President Obama ackknowledged how unpopular the Bailout of the Detroit Auto Industry was during his infamous 60 Minutes interview this past Sunday. For those of you who may have missed it, here is a replay …..
The fact the President understands this sentiment makes the following article even more disappointing.
Washington’s reluctant auto bailout
The government isn’t happy about giving GM and Chrysler more money. But the two struggling automakers still are likely to get another big loan by March 31.
NEW YORK (CNNMoney.com) — General Motors and Chrysler LLC have about a week or less before they find out if they’ll get the additional help they need from taxpayers, creditors and unions to avoid bankruptcy.
What they already know is that any assistance they receive won’t be given happily.
The two companies face a March 31 deadline to win concessions from bondholders and unions in order to prove to the Treasury Department that they can be viable in the long term. Without such a finding, the government can recall the $13.4 billion it has already lent to GM and the $4 billion it loaned to Chrysler.
Few expect Treasury to take such a drastic step. Still, it’s clear that the automakers need more than the loans they already have received. Chrysler is on record as saying it needs as much as $5 billion in additional funds by March 31 to avoid being forced into bankruptcy.
And while GM now says it doesn’t face an immediate cash crunch, it has asked for up to $16.6 billion more in federal assistance, with most of that needed later this year. Its auditors have even said there is significant doubt about GM’s ability to stay in business without more loans. [The “immediate cash crunch” was avoided by having the Government assume responsibility for $5 Billion in payments owed to Auto Parts suppliers by GM & Chrysler – without that payment – agreed to earlier this month – both GM & Chrysler would currently be out of cash. http://money.cnn.com/2009/03/19/news/companies/auto_parts_bailout/index.htm?postversion=2009031919 ]
But it’s growing less certain that GM will be able to get enough concessions from its creditors to satisfy the government. On Sunday, an ad hoc committee of leading GM bondholders issued a statement saying they were not ready to agree to swap their current notes for a combination of new debt and stock.
According to the letter released by the bondholders’ financial advisors, the creditors are concerned GM may be headed for bankruptcy since the rebound in auto sales that the company is calling for in the turnaround plan it submitted to the government last month may not occur.
Without the government agreeing to give the bondholders some protections or more cash upfront, GM and Chrysler might not be able to restructure their debt in the manner called for in their turnaround plans. And without shedding debt, it will be difficult to win the necessary additional cost savings from the United Auto Workers that the union has already granted Ford Motor.
Shelly Lombard, lead auto analyst for debt research firm Gimme Credit, said it will be tough for GM and Chrysler to get approved for additional loans if they are unable to get more concessions from the creditors and the union. And she said a deal with creditors is looking more and more unlikely.
Obama’s tough talk
Perhaps most troubling for GM and Chrysler though is the fact that President Obama said in an interview on “60 Minutes” Sunday that while he wants to help the companies stay out of bankruptcy, they have yet to prove that they can remain viable. [Wasn’t that the deal – $13.4 Billion in cash and don’t come back without a plan showing you can be “viable”?]
He acknowledged that, given the political uproar over bailouts in general, it may be difficult for his administration to agree to further help for the automakers while it is also fighting for a controversial bank rescue package that Obama said is his top economic priority.
“I just want to say the only thing less popular than putting money into banks is putting money into the auto industry,” Obama said during the interview.
Still, the automakers remain hopeful, at least on the record, that the federal help they are seeking will be approved in time to avoid bankruptcy.
They point to the $5 billion bailout of the auto parts sector announced by the Treasury Department last week as a sign that the Obama administration is committed to saving the automakers — even though a member of the government’s auto industry task force cautioned reporters that help for GM and Chrysler was a separate issue from loans for the parts makers.
The member of Obama’s auto industry task force, who spoke to reporters last week on the ground that his name not be used, said to expect some kind of announcement from Treasury about what’s next for GM and Chrysler ahead of the March 31 deadline. But he cautioned that won’t settle the issue.
“I don’t expect what we say before March 31 will be the final word on this situation,” he said. “It’s very big, very complicated.”
And that’s why Schnorbus and others say they expect negotiations between the automakers, government, creditors and the UAW will well go beyond next Tuesday’s deadline.
