide NEARLY enough relief for Motown’s mauled motoring mavens. But hey, you gotta start somewhere… Oh wait! They already got those $25b worth of D.O.E. low-interest retooling loans. Only not, ’cause they’re hung-up on “technicalities.” Sorry. Carry on.
“GMAC Financial Services has scheduled the release of its 2008 third quarter financial results for Wednesday, Nov. 5, 2008. The press release, including financial highlights, will be issued at 8 a.m. EST via PR Newswire and the GMAC Financial Services media Web site (media.gmacfs.com) and the Residential Capital, LLC (ResCap) news site (https://www.rescapholdings.com/news).
GMAC Chief Financial Officer Robert Hull will host a conference call at 9 a.m. EST to review the company’s performance. The call is expected to last approximately 30 minutes.”
Chrysler’s CEO Bob Nardelli wants his troops to know that he made ChyrCo’s cutbacks to batten down the hatches for the current downturn. As opposed to, say, a pre-flip strip. “The difficult actions we have taken in the past, and those that we have just announced, are for one purpose and one purpose only: helping Chrysler survive this economic trough.” Nardelli said in a message to employees [via Reuters]. So… now what? More “down-sizing.” And anyone who suggests that Boot ’em Bob’s hankering for a bailout, buyout, merger or liquidation is a disloyal son of a bitch. “Nardelli said business conditions required a resizing of Chrysler again. ‘Rumors and speculation that these actions are being taken for any other purpose are simply not true.'” Meanwhile… “We don’t think a merger is in the interests of our members,” [Canadian Auto Workers union Ken] Lewenza said on the sidelines of an event at Chrysler’s minivan plant in Windsor. “I don’t see how you can take two sick patients and turn them into a healthy one.” Neither does anyone with a modicum of common sense. And yet, there it is.
There are only a few businesses that are tougher to compete in right now than the automotive game. Though airlines have to be on the list, a recent addition would be the world of finance. But even with credit markets frozen, lenders stuck holding worthless paper and weekly rounds of consolidation and nationalization, FoMoCo CEO Alan Mullaly thinks holding on to Ford’s financing arm makes sense. Ford Motor Credit has “been through a lot with the world slowing down, and they have restructured aggressively to focus especially on the Ford brand,” says Mulally. “And it’s been helped by us divesting the noncore brands.” And, says Mullaly, Ford Credit isn’t simply dragging its parent company down with it. “With the situation being what it is, it’s hard, but the dealers and the customers say they’re doing a great job during the hardest of times,” says Ford’s main man. Faster marketing initiatives and more leeway in setting lending criteria including leasing (now abandoned by many motor credit firms) are said to be some of the big advantages to keeping Ford Credit around. But surely there’s a downside, right? Of course, but you need to ask a “source close to Ford who asked not to be identified,” to get it. “There’s an advantage to full ownership, but not a big advantage because the issue is that nobody will loan us money,” admits the nameless blue oval boy. With Ford’s credit arm enjoying a B- rating from S&P, it’s in the same shape (roughly) as GMAC and better off than Chrysler Finance. Still, warns Peter Morici, a business professor at the University of Maryland, a wholly owned captive “is useful for moving cars out if you don’t abuse it.” In the car business, that’s one huge “if.”
Reacting to the recent dervish dance of the VW stock, Germany’s stock exchange put their foot down hard yesterday. Any more funny business, and VW will be kicked out of the DAX, Germany’s equivalent to the Dow Jones. As of Monday, if a stock reflects more than 10 percent of the index, and if its volatility exceeds more than 250 percent in the preceding month, the exchange will punt the stock from the DAX. Last Tuesday, the weight of the VW stock in the DAX was 27 percent; the 30-day volatility had redlined at 388 percent. If the new rules had applied, VW would long be evicted by now. Come Monday, VW will be represented in the index with 10 percent (Achtung!) and if there’s any more hip-hop like last week, then it’s “raus, raus, mach schnell!” The German Exchange sugar coats the new rules as “preventative measures.” Not a lot of people are buying the carbohydrate. “I think, they are setting the stage for kicking VW out of the DAX,” quoth an expert, who’s name Automobilwoche did not reveal. So will they or won’t they?
