Treasury Secretary Henry Paulson has announced that the $700b government rescue program will not be used to purchase troubled assets as originally planned. Just like that. I swear. MSNBC reports that turnabout is fair play. “The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was ‘not the most effective way’ to use the $700 billion bailout package.” That said, the TS isn’t totally shit-canning the previous plan: “Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.” So, that leaves $450b, right? Where’s that going to go now? “He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.” Good news for the domestics? Not overmuch. Any recovery in the auto loan biz will still be chasing diminishing demand. To wit: Toyota’s been hawking the Hell out of its zero percent financing and its October sales dropped 25 percent.
Category: News Blog
This is a big one. GM’s world-car ambitions over the last decade or so have been based on its former Daewoo plants in South Korea, which turned out 2m global-market econoboxes last year alone. Now the Financial Times reports that all five GM-DAT plants will be temporarily shut down in December, putting one of GM’s best-performing units on ice. Unfortunately for GM, this is not simply another symptom of its cash incineration and tightened credit. According to company officials, the shutdown stems from “slowing demand and GM’s need to manage production and rising inventories.” “The economic crisis is truly global,” Jay Cooney, GM Daewoo’s vice-president, said. “What we’re beginning to see here in Asia is no different from what is going on in Europe and what has already happened in the US.” Slowing markets across the Asia Pacific Rim mean the five GM-DAT factories will go from operating at 110 percent capacity to a full stop, as GM tries to sell off its remaining inventories of Korean-made Chevrolet, GM, Daewoo, Holden, Buick and Pontiac models. GM also announced that its entire Asian arm lost $6m in Q3 of this year, the first such loss in years for the usually profitable division. This also means that Asia will now be waiting (just like us) to even have a shot at buying a new Cruze which hit the streets as the Daewoo Lacetti last month.
Former AutoWeek scribe Jeff Sabatini is now driving a keyboard for The Wall Street Journal. While our own JL loved the Honda Fit, Sabatini sees the model as the motorist’s Messiah. “While conventional wisdom says that cheap gas should damp enthusiasm for a compact fuel-sipper, I’m not going to be deterred. The Fit is unquestionably my favorite car, a vehicle that’s the best all-around transportation available from any auto maker at any price.” Wow, talk about showing some love! “Well equipped Fits may just outdo the Mini Cooper for the cheap to buy, fun to drive, feel good drive of the year. Move over BMW, the new kid is strutting his stuff. While the iconic BMW 2002 remains a cult classic because it does much with little, today’s BMWs are porkers best suited to poseurs. The Fit has recaptured the cheap to buy, cheap to run, fun to drive crown in part by being ‘nearly 1,500 pounds lighter than, say, a BMW 5-Series, that perennial best-car-on-the-road contender.'” Jeff then takes both the Big 2.8 and Honda to task for not building more Fit-like whips…
One of the theories explaining GM’s downfall is that they did not invest enough in R&D. Wrong! Booz & Co.’s latest report on Global R&D spending says: bar Toyota, GM was tops. Here’s the 2007 ranking:
Company R&D expenditures in $m
Toyota 8,386
GM 8,100
Ford 7,500
Honda 5,142
VW 4,757
Daimler 4,321
Nissan 4,001
BMW 3,995
Peugeot 2,835
Renault 2,531
Booz says in comparison to 2006, R&D expenditures in the auto industry grew by about 10 percent. European “champs” pale, with the European primo (VW) being only around half as research-intensive as the biggest spender. Here are some other findings…
The Manchester Evening News reports that President-elect Barack Obama’s transition team has contacted Jack Opiola, a transportation principal for the firm Booz, Allen and Hamilton. Opiola the brains behind a program to tax drivers £5 (US $8) when entering the city of Manchester during peak hours. “I was ‘noticed’ by key people in the Obama campaign and I have been providing input to his strategy team in Chicago, including information about Greater Manchester’s bid,” Opiola said. Previously, Senator Obama’s most specific transportation proposal was a proposal to create a $60b toll road bank. In March, Obama endorsed New York City Mayor Michael Bloomberg’s scheme to charge a $9 toll on cars and a $22 toll for trucks that enter downtown Manhattan during working hours. Hoping to fill the gap with specifics, the American Association of State Highway and Transportation Officials (AASHTO) last month submitted a detailed $544 billion transportation re-authorization proposal designed to encourage the new administration to shore-up the domestic economy with heavy spending on infrastructure projects.
