The ironically named Kevin Drum takes on once and former oil man T. Boone Pickens' plan for American energy independence. After CBS' Drum has his wicked way with Pickens' not-so-well publicized personal financial interests in the matter, there's hardly a shred of credibility left upon which the Texan can wipe his ass. So to speak. "So T. Boone Pickens has an energy plan he wants to sell us. The basic idea is simple: Build a bunch of windmills in Texas to generate electricity, and then use the electricity to power electric cars. Voila! Energy independence! No, wait. That's not it at all. What Pickens actually wants to do is use the windmills to replace the electricity from existing power plants that run on natural gas. Then we can use the natural gas to run our cars." Hmmm. "Along with being the country's biggest wind power developer, Pickens owns Clean Energy Fuels Corp., a natural gas fueling station company that is the sole backer of the stealthy Proposition 10 on California's November ballot…. But a closer read finds a laundry list of cash grabs — from $200 million for a liquefied natural gas terminal to $2.5 billion for rebates of up to $50,000 for each natural gas vehicle. Much of the measure's billions could benefit Pickens' company to the exclusion of almost all other clean-vehicle fuels and technology." Is that why GM was talking up CNG cars recently? Hang on; one conspiracy at a time, please. 

Toyota is beginning to feel The Big 2.8's pain. The world's largest automaker released their first quarter financial results. No question: they got dinged. While ToMoCo's books are not in the same universe as GM or Ford, the Japanese carmaker's operating profit dropped 39 percent to "only" $3.8b. That's just over half of the $6.2b they showed for the same quarter last year. Toyota Exec VP Mitsuo Kinoshita attributes the losses to a number of factors, including the weak U.S. dollar and the soaring price of raw materials. He's not too concerned over lease residuals and dropping used car prices, though. "With Toyota's traditionally prudent approach in lending, together with its efforts to further strengthen the credit control and collection system, the percentage of credit losses has shown some stability. As for residual values, Toyota will continue to keep a close eye on the used car market and set suitable values in a timely manner." This is the second consecutive quarter their operating profit has dropped. [source: Toyota Press Release]

Click here for First Quarter Operating Results and First Quarter Financial Summary

Once again, The Wall Street Journal reports on the latest automotive meta-gossip as fact, citing anonymous sources. "The two companies agreed earlier this year to team up on pickup trucks and subcompact cars. Since then, they have been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, people familiar with the matter say." This is the K-Martization concept that TTAC floated in the Chrysler Suicide Watch. Although the WSJ is happy to conclude the partnership "could help bring the company back to profitability, even though its vehicle sales are declining," this will never work. As our Deep Throat points out, "It’s way more complicated than it appears. Imagine having different vendors sourcing entire cars… the logistics are impossible. There’s no commonality in interiors, exterior design (no matter how hard Chrysler tries to align the exteriors), the systems (including software), etc. etc. They’re all different among manufacturers. Imagine parts distribution – a nightmare – trying to source all of that and then supplying it. Simple things like part numbers go haywire. Then what about warranty items. Who pays what?" And then there's branding… A full CSW to follow.

So, what does GM CEO Rick Wagoner have on the 13 other members of the automaker's Bored of Directors? Whatever it is, it must be both criminal AND depraved. How else can you explain the fact that George Fisher (the lead independent BOD member) and his cronies have thrown their support behind The General's top general? Under Wagoner's watch, GM's shed over 10 percent of its U.S. market share, sold everything that wasn't nailed down, flushed its share price down the proverbial toilet, slid into negative market capitalization (if you think about it) and screwed-up its branding beyond repair. That should be enough to get a dictator fired, never mind an executive of a publicly held company. And that doesn't include the fact that Wagoner has banked over $100m personally and NEVER announced hard targets for his "turnaround" plan. His equally nebulous plan from here on out is also grounds for dismissal. Oh well. It looks like GM will file for much-needed and now inevitable Chapter 11 protections over Wagoner's dead body. Perhaps it will go straight to Chapter 7, as and when. Meanwhile, the chances of a GM shareholder revolt grow by the day. And the lawsuit won't be far behind. This is going to get ugly. And if you really want to get your blood boiling, check the caption this photo or click on over to The Detroit News, whose wishy-washy, pom-pom threatening report could well be The Mother of All Apologias.

