So there I was, browsing a Bloomberg (three terms or bust!) story about automakers fessing-up to the fact that electric vehicles must take a back seat to “normal” fuel-efficient small cars– which is a pretty good piece of Parisian bloggage in and of itself– when BANG! I run smack dab into a quote from the highest paid auto exec on planet Earth: Porsche SE Chief Wendelin Wiedeking. “Do you believe people will actually switch to smaller cars?” Wendy asked, in the midst of discussing Porsche’s yet-to-unveiled fuel-sucking four-door. Uh, yes? Nein! “This car fits into these times,” Wiedeking insisted. “You should go on a journey in a small car with your four-person family. What will happen is you will have had enough when you get to the border after a couple of kilometers.” Hmmm. Why is Wendy dreaming of heading for the border? Of course, by “people” Wendy means the same sort of customer GM Car Czar Bob Lutz referred to when confronted by the fuel-suckage of the then-new GMT900 SUVs (i.e. rich people don’t care about the price of gas). Meanwhile, back in the world of mass motoring, GM Europe Prez dismissed the impact of his company’s Hail Mary plug-in hybrid Volt: “The ordinary guy has to be able to afford these technologies, and the technology in the beginning will be quite expensive.” Toyota, for some reason, gets the last word. “The Japanese company’s executive vice president for strategy, Mitsuo Kinoshita, was more blunt about a world without low-emission technologies that supplant gasoline. In that scenario, ‘There is no future for automobiles.'”

Consumers will not buy a new vehicle from a bankrupt carmaker. That’s the over-arching fear preventing GM from filing for a court-managed rescue: a total collapse of consumer confidence in the company’s products. History suggests that a GM C11 would indeed trigger carmegeddon. Ask an automotive  historian to name an American automaker that filed for bankruptcy, survived, emerged and thrived and you get a doughnut-hole shaped answer. But I submit that GM will reorganize successfully. C11 will be a new beginning for GM, its suppliers, dealers, workers and, yes, customers– not the end of everything. But let’s start from the corporate perspective…

Even though GM’s burning through billions it needs for a successful bankruptcy exit plan, the American automaker will still have a number of important assets which will aid its recovery. First, GM’s already accomplished a considerable amount of restructuring, having lowered its structural costs to almost meet its target goal of 25 percent (down from 40 percent). There is plenty of fat left to cut (Gulfstream jets anyone?), but much of the trimming has already been accomplished. Equally important, the company’s stultifying “job for life” mentality may not be gone, but it’s definitely packing-up its things.

Second, GM benefits from the fact that the entire organization will not be in bankruptcy, just its corporate parent and the North American operations. GM’s ongoing, somewhat healthy foreign ops will provide more than just a semblance of normalcy. They will offer the prospect– only now just becoming realized– of global products that provide tremendous economies of scale. That’s once GM jettisons the bureaucratic fiefdoms inherent within its bloated brand structure. THEN it can really tap into worldwide expertise to reduce costs through global platform sharing and reinvigorate its small car portfolio in the USA.

Third, GM has tremendous political capital. Losing GM (and its supplier base) entirely would be just too much to bear for an American President and Congress. While a Federal “solution” may not be forthcoming in terms of cash money, some of the issues which management will (in some cases correctly) blame for the bankruptcy will get new attention: health care cost containment, tort reform, labor laws which rebalance management/labor negotiations, and possibly some rethinking of Corporate Average Fuel Economy and CO2 emissions standards. Measures in these areas will help a new GM get its bearings.

Fourth, Chapter 11 protections will give GM access to fresh sources of capital.

C11 will give GM the freedom to do what it should have done decades ago, but can’t afford to do now. The company can cut dealers, shed even more labor, close factories, reduce long-term liabilities, trim brands, slice models, eliminate duplication and so on. Yes, once this root and branch restructuring is accomplished, GM will emerge from Chapter 11 with a smaller market share and lower sales. But it will be significantly leaner, with two brands (Chevrolet and Cadillac), and one of the lowest costs structures in NA. This “new GM” will be able to attract both investment and world-class executive talent.

From a customer’s point-of-view, as I stated in the previous installment, consumers will see GM stores (albeit in fewer locations) stocked with vehicles offered at tremendous pricing. Americans are mostly payment buyers of cars– and lower prices mean lower payments. Existing owners and new buyers will get a separate new car warranty policy issued by a major property and casualty insurer as a backstop to the GM warranty, valid at most national repair shops, thus allaying any fears if GM closes up shop. Kind of like FDIC insurance for depositors.

