By Chris Haak

04.30.2009

And so here we are, at another crossroads in the star-crossed history of Chrysler.  Today at a noon news conference, President Obama announced that Chrysler would enter Chapter 11 bankruptcy protection today, and would also enter into its much-discussed alliance with Italy’s Fiat SpA.

It’s hard to think of another company that has lurched from boom to bust, back and forth, so many times over the past few decades.  Even in my relatively short 34 years, it’s happened a number of times.  Bust:  Chrysler nearly declared bankruptcy in the late 1970s until Lee Iacocca got federal loan guarantees that saved the company.  Boom:  The K-car’s success allowed the company to pay back the loans early, and Iacocca’s minivan program was a smash hit in the marketplace, allowing the company to buy AMC to get the coveted Jeep name.  Bust:  But the company became overly reliant on cars that shared the Reliant’s platform (how’s that for irony?), with most front wheel drive cars, from the K-car to the New Yorker and minivans, sharing a variant of the K’s platform.  Boom:  Then the company’s products improved, beginning with the Viper sports car, the Eagle Premier-based LH large cars, the Neon, the Ram pickup, and others.  During the time in the early- to mid-1990s when Chrysler was finding its styling mojo again, it was also improving production efficiency and was able to capitalize on a booming SUV market with Jeep and Dodge products.  Bust:  Daimler-Benz acquired the company in an unequal “merger of equals,” gutted the company’s management, and watched Chrysler enter yet another bust period.  Boom:  Daimler sent Dieter Zetsche to Michigan to serve as Chrysler’s CEO, and on the back of low fuel prices and rear wheel drive performance cars such as the Chrysler 300, Chrysler contributed significantly to DaimlerChrysler’s bottom line while Mercedes-Benz was struggling with quality issues.  Bust:  Then Chrysler’s gutted, uncompetitive lineup failed to gain traction in the marketplace in an era of high gas prices, which resulted in the company’s sale to private-equity firm Cerberus in 2007, and continuing struggles that take us to today’s bankruptcy filing. Continue Reading

By Brendan Moore

04.30.2009

Obama Administration officials are telling reporters that Chrysler is going to file bankruptcy today.

President Obama has a press conference scheduled for 12 noon ET to address Chrysler’s travails.

Chrysler’s creditors and the US Treasury department officials just couldn’t come to an agreement to write down Chrysler’s debt. The holdouts (mostly hedge funds who deal in distressed debt) believe that they can get a return of approximately 65 cents on the dollar if Chrysler goes into bankruptcy liquidation. The federal government and the four major lenders who agree with the government offer have offered those holdout creditors a maximum of 33 cents on the dollar and a small equity position. The four major lenders that hold 70% of Chrysler’s debt are Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley – they decided some time ago that the government’s deal was the best they were going to get.

If Chrysler declares bankruptcy, there is little doubt that a tremendous battle over Chrysler’s assets will commence between the Treasury and Chrysler’s creditors.

Although the smart money might lean towards the government in this struggle, bankruptcy judges have a great deal of latitude in their decisions and probable outcomes sometimes get tossed out the window. There is no certainty to outcomes in complex bankruptcies like this one.

Twelve o’clock is only a half-hour away; we’ll get back to you this afternoon after some of the dust has settled.

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By Brendan Moore

04.29.2009

Bloomberg News is reporting that Chrysler will file for Chapter 11 bankruptcy tomorrow morning.

The Wall Street Journal is reporting that Chrysler may file tomorrow morning, but, then again, may not, depending on negotiations still going on as I type this at 11:15 PM ET. The business paper states that President Obama has two speeches prepared for tomorrow morning, one speech if Chrysler files bankruptcy tomorrow, and a different one if they don’t.

The Detroit television stations and major news sites in the city are predicting either a Chapter 11 or a “363” sale (bankruptcy court-ordered auction which has certain legal advantages to distressed companies) to Fiat as a whole entity.

Members of the US Treasury department say they are confident that the Fiat-Chrysler alliance can be consummated no matter what happens.