With the end of the (Western) year in sight, Chinese auto makers look in their books, roll their eyes, and sigh. One by one they come to the same conclusion: this year’s targets are toast. Bu hao, no good. According to a tally by Gasgoo, five Chinese auto makers have officially written off their old targets and revised them way down: Changan Mazda (-50 percent); Dongfeng Yueda Kia (-20 percent); Dongfeng Peugeot (-31 percent); Dongfeng Citroen (-27percent); FAW-VW’s Magotan (-22 percent). This doesn’t mean that their year-on-year sales will be down by that much. They probably started the year with optimistic growth rates. Which are now coming home to rust. Other companies don’t want to throw in the towel yet, or they say it’s too early to call. But ending October, most of China’s big auto makers were way off course.
Red – or make that white alert! Volkswagen is planning another attack on the profitability of its dealers. They need to build yet another round of brand new showrooms. In 1995, VeeDub introduced the new architecture for their worldwide dealer network. First, a prototype was built on the grounds of the Volkswagen plant in Wolfsburg. (Embarrassingly, without some necessary permits, an oversight that was quickly fixed.) Then, “one of the largest construction projects in Volkswagen’s history was started” (says so in a book that documented that gigantic project). More than 10k VeeDub dealerships worldwide had to follow the architectural edict from Wolfsburg: “build or die.” Many dealers did both; they couldn’t stomach the high costs associated with the glass and marble palaces, and vanished. Not to be outdone, Audi started their own, totally different concept, throwing dealers further in the poorhouse, and delighting the construction trade worldwide. Now, after more than 10 years of hard work, threats and scores of dealers who made the ultimate sacrifice by bleeding to death on the altar of Corporate Identity, most VeeDub dealers, from Wolfsburg to Winnipeg, from Bratislava to Boise, Idaho, look alike. All, except one…
Here’s the money shot from GM’s quarterly filing with the SEC:
“In connection with their year-end audit of our annual financial statements, our independent auditors assess whether a statement should be included in their audit report related to the existence of substantial doubt related to our ability to continue as a going concern. If the report on our audited financial statements included such a statement, we would not be in compliance with the covenants in certain significant credit agreements, including our $4.5 billion secured revolving credit facility and $1.5 billion U.S. term loan, both of which would be callable by the lenders. Additionally, we have other significant obligations that include cross-default provisions that could be triggered by a failure to comply with those credit agreements. We would need to seek a waiver from the lenders for any covenant breaches or cross defaults, or arrange for substitute financing. There is no assurance that we could cure a default, secure a waiver or arrange substitute financing in such circumstances or that we would not incur significant costs in doing so.”
This is the big fear at GM: auditors issue a statement regarding GM’s ability to continue as a ‘going concern.’ It would start a customer-killing PR firestorm, launch a possible “run on the bank” scenario by suppliers and trigger immediate default ratings by the credit rating agencies.
“Westchester County lawmakers last night made it illegal for drivers to keep their vehicles running for three minutes or more while parked.” Now I’m sure TTAC’s Best and Brightest will be all abuzz with lots of reasons why this idea makes no sense at all (kids roasting/freezing to death), defines “unenforceable,” doesn’t make any sense and violates Americans’ constitutional right to not be hassled by the government for stupid ass shit. But all that counts for naught compared to our collective responsibility to “reduce dangerous emissions like carbon dioxide that contribute to Westchester’s poor air quality and to global warming.” This according to Thomas Abinanti, D-Greenburgh, the bill’s sponsor. “Climate change is the defining issue of the 21st century,” Abinanti told LoHud.com. “We can do our part by not adding to the problem. Idling uses more gas and is worse for vehicles than turning your car off. Most idling is not only wasteful, but unnecessary.” Most? Not all? Westchester motorists who find themselves on the wrong end of a cop’s stop watch could be fined up to $250. [Miss you Glenn]
Think you got it rough? Well, what if you built a sleek, energy efficient 181,000 square foot corporate headquarters for $68m and seven years later you had to lease it to Taco Bell for ten years? More specifically FoMoCo leased their former Premier Automotive Group (PAG) headquarters to Yum Brands, Inc., of Louisville, Ky. Yum was spun off from PepsiCo in 1997 and currently operates over 35,000 Taco Bell, KFC, Pizza Hut, A&W and Long John Silver “restaurants.” Annual revenues are more than $10 billion and their stock is trading at $25.87 per share. Meanwhile, Ford sold Aston Martin to some Kuwaiti investors, Jaguar and Land Rover went to Tata (in India) and is moving Volvo to… New Jersey! Meanwhile a share of Ford stock is worth $1.80 — still somehow cheaper than a gallon of gas. Ford still has about 125 employees in Irvine, California (including the guy that gives us Mustangs) and they’re being relocated next door to Ford’s 90,000 square-foot product development center. The sad news for car guys is that ever since Crystal Cove moved away from Newport Beach, it has taken place every Saturday morning in PAG’s parking lot. No word on whether or not Taco Bell will allow the tradition to continue. Man, the car biz is rough.