“I’m inclined to think they’ll get just enough federal help to keep the lights on,” Schnorbus said. “Treasury will give them a lifeline. But even with that, they’ll still be a long way from safely being out of harm’s way.” http://money.cnn.com/2009/03/24/news/companies/automakers_bailout/index.htm
[The Government is considering putting more taxpayer money at risk! Why? To payback Union bosses? If helping GM and Chrysler were sound business decisions, there would be a private market solution. Let them enter Bankruptcy and let the marketplace “buy” the viable parts of the Companies – like Tata’s purchase of Jaguar & Land Rover]
Meanwhile Industry experts are raising additional “ed flags over the survival of GM & Chrysler. http://money.cnn.com/2009/03/11/autos/gm_trouble.fortune/index.htm?postversion=2009031112
GM has more troubles than you think
Bad cost-cutting ideas, poor efficiency and lousy cars – it’s going to take a lot more than the Volt to save General Motors.
NEW YORK (Fortune) — For the past several weeks, I’ve been trying to put myself in the shoes of the Treasury Department’s auto task force to figure out what its members should ask General Motors to do in order to become competitive again.
It isn’t easy, and here’s why:
The viability plan that GM submitted to the government is all about getting smaller – but it says very little about getting better. Fewer nameplates, fewer brands, fewer workers, fewer dealers – that’s supposed to be the way down the yellow brick road. Once GM gets sized right and gets its costs in line with its revenue, The Land of Oz awaits as soon as the market comes back.
To me, that is a fatal flaw. One of the oldest laws in business is that you can’t cost-cut your way to prosperity. And who knows when the market will come back?
Now lower costs are a necessary condition for GM’s survival. But they aren’t sufficient, because the automaker ranks below its biggest foreign rivals in operating smarts.
For one thing, GM isn’t as clever as Toyota and Honda about sharing parts among different models. According to an analysis of platform efficiency by CSM Worldwide, a Detroit-based forecasting and consulting firm, Toyota makes an average of 406,000 cars from each basic architecture, while Honda gets an amazing 509,000 cars. Higher volume means lower costs per car. So when GM by comparison, spins out a mere 350,000 units, it can’t hope to save as much.
Nor does GM run its plants as efficiently. When last measured by CSM, GM was operating at just 73% capacity, while Toyota was at 86% and Honda at 93%. Plants carry lots of fixed costs and burn a lot of cash when they aren’t running at full speed.
BUT most importantly, GM just doesn’t make very good cars and trucks. In Consumer Reports’ latest scorecard on automaker performance, the automaker ranked 14th out of 15, or next to last. Only Chrysler scored worse.
The leaders were the usual suspects: Honda, Subaru, and Toyota. To make it worse, Consumer Reports won’t even give a recommended rating to some newer GM cars like the Buck Enclave or Cadillac CTS because of poor reliability.
It is true that GM gets pulled down by some of its older models, Consumer Reports points out. But it’s been making cars for 101 years. Shouldn’t all its models be at least competitive?
No other car company that I know of expects to get a pass by brushing off its mistakes the way GM does. Can you imagine Toyota dissing its old Camrys and Corollas, and saying, “Wait until you see next year’s model?”
For another thing, GM has also been pursuing a disastrously wrong-headed development policy on hybrids. While the automaker was working on systems for low-volume trucks and buses with no consumer visibility, Toyota and Honda were building popular-priced hybrids that average people could actually buy.
As a result, Toyota is coming to market with a third-generation Prius that carries an EPA rating of 50 miles per gallon. And Honda just announced that its new Insight, which gets 43 mpg on the highway, will sell for $20,000.
GM’s current contender in that race is the most popular version of the Chevy Cobalt, which gets 25 mpg with a conventional engine. Meanwhile, the company is imploring everybody who will listen to wait for its $40,000 Chevy Volt, a so-called “range-extended” electric vehicle due 18 months from now. The Volt has flashy mileage numbers but is very expensive and will have limited utility for most drivers.
Eventually, GM is going to get rid of all its excess overheard. But if I were voting on more government loans, I’d want to hear how it is going to do things faster, smarter, and better:
- How it is going to make its product development more responsive to actual customer needs.
- How it is going to overhaul its marketing and advertising to better understand its buyers and what GM needs to do to repair its reputation.
- And how to reform its distribution system to better serve customers.
I’m not confident that Treasury will ask the right questions, or that GM knows the answers. But I’m hoping. http://money.cnn.com/2009/03/11/autos/gm_trouble.fortune/index.htm?postversion=2009031112
GM auditors raise doubts about carmaker’s viability
Although the “going concern” statement does little more than restate what GM itself had already said when it began asking for government aid last fall, the auditors’ statement forced GM to seek waivers from its creditors on loan agreements and could pose a significant handicap to its suppliers when they seek loans.
