One of the first things you learn in the auto industry is that if you run your plant at less than 80 percent of capacity, your plant and your career are in deep trouble. If that adage holds true, then the world is in for a world of hurt.

At the moment, most automakers are believed to be running their plants at less than half capacity in an effort to reduce inventories, which have been piling up since last fall, says the Nikkei [sub]. They either get used to it; or close a lot of plants.
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Martin Winterkorn, chief of Volkswagen, was asked by Automobilwoche [sub] who will be left standing when the big carmageddon—ooops—consolidation will finally be over.  Here are his odds:

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One of the signs that a new technology has matured is when whole industries are worried about getting wiped off the earth as a result of that new technology. If that happens, change has finally arrived.

Industries are getting worried about electric vehicles. The machine-tool sector is very troubled, writes the Nikkei [sub], and it is worried for two reasons: “Plummeting demand from recession-hit clients is threatening the industry’s very existence, as the increasing focus on electric vehicles by ailing carmakers could eventually eliminate the need to machine parts for engines.” And why would that be?
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Delphi and Visteon were spun off from GM and Ford respectively at the turn of the millennium, in hopes of cutting costs and improving efficiency. But rather than creating healthy, solid companies they could rely on as major suppliers, the Detroit OEMs used the spin-offs to dump unwanted assets, UAW workers and fixed-cost obligations on their new partners. And now GM and Ford are reaping the bitter harvest of their ill-advised spin-offs. Visteon, which has never turned a profit, just had its stock delisted last week after losing $663M in 2008. Delphi has been in Bankruptcy since October 2005, and, having lost $1.48B last year, it is barely surviving on cash infusions from the General, which really could have used the dough. And both suppliers are threatening to take down America’s two largest automakers.

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The Detroit News reports that the UAW vote on Ford’s proposed modifications (full summary in PDF) to the union contract is “tight,” as locals wrap up balloting by Monday. Eight union locals have approved the modifications while four have rejected them, but margins of victory were in the “low 60-percent level to the mid-50-percent range.” Modifications must be approved by a simple majority of Ford’s UAW workers, meaning “no” votes in locals that passed the measure still count and vice versa. And though the Freep has uncovered a letter from Ford to the UAW detailing the carnage that has already been wrought upon Ford’s hapless contract employees (possibly the great unsung victims in this mess), and suggesting that perhaps contract modifications aren’t the end of the world, the video above proves that the old UAW zero-sum perspective is alive and well.

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We at TTAC are aware of the strain we’ve been placing on attention spans today, what with the six (!) full-length pieces we’ve published today and all. In honor of your noble sacrifice at the altar of literacy we present a gallery of photos from our photographer in Geneva, Tim Sutton. Without comment. Enjoy.

As compelling as Ford’s executive paycut for Easter Monday holiday “compromise” is, there are still plenty of stormclouds brewing around Dearborn. For example, Ford’s supplier spin-off Visteon is tanking, telling Automotive News [sub] it “cannot assure that it will remain in compliance with the terms of its outstanding debt instruments.” The firm’s $328m fourth-quarter loss is being blamed on a billion dollar revenue drop and “asset-impairment charges” of $200m. This coming from a firm that has never turned an annual profit. Amid growing rumors of bankruptcy filings (and 13 cent stock price), Visteon’s only other choices are asset sales or government bailout. Meanwhile, inquiring minds (OK, MSNBC) are beginning to wonder when Ford will succumb to the siren song of the federal bailout.

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Jerry Flint in his latest Forbes columm:

Layoffs, product cancellations and product postponements in America’s once great auto industry are way beyond cutting into fat. ‘Amputation’ is a better description. Even as the government spends billions to save the American manufacturers—with billions more aid to come—it is fair to ask if there will be anything left to save.

Despite generously admitting that “Chrysler may survive,” Flint believes the Pentastar has far better chances under Marchionne’s Fiat than under Feinberg’s Cerberus. Not because Americans will fall madly in love with Italian cars, but because “Chrysler has thinned its employee ranks so severely that it probably cannot create new cars on its own.” And it’s a trend that Flint is seeing across the industry.

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Today’s been rather hectic, in a Swedish go-fish kind of way. I caught sight of this Bloomberg report on a possibile Chrysler-GM shotgun marriage this morning. And, somehow, it’s still there. “Chrysler LLC may be sending a message to President Barack Obama’s autos task force by saying the ‘best option’ for survival is a merger with General Motors Corp. that both sides have labeled dead.” ChryCo spinmeister insists that Bloomberg’s got it wrong: “We are in exclusive talks with Fiat.” Now that the supposed deal with Nissan is dead. And the one with Chery. And the previous talks with GM. Speaking of which, The General’s aide de camp, PR spinmeister Steve Harris, also ruled out an Alliance—I mean, alliance. Yes, well, JR didn’t want to marry Cally either. (You could say this doesn’t bode well for either automaker.) Now, some scary stuff . . .

