By Chris Haak

02.16.2009

With the economy in the US and globally showing no signs of improvement, and the new-vehicle market showing no signs of life, the cash situation at GM has become even more desperate, if that’s to be imagined.  The company that had previously not even uttered the word ‘bankruptcy’ except to say that it was out of the question and not an option is now making noise that in spite of all of the negatives that go along with declaring bankruptcy, it’s very much on the table unless the company gets more money from the US government, and quickly.

The Treasury Department believes that GM needs at least another $5 billion from the government in order to survive beyond the first quarter of 2009.  So far, the company has received $9.4 billion.  The Wall Street Journal reported over the weekend that the usual “people familiar with the situation” indicated that GM is going to present the government with two alternatives – that the government must either commit additional billions to keep the company afloat, or commit additional billions for debtor-in-possession financing because those funds (far more money would be required for that than has already been committed to keep the lights on thus far) would likely be unavailable from anywhere in the still credit-frozen and shell-shocked private sector. Continue Reading

By Chris Haak

12.02.2008

Though we still don’t have all of the full results from Acura to Volvo available to digest, the news is predictably not good on the new car sales front for November 2008.  Some of the lowlights:

• GM sales down 41.3%
• Chrysler LLC sales down 47.1%
• Ford sales down 32.6%
• Toyota sales down 33.9%
• Honda sales down 31.6%

As of this writing, Nissan has not yet reported its November 2008 sales, but industrywide (pending results from Nissan, Suzuki, Jaguar, and VW), the industry was down 36.9% from November 2007.

There were very few bright spots industrywide in November, and December may prove to be just as chilly – if not moreso – to the industry.  When a 33% sales drop gains marketshare, you know everyone’s hurting; even the mighty BMW is down 26.9% from November 2007.

In response to these market conditions, Ford has already announced plans to trim production output by a similar margin in the first quarter of 2009, with many of its competitors likely to follow the same pattern.

Stay tuned in the next day or two as we delve into the bad news with a model-by-model analysis of where the pain was worst, and where there might have been a few bright spots.

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By Chris Haak

12.02.2008

Hot on the heels of our earlier report of what to expect in the business plans submitted to Congress, Ford has published its 33-page (excluding appendices) presentation to the Senate Banking Committee.

The press release can be accessed here.
The business plan PDF can be accessed here.
The appendix PowerPoint can be accessed here.

We are all aware that Ford is in better financial health than its competitors due to Alan Mulally’s decision to mortgage nearly the entire company shortly after he joined the company, giving them access to working capital needed to complete the company’s restructuring and product lineup changes.  In light of Ford’s healthier situation, the company is NOT asking for immediate money, but rather a credit line of up to $9 billion as a backstop in the event that market conditions further deteriorate.  However, Ford expects under the “slightly improved rates” assumption (below) that the company can return to profitability, or at least break even, by 2011.

In the business plan document, Ford laid out three different industry sales scenarios – basically bad, worse, and worst – and what its government assistance needs would be under each scenario. Continue Reading

By Chris Haak

12.02.2008

After the fiasco that was the first round of hat-in-hand presentations to Congress last month, punctuated by some CEOs saying they’d just as soon not sacrifice their salaries in the name of preserving the companies that they work for, not showing Congress that they had a plan to avoid coming back to more money, and arriving via corporate jet, some details are starting to emerge about the message and concessions that the Big Three are prepared to make to lawmakers in order to secure the funding that will keep them out of Chapter 11.