The Fate of Automaker Bailouts Elsewhere
Sweden says no to saving Saab
The Swedish government has responded to Saab’s desperate financial situation by saying, essentially, tough luck. Or, as the enterprise minister, Maud Olofsson, put it recently, “The Swedish state is not prepared to own car factories.” Governments all over the world are confronting the disintegration of the global automobile market in different ways, with loans, bailouts and takeovers. But Sweden’s approach has been particularly hard-nosed, and particularly unequivocal. “We are very disappointed in G.M., but we are not prepared to risk taxpayers’ money. This is not a game of Monopoly.” Saab was always known for its innovative engineering. But analysts say that in recent years, with General Motors’s emphasis on volume rather than individuality, it has lost its edge. “Under G.M.’s ownership, they denuded the intellectual content behind the brand,” said Peter Wells, who teaches at Cardiff Business School in Wales and specializes in the automotive industry. “Its products are not exciting enough, and Saab doesn’t have a strong brand identity anymore.” http://www.iht.com/articles/2009/03/23/europe/23saab.php
Germany not aiming to take Opel stake, Merkel says
BERLIN, March 22 (Reuters) – The German government is not aiming to take a stake in troubled carmaker Opel. Germany has said it decided to be sure no state support would find its way to GM. Opel has said it needs financial support to survive. http://www.cnbc.com/id/29826461
Jaguar Land Rover says does not want govt bailout
Struggling British luxury car maker Jaguar Land Rover said on Thursday it did not want a government bailout. Indian conglomerate Tata, the brand in the running to purchase Jaguar and Land Rover from Ford has been officially confirmed as the winning bidder. Ford made the announcement yesterday. The deal involves the transfer of Jaguar and Land Rover to Tata for $2.3 bn. Ford will not be keeping any stake in either brands, as it did when it sold Aston Martin last year. http://car-reviews.automobile.com/Jaguar/review/ford-says-tata-to-jaguar-and-land-rover/5574/
COMMENTARY: Fiat-Chrysler Link Is Nice Idea, but Futile Without Money
The deal is being considered by some as the salvation of Chrysler. The prolongation of Chrysler’s likely dissolution is the more viable assessment of Tuesday’s announced Fiat-Chrysler deal because it includes no cash infusion to Chrysler. The terms of the alliance, as presented, bring from Fiat no capital that could be used to shore up Chrysler’s foundering day-to-day operational outlook. It’s not a tactical solution to the overriding predicament: Chrysler needs cash and needs it now. The Fiat deal is like offering a starving man a patch of ground, a shovel and some seeds, saying, “Here, this will take care of your hunger.” http://www.autoobserver.com/2009/01/commentary-fiat-chrysler-link-is-nice-idea-but-futile-without-money.html
Chrysler’s Italian Job on the American People
Is there any doubt that when government starts to tinker with industry all sorts of nutty things come to pass? How about the proposed “global strategic alliance” between Chrysler and Fiat? Apparently, there is only one way to make Chrysler competitive with foreign car makers in the U.S.. And that is to have U.S. taxpayers put up $7 billion to essentially fund another foreign car maker’s takeover of Chrysler.
This swindle isn’t just pazzo–it is plain wrong. Hopefully, it will be killed before it ever makes it to Congress.
It is of course a remarkable coincidence that the Chrysler-Fiat scheme has popped up only a few weeks before Chrysler is to present its case for stand-alone viability to the U.S. Treasury. But then again, no one really believes Chrysler is viable on its own. Not even the Italians.The “global strategic alliance” is, in fact, a flimsy “nonbinding term sheet.” And money? The alliance is contingent on $3 billion in additional U.S. government loans to Chrysler. “The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.” Chrysler of course is running out of cash. And that is where you, the taxpayer, come in. The real beauty of the Chrysler-Fiat proposal. There are few losers in it except you, the U.S. taxpayer.
Fiat also gets an option of buying outright control of Chrysler within 12 months for the whopping sum of $25 million. [Fiat can buy Chrysler for $25 million in 12 months. Chrysler wants $3 Billion in cash but will be sold for $25 Million. Can I get that Deal, please! For every $8,000 the Government puts on the table it will cost Fiat $25 to buy Chrysler. The American Taxpayer will be paying for Chrysler’s purchase by Fiat. $25 Million! Heck, the UAW lost $25 Million running it’s Golf Course over the last 5 years. http://www.thetruthaboutcars.com/uaw-pisses-away-23m-on-golf-course-retreat/ If the UAW has $25 Million to “piss away” on a private golf course they should put their money where their collective mouth is and buy Chrysler – instead of asking the American Taxpayer to do so].
Contact Washington Now – Tell Them To Say No To Additional Automaker Bailouts: http://www.usa.gov/Contact.shtml