Fiat’s explanation of its deal with Chrysler states, “Pending (the transactions) approval, the current Chrysler will continue its normal business operations and the US Treasury and the Canadian government will provide the company with financing in order to allow the performance of all its obligations towards the employees and to fund its on-going needs.” But according to The Detroit Bureau, this isn’t the case. “During the bankruptcy proceedings, which are expected to last from 30 to 60 days, most of its manufacturing facilities will be closed. It is only when the New Chrysler emerges from bankruptcy that production will gradually resume. Workers will be eligible for supplemental unemployment benefits, worth about 80% of pay. Some additional plant closings are anticipated.” Which means either The Detroit Bureau has its facts wrong, or Fiat does. And if Fiat is wrong and Chrysler will halt operations during bankruptcy, what does Auburn Hills need $3.5 billion in government DIP financing for?

The Freep reports that the Treasury has blocked GM’s plans to buy Delphi’s unwanted steering business, while putting the kibosh on $150 million in payments that GM had planned to keep its major supplier operating through May. This puts Delphi, GM, The Treasury and creditors on a shorter timeline to resolve Delphi’s three-year-long bankruptcy; a deal must now be reached by May 9. If a deal isn’t reached by then, Delphi will be liquidated, GM will have to buy back mission-critical plants, and new suppliers will be contracted. So now you know why GM is idling most of its plants this summer: if parts stop shipping, there won’t be an (unplanned) production disruption. What isn’t clear is why the Treasury thinks a Delphi liquidation is a desireable outcome. After all, $5 billion has already been earmarked to help guarantee OEM payments to suppliers. Maybe Treasury actually thinks that money would be better off spent on ads. More likely though, the Treasury boyz want a top-to-bottom restructuring to go down next month, and Delphi’s lingering bankruptcy (and estimated $2billion yearly cost over competition according to GM) put it squarely in the “Bad GM” camp. And so it burns.

Ronald Reagan once said that the scariest words in the English language are “we’re from the government and we’re here to help.” For troubled auto suppliers though, there are scarier things than government assistance. Specifically, government assistance administered by GM and Chrysler. Automotive News [sub] reports that the the newest automaking branches of the federal government will be in charge of allocating the $5 billion in supplier aid, and that they’ll be using the money to settle old scores. According to AN‘s breezy prose, GM and Chrysler may “pass over” suppliers that have sought to protect themselves from OEM bankruptcies by demanding payment in fewer than 45 days or arguing that insolvency worries allow them to break contracts with the automakers. After all, the government didn’t think the supplier rescue money would go to the most in-need firms, did it?

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Automotive News [sub] reports that GM spin-off supplier Delphi has received approval from bankruptcy court to cut benefits to 15k non-union retirees. The ruling will save Delphi an estimated $70M per year, improving the chances Delphi will end its nearly 3.5-year sojourn in Chapter 11 restructuring. GM has been helping generously towards that end, having offered to buy Delphi’s steering component business for an undisclosed sum and funneled hundreds of millions to its crucial supplier. Or quasi-independent division. Or whatever Delphi really is to GM. The full text of the order in question is here (pdf). It’s long, so check out a few highlights after the jump.

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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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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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More news from Sweden:

“On thursday, supplier P-E Plast stopped their delivieries of parts to Saab in Trollhättan.

The owner, Patrik Ekwall, who runs the company since some months back, is afraid he won’t get paid for his deliveries, reports Swedish Radio (SR).

At Saab, no one answered when he phoned them. “We are wating for a reply” he says.

The last month, P-E Plast has delivered parts for 400 000 kronor (around 80 000 dollars) to Trollhättan. The company makes plastic details for the car industry, and a third of its sales goes to Saab.

In spite of the current circumstances, Patrik Ekwall hopes to keep the eleven employees.”

[thanks to Ingvar for the link and translation]

The General Motors spin-off of Delphi which never really was, isn’t. Today’s Wall Street Journal [sub] has another “people involved in the negotiations”-sourced story claiming that these latest moves are all “part of a strategy to qualify for additional government loans”. Delphi has never really been an independent company from the start. The obvious reason of course is that GM provides the vast majority of Delphi’s business. But more than that, GM is on the hook for Delphi’s pension costs, has paid the price for voluntary separations at Delphi and has repeatedly been the source of bailout bucks for Delphi. Considering that “since 2005, GM has poured in $11.7 billion to help sustain the company,” they might as well just call it the Delphi Division. But how do federal bailout dollars get wrapped up in this mess?

