TTAC’s Ken Elias was well pleased when Ford announced that it had trimmed $9.9 billion from its debt mountain by “convincing” investors to exchange debt for cash and stock. More specifically, Ford Motor Credit will use $2.4 billion in cash and stock to buy back the debt once the offer closes Wednesday. Ford agreed to pay investors about $380 in cash and stock for every $1,000 in bonds, or 38 cents on the dollar, according to company officials. As the BBC reports, removing call-it-ten-billion from Ford’s $25.8 billion debt lowers The Blue Oval Boyz’ interest payments by $500M per annum. FoMoCo’s stock rose sixteen percent on the news. Yes, well, Fitch Ratings isn’t planning a fiesta just yet. The Wall Street Journal reports that the agency isn’t impressed with Ford’s cash burn. Or rather they are, just not in a good way. And who can blame them? Last year, Mulally’s minions torched . . . ready? $20.7 billion. Remember: all the really bad news arrived at the end of ’07. Fitch analyst Mark Oline was sanguine. “Using liquidity reduces any buffer which they could need if the sales markets don’t improve in 2010.” If? Standard & Poor’s is also non-plussed . . .

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Matt writes:

I currently drive a 2001 BMW 525it (Touring) which has been a pleasure to drive. Unfortunately the repair costs are starting to drive me crazy and leading me to consider replacing it with something newer, warrantied, and more reliable. The budget allows for approximately $25K CDN total on either a new or gently-used car.

The requirements are that it must be a hatchback/wagon, must be a manual, and should be able to seat 6′ passengers in the back seat. I’ve racked my brain trying to think of a suitable replacement, the leading contender at the moment is a VW Rabbit, although I’m less than impressed by the 5-cylinder lump under the hood. I did have high hopes for the Mazda3 Sport but after trying it out I was less than impressed. So any suggestions, or should I just keep funding my mechanic’s kids’ university education?

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[written by TTAC commentator FreedMike] I’ve been shopping these two cars (much to the annoyance of the local BMW and Infiniti dealers, but, hey, it’s MY 40 large, not YOURS, so I’ll be picky if I wanna be). So I’m VERY familiar with them. I don’t know why TTAC’s comparison was between the 324-hp G37 and a 328 that gives up about 100 HP. The G37 will eat the 328 for lunch. The real comparison is between the G37 and the 335.

A TTAC reader writes: “Did you read the Wards AutoWorld article about how full Chrysler’s product pipeline is?  So inaccurate. I had to throw away the magazine because of it.  As a former product planner for Chrysler up until April of last year (on the Jeep WK (Grand Cherokee)), I can tell you the state of the business that I knew.

There was plenty of pinching on the interiors of the cars. We called it the “thousand dollar challenge;” which included reducing the amount of leather in the car seats (think lower back and where your butt is, but not the back of your thighs; all else vinyl). At the same time, unrealistic volumes were driving business decisions, with calculations for how JNAP [Jefferson North Assembly Plant] will be filled on three shifts for WK, endless management reviews and preparation for management reviews—leading up to a canceled product (CT, WC).

Chrysler tried to make product lines profitable by figuring out how to maximize profit by take rates and bundling. Eliminating an engine on the vehicle ultimately makes sense for reduction of complexity, but from a business case perspective, it is almost always negative (upcharge on the optional motor).

Now working in a different industry altogether, I get a sense of just how management-focused Chrysler had become. That is something the Germans can take credit for. There’s much more structure in the product development process, with the resultant inability to make a decision and endless preparation for meetings.

The “dream team” that Cerberus built was not. Specifically, the two Toyota execs were remedial. Jim Press was well liked internally, but Debra Meyer was not overly bright. She spoke and presented well, but she didn’t know cars.

I hear now that if you discuss the understaffing of ENVI relative to their proposed task you face retribution. I’ve also heard that the Jeep Patriot concept car/electric vehicle was nothing more than an interior (with cool cluster), Viper style wheels, and some other minor stuff. Nothing electric about it. Good PR tho.

They actually lost almost 35-40% of their staff in the Nov 26 buyout of white collars, not including the additional 10% they retired early (totaling then almost 50%). Of my product planning department, exactly none were left.

Brand Management and Product Planning have since been merged, an event that took until January to announce. They lost a month because they didn’t know who was going to be left, they didn’t tell people before they made a decision what was to be their future etc.

Look what happened to Mopar guys. They were mostly contract guys working for a 93 grade band supervisor. They outsourced all of the jobs to suppliers and transferred some of the contract guys over there.

