Big Auto

  • 17 Mar 2009 at 3:08 PM

Cash For Clunkers

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clunk.pngMight be too little, too late for Detroit, but it is a neat idea anyhow. That is, if you think we need more cars on the road.

Members of the U.S. Congress are working on a new bill to provide incentives for drivers to trade in older vehicles for newer, more fuel-efficient cars, hoping that the recent success of a program in Germany will give the program new momentum, a House Democratic aide said Tuesday.
The so-called “Cash for Clunkers” program is currently being drafted in Congress, the aide said. A similar proposal gained some momentum in Congress earlier this year but ultimately didn’t get the green light from Congress.

We’re betting this one will get the green light, so to speak. But should it? For a country so suddenly green conscious, it seems that we are awfully anxious to start subsidizing automobile ownership. Improving the “national fleet” EPA by 10% (which seems a difficult goal) would be rather expensive, and of limited utility in the end. Surely someone has done the “remaining years in lifetime” v. “fuel savings over life of new car” calculation somewhere, but I’m curious to know where the break-even numbers are.
US Lawmakers Drafting ‘Cash For Clunkers’ Auto Bill – Aide [The Wall Street Journal]

  • 17 Mar 2009 at 10:35 AM

Breaking: WSJ Reports GM CEO Reports Bankruptcy Could Work, But Risky.

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“GM CEO says bankruptcy ‘could work’ but would be too risky,” is the exact ticker line.
“That, Mr. Wagoner, is the sound of inevitability.”
The situation is fluid.

  • 05 Mar 2009 at 9:58 AM

G^M = B^K?

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GMLogo.jpgAs we mentioned in the Opening Bell, GM is staring default and potentially bankruptcy in the face (“we actually need about $30 billion”). A lot of light and noise has been emanating from GM’s general direction for several weeks now, but it looks like this is the main event. Of course, this isn’t a surprise. GM warned last month that Deloitte & Touche might excommunicate the company from its close circle of friends, and that, certainly, sounds like the beginning of the end.
GM has until the end of March to close deals with the UAW and debt holders to qualify for government assistance (again). One wonder’s if they are likely to make it that far.

GM said its creditors had agreed to waive a requirement that could have allowed them to force the automaker to repay more than $6 billion in loans because of the warning in order to allow GM to press its case for government aid.

In fact, GM has been begging for, and mostly getting, lots of waivers for call and acceleration provisions- at least until the Treasury fails to give the automaker the Goodhousekeeping Seal of Bailout Approval. And why not? The bond holders are really buying an option by laying off of GM here. That government cheese might be the lion’s share of what they see. It would be interesting to know what power creditors waived with respect to forcing liquidation owing to the government involvement.

Separately, GM said in its SEC filing that its lenders had waived “call” provisions that could have forced early payment of its $4.5 billion secured revolving credit facility, a $1.5 billion term loan and a $125-million inventory financing facility.
The new waivers allow GM’s lenders to call those loans if the U.S. Treasury rejects GM’s restructuring plan and request for additional aid and forces it to repay the $13.4 billion it has already borrowed from the U.S. government.

Gotta love priorities.
GM warns it may be forced into bankruptcy [Reuters]

  • 26 Feb 2009 at 11:07 AM

Currency Singularity

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So unless you just crawled out of bed still in your Greenspan Underoos because you no longer have an office to go to, you probably know that General Motors is looking at a 2008 loss of $31 billion. Don’t worry though, because this is about what we expected.
Perhaps it is our cynical side, but does anyone really believe that these firms are going to be anything but a huge gravity well for cash for the next 20 years? In all seriousness, under what scenario is it possible to imagine that anything resembling General Motors can even arguably make back a fraction of what has been and will be dumped into it in the next five years?
In 2006, Nissan- the best of the Japanese manufacturers that year on this metric- pulled in about $2,100 in profit per car (Honda and Toyota were in the $1,200 – $1,500 range). Assuming General Motors could manage to recover Nissan’s margin (and this is Disneyland levels of fantasy) they would have to push over 14 million vehicles out the door just to cover the 2008 loss. For perspective, GM sold about 8.3 million vehicles in 2008 with more than a dozen brands, and not only have they been forced to cut capacity and brands, but demand might not even get that good again.
Ok, that’s probably not a fair analysis, since the $31 billion is sunk cost. Surely, we aren’t going to have to dump that much money into GM again… right? Ok, what about the $12 billion in underfunded pension liabilities yet to come? The $[whatever] billion in cash they are about to ask for? The however much they burn through in the next five years?
It might be time for GM to punt.