The uncertainty regarding a Chapter 11 filing revolves around Chrysler’s lenders and their refusal so far to accept Treasury terms to settle their loans to Chrysler for some percentage of the amount outstanding. The four largest lenders that hold 70% of Chrysler’s debt, which are all banks, have agreed to Treasury terms, but there are some smaller banks holding out. In addition, almost all of the hedge fund creditors remain unconvinced that Treasury terms are better than what they could realize in bankruptcy court. Therefore, the negotiations continue into the night.

Whatever happens with Chrysler is very likely to happen with GM right afterward.

Nobody is quite sure where that will leave Ford, by far the most healthy of the Detroit Three at this juncture, and the domestic auto company NOT in danger of filing Chapter 11, but apparently that is a problem for another day. However, there is no doubt that a Chapter 11 filing by Chrysler or GM, or both, would put Ford in at least a temporary disadvantage in terms of costs, debt servicing, etc. Of course, the decline in consumer confidence in GM and Chrysler may just about even things out.

It is believed that most consumers will run as fast as they can from a bankrupt auto company, as has happened in the past. But, history may not be the best example in this day and age. Perhaps the debilitating effect on sales may not be as bad as the predictions.

It looks as if we will know more about a potential bankruptcy sometime in the next 12 hours.

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By Chris Haak

04.28.2009

I really don’t enjoy writing about bad news.  I’d much rather rave about how the exhaust note of a Corvette at full bore made the hair on my arms stand on end, or how passers-by waved and gave me the thumbs-up as I rumbled by in a Dodge Challenger SRT8.  I also pains me to chronicle the end of General Motors as we know it.  I grew up in pretty much an all-GM household.  When I was born three [and a half] decades ago, my father’s job was selling new Chevrolets and Cadillacs.  My first ten or so cars (the count is difficult to keep, since my father is now self-employed in the car business and the line between “my car” and “a car in inventory that I drove for a while” was pretty blurry at times) were all GM vehicles.  Then, the first three new cars that my wife and I bought were, in order, a Honda, a Nissan, and a Toyota.  Last summer I came back to the GM fold for my own car, a 2008 Cadillac CTS.  Bottom line:  I’ve always held a soft spot in my heart for this company, in spite of some of the absolutely dreadful products that they’ve sold to the public over the years.  But why would I?

GM is already just a shell of its former self.  The company is already very much under the control of the federal government, as evidenced by the way the government showed the door to former CEO Rick Wagoner, and more recently, by the way GM’s latest debt offering proposed giving the government a 50% stake in the company in return for forgiving $10 billion in loans, but giving bondholders a measly 10% stake in return for forgiving about $24 billion in debt.  That last part is what has bondholders up in arms; they rightfully feel that they are being treated unfairly, and are quite unlikely to accept the terms of GM’s debt-for-equity exchange offer by the deadline at 11:59 EST on May 26, 2009.  The US Treasury (of course) will have the final say, but GM believes that ninety percent of outstanding debt by value will have to be tendered for the offer to be considered a success.  That is extremely unlikely to happen. Continue Reading

By Chris Haak

04.28.2009

As David Wright pointed out yesterday in his piece on the Honda Fit vs. the Honda Civic, we do not commute to work or run errands on paper – we do so in cars made of metal, plastic, rubber, and glass.  What sounds like a good idea on the spec sheet sometimes just isn’t the same thing when the proverbial rubber meets the road.  Today’s example:  the continuously variable transmission, or CVT.

For those who are unfamiliar with CVTs, they are generally an automatic transmission that features an infinite number of gear ratios rather than, say, five or six fixed ratios as on a conventional transmission.  Once you shift a CVT into drive, its computer determines the optimal operating range based on the engine’s power characteristics, throttle application, engine load, and other factors.  The transmission continuously varies its gear ratio during vehicle operation, usually by changing the distance between two V-shaped pulleys.  As this distance changes, the belt connecting them rides higher on one pulley and lower on another pulley, changing the effective diameter of each pulley and therefore altering the gear ratio.