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It’s been a while since we’ve been graced with a good emotionally-charged argument for a “moral obligation” to bail Detroit out. These canards were a dime a dozen during the initial bailout push, as every Michigan-based opinion writer spilled ink by the barrel describing the myriad ways in which America owed Detroit big time. From winning WWII to spearheading racial tolerance. From fighting for the rights of the proletariat to exercises in moral relativism. It seemed that Detroit backers had leveraged every possible emotionally-charged issue to clear the way to the federal teat. But just when we thought that the flow of intellectually dishonest bailout blackmail had slowed to a trickle, we found one of the best examples yet.

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TTAC proofreader and Editor Jeff Puthuff has been helping me chase down the Chrysler–Cerberus story, trying to identify the automaker’s secret co-investors. In the midst of that pursuit, Jeff has unearthed this heretofore unreported document: “U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring” Dec. 3. 2008 (Prepared for Members and Committees of Congress).” The Congressional Research Service (CRS) drafted the report for elected representatives contemplating whether or not to loan Chrysler and GM money to prevent their bankruptcy. The U.S. Senate and House of Representatives eventually failed to create a bill to fund the loans (though not for lack of trying). Then-president Bush stepped in at the eleventh hour and provided $17.4b worth of federal loans, by stretching the provisions of the Troubled Asset Relief Program (TARP). There are some startling—and not so startling—insights.

Widely quoted Center for Automotive (CAR) Research Study Debunked, Rejected

A general criticism of this analysis is that it assumes that the suppliers and all other automakers, aside from the the initially failed company or companies, would see their output drop to zero, and that they would be merely passive observers of an industry collapse. There are many examples in recent years of bankrupt or financially distressed suppliers being supported by their OEM customers, or by other suppliers that acquire parts of the business to gain new contracts or to be able to continue servicing their own contracts from a failed subassembly producer…

While CAR posits, for the sake of analysis, that, in the first year, no auto manufacturing in the United States could survive a major Detroit 3 bankruptcy, in actuality, such an extreme outcome is unlikely. Immediate and radical restructurings among suppliers is a more likely outcome, and other brands would continue to produce.

U.S. Auto Manufacturing Employment Declining Generally, Anyway

Automotive manufacturing employment has also fallen as a share of total employment in manufacturing. While total manufacturing employment has fallen by more than three million jobs since September 2001, employment in motor vehicle manufacturing dropped at an even faster rate, with its share of total manufacturing employment falling from 7.4% to 6.4%. During this period, total automotive sector employment, including services fell from 5.1 million to 4.6 million, while total U.S. employment grew by six million. As a result, automotive employment, including both manufacturing and services, as a share of total U.S. employment, fell from 3.9% to 3.3%.

GM – Chrysler Shotgun Marriage Still An Option

GM’s plan to acquire Chrysler and merge the two companies, which was widely reported in October 2008, was similarly withdrawn when the companies could not find sufficient funds, including proposed federal financial support, for the deal. The plan could still be resurrected as part of a general plan of government financial assistance for the Detroit 3.

Chrysler / GM Chapter 11 Could Increase Consumer Confidence

One might question whether the recent urgent requests for financial assistance do not diminish consumer confidence at least as much as would a bankruptcy filing designed to reorganize the company and lead to financial viability . . . filing under Chapter 11 could boost consumer confidence in the troubled automakers.

Feds Could Back Vehicle Warranties

If Congress finds that concern about warranty coverage is an issue that would doom a reorganization, it could be possible to provide for alternative warranty coverage. This might be funded with premiums paid by automakers, similar to premiums paid by financial institutions to the Federal Deposit Insurance Corporation (FDIC).

Loan Default Risk

However, direct loans from the federal government commit government money more immediately than would loan guarantees. Several have questioned the advisability of extending such loans, fearing that the troubled automakers may be unable to repay them even if the loan terms are very favorable.

Loans Could Leave Federal Government SOL

Under current bankruptcy law, the loans, if unsecured, would enjoy no priority status under 11 U.S.C. § 507. This means that the government potentially could “stand in line” with the other non-priority unsecured creditors and ultimately might receive only a few pennies for each dollar of outstanding loan balance. In the worst case, there might be no funds to divide between these creditors.