GM will continue its online and national media efforts touting its vehicles as if all is well. Most of this effort will shift to Chevy and Caddy– every other brand will fade from promotion before they’re officially pronounced as dead. The American public may fear buying from a bankrupt company initially, but enough TV advertising will reassure them that the company is alive and well and doing the deal.

During this reorganization period, Toyota will enter a crisis– at least at its executive levels. They’ll know that the tea leaves point to a rejuvenated General– concentrating its firepower at two brands– with a lower cost basis, without excessive debt and labor burdens. The U.S. is Toyota’s big profit generator; it can get away with charging more for its products against a weak field of domestic competitors. If Ford does the same as GM in the USA, the easy profit days for Toyota will be over. Toyota will become the GM of yore, with too many products, an older and more expensive labor force, and no competitive advantage.

GM just has to make it through its reorganization. As always, the key question is leadership. GM’s Board, who precipitated this disaster as they stood by their man, Rick Wagoner, can’t remain in place.  Otherwise, it will just be another opportunity missed as the empire finally craters for good.

Detroit’s Big Three are in serious trouble. That’s not news to anyone. Toyota and Honda, while suffering sales decreases last month, are still in the black. But the big question is where the future of the American automotive industry is – if there is one. Even if the Big Three don’t completely vanish, their continued downsizing will leave boatloads of engineers and mid-level execs without a job. Is the Silicon Valley model of business the future for the automotive industry for the next twenty years? Tesla seemed to raise plenty of dough despite immense production issues. And Carbon Motors is attempting to crank out a custom-built police car. There’s no way tiny companies like these could build enough cars for the entire US population. Nor could they compete with big boys like Toyota. But we might see a boom in purpose-built vehicles coming from smaller companies. Dodge Vipers from whoever buys the program. Electric sports cars from Tesla. An electric sedan from somebody. Carbon Motors’ police cars. Single-purpose taxicabs. And so on. Even after the small companies consolidate, it would be a clean start for the American automotive industry. Is it going to happen? No. But I’m just sayin’.

Up to September, Toyota was weathering the new sales storm with relative grace. Sales volume has been dropping, but market share never declined the way it did last month. To stop the bleeding, ToMoCo is announcing a zero-percent interest promotion, hoping to lure in showroom traffic in a tight credit market. Of course luring in traffic and offering truly great deals aren’t one and the same. Toyota’s most popular and fuel-efficient cars are conspicuously absent from the list of qualifying nameplates, which includes Matrix, Corolla, Camry, RAV4, Highlander, FJ Cruiser, 4Runner, Sequoia, Sienna, Tacoma and Tundra. Further limiting the impact of this promotion is the increasing rarity of “well-qualified buyers.” Automotive News (sub) says one reason Toyota is reaching for incentives is the relative success of GM’s “Employee Pricing For All” deal, which is credited with helping the General regain ground against Toyota in September. Ultimately, Toyota may be the only automaker with the financial resources to offer low interest deals on so many vehicles, including the compact Corolla and Matrix. “And at the end of the day,” says Christopher Richter, an auto analyst with CLSA Asia-Pacific Markets “I don’t think the costs to Toyota will be that great.” There’s no doubt that showroom traffic should increase, and even if sales don’t pick up dramatically, the offer places a foot on the throats of Toyota’s value-positioned American competitors. Stay tuned for more details when October sales numbers come out.

Now that Ford CEO Alan Mulally has written-off the chances of an auto industry sales receovery for 2009, his Detroit brethren have decided to join the Greek chorus bemoaning their fate. Bloomberg caught up with former Toyota and current Chrysler Prez Jim Press in Paris to hear the bad news. “I don’t see any `whys’ why it’s going to be any better,” Press announced. “We’re already adjusting to this level pretty well. We’re learning how to fight through it. It’s hand-to-hand combat. It’s tough.” Especially if you don’t have a golden parachute strapped to your back. GM’s Fritz Henderson, also not staying at a Timhotel, was slightly less pessimistic about the year ahead. “Even if [the $700b federal bailout plan] does pass, I still think that ’09 will be weaker,” the COO told Business Week. “I don’t see anything which would suggest that you’d see a significant rebound, at least in the first half.” And then Fritz says some scary ass shit. “If the situation deteriorates further, we’ll have to look at further actions, but we don’t have anything planned today.” And… “Henderson said GM’s liquidity plan was based on a forecast of industrywide U.S. car sales of 14 million this year and next. ‘At the time we felt that was a conservative level. Given what’s happened, I’m glad we chose a conservative level because that could well be the level it lands at.’ Uh, Dude, we’re looking at sales WELL under 13m, maybe closer to 12. To paraphrase Sweet Pete, that’s a spittoon full of not good.

