TTAC called this one a while back, when we asked why GM was willing to supply “Mr. Volume” with cars when it was clear to anyone who ever had any dealings with his auto group that Bill Heard was the head of a vast criminal enterprise. Now that Big Bill has been knocked down to size, a bit, formerly silent observers are coming out from behind cover to give GM a right royal pasting. Writing in Automotive News [AN, sub], industry editor James B. Treece is [now] happy to point the fickle finger of blame. “What we do know is that GM was happy to cozy up to Bill Heard when the metal was moving. In 2004, GM gave Heard a Dealer of the Year award and the Jack Smith Leadership Award. The Smith award recognizes dealers who have attained the highest levels of sales and customer satisfaction in their region. Today, though, GM is singing a different tune.” Talk about sour notes… “It’s just individual people owning individual businesses, and it’s separate from the General Motors name,” GM spokeswoman Susan Garontakos told AN. “What happens at what dealership never reflects on the entire network.” You’re shitting me right? Treece goes in for the kill. “If that’s true, then why does GM bother tracking CSI scores, and supposedly rewarding dealers with the better scores? If a bad dealer doesn’t reflect on the network, then neither does a good one. It doesn’t matter.” Indeed it doesn’t.

Toyota begins assembling its Prius hybrid in Tupelo, MS sometime late in 2010, and you can expect this development to spawn some form of flag-waving PR from ToMoCo. After all, repositioning itself as an “American” company has been the central project of Toyota PR for a solid decade. But Automotive News (sub) reports that the Prius’s top supplier Denso has no plans to initiate production of hybrid components in the US… or anywhere else, for that matter. “Components used for hybrid vehicles are now experiencing very dramatic change and advancement,” says Denso CEO Nobuaki Katoh. “Given this timing, I still think the activities of development and production of the hybrid components should be concentrated here in Japan for the time being. After that, we may have to consider local production of components in overseas countries.” Quality, it seems, is the rallying cry keeping high-value hybrid component manufacturing jobs in Japan. With new lighter, smaller and less costly components being developed for the next-generation Prius, Katoh insists that Japanese production processes must be refined before they can be exported. Though an obsession with quality and process refinement has launched ToMoCo to its current dominant position, capitalizing on its early hybrid investments require driving costs down and production up. America has bought every available Prius for years now, and establishing top-to-bottom NA production of the Prius as soon as possible has got to be a priority for Toyota.

Since the $25b bailout is a done deal, it’s tempting to think of the “debate” as a fait accompli. Not so. The Department of Energy (DOE) still has to meet with lobbyists study the bill and write-up the regs. Although RF reckons the DOE won’t be rushed (that much), Motown’s white hot for the green, encouraging bailout backers to fire-off warning salvos even before the President’s signature clears the cash. As Green Car Congress reports, Senate Energy & Natural Resources Committee chair Jeff Bingaman (D-NM) is pre-threatening his pals at the DOE.

I have been told there may be some confusion about the terms of the loans as the provision creating the loan program references the “activities” that are the subject of a grant program also authorized in the same section of EISA. The grant program is limited to 30 percent of the costs of a facility. This is a fairly typical cost share for grant programs. Some have raised a question as to whether this 30 percent cap should also apply to the loan program. That is not the way I read the language of the law and was certainly not our intent in writing the provision.

Moreover, I would argue that it would dramatically limit the effectiveness of the program as it would require companies to go to tight credit markets for 70 percent of their financing, precisely the problem we were seeking to remedy with the creation of the loan program. While I don’t expect the Department of Energy to take this limited view of the program, I wanted to go on record here to help alleviate any confusion that may exist. I look forward to working with the Department to aid them in getting this program up and running.