XXXXXX XXXXXXX  was one of the suppliers (plastic injection stuff among others). They told their guys that they were not able to work them the full 40 hours a week due to financial limitations (payments from Chrysler?) and that they’d get one day off a week (in addition to the 10% pay cut). THEN they said you need to work five days a week and simply book those comp days for the future (where you’ll never get to use them).

They really don’t have any idea of how to approach their business. They are building a WK (2- row only), a WD (3-row Dodge), an LX that the dealers council said needs to look more different than the existing model (the one that they showed in the filing to the government to get more dollars was the revamped one, the one before was even more vanilla but not much different), and no other product that I am aware of.

I heard (was not directly involved) that the D-segment quotes from Nissan were within single digit dollars of their projected internal costs to do it inside. With only 100 people on that platform working previously, they were definitely going outside. Now virtually all of those people are gone (retired or bought out).  Normally 600–700 are required on a platform.

Internally, a platform’s profitability depends on how much overhead is assigned to it. The WK  was over-assigned overhead, to the point where it was always negative. Usually it was based on sales + an arbitrary amount decided by management. The WK was always under water with the fully accounted system we used (DCAV). But I think it was an attempt to make the platform stretch for profitability (hence the unrealistic volumes).”

Unintended consequences are the meme du jour in blogoville. Here comes a juicy one: Grapefruits. Carmageddon is severely upsetting the international grapefruit trade, the Nikkei [sub] reports. Here’s why:

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Look, I hate to be the one to tell you, but the Chevrolet Volt is dead. Now that The Presidential Task Force on Automobiles (PTFOA) has slammed the electric/gas Hail Mary as a pie-in-the-sky PR-driven panacea, it time to throw in the towel. I know: “While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable.” This little ditty gives Volt boosters something to cling to and argue about (Toyota didn’t make money on the Prius for three hundred years!). Surprisingly enough, it appears that the PTFOA’s Mr. Rattner has set aside green dreams for a little something called business. So just let it go, Automotive News Europe [sub].

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Ten. My local Chevy dealer has ten Chevrolet Tahoe Hybrids on his lot. At $56K. Each. That ain’t right. GM was going bankrupt when they unleashed this beast. They should have said screw it; let’s show those sanctimonious greenies who’s King of the World (Ma). Let’s peg the price of the Tahoe Hybrid to the Toyota Prius and run ads saying Yippie Ki Yay, Motherfucker. Have one last line of four-wheeled blow before everything goes to Hell. Instead, once again, GM walked away from a terrific vehicle in pursuit of the Next Big Thing. You heard me: the Chevrolet Tahoe Hybrid is a technological marvel that rocks. Deal.

The morning after U.S. new cars sales fell prey to the ides of March, ToMoCo’s MD sent General Motors a get well card. Yasuhiko Ichihashi told the AP that “Toyota was only hoping for an overall recovery for the U.S. auto industry, including GM.” Mr. Rising Tide Lifts All Boats (a.k.a. We’re All In This Together-san) said what’s bad for the U.S. auto business is bad for Toyota, as they share parts-makers. (A popular meme amongst the Bailout Buffet crowd.) What’s more, Ichihashi reckons GM’s collapse would depress “consumer sentiment.” GM’s filed for C11, I’m too bummed to buy a Toyota? Huh. Not mentioned: GM sets the floor for U.S. car prices and quality. If The General takes a powder, Toyota’s prices will fall, profits will sink and quality would have to rise. Honda had nothing to say about yesterday’s bloodletting, but previously, on “who wants to enlarge its U.S. market share,” HoMoCo president Takeo Fukui noted, “[it] has been a rare exception among Japanese auto executives in acknowledging publicly that weaker competition could in the long run present an advantage for Honda.” Ya think?

And once again, the big T (via PRNewswire) proves to not be invulnerable to the weak sales environment. Toyota division sales were down an even 36 percent, but Lexus swooned slightly more, shedding 40 percent of its sales compared to last March. Scion models dropped between 50 and 60 percent, while Corolla proved more resilient than Honda’s Civic, dropping only 7 percent. Similarly, RAV4 and Lexus RX were off only 4.5 percent and 17 percent respectively, compared to 40-75 percent drops for nearly every other Toyota truck and SUV. Sequoia was also a surprising “could be worse” example, with sales staying over 2k monthly sales, falling only 20 percent compared to last March. Still, with sales like this it comes as no surprise that Toyota is dropping its second-half dividend.