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Auto industry suppliers have been stuck between a rock (penny-squeezing OEMs) and a hard place (volatile commodity prices) for some time now. And though the Detroit Three argue relentlessly that their own bankruptcy would doom them in the eyes of consumers, bankruptcy protection has practically become the norm for their suppliers. Which is why supplier firms need a bailout of their own in order to give Detroit’s bailout a chance. Chrysler’s endless winter break, GM’s half-sized Q1 production plan and general industry turmoil is about to cause exactly what the bailout was supposed to prevent: cascading supplier bankruptcies. Bloomberg documents the doom in detail, concluding with American Axle’s Dick Dauch’s assessment that “there’s a shakeout occurring.” Unless…

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Bioengineering is one of the most promising technology trends out there, but besides a perennial design influence, nature tends to stay away from cars. Or is it the other way around? Anyway, biodiesel tends to hog the bio-car development attention, but a LiveScience post sheds some light on efforts to introduce vehicle interior components made from organic materials. A team from Baylor University have been experimenting with coco fibers, and have developed trunk liners, floorboards and car-door interior covers made from a coco-based composite material. “(Coco) fiber has very good strength, stiffness and ductility, and potentially can be used for all kinds of things,” says Baylor engineering professor Walter Bradley. Bradley’s team blends coconut husk material with polypropylene fibers before being hot-pressed (compression-molded) into required shapes. The coconut fiber provides a rigid architecture for the resulting material, which Bradley says does not burn very well or give off toxic fumes, which is key in passing tests required for use in commercial automotive parts. Bradley also extolls the virtue in using a waste by-product of the coconut milk and oil industry. “We are trying to turn trash into cash to help poor coconut farmers,” he tells LiveScience. The team is partnering with a local auto industry fiber supplier to develop commercial products.

When Toyota told the world that it didn’t want to see any of its American competitors go bankrupt, they meant it. And not purely out of fear of an anti-import backlash either. Toyota’s North American operations rely on many of the same suppliers as Detroit, and if GM were to go bankrupt, many of those suppliers could go under. This is especially dangerous for Toyota with its “just-in-time” production techniques, which is why contingency planning is underway at Toyota City to keep ToMoCo’s supply chain independently solvent. But as Bloomberg reports, that very contingency planning could eliminate the efficiency gains of the Toyota system, once dubbed “The Machine That Changed The World.” The lean, “just-in-time” system was developed on the model of American supermarkets, with components arriving as they are needed for the production process, rather than being mass-produced and stored until needed. Emergency planning includes possibly building up component inventories, which strikes at the heart of the “just-in-time” system’s competitive advantage. Still, a supplier bankruptcy would wreak even more havoc, holding up production lines until more parts arrive. The Japanese automakers have recently learned firsthand of the cost of supply disruption, especially among specialized (tier two and three) component makers. Last July, piston-ring maker Riken’s shut-down due to earthquake damaged forced eight of Japan’s 12 carmakers to temporarily suspend or cut manufacturing, leading to a total output reduction of at least 120,000 vehicles.

Recently, firms like Tesla have launched themselves into the public eye by trumpeting the meme that Silicone Valley’s innovation-driven culture will show the way for Detroit which remains mired in old-economy faults. And it’s a storyline that has yielded millions in venture capital and free media attention. The New York Times’ Thomas Friedman unintentionally brought this line of thinking to its point of absurdum by calling on Steve Jobs to “do national service and run a car company for a year.” But as our ongoing Tesla Death Watch consistently demonstrates, Silicon Valley automakers could still stand to learn a thing or two about, you know, actually producing cars from even Detroit’s most dismal. And then there’s this story from The San Jose Mercury detailling the extent to which Silicon Valley is dependent on business from Detroit. “As soon as the automotive industry coughs, a lot of other companies get a cold,” Gartner analyst Thilo Koslowski tells the Merc. “That includes companies in the semiconductor industry and that includes a lot in the Bay Area… It’s a relatively big market for them in Silicon Valley.”

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The other day, I told my mechanic I needed winter tires, and asked for a recommendation. “I’ll get you some Dunlops, they’re not bad, and cheaper than the Uniroyals you had last time.” When I asked him about rolling resistance and about tire wear, he looked at me like I was stupid, and repeated: “They’re pretty good tires”. So I looked at some car sites in the Internet, gave up after about five minutes, and ordered the Dunlops. Does buying tires have to be a “trust the guy in the greasy overall” event? The EU Commission (the executive branch of the European Union) says no, and intends to introduce new rules for labelling tires. The tire industry agrees that yes, change is probably necessary, with some qualifications, under certain conditions… Read More >

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.

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.”

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