Market crash? Say what? Volkswagen’s stock price continue to defy market malaise and Newtonian physics. After wild gyrations last week, the Volkswagen stock– better known as WKN: 766400 / ISIN: DE0007664005– went berserk today. It opened at €500, and then more than doubled its value to €1005. At the time of this typing, it stands at €670. At its high, VW had a market cap of €296b ($369,272,943,612.85). For a while, VW was the most expensive corporation on the planet. VW represented half of the DAX, the German version of the Dow Jones. Again, it was the shorts that were caught with their pants down and the stock up. According to Automobilwoche (sub), when Porsche announced they’d raised their share in Volkswagen, it dawned on the traders “that only 6 percent of the shares are still available on the open market.” What’s more, funds that get compared with the DAX are now forced to buy Das Auto, Newton be damned. If someone played their options right, buying Volkswagen didn’t need the measly profits from a few Cayennes. While the financial world is falling apart, there is a tulip craze, Wolfsburg style. Detroit, eat your heart out.
Category: News Blog
For the few past years, European and American automakers looked to Chinese carmakers with hope and trepidation. They hoped the booming Chinese market would lift their worldwide sales. It did. They feared the Chinese would export cars en masse, swamping Europe and the U.S. with cheap vehicles. They did not. For various reasons (crash tests, emissions, the economy), the arrival of the four-wheeled Yellow Peril was a non-starter. What little exports the Chinese managed went to second- or third-tier markets like Africa or South America. Even those are are going down, down, down. In August, China exported a mere 44,400 units, a decline of 22.18 percent month-on-month and 11.29 percent year-on-year. This according to numbers straight from the China Association of Automobile Manufacturers, quoted in Gasgoo, which calls the news “discouraging.”
We’ve already covered Detroit News columnist Daniel Howes’ Road to Damascus moment, when the hometown paper’s seriously smart scribe finally acknowledged that the domestics are going down. But Danny’s latest column indicates a bit of backsliding. “Fed help for GM merits tough terms” promises guidelines to protect taxpayer’s interests. You know something along the lines of Ken Elias’ recent General Motors Death Watch post. Of course, any such prescription would have to include a call for the dismissal of the Harvard-educated idiots runing GM, the Home Despots atop Chrysler and UAW jeffe Big Ron Gettelfinger. But that’s a bridge too far for the Detn’s Motown maven. “…the guys atop GM, Ford, Chrysler and the UAW with their collective hands out should be prepared to accept some onerous conditions in exchange for the federal dough — up to and including putting their jobs, legacies and golden parachutes on the line.” Putting them on the line? Danny, these guys needs to go (save that nice Mr. Mulally who rang us up the other day and totally coopted our coverage). Full marks for asking the right questions (albeit a bit late). Now, how about some answers?
Domestic branded car dealerships continue to throw in the towel at breakneck speed. Today’s Wall Street Journal reports on the rolling blackouts. As new vehicle sales have fallen to a “25-year low, car dealerships from New Jersey to California are going out of business at an accelerating pace, threatening greater economic pain for communities around the country.” Love ’em or hate ’em, car dealerships are a significant source of jobs and sales tax collections. “The country’s 20,700 dealerships accounted for $693 billion in sales last year, or 18% of all retail sales, according to NADA. Dealership wages and salaries make up 13% of the nation’s retail payroll.” Said NADA forecasts 5,000 fewer US new car dealerships by the end of 2008 than there were in 1990. The death knell blows are coming from bankers slamming the door in long time customer’s faces. Stories like this abound: “Joseph Pfeffer, owner of Bigelow Motors, a Chrysler and Jeep dealer in Belleville, N.J., closed shop Oct. 4 after his bank decided to exit automotive financing and cut him off from $5 million in inventory financing. He had been in business since 1942, getting his start selling DeSotos and Plymouths. ‘I always survived,’ said Mr. Pfeffer, 92 years old, ‘but nobody ever cut off my line of credit before.'” Bigelow sold forty units in August, but only seven in September. No buyers, no bankers, no business. Its ugly out there.