This morning, Bloomberg took a look at Renault’s epic implosion in the past year. Financially, the big French carmaker saw its stock nosedive 55% in the past twelve months. Sales are down, and Renault’s European market share has fallen from 9.7% in 2005 to 7.7% so far this year. And Renault’s traditional strong market segments (i.e. mini-minivans) have been taking a beating from other companies, including French rivals Peugeot and Citroen. To make matters worse, VW is about to come out with a new Golf three weeks before Renault releases its new Megane, and the Golf gets better fuel economy than the Megane across the board. Nissan – of which Renault owns 44% – is at huge risk in the US economy (goodbye Murano, Pathfinder, Xterra, Armada, QX56, FX35, and Quest sales). Oh, and Renault’s big hope for making their estimates for the year is a €160 million royalty payment from Russian manufacturer AvtoVaz for licensing the design of the supercheap Dacia Logan. And speaking of which, Renault is facing declining sales for the Dacia Logan as the global economy gets crappier and people in places like Eastern Europe and Latin America have less money to spend on a new car. With all this in mind, Ghosn – once considered Nissan’s savior – may have to step down from the CEO position at Nissan as a bargain with irate shareholders so that he can keep his Renault job. And you thought things were bad for Chrysler.

Information Week reports that GM will be relaunching GMNext as a PR brainwashing social networking site. Apparently, they think it will make a difference. “It’s hard to put a specific dollar value on this but it’s something we have to do,” GM social media manager Natalie Johnson declared, before refusing to reveal how much GM is spending on the re-hype. Johnson cited CEO Rick Wagoner’s “Don’t Worry, Be Happy” video as an example of how the internet allows executives to “answer some tough questions in a very candid and frank way.” Uh, hang on; the Wagoner clip was on GM’s FastLane blog, not the [existing] GMNext website. Anyway, here’s the CEO’s one and only reply to 73 comments…

To everyone who’s commented,

Thanks for your terrific feedback. We appreciate your passion, ideas and support. This gives us a good idea of what’s on your mind. Unfortunately, I’m unable to respond to all of your comments individually right now, but I have read them. Over the next few weeks other GM leaders will offer their perspective about different areas of the company, and you’ll continue to see GM team members respond to many of your specific questions. That said, I would like to thank Ben for his CTS-V purchase; and please tell your girlfriend that I hope she enjoys her new Sky.

It was great to see many of the comments about the Chevy Volt. Since the beginning, we’ve been open in discussing the Volt’s development, progress, and challenges. Perhaps it makes the Volt’s production date seem a long way off, but at the same time, hopefully it’s interesting to be able to look through the same microscope we are. I agree with those who say Volt isn’t the only solution — it’s clearly not, which is why we offer many hybrids today, have 18 2009 vehicles that achieve 30 mpg or higher highway fuel economy, and are doing extensive work in biofuels, including cellulosic.

I assure you that the GM team is working hard to reinvent the automobile and our company . . . and we’re doing it in the midst of a very challenging environment, but we know we can win.

Thanks again for your interest and comments, and please keep them coming.

Rick

We pretty much knew this was coming when we heard that Michigan’s Economic Growth Authority approved state tax breaks for GM, but now it’s officially official. Insurance News Net has the full press release announcing GM’s $370m investment in a Flint plant to build small four-cylinder engines. The engines will be used in the Volt as range extender, and will power the Cruze in turbocharged form. Flint will become GM Powertrain’s “most flexible and competitive engine assembly lines in the world, with approximately 300 highly flexible stations that will allow assembly of multiple 4-cylinder engine families without retooling,” according to the General’s press release. The 552,000 square foot plan will be LEED certified and will operate as a landfill-free facility when it opens in 2010. Too bad it won’t retain more than 300 jobs, especially considering the state of Michigan will forgo $122.5m in tax revenue to attract the project. But hey, that’s a small price to pay to have blighted Flint associated with the immense Volt hype, right?