Packard had a long, proud history of building head-of-state-worthy whips. But what's the long defunct company actually worth these days? Ask the man who owns one! Roy Gulickson has been president of Packard since he bought the company name in 1995, and now he's trying to sell it for a princely $1.5m. So for Veyron money you could own a classic luxury marque of your own, complete with engineering designs, tools, spare parts and supplier information… from 1958. But wait, there's more! Reuters says Gulickson will also throw in "a new Packard prototype that comes with an all-aluminum V-12 engine and a traditional chrome grille." And by "new" they mean it was built in 1998. If you are foolhardy bold and visionary enough to want to resurrect a once-proud American luxury brand, you might want to move soon on this. An analyst insists that four companies have expressed "serious interest" in buying the company. Gullickson does admit that "perhaps using a smaller engine or converting it to run on compressed natural gas" would make the prototype more attractive in the era of four dollar gas– but that's a problem for the buyer to figure out. Meanwhile, Packard purists insist the brand should be allowed to rest in peace.

Automotive News [sub] reports that HSBC is leaving the U.S. auto loan business. The financial giant cites diminished returns on investment (i.e. it's not making money). The Hong Kong-based banking house plans to eliminate its $12.5b portfolio of American auto loans over the next three years. According to the less-read SubPrime Auto Finance News, HSBC has been reducing its exposure to the volatile US car market since March of this year. Since HSBC wasn't in the lease-financing  business, it hasn't faced the ravages that have led the domestic automakers to end their leasing problems. In fact, the cause of the withdrawal seems less about its business is tanking and more about putting the money to more profitable use. "Our vehicle finance portfolio actually improved credit quality over the period," HSBC Finance CEO Michael Geoghegan claims. "But the business does not have sufficient critical mass or the pricing power to provide an acceptable return to the group." Interestingly, Forbes argues that HSBC's willingness to write down bad debt early in the subprime mortgage crisis indicated a conservative approach that paid off. HSBC stock took an immediate hit, but with its books in order, it's now considered to be better off for having faced reality when other banks clung to their bad paper. Maybe HSBC sees more unraveling ahead for U.S. auto lenders, and wants to avoid the writedowns it endured a few months ago.

While The Big D2.8 try to get their product-related shit together in a post $4-a-gallon world, their vulnerability in the still-shaky credit markets threatens to throw them into bankruptcy. Which is why Chrysler was so hell-bent on renewing its $30b credit facilities, regardless of the high costs of default protection. Automotive News [sub] reports that the facility has been rescued, although this time around Chrysler Financial could only hustle up $24b. No worries, say ChryFi spokesfolks. They claim that's all they need now that they've abandoned the leasing game. Some 90 percent of the new credit facility is being backed by banks that were part of the original financing, suggesting that financial firms are doubling down on the troubled automaker. Chrysler won't say exactly what interest rates are being charged on the facility. But given the high default risks of all domestic automakers, it's safe to assume that Auburn Hills isn't getting a charity handout. After all, that's the government's job, not Wall Street's. And until such time as government-backed cheap credit becomes available, Chrysler (et al) will continue to hemorrhage cash to keep credit lines like this one open. Like the poet said, mo' credit, mo' problems.