Let’s get one thing straight: Bob Lutz is the Car Czar. The GM Veep’s claim on the title is as absolute as his inability to revamp GM’s product lineup to avoid bankruptcy. TTAC’s respect for Maximum Bob is such that we created the Bob Lutz Award, given to the automotive executive who’s made the most outrageous, politically incorrect or just plain dumb public pronouncements of the year. OK, that piece of business done, Politico reports that president-elect Barack Obama is considering appointing a car czar to oversee the U.S. government’s widely anticipated “investment” in Detroit’s failed automakers. “Specifics about the proposal remain unclear. But the transition team says Obama suggested to President Bush on Monday that aid to the auto industry could be coupled with the appointment of ‘someone in charge of the auto issue who would have the authority’ to push for reforms. The details came from a more extended readout of the White House meeting provided Tuesday. The person would assist in efforts to create an ‘economically viable auto industry,’ a transition aide said – a move that could alleviate concerns about protecting taxpayer interests if more money is directed to assist automakers.” Combine this with Nancy Pelosi and Harry Reid’s call for an equity stake in exchange for bailout billions and you have a perfect recipe for The Mother of All Automotive Failures. [thanks to KixStart for the link]
Dear Secretary Paulson:
We are writing to request that you review the feasibility of invoking the authority Congress provided you under the Emergency Economic Stabilization Act of 2008 (EESA) for the purpose of providing temporary assistance to the automobile industry during the current financial crisis. Under EESA, Congress granted you broad discretion to purchase, or make commitments to purchase, financial instruments you determine necessary to restore financial market stability. A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector’s workforce.
Tesla Motors recently closed it’s Michigan research facility and fired about a quarter of its workforce. The Silicon Valley start-up might be totally broke and searching for Uncle Sam’s teat, too. Let me rephrase that– they may not have enough cash to remain viable AND they’re looking for a federal bailout/hand out. As you also know (maybe, if you care), Henrik Fisker is set to build a hybrid luxury automobile called the Karma. [ED: not a hybrid between a Mercedes SL/BMW and an Aston, as previous.] Tesla hired Fisker to design their WhiteElephant sedan, After the two decided to part company, Tesla sued Fisker for stealing trade secrets (as if). Fisker won the suit via binding arbitration. They savored the judge’s Tesla tongue-lashing, pocketed a nice chunk of cash for their troubles and publicized the Hell out of the outcome. Long story short, Tesla and Fisker hate each others’ start-up guts. And now Fisker’s announced it’s opening a 34,000-square-foot facility in Pontiac Michigan, good for about 200 employees, where Fisker is planning on building it’s gorgeous four-door Karma hybrid. Fisker says it will offer the Karma in the fourth quarter of 2009. Meanwhile Tesla’s still struggling to produce enough Roadsters to fulfil customers’ deposits. That’s gotta hurt.
Ray Wert, of “A GM-Chrysler merger makes good financial sense” fame has announced that via CafePress, Jalopnik is selling “Save GM” t-shirts. Even if it’s meant ironically, I find this so blindingly stupid that I’m commentless. Help yourselves.
These are indeed turbulent times in the automotive industry. With every new day comes a flood of bad news, and a fresh sense of ominous momentum. As we continue to serve up hefty sides of bailout beef, we thought we’d offer up a quick, palate-cleansing taste of the non-bailout, non-industry-implosion gossip going ’round the net. And you’ll never believe what insiders have to say about the Toyobaru coupe pregnancy scare! Read More >
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