As Moody’s has downgraded GM and GMAC to Caa2, it only makes sense that the ratings agency has assigned potential “partner” Chrysler and Chrysler Financial the exact same rating. MarketWatch reports that the ChryCo Bros. are now at Caa2. Folks, Caa2 is the third circle of junk credit Hell, only a blink away from the last part of this category (Caa3). In other words, “Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk, and have extremely poor credit quality.” There are only two ratings lower: Ca and then C. And then… game over. Bottom line: Chrysler’s “plenty o’ cash contention” was the complete B.S. anyone with industry insight knew it to be. Or, as Moody’s puts it, “The downgrade of the Chrysler rating reflects the increased pressure on the company’s liquidity position due to the precipitous decline in US automotive demand and the likelihood that shipment levels will remain depressed through 2009.” Bottom line II: the only institution that will lend GM. GMAC, Chrysler and Chrysler Financial is you (a.k.a. the U.S. government). That said, Chrysler’s owners Cerberus have plenty deep pockets. According to their website: “Cerberus holds controlling or significant minority interests in companies around the world. In aggregate, these companies currently generate over $100 billion in annual revenues [emphasis added].” But Feinberg’s Boyz know better than to throw good money after bad.
Next Tuesday, Washington state voters will consider Initiative 985. If adopted, I-985 would force local jurisdictions to synchronize traffic signals at high-volume intersections, open High Occupancy Vehicle (HOV) lanes during non-peak hours and prohibit the imposition of tolls to raise general revenue. I-985 pays for the synchronization mandate by, among other things, diverting red light camera profits into a traffic congestion relief fund. The measure’s co-sponsor, Tim Eyman, says taking away camera profits would stop local governments from installing the devices as a cash grab. After I-985 qualified for the ballot, five cities dropped plans to adopt photo enforcement. As you’d imagine, the revenue provisions have sparked vicious and vociferous opposition from groups that stand to lose money from the new deal.
Down the rabbit hole our tax money goes, as a “merger” has become a “rescue.” Reuters reports General Motors and Cerberus Capital Management have asked the U.S. government for roughly $10b in an “unprecedented rescue package” to support a merger between GM and Chrysler, according to “two sources with direct knowledge of the talks.” But don’t worry, because only $3b of that would buy Uncle Sam preferred stock in the merged automaker, “according to one of the sources, who was not authorized to discuss the matter publicly.” You may have qualms about government ownership of a large slice of the American auto industry, but Reuters writers are down with that. “It would… give U.S. taxpayers a large stake in the turnaround of a struggling auto industry that employs over 350,000 American workers and is credited with supporting employment for another 4.5 million in related fields.” So what of the remaining $7b?
How cheap are work trucks when no one’s working? Case in point. 2008 Ford F250 Superduty with rear seats, Automatic, and a throbbing 6.4L V8 powerstroke diesel with 350 Hp and 650 lbs. of torque. 41k highway miles, and, oh yeah. Like most other trucks at the auctions it’s a repo which has become a mantra for Atlanta inventory. Charge out price this morning at Carmax Auctions was $10,500, and that was with absolutely no announcements that would normally detract from the truck’s value (Engine Noise, Transmission Slips, Frame Damage, etc.). Oh, and every other truck and SUV repo that was at today’s sale, didn’t sell. Even a Toyota Tacoma and Hyundai Santa Fe Limited found no buyers.
The GM-Chrysler bailout article in today’s New York Times (written by Edmund Andrews and our friend Bill Vlasic) just recaps yesterday’s bailout news. But it raises an interesting point. The argument thus far has been that auto manufacturers (namely Chrysler and GM) would be entitled to the Treasury Department’s bad loan buy ups (TARP) because they have large credit arms. Except for one glitch: General Motors only owns 49% of GMAC (the NY Times article oddly reports the reverse “General Motors … spun off 49 percent of its financing unit, the General Motors Acceptance Corporation.”) As a result, even if GMAC qualifies as a financial institution, General Motors would not. This isn’t the same as Ford, which wholly owns Ford Credit. Fortunately for GM, as Vlasic notes, the government will find a way, one way or the other, to put cash in GM’s coffers. Until GM blows through that, too.
Reuters is reporting that Avis is getting hit by the slowing economy. Perhaps even more than retailers, vacation-related businesses really take a beating when the economy gets rough, and just like hotels are getting slammed, so too are car rental companies. They say that the “workforce reductions” should save $50 million/year. Against a $1 billion loss, that sounds like a worthwhile way to ruin 700 lives. (Avis CEO Ronald Nelson only made $2.15 million last year before taxes). So much for trying harder.