“Shared Sacrifice”
At the November hearings, Chrysler LLC CEO Robert Nardelli offered to work for $1 a year to save the company, but Alan Mulally and Rick Wagoner declined to make that commitment.  This time, both men will offer to work for $1 per year in the spirit of shared sacrifice, though not yet clear is whether they will still be eligible for bonuses and equity awards (stock options and/or restricted stock), which is where the big dollar figures of CEO compensation comes from.  GM is also expected to announce compensation reductions for other members of senior management, likely similar to those that the company implemented a few years ago (and subsequently rolled back) in response to another near-bankruptcy situation. Continue Reading

By J. S. Smith

11.18.2008

Here in the Mitten State (or Wolverine State), we’ve been getting slapped around for a while. In the late 1970’s and early 1980’s there was an exodus from the state as the U.S. auto industry hemorrhaged jobs and money. Things stabilized, eventually, and with the exception of a dip in the 1991 recession, the times were pretty good.

When SUV sales took off, with concomitant massive profits for the Big Three—they really were big back then—in the 1990’s, Michigan was again awash in high wages and expanding auto plants. Overtime was commonplace. Autoworkers were getting bonuses of several thousand dollars. Employers in the lower part of the state had trouble filling positions because employment demand was so strong. The Ford truck plant in Wayne, which made the Ford Expedition and Lincoln Navigator, grossed over $11 billion in 1998. The Big Three and thus the State of Michigan was awash in money.

I remember back in the heady days of 1999, I spent a summer interning at a small law firm in Jackson. I remember quite vividly two partners discussing how clients were complaining about how difficult it was to find workers. Not qualified workers—any workers. Continue Reading

By Chris Haak

11.07.2008

This morning, both GM and Ford released their third quarter 2008 earnings, and the news was unsurprisingly about as bad as it could have possibly been for both companies.  Ford is in a better liquidity position than is GM, but both companies saw their cash positions drop precipitously, with Ford burning through $7.7 billion of its cash pile during the third quarter ($2.57 billion per month on average) and GM burning through $6.9 billion in [operating] cash during the third quarter ($2.3 billion per month on average).

The cash conflagration at both companies (remember, Chrysler is no longer publicly traded, so we don’t know its situation, but it’s likely similar, if not worse) in the third quarter meant that Ford was left with $18.9 billion in cash and marketable securities, with another $10.7 billion in readily accessible credit (thanks to Alan Mulally’s foresight in mortgaging most of the company right before credit markets froze), for a total liquidity cushion of $29.6 billion.  GM does not have any more credit available to tap, so it’s on its own, down to its last $15 billion.  The company needs $10-12 billion in cash just to keep the lights on, pay suppliers, etc., so bankruptcy could come long before the cash number gets to $0.  Most telling – and alarming – of all the news today was this statement in the body of GM’s earnings release, which we are duplicating here unedited (emphasis added): Continue Reading

If there was a way to say “oh, snap!” that sounded respectful and professional, I would say it

By David Surace

10.24.2008

Cerberus Capital Management–the company which owns 80.1% of Chrysler, LLC–is headquartered in New York City with affiliate and/or advisory offices in Atlanta, Chicago, Los Angeles, London, Baarn, Frankfurt, Hong Kong, Tokyo, Beijing, Osaka and Taipei.

Frank Rhodes, the archivist for the Chrysler family and great-grandson of the automaker’s founder Walter P. Chrysler, is headquartered in Chestertown, MD.

According to an Automotive News article (sub req’d), on October 16th, Mr. Rhodes sent a letter to Stephen Feinberg, the founder of Cerberus, issuing some unsolicited advice on some good places to take the company. The letter was also CC’d to Chrysler CEO Bob Nardelli, Co-President Jim Press, among several other important people and media outlets. Continue Reading

By Brendan Moore

09.26.2008

The USD $25 billion loan package to the U.S. automakers and parts suppliers passed the House Wednesday and will arrive in the Senate within the next few days, where easy passage is forecasted. The White House has already indicated that it will sign the bill when it hits the President’s desk.

The auto industry loan proposal is merely a sidebar to the massive $700 billion federal bailout package for Wall Street currently being wrangled over in Congress, and thus has not garnered a lot of attention from the public in the last few days. The automakers and Washington would like to keep it that way and get it passed without a lot of contentious debate.