Toyota has been showing concepts, prototypes and mock-ups of its 3+1 city car for the last four or so European motor shows, but here in Paris, it’s the real thing. The theory of the design language is silly; Toyota calls it “vibrant clarity” (that’s a state of mind I’d associate with inebriation). But the design itself is strong, clean and forward-looking. I stood in line to check out the interior of this microcar and found it conspicuously well-designed and made of high-quality materials. It didn’t quite pass the international test of anal-retentiveness (“do all surfaces refuse to give way when pressed, and sound similarly solid to a rapped knuckle?”). But don’t forget that this is a tiny, lightweight car. And a wonder of packaging. My claustrophobiac 184 cm body (that’s six feet to you Yanks) found the driver’s and two passengers’ seats snug yet uncramped. For Toyota, the big question is, how the hell to sell the iQ at a profitable price– meaning a higher price tag than its larger models? This is where new technology needs first-class marketing. If they can pull it off, then a Smart death watch may be in order.

Nissan’s concept cars have been pretty impressive for the past few motor shows. There was the Pivo, a toyish-but-feasible city car that had electric motors in the wheel hubs, enabling it to do 360-degree turns. It was a bubbly, friendly vision of driving in the future. Then Nissan presented the Mixim, which looked like Darth Vader’s mask on wheels. The idea was to make an urban electric car that looked serious, even aggressive. Both owed their design language to Mangas, guaranteeing a certain attractiveness to teenagers. Today in Paris, Nissan unveiled the Nuvo which is equally electric and inspired by Japanese comic books, but in addition integrates nature-oriented themes such as flowers, and recycled materials. I like it, despite its megalomaniac motto claiming it’s “the future of the city car”. Any car that sports a new design language has my sympathies. The Nuvo is a 3+1, comparable in packaging to the Toyota iQ. Nuvo is to be rolled out in the context of the Better Place pilot projects in Denmark and Israel 2011. The Nissan guy I spoke with claims the agressive style of the Mixim doesn’t work for urban drivers, so they had to go for something softer. This may be true for Japan and some countries in Europe, but otherwise I would beg to differ: Germans find cuteness alarmingly unserious, and Americans feel emasculated by anything distinctly unmacho. Still, it’s a fine design.

Dow Jones’ Kathy Shwiff really should read her colleagues’ work. The lead of Schwiff’s morning-after mop-up of September’s auto sales debacle remains oblivious to Sharon Terlep’s conclusion that fleet sales saved GM from a total rout. “The heightening of the credit crunch at the end of the month saw showroom traffic tumble for a number of auto makers, but General Motors Corp.’s (GM) sales decline – half that of rivals Ford Motor Co. (F) and Toyota Motor Corp. ( TM) – showed that the right incentives can work. GM’s results were boosted in late August and last month by the return of an old standby – employee pricing. That helped the auto maker’s sales fall 16%, a less severe decline than many analysts expected.” Speaking of that Ford drop, FoMoCo sales analyst George Pipas got his freak on. I mean, freaked out. George said September sales levels and showroom traffic were “tantamount to a natural disaster” or the days after the Sept. 11, 2001, terrorist attacks. Surprisingly, then, FoMoCo doesn’t share GM CEO Rick Wagoner’s bailout boosterism. “Ford economist Ellen Hughes-Cromwick noted the recent freeze in the short-term credit market affects businesses more than consumers, but marketing chief Jim Farley said he has seen lenders require higher down payments because they want to see more ‘commitment’ from buyers.” Uh, doesn’t Ford Motor Credit handle that stuff?

It really could have been a lot worse. Or, as GM puts it, “”GM outpace(d) major competitors this month… total September sales were down 16 percent compared to an industry decline anticipated to exceed 20 percent.” Yes, well, there’s this little matter of “Employee Discount” pricing inflating sales and eating into margins. And fleets. Let’s not forget the fleets. Anyway, while metal was moved, everyone took a hit for the team; all eight GM brands posted significant losses. Chevrolet was down 11.2 percent; Cadillac was down 39.1 percent; Buick dropped 20.5 percent; Pontiac fell 26 percent, Saturn skidded 10.8 percent, and Saab continued its erosion by 27 percent for the month. A handful of models made headway. The Chevrolet Malibu rose a staggering (and suspicious) 62 percent (fleets!). The Impala increased 17.1 percent. The Pontiac Vibe co-production (with Toyota) jumped some 90 percent, to 5703 units. AS for gas – elctric non-sequitors, “For the month, a total of 1,957 hybrid vehicles were delivered as GM hybrids continue to gain in popularity in the marketplace.” Remind me again how many billions GM spent on its two-mode hybrid system?