CNN reports that Nashville, TN has run out of gas, after local motorists became convinced that the city was running out of gas, which it then did. “Everybody has just gone nuts,” Mike Williams, executive director of the Tennessee Petroleum Council, told the network. Williams said drivers were bird-dogging gas trucks and lines at some stations were “a mile long.” He said fuel was continuing to enter the city; pipelines were working and barges were coming in. Stories on iReport (take that as you will) chronicle shortages in Asheville, NC, Marietta, GA and Buckhead. Speaking to Forbes, Carol Gifford from the AAA Carolinas office said that some stations may be totally out of gas, while others may have trouble getting certain grades of gasoline. “So what motorists see, is a gas station that once had an outage now has gas. They only have it for a day or so, and then they are out again. That will probably continue until more refineries are back up and operating,” Gifford said. As TTAC pointed-out after hurricane Katrina knocked-out refineries, the big problem is that there’s no one federal standard for gasoline blends. A patchwork of state mandates guarantees supply disruptions when refining capacity is curtailed. Way to go regulators.

The Wall Street Journal reports that General Motors has canceled plans to build the seven-seat Orlando stateside, or bring a foreign-built version to The Land of the Free. “The canceled Chevrolet vehicle, code-named the ‘Delta MPV7,’ was originally intended to be built in Hamtramck, Mich., beginning next year, according to the auto maker’s recent agreements with the United Auto Workers union. The MPV, or multi-purpose vehicle, would have been based on GM’s compact-car architecture, but capable of seating seven people.” The program termination leaves the U.S. factory SOL, hoping to score Volt production (via federal low-interest loans, of course). The United Auto Workers (UAW) can’t be too pleased about recent developments, having acquiesced to GM’s “two-tier” wage system, increased health insurance co-pays, etc. in their last contract. “In recent months, the auto maker has suspended plans for several new models that GM told the UAW last September it would eventually build in North America. These suspended model programs include a new generation full-size trucks and sport-utility vehicles; large, rear-wheel drive luxury cars; and a redesigned flagship sedan, known as the Aura, for the Saturn division.” To be fair, that is one ugly-looking thing. And did GM really need another model? More interestingly, was the Orlando a head fake from the beginning?

Think GM has it bad? Or that they’re too big to fall? Think again. Lehman Brothers has just announced it’s filing for Chapter 11 bankruptcy protection. The 158 year-old bank decided to exercise the nuclear option after attempts at bailouts and takeovers failed. Lehman Brothers owes $128b in debt, which will probably be paid out at 60 cents on the dollar. (For reference, General Motors has $43b in long term debt). Thousands of Lehman workers were fired immediately after the Chapter 11 filling. The rest were told that they will be paid through Friday, at the most. John McCain – who probably realizes getting New York’s delegates is beyond the limits of reality – told the International Herald Tribune that he was “glad to see that the Federal Reserve and the Treasury Department have said no to using taxpayer money to bail out Lehman Brothers.” Floyd Norris from The New York Times reminds us that Lehman claimed it had ample capital and liquidity as late as last week. Sound familiar? It should. General Motors is in a similar predicament– only worse. Along with Bear Stearns and Merril Lynch, incidents like Lehman are using-up the market’s feelings of shock and surprise at major business failure. If General Motors is hoping for a bailout, they had better get on it soon, or no one will throw money in their direction, even post-C11.

A member of our Best and Brightest sent us some interesting auto industry stats, compiled by Senior equity research analyst at the Credit Suisse Group (CSR). Et Voilà!