The auto industry loan is, at least ostensibly, to help the car companies retool their plants in order to make more fuel-efficient cars like hybrids and EVs and meet the new fuel economy rules recently put into play. The current language of the loan program requires that the money be used to retool or retrofit only plants that are at least 20 years old and that the refurbished plant will be used to manufacture vehicles (cars or trucks) that produce an approximate 25% improvement in fuel economy over similar models in their class at the time of the loan.

The auto industry did a great job of pushing the loan package through, but they have not been able to get the terms of the loans modified to make those terms less restrictive. The Big Three (GM, Ford and Chrysler LLC) are all facing a tremendous cash crunch and would like more leeway in how they spend the money loaned to them. Even if the terms remained the same, industry analysts believe the cash infusion would mitigate a lot of Detroit’s immediate cash flow issues, but the auto companies don’t want to be tied down to a particular part of their business getting the money, and other areas that are just as needy getting nothing. Continue Reading

By Brendan Moore

09.08.2008

There is an interesting editorial (Detroit’s Blackmail Attempt Is Beyond Shameless) by Paul Ingrassia in today’s Wall Street Journal regarding the $50 billion USD in loans that the Detroit automakers are currently lobbying Washington for; loans the automakers say they will use for the euphemistic “retooling” in order to produce smaller, more efficient cars.

The reference to blackmailing concerns that fact, as we noted last week, that its an election year, and a great many jobs in swing states like Michigan and Ohio are at stake. This may make the loans irresistible to politicians on both sides of the aisle.

Mr. Ingrassia is an accomplished writer and an astute observer of the auto industry and therefore the piece is chock-a-block with good observations about why the American taxpayer shouldn’t stand for this federal bailout.

It’s not that I disagree with a lot of what Mr. Igrassia wrote:

“The Detroit Three got into their current quandary by making decades of bad decisions, with some help from the United Auto Workers union. Yet despite the current crisis, General Motors is still paying dividends to shareholders, the car companies are paying bonuses to executives, and the private-equity billionaires at Cerberus who bought Chrysler are trying to reap enormous rewards from their risky investment. Meanwhile the UAW’s Jobs Bank — which pays laid-off workers for doing nothing — remains in place.

Of course, we can all hope that shareholders do well, that executives reap handsome rewards for work well done, that the Cerberus billionaires make more billions on Chrysler, and that workers get paid on whatever terms the car companies agree. But we taxpayers shouldn’t subsidize any of this.

The only reason we should bail out any private company is the risk that its demise would wreak havoc on the entire economy. Bear Stearns conceivably passed the test; its collapse could have threatened the U.S. financial system, and the government didn’t make the mistake of bailing out shareholders or management.

Continue Reading

By Jason Lu

08.15.2008

Things have been pretty grim for Detroit’s weakest automaker in the past few years. With all three brands relying heavily on large SUVs and pickup trucks, the recent consumer shift towards fuel-sipping vehicles has taken a big toll on the Pentastar. Since April of 2008, Chrysler LLC has posted severe double-digit drops in sales every month, ranging anywhere between 28 to 34 percent. What happened?

No, that’s not a fair question. We need to look at what is happening and what will happen. Chrysler, just like Ford, is undergoing major structural changes. However, unlike Ford, it does not have the support of other world-wide divisions. The vehicles you see in Europe are vehicles you already see in the U.S. There is no “bring-over the European model” option for Chrysler. Fortunately, Chrysler still has money for a major project.

Being the first move for the company since the gas-price hike, Chrysler will pour $1.8 billion dollars for new vehicle developments and to retool the Jefferson North assembly plant in Detroit that currently produces the truck-based Grand Cherokee. The factory will also be expanded by 285,000 square feet and become more flexible so multiple vehicles can be built on the same assembly line. “This investment in our future products and at Jefferson North will enable the Company to produce a future generation of vehicles more efficiently, with world-class quality.” Continue Reading