The Financial Times reports the run on the bank scenario mooted by TTAC– bankruptcy-wary suppliers demanding cash-on-the-nail for goods and services– may be going down across the pond. “Troubled US carmakers General Motors and Ford Motor have been given a potentially devastating vote of no confidence by three big European credit insurers [Euler Hermes, Atradius and Coface], which have removed cover from their suppliers. The withdrawal of credit insurance – which covered suppliers against the risk of the car companies’ failing – has previously hastened the demise of a string of European companies, with suppliers to retailers and construction companies finding cover increasingly hard to come by.” The FT reports that the move leaves only three possibilities, all them swirling around a bathtub full of Not Good: “GM and Ford can start paying upfront for goods; they can hope their suppliers will trade uninsured; or they could be unable to buy the parts they need for car production.” [Thanks to Uncommon Sense for the link]
Category: News Blog
Industry bearishness is tearing through the ranks of suppliers today, as Standard and Poors has downgraded the short-term credit ratings of 13 auto supply firms, according to the Detroit News. ArvinMeritor Inc., BorgWarner Inc., Cooper-Standard Automotive Inc., Federal-Mogul Corp., Goodyear Tire & Rubber Co., Hayes Lemmerz International Inc., Johnson Controls Inc., Lear Corp., MetoKote Corp., Shiloh Industries Inc., Stoneridge Inc., Tenneco Inc. and Visteon Corp have all been targeted, as Wall Street worries over these firms’ exposure to the Detroit 3. Automotive News [sub] adds that S&P has also cut the long-term credit ratings of supply giants Dana and Magna. This news is likely to spur on bailout backers who will no doubt see this as the dreaded “ripple effect” that they claim will take down the entire economy if bailout bucks aren’t forthcoming. Of course, anyone who follows the industry knows that these firms have been on shaky ground for some time already. The auto supplier sector has been rife with bankruptcies for years now, thanks in large part to the predatory practices of the very three firms that are now seeking a publicly-funded bailout. Imagine a parent starving their kids and then complaining that if they go to jail the kiddies will have nobody to look out for them, and you’ll have a good picture of the dynamic at play here.
Motor Trend reports that the hot new convertible versions of the hot new Camaro and Challenger have been canceled, falling victim to GM and Chrysler’s new emergency-mode priorities. It seems the Challenger was not designed with a ragtop version in mind, and re-engineering the LX platform would simply cost more money than Cerberus wants to fork over. Meanwhile, GM is being characteristically disingenuous, claiming that the Camaro convertible is simply “on hold.” At this point, it’s safe to consider the whole Camaro project in limbo, as the hardtop doesn’t debut until the first quarter of next year. As fast as things are happening right now, don’t be surprised if GM goes down before a single Camaro hits the showroom floor. Or, if wishful thinking is your cup of Knob Creek, heed the words of MT who reckon “If GM’s situation improves, Chevrolet could return the Camaro convertible to its product plans for the 2011 model year, just in time to add a fresh new version of the car.” Or, as we are fond of saying around here, not. Meanwhile Ford dealers are cheering this news, after enduring a tough year of declining Mustang sales. As the old industry saying goes, a muscle car at the dealership is worth two being endlessly teased around the autoblogosphere.
In a new report covered by Automotive News [sub], Goldman Sachs says GM will end the year with $12.5 billion in cash, and will need at least $22b in government money to survive. Goldman is suspending GM’s rating, putting the automaker on a “wait-and-see” basis until further bailout details emerge. Meanwhile, JP Morgan cut its GM rating to “neutral” from “overweight” saying the automaker needs “something immediately” to make it through the end of the year. Morgan also slashed GM’s stock price target, from $3.08 to $1.84, about a dollar off its trading price of $2.89 at the time of this writing. And while Goldman set the bailout minimum at $22b, Morgan reckons the bill for righting the General “could easily reach $30 billion unless GM reforms its vast liability structure.” GM stock is currently down about five percent on the day, although it’s shown resiliance to earlier Deutsche Bank analysis which valued the stock at precisely bupkis. Still, urgency is the common thread that ties all the analysis together, and if news doesn’t improve soon for GM, its stockholders could see their paper become worthless in short order. Rest assured, TTAC will have the latest developments as they occur.
Note to CEOs: if you’re going to meet with your competitors at a clandestine hotel in order to fix prices, make sure nobody in your entourage is a snitch. And if you’ve already received a regulator’s multimillion-dollar fine a few years ago, be more careful the second time, otherwise you’re likely to be fined a cool billion bucks– as France’s Saint Gobain was yesterday. Neelie Kroes, European Commissioner for Competition: “Saint-Gobain, Asahi, Pilkington and Soliver have defrauded the auto industry and consumers for five years. The FT reports that the fines are so punitive because the auto glass industry is large (sales of $3bn/year) and because Saint-Gobain had been involved in a similar incident in the past.”