On paper, the advantages of a CVT are numerous.  As a conventional automatic spools up during acceleration from one beginning of one gear ratio to immediately before it shifts, the engine will find itself out of its peak powerband immediately following a shift.  A CVT can get the engine to its peak power-producing speed and just stay there, altering the ratio so that the engine never runs out of revs.  This theoretically improves acceleration.  Further, the ability to keep the engine at its peak operating speed also allows the CVT to keep the engine at its most efficient ratio when cruising at a steady state, which improves fuel economy and emissions.  Some higher-end cars with CVTs, such as Nissan’s offerings, even allow a set number of pre-programmed fixed ratios that can emulate a conventional automatic transmission.  When coupled with shift paddles, these CVTs with a manual feature offer lightning-fast shifts and, at least theoretically, the best of both worlds. Continue Reading

By Andy Bannister

04.28.2009

Last week the United Kingdom became the latest European country to announce a scheme to pay owners of older vehicles to scrap them in return for purchasing a brand new car.

Similar schemes have been a big success in Germany, France and Italy, seemingly turning round a dramatic slump in sales. Steep rises have been particularly evident in purchases of new, fuel-efficient small cars.

Faced with an ever-deepening recession and some dire economic indicators, the British Government has been under immense pressure to do something to help both the domestic industry and the important car retail sector. New car production in the UK plummeted over 51% last month compared to a year ago.

The British scheme, due to last until next March, could theoretically see 300,000 extra drivers behind the wheel of a brand new car, significantly boosting trade thanks to a £2000 ($2920) discount off the showroom price.

Dig below the surface a little, though, and the outlook for the industry and the majority of new car buyers doesn’t look nearly so rosy. Continue Reading

By David Wright

04.27.2009

I bought a new 2008 Honda Fit last July. It was an attractive purchase for a couple of reasons, namely fuel economy, price, and shiny orange paint. The 5-speed manual transmission helped me average 36 mpg, driving 40 miles a day to work and back, plus my regular errands to the grocery store and recycling center.

But the longer I drove the Fit, the more I felt uncomfortable in it. The stickshift became a nuisance on a daily commute that features 15 traffic lights each way. While the child safety seats necessitated by my six-year-old and his nine-month old sister fit into the back seat, I found it impossible to sit comfortably in the front seat with the children actually back there. I just didn’t have the heart to ask my son to get his legs out of the way so Daddy could move his seat back far enough to be relaxed. The console was sparse; functional, but sparse. Not even an armrest or closed storage space.

Performance-wise, the 109-horsepower, 1.5 liter engine got the job done, but I can’t imagine pulling onto the highway without that pesky stick. It was fun to drive, a bit like a go-kart on the twisty roads in my area, as the handling was tight and controlled, and once I shifted into 5th gear, the ride was smooth, if not a little noisy. For a car of this size at this price (about $16,000 new), I won’t complain too loudly. Continue Reading

By Brendan Moore

04.27.2009

GM’s press conference this morning brought the news we have been expecting; that is, the announcement of Pontiac’s closure. Pontiac is gone next year, sooner than many thought last week. Additionally, in remarks made to the press, Fritz Henderson, CEO of GM, stated that no Pontiac models would be rebadged as other General Motors surviving brands.

If you want a new G8 or a Solstice, you had better get one soon. At least both models should be discounted considerably in the near future.

Somewhat oddly, GM said that they may sell the Pontiac Vibe through 2010, depending on how the contract with Toyota shakes out. The Vibe is the brother of the Toyota Matrix, manufactured through a joint production agreement between Toyota and GM.

Additionally, GM mentioned, just as an aside, that no more Hummers would be built after this model year.

GM also announced that the company intends to slash the amount of dealers by half as part of their restructuring acceleration.

In a surprise move, General Motors more or less pulled the rug out from underneath Saturn, stating that the last Saturn would be built this year as opposed to their previous assurance that Saturn would continue until 2011. Now the company plans to have only four brands in 2010; Cadillac, Buick, Chevrolet and GMC, the truck division.