• Big 3 dealer stocks declined by about 79,000 units, or 4.9%, to 1.55 million vehicles in August from 1.63 million in July. The 4.9% decline is favorable relative to the increase of about 1% normally seen this time of year.
• The larger than normal declines were a result of a combination of sharply lower production and significant incentive events. By maker, GM inventory fell 1.7% from July to August, while Chrysler and Ford shed about 7% and 8% of their dealer stocks, respectively.
• The smaller sequential decline in GM’s stocks, despite a very sharp sequential increase in the automaker’s selling rate, was the result of a relatively aggressive production schedule. GM’s production was down 25% year-to-year in August, versus a 49% cut at Ford.
• At August-end we find Big 3 dealer stocks to be about 16% above normal, with cars 12% overstocked, and trucks 18% overstocked. An increase in our truck mix assumption, to 47% from our previous 44%, contributed to a jump in our calculation of passenger car days’ supply, and to a decrease in light truck days’ supply.
• By maker, we find GM stocks to be about 17% above normal, with cars 14% overstocked, and trucks 18% overstocked.
• We find Ford to be about 12% overstocked, with cars about 9% above normal, and trucks about 13% above normal.
• We find Chrysler to be about 21% overstocked, with cars about 10% above normal, and trucks about 24% overstocked.
• We saw significant improvement in full-size pickup Trouble Spots at each of the Big 3 in August. A drop in the days’ supply was driven by an incentive driven sales surge at GM, and by deep production cuts on the Ford F-Series and Dodge Ram.
• Based on current production schedules, we see the Big 3 ending September about 26% overstocked. We see both GM and Chrysler overstocked by about 30%, while Ford should have a more modest 15% overstocked level.
• By the end of the year (under current production plans) we think GM will still be about 30% overstocked, with the overstocked position concentrated on the car side. Ford could find itself modestly understocked by year end.
• The excess car inventory at GM is being driven by an aggressive production schedule that calls for a 21% year-over-year increase in car output. By contrast, Ford is cutting car output in the second half. We think GM’s production schedule is aggressive and needs to come down.

Chrysler’s Jim Press is refining the “not a bailout” argument today, calling federal loan proposals “an acceleration of technology into the hands of consumers who couldn’t afford it, if we didn’t do it.” Furthermore, Press tells the Detroit Free Press that taxpayers will reap concrete benefits from the loans. “I think it will allow everybody to bring electric cars, plug-in hybrids, hybrid cars, even range-extended hybrids. All of those vehicles will be accelerated,” says Press. No, seriously. “These are going to be very doable products, looking at production, not just research, he deadpans. “Our focus of our investment from his point forward is improving the environmental footprint of our cars.” Why, Mr Press? Are high oil prices shifting the market towards greater fuel efficiency, making these investments a smart business choice? Not exactly. “We’re worried about dependence on foreign oil,” says Press, getting all national security advisor on us. “But if you fast forward 15 years, where will batteries come from? Right now, the major sources of batteries are other countries. So are we trading our dependence on foreign oil, which is a natural resource, for a dependence on other countries to produce something in a factory? We need to stimulate that development here — here in Michigan.” In other words, the real reason that Detroit should receive bailout loans is that it’s an organ of the national interest. If you think a Volt in every pot, and a head start on tackling Peak Battery sounds tempting, Press is even willing to put some accountability (and your money) on the hood to push you over the top. Press says $25b in loans would be a “good start,” and that the Feds should “look at the return on that $25 billion, and if in everyone’s perspective, we can do it again, we should. I think for a beginning, $25 billion is an appropriate place to start.” The camel knows it need only get its nose into the tent…

The Pension Benefits Guarantee Corp has had enough of Delphi’s ongoing pension debacle, and has warned the GM spinoff that it would file in court to seize a further $900m of the supplier’s assets. Having missed hundreds of millions of dollars in payments to its pension plan, Delphi’s still-profitable overseas operations are targeted for seizure by the PBGC. On Tuesday, reports the Wall Street Journal, the PBGC sent the second letter in the last month to urge GM to absorb at least $1.5b in Delphi’s pension obligations by the end of the month. Timing is crucial, because new pension laws which go into effect on October 1 will make such deals far more expensive. Oh yeah, and then there’s the whole bailout angle. “I can’t speak for the rest of the government, but I assume if GM is asking for assistance from the government generally, the status of the GM-Delphi pension situation would be highly relevant,” says PBGC Director Charles E.F. Millard. We couldn’t agree more. So GM and Delphi have until the end of the week to file papers that would transfer $1.5b of Delphi’s obligations to the General’s pension account. If that date is missed, Delphi’s only remaining profitable business ventures will be ghost like Swayze. With the firm likely to follow shortly thereafter, Chapter 7 style. So, why would GM endanger it’s bailout chances and kill off its largest supplier, when it’s own pension fund is actually overfunded to the tune of some $18b? Because that’s “already committed to paying off United Auto Workers medical claims, funding employee buyouts and other pending obligations.” Rock, meet hard place. Meanwhile, man the lifeboats.