While Michigan Governer Jennifer Granholm spreads hysteria and misinformation in aid of her state’s struggling automakers, Indiana Governer Mitch Daniels is taking far more honest position on the the proposed bailout. “Let’s give Congress a chance, but there’s nothing in recent history that suggests they have an answer for this,” Daniels tells the Indianapolis Star. “The only thing we know for certain is the way they’ve been doing business does not work and throwing taxpayer dollars after it won’t make it work.” And before you accuse Daniels of throwing more vulnerable states to the wolves, consider that Indiana is the fifth-biggest auto manufacturer in the union, with some 61k auto industry jobs. Oh yeah, and his state’s unemployment fund is running low, thanks to the hard times. Daniels, who is in DC to receive an award from Governing Magazine for his accomplishments as a first-term governor, knows that once bailouts start there’s no telling where they will end. “If they send money, we’ll cash the check,” says Daniels. “But I didn’t come down here with a tin cup. I just think caution is the watch word. And I don’t know where it ends. I didn’t notice anyone throwing money at the RV industry and that cost Indiana a lot of jobs. Our position all along has been that any solution has got to be a solution leading to long-term viability.” Needless to say, short-term bridge loans don’t meet that criteria. Then again, maybe Daniels’ principled stand has more to do with the fact that the major manufacturers in his state (Toyota, Honda, Subaru) are doing fine, and aren’t asking anyone for a bailout.
I like Phil LeBeau. Sweetheart of a guy. He talks to TTAC’s Ken Elias on a regular basis. But I’m not so convinced about Mssr. LeBeau’s journalistic cojones. In the first post-GM quarterly statement TV interview with Rick Wagoner, LeBeau asked GM CEO’s the tough question: is there any point at which you say fuck that shit, we’re out of cash, I’m heading for Aruba, YOU file for C11? [paraphrasing]. But Phil forgot to go for the kill and/or (we hear) ask Wagoner to share some of his private stash. Now that the Detroit Bailout has become Germanicized (caps) and gets its own logo (the sure sign of sexual maturity for any story in the MSM), Phil is on the case– although not the case of the CEOs responsible for this Donnybrook…
Germany’s industry rag Automobilwoche [sub] is running an interesting ballot. “Who do you think would profit the most if GM goes bust?” (or German words to that effect). The options are kind of odd. Only Ford, Renault/Nissan, Toyota, and Volkswagen are eligible. But keep in mind, Automobilwoche is a German rag. They could have asked “What if Opel would die?” But they didn’t. Do they know more than we do? 846 souls have voted so far.
Actually, it’s not a car. It’s a race car. OK, it’s VW’s “purpose-built” (as opposed to?) Race Touareg TDI Trophy Truck. Ja, it’s powered by a 12-cylinder clean diesel, which produces enough torque to mess with the Earth’s rotation. Clearly, this thing ain’t heading for the ‘Ring; VeeDub’s entering the RTTTT in the 41st Annual Tecate SCORE Baja 1000 desert race. The official press release goes for the techie hard-on, but then blows it (so to speak) by predicting that their hässliches Entenküken will breeze to the finish line. “With a double A-Arm front suspension that allows 25 inches of wheel travel, and a 4-link rear suspension that allows 30 inches of wheel travel, combined with Fox Racing Shocks, Eibach Coils and BFGoodrich Baja KRT 37×13.5×17 off-road tires the Race Touareg TDI Trophy Truck should have little difficulty maneuvering the highly difficult and technical 634 mile Baja 1000 course.” More importantly, at least for the aesthetic police, “The Race Touareg TDI Trophy Truck Body was designed by the Volkswagen Design Center located in Santa Monica, California.” Paging Shy La Boeuf. The German co-financed remake of Mad Max II awaits.
UPDATE: Oops.
Today’s New York Times’ story on GM’s travails begins by highlighting the bailout bullet train– and then switches track. “Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors, which is rapidly running low on cash. But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.” Yes, it’s GM CEO Rick Wagoner’s worst nightmare: as TTAC predicted, momentum is growing for a GM C11. Obviously, any such suggestion depends on GM continuing to do business post-bankruptcy. And that’s a bridge [loan] too far for most MSM pundits.