So, as with Pontiac, if you want one of the new Saturns not shared with other GM divisions (Sky, Astra), you should act soon.

All in all, a very tough and painful day for General Motors.

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By J. Smith

04.25.2009

Since this story was posted, GM has sent us a link to a press conference scheduled for 9 AM EDT Monday, April 27. The link to live video of the press conference is available here starting at 9.

Pontiac, which began life as an offshoot of General Motors’ long-defunct Oakland line of cars, looks to be headed for a visit with fellow Detroiter Jack Kevorkian. According to as-yet unconfirmed reports from CNN. Although still billed as the “excitement” division of GM, recent decades have seen a slew of not-so-exciting products, many that were thinly veiled knock-offs of other GM offerings, from the Chevette-based T1000 to the Pontiac G3 Aveo clone, and others which were bizarrely undesirable like the Aztek.

Although an of-shoot of Oakland, Pontiac soon surpassed its parent, which was axed in the midst of the Great Depression. Pontiac now seems poised to become a victim of the Great Recession, although years of confusion and neglect have taken it to this point. Alfred Sloan’s five division structure for GM had Pontiac slated above Chevrolet and below Oldsmobile (RIP, 2004). For the decades following its birth, it was the Buick of its day, appealing to elderly and conservative buyers.

Under Bunkie Knudsen and John Z. DeLorean, Pontiac introduced high-performance “wide track” models beginning in the mid-to-late 1950s, shedding its geriatric image with models like the tri-power 1958 Bonneville, which sported three two-barrel carbs. It captured the hearts of baby boomers with what many consider to be he first true muscle car, the 1964 GTO, with “three deuces and a four speed, and a 389,” as phrased by Ronnie and the Daytonas. On the strength of attractive Coke-bottle styling and a performance image, it catapulted past Plymouth (RIP, 2001) to take third position in the US market, behind only Chevrolet and Ford. Continue Reading

By Brendan Moore

04.25.2009

GM is almost certainly going to announce next week that Pontiac is shutting down. The news may come as early as Monday.

GM stated initially that Pontiac would survive as a “boutique” brand, but has apparently changed its mind under pressure from the Treasury Department.

Pontiac was launched in 1926, put out bread-and-butter vehicles until the Sixties, when it kicked off the muscle-car trend with the GTO, was thereafter marketed as the “Excitement Division”, started to sag along with the rest of GM in the Seventies, and, has recently had a minor revival of sorts. The most cars Pontiac ever sold in a single year was 896,980 in 1978, which also happens to be when they were churning out mostly awful iron.

The first car I ever drove was a Pontiac Starchief convertible with a 347 with triple carbs. My father, when I was a very small boy, would slide over a bit on the seat, have me stand on the seat, and help steer the car while working the pedals. He especially liked to do this in the deserts of California on the long straight roads typical of the area while other people were coming towards us – he would duck down as far as he could behind the dash (and still be able to see the road), thereby fooling the oncoming cars into thinking a little kid was driving the car at 60 mph. Very big fun.

After awhile, I could actually steer it myself, so I did. I was driving, after a fashion.

When my mother found out, she was unhappy. And both my parents were unhappy when I got into another Pontiac sedan in the driveway a few years later, started it up and drove it down the driveway across the neighbor’s lawn and over their mailbox. I think I was seven.

Of course, my mother had a big ‘ol seven-seater Safari wagon when I was in my teens. I would borrow it when I needed a lot of friend-carrying capacity. One of my friends from a well-off family had a brand-new Pontiac Firebird given to him for a birthday, and so I ended up driving that quite a bit.

I bought a Pontiac Bonneville and a Pontiac Tempest with the OHC six in my twenties, when the cars were as old as I was. Then a long drought of Pontiacs in the late Eighties and Nineties (they weren’t making anything I wanted to buy) which has continued to this day.

Continue Reading