Most auto industry observers have lauded President Obama’s decision to defenestrate GM CEO Rick Wagoner and his Board of Bystanders. Their logic is as simple as one, two, three. One: U.S. taxpayers have “loaned” The General billions of dollars. Two: GM’s management failed to provide a viable viability plan to return the money. Three: the presidential putsch protects America’s “investment” in General Motors. Yes, well, protect THIS. When GM files for bankruptcy 59 days hence, $17.4 to $19.5 billion worth of taxpayer money will disappear down a rathole, never to return. That’s a conservative estimate of the total amount of federal “loans” and grants and God-knows-what that will be wiped out the moment the judge signs GM’s C11 papers. Oh, and after we kiss that cash goodbye, U.S. taxpayers will provide the cratered car maker with debtor-in-possession financing. In other words, more money. And who’s to say that money will ever be repaid? What’s the end game? Is there one?

President Obama justified his intervention in the American automobile industry with a vision of a revitalized General Motors. (Chrysler not so much.) With Uncle Sam’s help, GM will one day rise again. It will produce the clean-running, high mileage vehicles of the future, built right here in the U.S. by yada yada yada. Seriously? Does anyone seriously believe that a post-Chapter 11 General Motors will build and sell products that will be the envy of the world?

Post-C11, GM will trim down to two brands: Chevrolet and Cadillac. Costs will be cut to the bone. The United Auto Workers’ power will be denuded. Legacy issues? Banished. Bloated dealer network? Decimated. GM may even emerge from C11 with a Mulally-like leader and a fiercely independent and intelligent Board of Directors; ready, willing and able to reinvent GM’s poisonous corporate culture. And then . . . GM will face a leaner, hungrier, larger Honda, Nissan, Toyota, Hyundai, VW and Ford.

Good luck with that.

Once upon a time, GM could have entered bankruptcy, cleaned its own clock and survived. The talent locked-up inside the artist formerly known as the world’s largest automaker could have been refocused, redeployed and redirected. But CEO Rick Wagoner couldn’t see the diem, never mind carpe it. His delay and denial made GM’s recovery both more expensive and less likely.

Amongst other Shiva-like maneuvers, Wagoner created four sales “channels” for GM’s eight stricken car brands, trading internecine warfare for outright paralysis. As resources diminished, the key question—who makes what for whom when, where, why and at what price point—became a Gordian knot. “Why” became “why not” became “whatever.” A Cadillac sports wagon? You betcha. GM’s last next big thing, the pedestal-dwelling plug-in hybrid Chevrolet Volt, is the poster boy for the company’s headless chickenism.

And now, nothing. GM Car Czar Bob Lutz has retreated into the shadows, counting the days until he collects his bankruptcy-proof pension, watching as the company’s creative process (such as it is) slips into chaos. Meanwhile, GM’s Best and Brightest have left the building. The Presidential Task Force on Automobiles (PTFOA) rightly ripped Red Ink Rick’s ridiculous rabble a new REDACTED, but their “restructuring fact sheet” makes one wonder about their ability steer a course into the future. What’s the plan, Stan?

“The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe.” PC it may be, but that hardly sounds like an ideal recipe for world-class Cadillacs. Which leaves Chevrolet. Trying to play catch-up with battle-hardened, technologically adept, customer retaining competition.

Again, good luck with that.

Fifty-nine days from today, GM will file for C11. Chevy and Cadillac will eventually emerge from the rubble. The chosen ones will survive until they come off the federal teat. They may even survive after that. But they will be damaged brands—welfare queens tainted by their association with the federal government. Even if Chevrolet and Cadillac create world-beating products with industry-leading customer service, they will have the stench of corruption. Their logos will be a malodorous reminder that they achieved their success off the backs of the American taxpayer, rather than honest labor.

OK, maybe that’s a bit much. Americans love a comeback kid. And what late 1940s industry expert could have predicted that his fellow countrymen would elevate Japanese brands to the top of the family and luxury car sales charts? But do we really have to pay twice for GM’s resurrection?

If General Motors had filed for Chapter 11 when they coulda shoulda, no tax money would have been harmed in the making of this [entirely theoretical] renaissance. As it currently stands, there is no end point. Sure, Chrysler repaid its loans way back when and . . . oh dear. Despite all that government help they’re in a bit of mess now aren’t they? You know, in a DOA sort of way. So maybe, just maybe, government assistance is a form of assisted suicide. Perish the thought.

Automakers are cutting second quarter production plans by double digit percentages, as the US auto market continues to contract. Automotive News [sub] cites CSM Global’s estimate that North American auto production will not top 2.07 million units, the lowest level since “at least” 1981. And though GM, Ford, Toyota, Nissan and Honda are expected to cut production in the 30-40 percent range, the worst news comes from Chrysler. The Cerburian dog is “selling the majority of their vehicles out of inventory,” says CSM’s Michael Robinet. “They are trying to get much more realistic about production levels.” How realistic? Expect a 60 percent cut in production for the second quarter, and under one million units of total North American production on the year, reckons CSM. That’s well below Chrysler’s 1.6m annual production plan from its original viability plan.