Automotive News [sub] has the latest in a stream of consultant reports on the on-again-off-again merger between Chrysler and GM. And things do not look good for Chrysler (duh). Remember back when we got all riled about the projected 70k job losses? The report from Grant Thornton LLP says we can actually expect between 100k and 200k job losses. Less tragically, the merger would also cut Chrysler’s entire lineup, except for “about seven core models.” And shockingly, the Sebring isn’t one of them! The report considers only the Ram, Caravan/T&C, Wrangler and Grand Cherokee safe in the event of a merger. Grant Thornton Principal Kimberly Rodriguez thinks that an agreement in principle between GM and Chrysler could be reached by election day, and damn the short-term bailout money that isn’t coming. “Despite the significant number of families that will be impacted, the benefits of combining the two companies are both structural and strategic,” figures Rodriguez. But long-term strategy will have a major short-term price. Much of the job loss from a merger will happen at suppliers, who are in bad shape already. “The suppliers have been hit by the financing crisis and the raw materials crisis and volumes falling off. This will be a final blow to many suppliers and that will be costly to all the OEMS, but in a controlled fashion, it’s something that the industry with access to financing should be able to weather,” says Rodriguez. Or not.
VeeDub in Germany has just issued their numbers for the past nine months of 2008. Viewed through the prevailing “the world is coming to an end” perspective, VW’s financial results are financial pornography, performing better than the male lead in a Russ Meyer movie. We’re talking a 15 percent gain, a money shot of more than $6b pretax. From January to September 2008, VW moved 4.8m units and grabbed a 10.1 percent share of the world market, according to the usually reliable Automobilwoche [sub]. Despite of what’s happening elsewhere in the piston business, Volkswagen’s CFO Hans-Dieter Pötsch stands by his bullish guidance for 2008: the predicted numbers will come true. Elsewhere, China’s automakers have also released profit reports for the third quarter.
“Earlier this week, industry sources said GM had asked for roughly $10 billion in an unprecedented government rescue package to support its acquisition of Chrysler from Cerberus Capital Management LP,” Automotive News [sub] reports. Today, we learn that “The U.S. Treasury Department is not negotiating with General Motors and the owners of Chrysler LLC on a request to provide direct government aid to their proposed merger, a Bush administration official said today.” Uncle Sam’s reluctance to grease the deal’s wheels puts it in serious doubt. As in kills it dead. Which raises a familiar question: what the Hell was the point of this merger thing, anyway? There are two main theories. 1) GM viewed Chrysler as a cash grab and 2) GM is/was/wanted to position itself for a massive federal bailout. Proponents of theory two suggested that the feds strongly favored a GM – Chrysler merger so they could then bailout two Dodos with one stone (or something like that), and “save” Chrysler’s jobs. When it became clear that no such jobs rescue was possible, the Treasury balked. Assuming the American Leyland deal doesn’t go down, all that’s left for Chrysler is Chapter 7 liquidation. Yesterday’s Wild Ass Rumor of the Day– which had GM and Renault/Nissan carving-up Chrysler– could well be ChryCo’s pre-C7 valuation process. As for GM, one way or another, they’ll get their own damn bailout. Too big so they failed is still seen in D.C. as too big too fail. At least until the election’s over…
Reuters reports that Republican presidential candidate John McCain is taking a cautious tack on a Michigan economist’s suggestion that Detroit should get an additional $15b in government support. “Let’s get the $25 billion to them to start with and see how that goes,” McCain told NBC’s Meet The Press. McCain had initially opposed that bailout before bowing to political pressure and blessing the deal. Top McCain economic adviser Douglas Holtz-Eakin echoed the Senator from Arizona’s position on CBS’s Face The Nation, saying “The top priority should be get (the $25b) out quickly, not take 18 months, which seems to be the current plan.” The Department of Energy is currently writing regulations governing the disbursment of that money, a process expected to take longer than GM and Chrysler can probably stay in business. Meanwhile, Barack Obama’s advisors refuse to rule out further auto industry suport. “The auto industry clearly is extremely important to the economy and now has enormous difficulties,” Obama advisor and former Treasury Secretary Robert Rubin said on Face the Nation. “We do need to face those difficulties and see if there are ways that public policy can be helpful that make sense … without having a whole raft of unintended consequences.”
GM’s overseas operations have long been touted as the only part of the General that is worth actual money. But might it make sense for GM to sell of profitable foreign operations? Though it’s doubtful that GM would ever voluntarily spin off, say, Buick and sell it to a Chinese firm, Charles Child has a column in Automotive News [sub] suggesting lawmakers should consider making such an asset sale a condition to further bailout cash. Child suggests that a sale of Buick to Shanghai Automotive Industry Corp (SAIC) makes lots of sense, cutting the number of US brands, and putting cash in the General’s pocket. How much? Based on Jag/Land Rover’s recent price tag of $2.3b, Child guesses Buick could be worth a billion to SAIC. Sure, The JagRover sale happened before credit markets took a dirt nap, but hell, GM could even use thre-quarters of that much cash right now. Plus the US market needs the Buick brand like it needs another run on the banks. Child’s analysis is thorough and compelling, and his thesis is well summarized in the final two sentences of his piece.”In today’s crisis, creative solutions are imperative. Nowadays, nothing is sacred in Detroit.” Truer words were never spoken.
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