Having been asked by a certain newspaper to review the new book “American Wheels, Chinese Roads: The Story of General Motors in China [more info on that review coming soon], I’ve been spending my quiet moments over the last week or so looking into GM’s Chinese operations. The book’s author, Michael Dunne, documents GM’s rise in the Middle Kingdom from the perspective of a well-informed outsider, revealing just how delicate one of GM’s best-performing global maneuvers really was. But after following the rise of GM in China, Dunne notes the December 2009 announcement that GM was selling a 1% stake in its Shanghai-GM (SGM) joint venture to its Chinese partner SAIC (for the paltry sum of $85m no less), arguing that GM had made a dangerous leap of necessity. This sale, implies Dunne, could well have been the tipping point that leads to GM being surpassed by its erstwhile junior (in size, technology and global reach) partner, SAIC. And, in the words of “one GM executive who used to work in China,” GM would need

good luck getting that back.

But, back in June, GM CEO Dan Akerson told GM’s shareholder meeting that he wants to do just that, saying

We have an option to buy that 1 percent. It’s our intention to exercise that.

With Akerson’s announcement, the mystery of GM’s “golden share” sale deepened. At first the question was simply “why would GM sell its 1%?” but now there’s another mystery: why would GM want it back? After some digging, it seems that we are now able to resolve the first mystery, and report why GM sold its one percent. But the whole deal is still surrounded by several layers of mystery which conceal whether GM will in fact be able to regain its 50-50 partnership in SGM, why it would want to and whether its gambit was ultimately worthwhile. And given how important China has been (and continues to be) to GM’s global business, this is definitely an issue that GM- and industry-watchers will want to better understand.

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Last night I sold a car. Not just any other vehicle but the ‘family’ vehicle. A 2003 Honda Civic Hybrid that I purchased three years ago for $6500. For 50,300 miles it proved to be a perfect fit for a family of four. My wife loved it. But with used car prices outperforming in a three year period what the Dow couldn’t attain in ten I decided to cash it in. The price three years and 50k later? $6450.

I wasn’t smart when I got that price last night. I was lucky.

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GM has announced its Q2 earnings [Analyst slides in PDF here], and the firm has recorded a healthy $2.5b profit for the quarter on strong North American performance and an end to losses from the European Opel division. In fact, on an EBIT (earnings before interest and taxes) basis, all of GM’s global divisions were in the black last quarter, although GM Europe and GM South America both recorded modest $100m gains and GMIO (which includes the lucrative Chinese market) recorded a $600m EBIT. The powerhouse continues to be GM North America, which recorded $2.2b in EBIT, continuing North America’s post-bailout importance as the driver of GM’s financial results. Globally, a $600m reduction in EBIT due to costs and “other” was offset by the same amount of gains in volume/mix, while pricing added a billion dollars to overall EBIT. And though fleet sales were up in North America, incentives for the quarter appear to have hit record lows. [Hit the jump for global deliveries and market share/fleet data, via GM’s financial highlights release].

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Mazda lost $327m in the second quarter, falling below analyst expectations as tsunami-related supply interruptions and currency woes battered the company’s bottom line. According to the Detroit News, this was Mazda’s third straight quarter of losses and the firm has lost money during its last three fiscal years. But, as this video (which, as far as I know has not yet been shown in the US) argues, the “Hiroshima spirit” which allowed locals to rebuild after the devastation of the nuclear attack in 1945, flows through Mazda. The company has a bold new design direction, an “enthusiast howl” of an ad campaign, and it says it will return to profitability when its fiscal year ends in March. But its projected profit for the full year is only $12.8m, which means Mazda is cutting it real close… and as the last quarter proved, projections can always be missed. Here’s hoping the last independent, mass-market, enthusiast-oriented automaker is able to turn things around this year and keep fighting the good fight.