Speaking yesterday at an Automotive Press Association event, Chrysler Vice Chairman and President Jim Press revealed that Chrysler has “been approached by outside individuals who want to work with us to buy the asset and sustain Viper going forward.” Who are they outside individuals? Well that’s a secret, of course. But someone, hopefully, maybe, wants to buy the rights and equipment to make the Viper in the future. As a car fan, I think this is a nice development. No matter what happens to Chrysler, the legendary Viper would live on the way that the Seven or Cobra live on today. At this point, Chrysler is selling about 80 Vipers per month– which is probably more than a low volume hand-assembler could handle in production. But presumably the amount of interest would drop when you could no longer get a car with a dealership warranty (even though it would have been at a Dodge dealership, that’s something). From Chrysler’s business standpoint, why? What is the entire Viper program really worth? $100 million perhaps. That’s barely enough money to put up new wallpaper in the bathrooms at Chrysler’s headquarters. Meanwhile, when they eventually do sell the entire Dodge brand off, the Viper is an absolutely crucial asset to its image. But then, that wouldn’t fit the perfect profile of a Cerberus strip and flip. And by selling off little pieces of the company– like the Viper– that’s exactly what we’re seeing.

Troy Clarke, President of GM’s North American operations, decided answer back on some issues plaguing GM while addressing students at Southern Methodist University (home of the George W. Bush Presidential Library). Clark started with the usual PR blurb; GM is one of the largest auto manufacturers in the world, and that they bring us household brands, like Chevrolet, Buick, Saturn, Pontiac, Hummer and Cadillac. Well, until they kill Pontiac and sell off Hummer. And Buick slips in the shower and dies. While we could read into Clarke’s reference to GM as “one of” the world’s largest automakers rather than calling it “the largest,” there were other gems from the presentation. Clarke went on to trumpet GM’s phenomenal fuel economy stable: they have 18 models that get 30 mpg or better. Ray Wert trashed this myth previously: these 18 cars represent 30% of GM’s overall line up, whereas Toyota’s and Honda’s 30+mpg club represents 55 and 60%, respectively. Then came the thorny issue of “the bailout”. Or not. Because it’s not a bailout. Is it? Clarke told the crowd that actually, it’s not a bailout. It’s just a return for the taxpayer. Nice! “Congress has mandated an industry average of 35 mpg or better by 2020,” Clarke said. “This was the figure that they thought was reasonable and would not bankrupt the car companies, but it just depends on how valuable sooner results in this facet are to the American taxpayer.” Fancy that! Even though, I’m not a United States’ taxpayer, I’d hazard a guess that citizens would want their taxes spent on things like roads, defense and fixing social security, rather than a company run into the ground by clueless executives.

Hyundai appears to be drawing up its own version of a constitution. The first on the list was “Quality shall be paramount” (moderately successful) and the second on the list is now “We shall work together with suppliers”. Hyundai’s corporate mothership has announced that it has signed a “fair trade agreement” with its 2368 suppliers. “The deal has paved the way for Hyundai-Kia Automotive Group to establish a fair trade order with partner companies and promote mutual growth through co-existence and cooperation,” said a company spokesperson. They also added that this is the first time a single company has agreed on a fair trade pact such a large number of firms. Before we break out the record books, which the “fair trade” aspect might possibly be fresh, the notion of positive, longstanding closely-knit relationships between industrial firms in Asia are a big part of the region’s manufacturing history. While I commend Hyundai for some serious long-term planning, how much of this was ethically motivated and how much was damage control? Sure Hyundai is promising transparency now. After their chairman stole $100 million for a secret bribery slush fund, and then received a pardon from the South Korean president, a former Hyundai executive.