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The U.S. government (ostensibly representing “the taxpayers”) is right to insist on conditions to the second round of federal loans to Chrysler and GM. As always, the devil is in the details. As always, the government has put politically motivated strings onto every moving appendage in this latest example of federal largess. The fundamental question here is not whether or not these strings– from a shotgun marriage between Chrysler and Fiat to a GM bondholder haircut– will rescue either company from liquidation. It’s whether or not the federal government should be involved in bailing out any company in any industry. Period. Though others may disagree, I believe that only companies absolutely essential for national defense/security might qualify for direct taxpayer support. Might. Otherwise, NFW.

This is not a left/right debate. When President Bush approved $17.4b worth of bailout bucks for GM and Chrysler– against the wishes of Congress– the Republican administration lost any credible claim that they were friends of the free market. This brazen betrayal of stated principles paved the way for the Obama administration to go whole-hog into national industrial policy. Although the sitting president is selling his latest plans for Chrysler and GM on a rational economic bases, his intercession is, in fact, a purely political maneuver. Bailout II is not designed to “save” the American auto industry. It’s tailored to favor, through political policy, certain groups at the expense of others.

In this case, the second round of bailouts is meant to ensure that the United Auto Workers (UAW) survives intact and unscathed from a debacle that is, in part, a product of their own intransigence and short-sighted greed. (Although the union’s democratic support is a given, Obama didn’t ascend to the highest office in the land without remembering to secure and nurture his base.) As a secondary goal, the still undisclosed amount of federal money headed towards Chrysler and GM is aimed at “encouraging” Detroit to produce “green” cars. High mileage machines that conform to president Obama’s and the Democrat’s political priorities– the free market be damned.

Economics (the free market variety, anyway) is all about creating wealth and expanding “the pie.” Politics is about dividing wealth up in a zero sum game: someone wins, someone loses. This is why socialism ultimately fails every time it’s tried: it subordinates economics to politics; wealth making to wealth sharing. Profit incentives to create and expand are sacrificed to punitive political incentives to conform and obey. Ultimately, there is little wealth left to share. The same endgame applies whether you’re talking about an entire economy, or a single industry.

On Sunday, U.S. Treasury Secretary Geithner refused to be drawn out on a simple question: is GM too big too fail? Geithner claimed he didn’t want to preempt the president’s announcement. In truth, he didn’t want to even admit the possibility that doing nothing, simply letting GM and Chrysler fail, was a viable alternative. But if GM and Chrysler had been refused new funding, what would happen in the long run– aside from the inevitable short-term pain the companies, their employees and shareholders (and bondholders) would have to suffer? The same thing that happens when any business or industry goes bust. New opportunities arise.

Opportunity eventually finds its way to create new businesses and industries out of failed ones. Over time, sales lost by either company would have been absorbed by other automakers, helping to maintain their “viability.” To a certain extent, other auto companies would have picked-up the jobs lost by either Chrysler or GM. Other industries would eventually absorb “excess” jobs. Over time, Ford, Honda, Nissan, Hyundai, Toyota and others would assume GM’s and Chrysler’s “lost” production, at least to the extent the market demanded it. The concomitant industry supply chain would cater to the new source–and level– of demand.

In other words, if market forces for punishing failure were allowed to actually work in this case, far from being the end of the world, the auto industry would eventually emerge HEALTHIER, with far less excess capacity and more productivity. The result would be a much better, more profitable business overall. This would in turn actually ATTRACT capital into the auto industry, and set the stage for long-term growth.

But no, we can’t stomach losing jobs in the short run– especially union jobs. So instead of letting nature take its course, the federal government spare us the pain that comes from producing goods or services that the market doesn’t want. And in doing so, president Obama and bailout suporters guarantee the laws of unintended consequences will have their day. The Brits learned this lesson the hard way back in the ’70s. So why are we bent on repeating the British Leyland epic failure here? Are we really that weak, cowardly and naive?

I know, huh? Anyone who spent five minutes thinking about Motown’s $42.4 billion (and counting) feast at the federal bailout buffet would figure out that the beneficiaries are using tax money to discount their products—to support an unsustainable small market share. OK, that last bit’s a bit technical. But the bailout = discount = unfairness media meme is just gaining traction in the MSM. And it’s no small point. As I’ve pointed out here before, those federally-sponsored new car discounts effectively punish automakers who didn’t run their companies into the ground and threaten their products, profits and jobs. The Detroit News wakes-up to the story this morning. Chrysler, you are the weakest link.