SvD.se reports that would-be Saab rescuer Vladimir Antonov is considering legal action against the European Investment Bank and the Swedish Government, for keeping him out of an ownership stake at the failing Swedish automaker. Says Antonov

I have therefore decided to investigate the possibility of taking legal action, including but not limited to claims for damages, which may be of interest to various parties, including myself, the EIB, some officials at the EIB, the Swedish government and some government officials personally. By denying SWAN (Swedish Automobile) and Saab Automobile access to the funding that I offer, what these companies want and still desperately want, both the Bank and the Swedish government acted against all involved parties concerned, particularly against Saab and SWAN’s employees , suppliers, traders, lenders and shareholders

Antonov is reportedly investigating whether he can sue individual ministers of the Swedish government, while the ministers in question angrily deny that they are working against the interests of the Swedish auto industry. Meanwhile, far from calling for the overthrow of the government, the Swedish press is investigating Saab’s outlays for “management services” in recent years, and has found that CEO Victor Muller may be siphoning cash off to the tax haven of Curacao.
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Ford’s Q2 results [Presentation in PDF here] were mixed, as deliveries and revenue improved (7% and 13% respectively, compared to Q2 2010) but profitability slipped, but the automaker still ended the quarter with $2.4b in profit and $2.3b in operating cash flow. Debt was reduced by $2.6 from the first quarter of this year, and total Automotive debt landed at $14b, while gross Automotive cash landed at $22b. So, what happened to Ford’s operating profit margin?

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Despite a $370m loss, Chrysler’s Q2 and first-half results [presentation in PDF here] were presented in a relatively upbeat tone, as a number of key metrics showed signs of improving. Chrysler’s revenue was up by over $3b in the second quarter compared to last year, EBITDA hit $1.3b, and “modified operating profit” was $507m, or about 3.7% of net revenues. Depreciation and Amortization costs were up slightly, as were income tax and net interest expenses, but the big loss that pushed Chrysler into the red was a $551m one-time charge associated with Chrysler’s payback of government bailout loans. Gross debt was up by about a billion dollars, to $12.287b, but net debt was down by over a billion to $2.1b, and Chrysler sees greatly reduced interest costs going forward, eliminating $2.6b in planned debt payments this year. And though free cash flow slowed considerably compared to Q2 2010 ($174m compared to $491m), Chrysler finished the half with $10.2b, up from $9.9b at the end of the first quarter.

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Over the weekend we told you Saab-watchers to “expect a run on the bankruptcy court in the coming days and weeks,” and according to Bloomberg the process has already begun. Christina Lindberg of the Swedish Debt Enforcement Agency tells the news service that eight suppliers have requested that their portion of the 104 debts registered with the agency be collected and that

We will start the collection process in a few days.

The good news? A previous request to place a Saab subsidiary in bankruptcy has been revoked as the supplier in question there was paid off. Now, however, with eight more debts going to collections (worth an undisclosed amount, we know that one debt alone is worth around $70m and estimates put the total at around $1b), the situation has become dire once again. The answer? Vladimir Antonov, of course! Thelocal.se reports that suppliers are pushing for the EIB to approve Antonov’s ownership stake, seeing the Russian as the only way out of the situation. And because the EIB will clearly never approve Antonov, another report that’s just breaking now says that Saab is seeking to “replace” the EIB loan in order to bring Antonov on board. The looming question: who on earth is going to lend this bleeding-out corpse of a company $350m? Does Antonov even have a billion to spare for his pet project? Needless to say, nobody has the faintest clue… they just know it has to happen. Yikes!

Withe the Detroit Free Press reporting that combined Q2 profits for the Detroit automakers could hit $4b, the quadrennial negotiations with the UAW which opened today with a meeting between Chrysler and the union could be a tough slog. And because the profit outlook is mixed, with GM and Chrysler likely to improve profitability and Ford likely to see a drop in net takings, the long-standing tradition of “pattern bargaining” could come to an end. Ford currently pays about a dollar more per hour than GM and about $2 per hour more than Chrysler (which is partially owned by the UAW’s VEBA trust fund), and Ford also shoulders more of workers’ health care costs than its cross-town rivals. And UAW president Bob King admits

Being really blunt about it, when you don’t represent the overwhelming majority of an industry, which we don’t any more, then you can’t do pattern bargaining

Already unfairly disadvantaged by the UAW (Ford is the only Detroit-based automaker without a no-strike contract) and facing falling profitability, Ford is telling the union not to expect wage increases. But does that mean the union’s only choice is to bring GM and Chrysler up to Ford’s pay and benefit levels?