Warning: Video contains profanity
News flash! Automotive News [AN sub] finally talks to someone on the record! And it’s no less a personage than GM Marketing Maven Mark LaNeve, the man in charge of managing The General’s declining ad budget. To celebrate the occasion, AN’s crack reporters resort to the lazy journalist’s best friend: Q & A. The resulting edit begins with the usual “these grapes are not sour, there must be something wrong with your taste buds” waffle. LaNeve would have us believe that the new media is so wicked cool GM doesn’t really need to spend as much money as it did before the last of the corporate cash pile went up the chimney. “When a lot of the digital technology was new, all marketers were learning. As you learn, you get more efficient and you spend less money to get the same results, the same impact, the same reach in the marketplace. That is why I am comfortable with some of the cuts we are making. We are a whole lot better at search, at digital, at working with our third-party partners like Edmunds.com and The Truth About Cars.” Just kidding. About TTAC. Anyway, AN raises the spectre of GM’s octo-brand stretch. Pah! “We prioritize the launches. The key launches are the Chevrolet Traverse, Camaro and Equinox. Cadillac has the CTS wagon, CTS-V series and CTS coupe on the horizon. And the Buick LaCrosse and GMC Terrain are two big launches.” THOSE are GM’s priorities? My children’s children’s children’s tax money is so dead. More revelations after the jump.
TTAC called this the moment we heard that Uncle Sam was allocating your taxes– I mean your children’s children’s children’s taxes– to bail out the banker boyz from the sub-prime mess they created. Still, it’s strange to hear GMAC– the lender that poured tens of billions of dollars into GM’s coffers– admit they need to suckle on the federal teat suckle on the federal teat. “GMAC has been in discussions with the government on a multidimensional level,” said GMAC spokeswoman Toni Simonetti. “We are interested in exploring options that are available to us through the federal government’s tool kit that was implemented under the new legislation.” To its credit, Automotive News [sub] asked GM’s Dr. Who fan what form this “assistance” might take. “Simonetti declined to say whether GMAC wants to sell troubled assets to the government or to sell a stake in the company to taxpayers.” Oh yeah, I want a piece of GMAC. But then I like lighting Franklins on fire. Meanwhile, “Last week, Ford Motor Credit Co. said it had registered with the Federal Reserve to participate in a new program aimed at easing the sale of commercial paper, which companies use to raise money for day-to-day operations. Ford Credit has not decided if it will take part in the program.” That’s news to me. Or, you know, not.
As you may (maybe) know, SEMA is right around the corner. As in next week (whoever scheduled it for November 4 needs their head examined). And what is SEMA you may be asking? Well, no one even remembers what “SEMA” stands for, but the show has come to represent all that’s wonderful and/or dreadful in the simply humongous after market, er, market. More than too many four-door cars with scissor doors, too. And SEMA is big. No, bigger than big. It’s quite gigantic and most of the major OEMs (from Dodge to Hyundai to Daimler) will have radically customized cars on display next to radically customized bikini models. And this fact got me thinking — who is doing all this customizing? Admittedly, my last WRX may have had a mod or two (or ten). But I was a much younger man back then. And not getting press cars all the time. My new WRX? Bone stock save for some fancy pants tires. Might I mod it? Dunno. As I age, I worry about reliability. And more boost sounds… expensive, in the long run. But dear readers, what about you?
Crazy gallery of modded Russian cars!
Automotive News [AN sub] reports that GM is giving workers an extra week off over the holiday period at its Detroit-Hamtramck (Cadillac DTS, Buick Lucerns) and Bowling Green, Ky. (Chrevrolet Corvette, Cadillac XLR) plants. And no wonder. “As of Oct. 1, GM had a 95-day supply of the Corvette and a 215-day supply of the XLR. It had a 70-day supply of the Lucerne and a 50-day supply of the DTS.” Actually, a 50-day supply is quite good; the industry considers 60-days the sweet spot. But even so, the additional week off indicates the “pull” for all four vehicles is weaker than a snail darter on a deep sea rod and reel. A fact which AN confirms. “Through September, U.S. sales of all four of the vehicles have fallen from the first nine months of 2007: Corvette sales are down 9.5 percent to 23,384, XLR sales are off 26.3 percent to 1,039, Lucerne sales have declined 32 percent to 43,839 and DTS sales have dropped 32.4 percent to 25,790.” Whether intentionally or not, for once, GM’s spinmeisters offered a straighforward assessment of the reason behind the slow-down. “The market is telling us we don’t need that many cars,” GM spokesman Tony Sapienza admitted. Roger that. So to speak.
Not far to go now. MarketWatch reports that “General Motors Corp.’s creditworthiness came under fire yet again on Monday, with Moody’s Investors Service slashing its debt even deeper into junk territory at Caa2, three rungs above the lowest possible rating.” Ready for some carefully-couched euphemistic double talk? You know you want it. “Moody’s cited its expectation that the erosion in the U.S. auto sector that ‘will severely outpace’ GM’s ability to respond adequately.” More directly, analyst Bruce Clark reckons the downgrade reflects “the risk that despite all of GM’s business restructuring and liquidity raising efforts to date, the magnitude of cash outflows due to ongoing operating losses, debt repayments, and other uses will consume the company’s available cash during 2009.”
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