According to UniCredit SpA [via Bloomberg], one of America's three biggest automakers is almost certain to default within the next five years. Extrapolating from risk premiums on credit-default swaps, GM faces an 84 percent chance of default, while Ford is looking at "at least 75 percent risk." Jochen Felsenheimer, chief of credit strategy at UniCredit, says "The costs imply there is close to 100 percent probability that one of the big three will file for Chapter 11 bankruptcy." And there's little the D3 can do to prevent default if the overall economic climate doesn't improve– and soon. "There might be a default at any time.'' It's the Collateralized Debt Obligations (CDOs), stupid. A variant of the Structured Investment Vehicles that brought down the mortgage market, CDO's are securities that repackage pools of bonds, loans and credit-default swaps and divide their cash flow into notes of varying risk and returns, which are then sold to investors. Credit-default swaps on GM and Ford were included in more than 80 percent of CDOs created before they lost their investment-grade debt rankings in 2005, according to Standard & Poor's. Bottom line: if one of the domestics goes down, it's taking a whole lot of market with it. With GM paying $4.7m upfront plus $500,000 a year to secure each $10m in financing, it's not a question of if, but when.

That's a lot of billions. Of course, GM camp followers will do the usual math, discounting "one time" charges to paint a more palatable picture of pissed-away profits. The New York Times does the math for those so inclined. "According to the earnings statement, the loss included $9.1 billion in one-time charges, $3.3 billion of which was for employee buyouts… Included in the results, the statement said, was $1.3 billion in write-offs that reflect the drop in value of trucks and sport utility vehicles in GMAC Financial Services’ portfolio…  Excluding one-time charges, G.M. had a loss of $6.3 billion or $11.21 a share, compared with income of $1.3 billion or $2.29 a share in the same period last year." And still the spin is spun. "We have the right plan for G.M., driven by great products, building strong brands, fuel-economy technology leadership and taking full advantage of global growth opportunities," GM CEO Rick Wagoner asserted. His optimism is based on this startling stat: "North American sales were down 20 percent, or 236,000 units, while sales outside of North America grew by 10 percent or 116,000 units. A record 65 percent of G.M.’s sales for the second quarter were outside the United States, the company said, while global market share was 12.3 percent, down 0.9 percent because of the weakness in North America." GM Death Watch later today.

Click here for a copy of the GM press release 

TTAC newcomer Ken Elias reckons his most excellent Chrysler Suicide Watch 37 flushed Auburn Hills' proverbial grouse from its metaphorical heather. Whatever the cause, ChryCo to reassure the world that it's not about to swan dive by revealing some of its financials. Automotive News [sub] reports that the ailing American automaker claims "operating income" of $1.1b for the first half of 2008. Jim Press, Chrysler co-president, said the $1.1 billion was Chrysler's earnings before interest, taxes, depreciation and amortization. Chrysler also had $11.7 billion 'in cash and marketable securities.'" CFO Ron Kolka claimed the number included $2.3b in "restricted cash" and excluded $2.3b in Voluntary Employee Benefits Association assets. The overall number is higher than a lot of analysts expected, but it includes the $2b ChyrCo borrowed recently. The main question: is Chrysler playing silly buggers with the books?

When the new energy bill mandating higher CAFE ratings came out last December, it didn't offer automakers any kind of financial assistance to meet those goals. Since then, we've been treated to a parade of industry types wailing that with times so bleak, CAFE will kill Detroit unless the government bribes assists the domestics with following the law developing more efficient cars. Perhaps sensing John McCain's weakness with the industry, Senate Democrats are rushing to position their party to take advantage of the now free-floating "bailout vote." The Detroit News reports that Democrat leadership has agreed to support $6b in loan guarantees to domestic automakers, and is considering a further industry stimulus for plant retooling. All told, the package will total some $25b in loan guarantees that would cost taxpayers $3.75b. Tellingly, $300m of the initial $6b is earmarked for advanced battery development. If that sounds familiar, that's because it's a pretty handy preemption of John McCain's "Project Lexington." And since McCain seems happy to stick to his Nancy Reagan (just say no!) on bailouts, Obama and the Dems are going to go after the weird industry-worker alliance that wants bailout. It's populist, it's patriotic, and (post-Bear, Fannie and Freddie) it's principled. Best of all, it only costs the taxpayers a few billion. Game on!