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One of Saab’s suppliers, SwePart Verktyg AB, asked a Swedish court to declare a key Saab subsidiary, Saab Automobile Tools, bankrupt today reports Automotive News [sub]. Saab Tools owed about $935,000 to SwePart for tooling, and according to the supplier

More than one week has passed from the summons and payment has not yet been made. Saab Automobile should therefore be considered insolvent… We don’t want them to go into bankruptcy, I wish you understand that, that would be horrible, but we are a small company and for us that is a lot of money

Saab Tools was created to guarantee EIB loans for tooling, so had the “subsidiary” been declared insolvent, the whole ship would have gone down. But before a judge could act, Saab somehow managed to put out the fire, as a company press release proclaims

Swedish Automobile N.V. confirms that Saab Automobile Tools AB reached agreement on payment terms with the supplier that filed for bankruptcy, thereby resolving the issue.

Once again, Saab pulls the fat from the fire at the last minute… but the clouds are dark and rolling in fast. Many suppliers are still looking for money, Saab Automobile has 104 claims pending against it, and SwePart’s bankruptcy request won’t be formally withdrawn until Monday. And with the Swedish government and EIB seemingly unwilling to lift a finger to help, even the faithful are losing hope. This feels like the beginning of the end of the end…

Video from Chrysler’s last “new day,” shortly after being bought by Cerberus in 2007

According to Chrysler Group’s latest 8K, filed with the SEC today

On July 21, 2011, Fiat North America LLC, a wholly-owned subsidiary of Fiat S.p.A. (collectively, “Fiat”), acquired beneficial ownership of the membership interests in Chrysler Group LLC (the “Company”) held by the U.S. Department of the Treasury (“U.S. Treasury”) and the Canadian government’s special purpose entity, the Canada Development Investment Corporation (“Canadian government”). Fiat acquired 98,461 Class A membership interests in the Company from the U.S. Treasury, representing approximately 6 percent of the fully-diluted ownership interest in the Company for cash consideration of $500 million. Pursuant to a separate agreement, Fiat paid $125 million to acquire 24,615 Class A membership interests in the Company from the Canadian government, representing approximately 1.5% of the fully-diluted ownership interest.

Pursuant to these self-funded transactions, Fiat became the owner of a majority of the membership interests in the Company. Fiat now holds 55.3% of the Company’s outstanding equity, or 53.5% on a fully-diluted basis, taking into account the occurrence of the third and final Class B Event described in the LLC Operating Agreement which is expected to occur by the end of 2011. The remaining equity in the Company is owned by the UAW Retiree Medical Benefits Trust, a voluntary employees’ beneficiary association trust (the “VEBA”).

That’s right, the United States taxpayers are now fully-divested from their “investment” in Chrysler, which is now a majority-owned division of Fiat. Once the EPA certifies that Dodge’s new Fiat-based compact car gets 40 MPG unadjusted combined (about 30 MPG in “window sticker” EPA mileage), Fiat will get another 5% of Chrysler’s equity, bringing its stake in the company to 58.3%. In a statement, the Treasury estimated the final cost of the bailout to be $1.3b (as it does not expect any meaningful recovery from Old Chrysler’s liquidation), although that does not include several taxpayer outlays, without which the rescue of Chrysler would not have been possible. By our math, the total bill for Chrysler’s rescue is closer to $4.7b.

So, after all the drama was it worth it? For now I’ll leave that one to the comment section… and history.