Not even giants are impervious to the economy, tight credit, and lack of buyers. Toyota watched as its once mighty sales dropped 32.3 percent overall, with the Toyota brand falling 28.9 percent and Lexus down 33.4 percent compared to September 2007 (the latter two numbers were reported as adjusted sales stats). The Camry and Corolla both took 24 to 25 percent plunges, falling by 11k and 8k units respectively. The Yaris was approximately consistent at 5,700 units sold compared to 5,900 last September. The fuel-sipping media darling Prius dropped some 13 percent to 10,873 sales this month. As for Lexus, everything was down by double digit percentage points. The cash-cow ES350 (that’s the fancy Camry) was down a whopping 37 percent; the pathetic SC430 moved a laughable 129 units. On the truck side, business was worse. The Tundra died on the lots, with sales falling 60 percent. The crucial RAV-4 was down 28 percent, and the Highlander dropped a similar 30 percent. The only real good news: the Sienna stayed oddly consistent at just under 10k units this month, and the Sequoia increased about 1k units (for a still tiny total of 2,030). All of the Scions were also down by significant margins.

A large percentage of TTAC readers arrive here via a Google search of a specific vehicle. They know nothing of– nor care much about– our “take no prisoners” editorials or Inside Baseball auto industry analysis. So, in their honor, let’s start with THE key fact: the VW Routan is a rebadged Chrysler minivan. Rebadged as in mildly reworked. So why buy a VW Routan instead of a Chrysler product? For the same reason you’d buy a Chrysler minivan over a Honda Odyssey or Toyota Sienna: no reason at all, really. But there’s more to it than that. At least in theory…

If there’s a poster car for wholesale heaven, the Mercury Milan is it. No surprise in my neck of the woods. The oft-forgotten sibling of the Ford Fusion is flogged by a dealer network dwarfed by Ford’s name brand Goliaths. More to the point, around Atlanta, it seems like Lincoln/Mercury dealers are either closing shop, changing brands or giving-in to the white flag of consolidation. I saw over 50 Milans today. Only 10 sold. The number of Lincoln Mercury dealers buying? Zero. The Toyota Prius, on the other hand, is on fire. I saw a low-end 2004 model go for $15,800. When you incorporate the auction’s fee, that equates to a $2500 premium over a similar Prius on Ebay’s completed items section. Near-new Priora are following suit. Low-mileage 2008 examples were only going for around $21k a few weeks back. Many of them are now selling in the $23k to $25k range. When the Prius factory comes on-stream in ‘Ole Miss, prices should ease. But will they? A rising tide may lift all boats, but the Volt begins life seriously outgunned.

Toyota begins assembling its Prius hybrid in Tupelo, MS sometime late in 2010, and you can expect this development to spawn some form of flag-waving PR from ToMoCo. After all, repositioning itself as an “American” company has been the central project of Toyota PR for a solid decade. But Automotive News (sub) reports that the Prius’s top supplier Denso has no plans to initiate production of hybrid components in the US… or anywhere else, for that matter. “Components used for hybrid vehicles are now experiencing very dramatic change and advancement,” says Denso CEO Nobuaki Katoh. “Given this timing, I still think the activities of development and production of the hybrid components should be concentrated here in Japan for the time being. After that, we may have to consider local production of components in overseas countries.” Quality, it seems, is the rallying cry keeping high-value hybrid component manufacturing jobs in Japan. With new lighter, smaller and less costly components being developed for the next-generation Prius, Katoh insists that Japanese production processes must be refined before they can be exported. Though an obsession with quality and process refinement has launched ToMoCo to its current dominant position, capitalizing on its early hybrid investments require driving costs down and production up. America has bought every available Prius for years now, and establishing top-to-bottom NA production of the Prius as soon as possible has got to be a priority for Toyota.

When a company doesn’t have enough money to pay creditors what they’re owed, it’s considered insolvent. By this definition, GM is insolvent. The American automaker’s working capital stands at negative $20b. Cash outflow for the half year through June 30 remains negative, at over seven billion dollars. And it’s getting worse, as cash calls arrive on a regular– and irregular– basis. There’s no more credit to tap, and GM has few assets of meaningful value left to sell. Oh yeah, GM’s gonna file for bankruptcy. Then what?