General Motors Corp posted a nearly $31 billion loss on Thursday for 2008 and said its auditors were likely to cast doubt on its viability as it seeks an expanded federal bailout to stay afloat.
GM, which asked for up to $30 billion of U.S. government aid, posted losses in all of its major units during the fourth quarter and it burned through $6.2 billion of cash. Revenue plunged by more than a third.

GM posts massive loss, auditor may question viability [Reuters]

  • 25 Feb 2009 at 2:00 PM

10 Lions Versus 3 Gladiators

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The revolving door to the give-away party has started to turn, beginning with Chrysler which, after smashing through the floor of their own “worst case scenario” is back looking for $5 billion or so. Just to tide them over, you understand.

Three top Chrysler LLC executives are to meet today with President Barack Obama’s automotive task force to discuss the automaker’s request for an additional $5 billion in federal aid, people familiar with the matter said.
Chief Executive Officer Robert Nardelli, Vice Chairman Tom LaSorda and Chief Financial Officer Ron Kolka will meet with the task force, the people said. Chrysler, which received $4 billion in federal loans, said Feb. 17 it needs the extra funds to avoid an “orderly wind down” of the company. The third-largest U.S. automaker said it lost $8 billion last year.

Really, at this point, should we be trying to avoid an “orderly wind down?”

The 10-member panel, led by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, has the power to force a bankruptcy filing by Chrysler or General Motors Corp. Chrysler and Detroit-based GM have received $17.4 billion in U.S. aid and are requesting as much as $21.6 billion more in low-cost federal loans.

Chrysler’s Nardelli Meets With Auto Task Force Today [Bloomberg]

  • 23 Feb 2009 at 1:33 PM

Yeah, So That Car Czar Slot You Were Hoping For? Not So Much.

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You had to know that appointing a “Car Czar” with the kind of powers that might actually get something done when it came to Big Auto was just never going to happen. There is, after all, only one Lord of the Bailout, and he does not share power (unless it is via a gridlocked committee of varied interests and affiliations to make sure every view is represented and no major initiative ever sees the light of day).
Yeah, ok, but you have to give Steven Rattner an “advisory position” after you taunted him with a Czar slot. I mean you can’t take away his favorable taxation setup at Quadrangle Group and deny him the promised Car Czar slot. Sheesh.
Rattner Is Said to Join Treasury as Adviser on Autos [Bloomberg]

  • 17 Feb 2009 at 10:40 AM

We Totally, Seriously, Honestly Won’t Need Any More. Really.

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So GM is going to grudgingly accept another check for $4 billion. Is anyone else so numbed to large numbers at this point that $4 billion really doesn’t seem like much money? I mean, John Paulson spits $4 billion. Tim “The Safecracker” Geithner exhales larger sums while taking his afternoon nap. (And you believed that story about closing the cash room for “painting” every afternoon).
Yes, oddly, those sorts of figures seem boring now. Even when the UAW and management have walked away from the table, we seem so attached to the Buick Lucerne that a few billion more seems trivial to throw down the tubes in order to save it from oblivion.

The U.S. government will release $4 billion in additional aid to General Motors Corp (GM.N) on Tuesday as planned, a White House aide said on Monday, ahead of the deadline for the automaker to submit a new survival plan.

I suppose we can just hope they did their homework right this time.
GM to get $4 billion aid tranche Tuesday [Reuters]