After spending much of this year not producing vehicles, Saab is anxious to get to work on its 11,000 vehicle backlog of orders, and production was supposed to start on August 9 after workers return from Summer vacation. But a Saab press release reveals that the troubles aren’t over, with short term financing and supplier agreements still to hammer out, and that production won’t resume until August 29 at the earliest. Gunnar Brunius, Vice President of Production and Purchasing explains:

I am positive about the progress we made on the payment terms with our suppliers and it is good to see that we all want to make it work. What we need now is a full commitment on supply of parts into our factory to be able to restart production and secure a stable manufacturing operation. We are now working hard with our suppliers to nail down these plans, commit to a delivery schedule and start building the close to 11,000 cars that we currently have in our order books. The industry-wide summer break at our suppliers caused certain key suppliers not to be able to supply us in time. Saab Automobile hopes to restart production earliest in week 35 provided that it is able to commit to a delivery schedule with its suppliers.

But wait, there is some good news! Saab’s Communications Manager Eric Geers tells GP.se

I can promise one hundred percent to the salaries paid next week. Where the money comes from is not important, the main thing is that we pay [emphasis added]

That kind of sums up the whole Saab situation nicely, doesn’t it?

Almost two months ago, Saab was able to restart production after Gemini Investment Fund extended a €30m six-month convertible loan to the struggling Swedish automaker. Now, after another shutdown, it seems that Gemini has once again ridden to Saab’s rescue, as the company announces another six-month convertible loan from Gemini.

Swedish Automobile N.V. (SWAN) announces that it entered into a EUR 25 million convertible bridge loan agreement with Gemini Investment Fund Limited (Gemini), thereby securing additional short-term funding.

SWAN entered into a EUR 25 million convertible bridge loan agreement with Gemini with a 6 months maturity. The interest rate of the loan is 10% per annum and the conversion price is EUR 1.38 per share (the volume weighted average price over the past 10 trading days). SWAN may at any time during the loan’s term redeem it without penalty and it intends to do so once the funding from Pang Da and Youngman is received, in which case no dilution as a result of this bridge loan will occur.

Attention Chinese, Swedish and European Investment Bank regulators: you’d better cut through that red tape and approve the Pang Da and Youngman investments post-haste, or Saab will be back in the drink when these short-term loans mature. After all, hasn’t Valdimir Antonov been waiting for approval to buy into Saab since.. oh, 2009?

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Strap on the man-pants, Saab fans, because there’s another heaping load of bad news for the Swedish brand this morning. First off, Saab’s mysterious Russian backer Vladimir Antonov has backed out of a deal in which he was to buy property at Saab’s Trollhättan plant and lease it back to the company, stabilizing its short-term cash position. Automotive News [sub] quotes an Antonov rep as saying

The property sale is now being discussed with external investors

Apparently the Swedish real estate investor Hemfosa has stepped into the breach and sources say a deal could happen quickly. Antonov’s man added that his boss was still interested in securing a shareholding in Saab, a move that has been awaiting approval by the European Investment Bank for some time now. But despite Antonov’s insistence that he’s not going anywhere, the real estate deal pullout is troubling. After all, if Antonov were really the Saab zealot he claims to be, willing to support and revamp the brand at any cost, wouldn’t he want to own the Trollhättan plant? Wouldn’t he want deed to the factory in case Saab, as it exists now, goes into bankruptcy? This is the first indication that Antonov is treating his Saab involvement as an investment rather than a crusade, which is frankly a bad sign for what’s left of the Swedish brand. On the other hand, with Chinese firms chopping up Saab, what’s a businessman to do?

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Bloomberg reports that a “person familiar with the matter” says the US Treasury won’t sell its remaining stake in GM as long as the automaker trades below its $33/share IPO price. Previously the government’s auto team had said it would not try to “time the market” and our analysis showed that the Treasury was likely to sell sometime late this Summer. But it’s been months since GM spent more than a few days above its IPO price, indicating that Treasury may be waiting considerably longer if the IPO-price floor is set in stone. And with $36.5b in cash equivalents on hand and only $5b in debt, GM’s $45b market cap is hardly encouraging… especially with investors waiting for The General to match Ford’s profitability levels. Heavier discounts mean a lower operating profit for GM in the US market, and the first quarter shows a $1b swing in pricing between the two firms (with Ford improving $700m and GM dropping $300m) according to Bloomberg. Lower finance earnings are also holding The General back relative to Ford. So, what’s GM’s response?

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