The timing of GM’s C11 depends on its management’s psychology. At some point, somewhere around the $10b-in-the-bank mark, CEO Rick Wagoner, COO Fritz Henderson and CFO Ray Young will realize that they can no longer maintain “plausible deniability.” In other words, GM’s managers’ fiduciary responsibilities will compel them to enter bankruptcy protection with some cash rather than none– lest they lose control of their company in the reorganization to follow.

GM will file for bankruptcy late in the day, early or in the middle of month, right before the automaker has to pay its suppliers. The filing will be just a few pages of legalese– nothing grandiose. Only the news media, Washington DC and the general public will react with shock. Wall Street will not be surprised; the stock market won’t crater. By the time the company cries uncle, only true believers will own GM stock. Within hours of the filing, GM will be de-listed from the NYSE. Dow Jones will remove GM from the DJ Industrial Index.

True to their nature, GM’s execs will accept no responsibility for the company’s catastrophic failure. They will blame the economy, energy prices, government regulation, their own bankers, anything, everything, anyone and everyone but themselves. As before, their “victim of circumstance” sob story will convince many that it’s somehow a political failure, even as the men in charge admit defeat, unfurl their golden parachutes and prepare to surrender power they should have never held in the first place.

[In truth, Wagoner should have directed GM to file for bankruptcy in December 2005, when The General still had significant assets to sell. The automaker would be reorganized by now, with fewer dealers, brands and factories. And a clean balance sheet.]

Aside from an uninformed not-to-say oblivious public, the damage to Wagoner and his team’s personal reputations will be total. But the company’s C11 filing will not take down the whole GM Empire. C11 will be limited to the overall corporate entity and GM North America. Europe, Latin America and Asia will be spared the financial ignominy.

Initially, nothing much will change inside GM. The company brass will issue an internal memo to frightened workers promising a bright future. There will be no immediate layoffs or job losses; paychecks and benefits will remain in place. Later in the reorg process, a few key executives will receive “retention bonuses,” while many in the rank and file lose everything.

While the filing will not mention dealer termination, the smarter Buick, GMC, HUMMER, Pontiac, Saturn and Saab dealers (in whatever combination) will immediately understand that their days are numbered. They will either close-up shop or expand/satellite with one of their import brands. Those dealers who try to ride it out will experience a slow death for a year or so– until the reorganization plans outlines the end game for GM’s superfluous brands.

Bankruptcy will not sound the death knell for GM’s sales. Responding to commercials touting The General’s “Next 100 years,” patriotic buyers in the flyover states will flock to GM stores to do their part– especially when they see the mind-blowing bargains GM will use to clear inventory. The General’s public will not foresee the fact that only Chevrolet and Cadillac will survive. The initial sales rush of sales will convince many that the dead brands walking will live again. But they won’t.

GMAC will not be able to bankroll these fire sale purchases; it too will be subject to Court oversight (thank you Rescap). So instead of subvention paid to GMAC to move the metal, GM will use “outside” lenders to the same end. Smart bankers will experience a windfall– financing good credit customers at rates higher than justified (compensated by GM) to make consumer credit available at below market rates. Credit unions will scramble to partake in the new largess. Leases? Forget that.

The biggest casualties from a GM bankruptcy: Chrysler and Ford. Of course, Chrysler’s already toast. It’s only a matter of time before they go into liquidation. But Ford will face an epic internal struggle to avoid C11, and resulting loss of Ford family control. After the initial pall, when GM’s killer deals come on-stream, The General will steal food directly from FoMoCo’s table.

But once Ford files, and Chrysler goes into liquidation, the no-longer-Ford-family-controlled automaker will be able to clean its house and match GM’s deals. The biggest loser in all this? Toyota. We’ll discuss that in our next installment.

Chrysler, Ford and GM await the President’s signature on the bill authorizing $25b in low-interest federal loans to retool old factories to produce new fuel misers. And then face an uphill political battle to get the U.S. Department of Energy (DOE) to loosen its loan requirements and give them the goddam money. Meanwhile, a Toyota press release reveals that the transplant’s just landed a share of $15m in DOE grants to “speed the adoption of energy-saving building and facility technologies” at ToMoCo’s U.S. dealerships. “Being named part of this program is a tribute to those dealers with the vision and commitment to develop environmentally sensitive buildings in conjunction with Toyota’s Image II Eco design program,” said Toyota Prez Jim Lentz. “We will continue to work with dealers and the DOE to develop energy efficient facilities and guidelines that will benefit the entire industry.” Talk about rubbing it in… And what’s the bet Toyota gets the money before 2010? TTAC’s investigating.