Chrysler Pension Plan Funding Unknown

As a privately-held company, Chrysler is not subject to the same SEC reporting requirements as are GM and Ford. Current information about pension plans was not available at the time this CRS report was written.

Loans Less Onerous Than Previous ChryCo Guarantees

By comparison to the broadly defined elements of these plans, the Chrysler loan guarantee legislation of 1980 was far more prescriptive in exchange for a loan guarantee that was worth far less than the $25 billion requested by the Detroit 3 in 2008, even allowing for inflation.

Clearly, the U.S. Congress had enough information to know that providing GM and Chrysler with federal loans was an extremely risky not to say stupid idea. As did President Bush. By making these loans, the president pushed “the Detroit problem” down the line to president-elect Obama.

The bottom line: adding more fuel to Chrysler and GM’s pyre is just as boneheaded now as it was then.

OK, so the latest GM Fastlane PR exercise is actually entitled “What Is GM Doing With The Money?” Defensive much? Anyway, coming from Fastlane, there’s obviously no mention of giving Cadillacs away. Or throwing cash down the Delphi hole. Or paying Brazilian workers to sit on their hands. No, having received $13.4b, GM’s Steve Harris reveals that GM’s plan is to (wait for it) comply with the terms of the loan! In other words, “prove that we can repay the loan, achieve a positive net present value, and meet federal fuel efficiency and emission requirements, and manufacture advanced technology vehicles in the U.S. ” And with the federal money, GM is “making progress,” says Harris. How? By building concepts like the Cadillac Converj. And announcing vehicles like the 2010 Equinox (Saturn Vue cannibalism!) and the 2012 Spark and Orlando (which debut after the loan is due). Hallelujah!  And though Harris mentions the UAW Job Bank shutdown and “discussion” of plans to reduce dealers by 400 per year, his effort to “do a better job of communicating our successes (and) how we will be changing going forward” leaves out all the interesting bits.

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The fact that BMW’s sales are down compared to January of last year should come as no surprise. These aren’t just cars, they’re luxury goods. What’s significant is the breakdown of model sales. The 3-Series and X5 sold 5471 units combined—44% of BMW’s entire sales for the month of January. Add in the 2596 units of 5-Series sold and between those three models (3, 5, X5) you have twice as many cars as the rest of BMW’s lineup combined. To wit: the 1-Series sold 716, the BMW Z4 roadster and coupe sold 45 units (down from 363 last January), the putrid X6 managed only 266 sales and the spine-crunching X3 registered 394 sales. And then there are the 6-Series (304 sold) and the 7-Series at a whopping 23 units. The explanation is that the next-generation 7-Series hits BMW dealers in a few months; same for the next-gen Z4. It’s not all bad news for BMW though—the M sub-brand had a record year in 2008, with its sales rising 50% over 2007. Dealers report that the boost in sales came from offering to throw in a free tub of hair gel with each sale.

It’s the hottest road race of the year. Who are the champs and who are the chumps of the global auto industry? Everybody who’s somebody wants to become a statistic in “world motor vehicle production by manufacturer.” Officially, that race is not over until the fat lady at OICA, the “Organisation Internationale des Constructeurs d’Automobiles” or International Organization of Motor Vehicle Manufacturers, sings. OICA still has the 2007 numbers on their website. Yet, General Motors has already conceded the top post to Toyota. All other manufacturers have already announced their numbers. While OICA is taking their good old time counting, the Nikkei [sub] performed its own tally.

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The UAW has approved terms of a possible deal that would send GM’s Flint, MI, medium-duty commercial truck business to Isuzu. The deal, though not completed, would keep the assembly line’s UAW workforce building GMC TopKick and Chevrolet Kodiak trucks until 2014. UAW Local 598 Shop Chairman Mark Hawkins tells MLive that a GM-Isuzu deal would be best for workers considering GM’s financial struggles and its desire to shed the commercial truck business. “We got [sic] close to 500 people who work on that product line,” says Hawkins. “This keeps that work in Flint for the next six years.” GM had previously planned to sell the business to Navistar, which would have moved production to its Springfield, OH, plant. According to UAW officials, the Navistar deal fell through because GM no longer wanted to move ahead with production of a super-heavy-duty pickup product at Flint Truck. GM is currently “assessing various strategic options for the business” saying, “no decisions have been reached and there are no details to share at this time.” While UAW members are sweating out news about the future of their jobs, may I suggest they take a moment to reflect on how much worse things could be?