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Our president recently hit the late-night talk show scene, giving all a taste of the “Washington Bubble.” He’s not alone: Judging by the comments around the Interweb, every red-blooded American automotive journalist totally hearts the 2010 Taurus SHO. But does the journos’ wish for a reincarnated SHO jibe with the harsh reality of Ford’s market demographics? Or to paraphrase Norm MacDonald, “while the SHO may not prove anything, it certainly does nothing to disprove the theory that Volvo-based Fords are a waste of money.” Yeah, it takes brass balls to knock a car you’ve touched, but haven’t driven. But the circumstances around the all-new Taurus give me pause . . .

First off, how often to you hear about the regular Taurus? One key to the SHO model’s original success: The bread-and-butter version stood on its own for three years before the SHO’s arrival. But the average 2010 Taurus is almost old hat: We’ve seen this story unfold the past five years and nobody (with an open checkbook) cares one way or the other. Just like its 2005 counterpart, the latest version of the Taurus will be a respectable car. But this does nothing to disprove my theory that Volvo-based Fords are a waste of money.

Second, what makes lightning strike twice? Styling. Much of the first model’s interpretation of the Euro-Sierra worked. The 2010’s “kinetic” energy comes from the Mondeo. Only not so much. In pictures and in person, the Taurus fails to inspire. It’s no flying jellybean: There’s a Subaru-ish nose and a host of sheetmetal adaptations of the badass Ford Interceptor concept on the dorky hard points of the D3 chassis. Yet Peter Horbury, Ford’s North American design director, proclaims, “like the 1986 original, the new 2010 Taurus differentiates by combining style with substance.”

Too bad about that. There’s an obvious difference between a clean-sheet creation and a quickie conversion of a (failed) platform. Even worse, the 2010 Taurus redesign loses the previous model’s quarter window for black C-pillar trim, giving the illusion of a sleeker profile from a longer DLO (daylight opening). Which almost works—if you ignore the fat-assed beltline and tacky faux ventiports. No surprise, cash is tight and the basic badness of the D3 must remain intact.

The first two generations weighed around 3,300 lbs.; the engine put out torque-steer-free 220 hp; and there was a readily available manual transmission. The Taurus SHO was stupid fun in any dynamic event. Plus, the previous 100 percent American chassis scored safety ratings on par with Volvo sedans of the time.

The latest SHO is the Fat Elvis of sport sedans. The engine stumps up 365 hp, there’s mandatory all-wheel drive and automatic transmission, and a curb weight around 4,300 lbs. (300 lbs. over the Pontiac G8). The safety is stellar (because it is a Volvo). Given the feature creep of the Ford Flex, the SHO could sticker north of $35 large. With options, maybe over $40 grand. How great is that? I’ve voiced these concerns to pistonheads around the web and one answer comes back: Nobody pays sticker for a Ford, just wait for the discounts. So maybe this is a Taurus after all.

And if taking the Ford Taurus up to a dee-luxe apartment in the sky was bad enough, Ford didn’t learn from others’ mistakes. The Toyota Cressida/Avalon and Nissan Maxima prove that unique platforms for poser luxury sedans are out of the question. Mulally loves the Taurus, but he forgot its intrinsic appeal. The four-door was the go-getter working late nights in a cubicle, not an endowed trust-fund baby overdressed in a tuxedo at a garden party.

Not to mention the critics were proved right when calling out Ford’s decision to split the original Taurus’s market with two nameplates on two foreign chassis. It was a colossal falure in 2005. And 2008.

Come 2010, it will be three strikes against Ford’s great experiment. And even with the SHO’s halo, the market for Volvo-Fords over $30K is not promising. Which spells doom for the company spending millions (billions?) supporting a unique platform that’s yet to justify its existence to a fully leveraged Blue Oval. And with Volvo on the chopping block, what exactly does Ford expect to gain from billions of dollars in sunk cost?

If this “cut and run” attitude sounds unpatriotic, consider what Dearborn’s finest could’ve done with the money spent on the Taurus’s three generations of continuous improvements. With Mulally’s blessings, the Blue Oval Boyz could have used the money to make a Camry-killing sedan by now. But the saving grace now belongs to the Ford Fusion and its Hybrid halo. The writing is on the wall: Nobody gets a free ride. If the 2010 Taurus fails to SHO up with some cheddar, this dead weight has gotta go.