The BMWblog offers us this picture of the Propeller People’s new hybrid BMW X6. I know what you’re thinking. Huh? First, no bonus points for you, Boyo, for missing the key visual ingredient separating the gas – electric X6 from the normal (and I use that word in the post-modern Chris Bangle is my owtowmobeel God sense of the word) gas-powered X6. “The body style is almost identical to the petrol versions,” the Bimmer boys report. “Except the slightly larger M3-style bonnet. The obvious changes appear under the hood, where a two mode hybrid system developed by a consortium formed of BMW, GM, Daimler and Chrysler, will power the X6 ActiveHybrid.” Dudes; if the changes are under the hood, they’re not obvious. (Obviously.) Anyway, who knew the X6 variant got a German-style mashed-up nospacebarneeded moniker all its own? But I did know about the consortium, which, by the way, did not include Daimler and Chrysler at the time. (It was, appropriately enough, DaimlerChrysler.) This corporate cluster-you-know-what was a multi-billion dollar joint effort that should have been used for joints, rather than hybrids, as nothing even remotely salable came from the collaboration. And while we await mpg figures (doh!), here’s some proper German humor… “Once again that great photos were brought to us by Palbay who also shared a funny story with us. Apparently the X6’s driver could have been a BMW executive from outside the U.S since he made several wrong turns getting to the test track and he was wearing a business suit, not a common thing for the BMW regular test engineers.”
Build cars people want to buy and sell them at a profit. There. Now you know. Didn’t quite catch that? “We’re only going to be in business if we create products that people really do want and value,” [Ford CEO Alan] Mulally told The Detroit News in an exclusive interview Tuesday. “This is the essence of creating a viable Ford.” Quite why scribe Bryce G. Hoffman thinks this is some kind of revelation escapes me entirely (so to speak). No wait! It’s not a revelation; it’s an EXCLUSIVE! My guess: Ford PR gave Bryce exclusive access to Big Al where he couldn’t reveal anything of a commercially vital nature; which is a bit like making out with Adriana Lima without being able to go to second base (or so I imagine). In any case, we learn sweet F.A., other than Bryce loves him some FoMoCo and there’s a Thunderbird Room on the eleventh floor of the Blue Oval HQ (which several of our Best and Brightest knew anyway). Oh hang on; “Benefits, including the bonuses paid to Mulally and other senior executives, are being cut.” A story! An honest-to-God this is news news story! So, spill Bryce. Who? How much? Bryce? Hello? Sigh. OK, I’ll make the call. Do I have to do everything around here myself?
Last year, Premier Jean Charest’s fellow Québécois faced the worst winter the Province had seen in over five decades. So he directed his government to make winter radial tires mandatory. From December 15 until March 15, snow shoes for you, eh? Two weeks ago, I spoke to a mechanic in Nashua, New Hampshire who lamented a shortage of winter tires. New Hampshire being almost Canada, I should have twigged. Then, two days ago, a Montreal tire shop was burned to the ground in what the Montreal Gazette called a “supicious tire fire.” Still didn’t click. Finally, the Canadian press put two and two together for me, declaring that Quebec’s winter tire law is causing a shortage and, c’est vrai, a tire war in the province. This being the first year such a law has been in place for any Canadian province, the demand for tires in Quebec has inevitably led to shortages in neighboring provinces and bordering U.S. states. In case anyone in the Northeast needs winter tires for a Ford Mustang, I happen to have a pair that I’d part with for, say, $20b dollars. U.S.
Students of the automotive industry know that manufacturers are on a five-year timeline. You spend a few bil updating your gas-guzzling SUVs a couple of years before Hurricane Katrina and BAM! Rising gas prices send sales to the Mariana Trench. Such is life. Such is evolution. Of course, there is a bit of wiggle room: sales and marketing. You can “re-position” a product to suit the temper of the times. Then again, that’s a bad idea. One of the Immutable Laws of Branding: don’t change your core brand message. Ever. (Ultimate Drive that, Buick.) Conversely, it’s never a good sign when a car’s advertising doesn’t change to reflect current reality. It’s a sure indication of stifling bureaucratic sloth. Now that gas prices have tumbled, and then tumbled again, and then tumbled some more, any manufacturer selling a vehicle based on gas prices is so far behind the curve they make the Great Plains look like a roller coaster. Don’t get me wrong. I like Suzuki’s products. But this ad for the Grand Vitara was stillborn. Just let it go Suzi, let it go.
That’s the day that House Financial Services Committee Chairman Barney Frank, D-Mass, will introduce legislation that will change the rules on the previously approved $700b financial rescue package so that America’s ailing automakers can stick their snouts into the federal trough. Yes, that Barney Frank; the same congressman whose oversight of Fannie Mae and Freddie Mac lead to the relaxation of lending policies that pushed both quangos to the brink of extinction. (Not to mention Frank’s relationship with Fannie’s policy wonk Herbert Moss or campaign contributions from both organizations to the Congressman’s campaign.) Automotive News [sub] reports that it’s shootout at The OK Give ‘Em 25 Bil Corral.
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