We've just heard from our sources that GMAC is about to announce that it will no longer offer lease deals on the Yukon, Yukon XL, Suburban, Tahoe, all full-size trucks, Envoys and TrailBlazers as of tomorrow. The General's captive finance arm will also raise the "money factor" (the leasing rate) on Cadillacs by two percent. Needless to say, this will be an enormous blow to GM's sales. We're told that GM has called a meeting of all mid-western dealers at the Rock Financial Showcase for the same day, [presumably] so that marketing maven Mark LaNeve can announce the incentive deals that will replace leasing. We also hear that GM is about suspend employee pricing on most car lines, such as the Chevy Cobalt, in order to make money where they can. We'll have more info as we get it. [hat tip to you-know-who-you-are]

GM ALWAYS releases the really bad news on a Friday.The two-day interregnum gives Wall Street's money men a chance to get distracted by booze, babes and baubles. More SOP: auto analysts predictions of GM's losses are usually too high. (You might suggest an intentional disinformation campaign, but I couldn't possibly comment.) This time out, Bloomberg makes a pretty good case for, uh, what are we going to call THIS one? Holy Black Hole Friday? Anyway… "Collapsing values of leased sport-utility vehicles may force General Motors Corp. Chief Executive Officer Rick Wagoner to announce $2.3 billion in losses tomorrow on top of more than $1.4 billion that analysts have forecast." Uh-oh, here comes that damn "headwind" analogy again… "This is clearly one more headwind they have to fight,'' Lehman Brothers analyst Brian Johnson opined. "If they end leasing, it could end up being a 5 to 10 percent headwind to sales.'' To paraphrase Police Chief Martin Brody, "You're going to need a smaller, faster and more seaworthy boat." [Triskadecaphobes note: Bloomie's survey of 13 auto analysts reckons GM will report a loss of $2.41 a share.] 

At one point, GMAC was the tail that wagged the dog. The captive finance company dumped billions in profit into GM's corporate coffers. As the American automaker's decline gathered pace, GM CEO Rick Wagoner sold 51 percent of GMAC to Cerberus (current owners of Chrysler). The finance company immediately hit the rocks. Today, the gash in the hull widened. GMAC reported a net loss of $2.48b. In the second quarter. "A soft economic environment and continued volatility in the mortgage and credit markets have significantly affected results," GMAC Chief Executive Alvaro de Molina told Reuters. "Higher fuel prices and weaker consumer credit prove to be headwinds." That's a bit like calling a tornado a light breeze. We repeat: GMAC's NA leasing is heading for termination. The results included a $716m write-down of vehicle leases. And… "GMAC said it ended June with about $18 billion of SUV and truck leases in those countries on its books, out of a total $32.8 billion of leases." Expect GM to have to write-off at least three billion of lost residual values on those leases [blog coming] when it reports its financial results on, of course, Friday. Oh and ResCap, GMAC's mortgage arm, lost $1.86b in its seventh straight unprofitable quarter. If ResCap fails, it's all over bar the filing. Whether GM would be dragged under is an open question. Dark days.

With the McLaren-Mercedes SLR set to end production, McLaren wants to build a new supercar of its own (front mid-engine THIS). Auto Motor und Sport reports that Mercedes, which owns some 40 percent of McLaren, reckon the new hot rod would compete with its forthcoming Gullwing super-SL. And? Racing boss Ron Dennis and partner Mansour Ojjeh each own 15 percent of McLaren; the royal family of Bahrain own the other 30 percent. They're all hot for a new McLaren road car. Accordingly, two mid-engined prototypes are currently undergoing track testing, one of which sports a German-built V10 race engine. Mercedes is livid, threatening to cut all payments to McLaren if it doesn't halt development plans. Ultimately, Mercedes is going to have to bite the bullet and buy out the last 11 percent of McLaren if they want to call the shots (outbidding the royal family of Bahrain ain't gonna be easy). Meanwhile everyone has to make nice and work together on the F1 circuit, where McLaren-Mercedes pilot Lewis Hamilton is kicking ass and taking names. So who's writing the novel?