Wednesday, February 28, 2007

Chrysler Buy-out Terms disclosed
Early Retirees to get $70k Pretax
Non-Retiree Buyouts, up to $100k Pretax

Chrysler announced details of its buyout plan, designed to trim its hourly workforce by 11,00 workers. The is an acronym soup. The early retirement plan is the Incentive Program for Retirement (IPR). The buyout plan is the Enhanced Voluntary Termination of Employment Program (VTEP).

For those UAW members who have their 30 years in, the company is offering $70,000 in pretax cash to go. They would receive full retirement benefits. For those who are not eligible for retirement, if they are offered the plan (and not all will be), they will receive cash up to $100k (pretax), and six months of partial benefits including health insurance.

Incentive Program for Retirement (IPR) and an Enhanced Voluntary Termination of Employment Program (VTEP).

Apparently some workers are unhappy because the Canadian autoworkers also received a certificate to buy a Chrysler car. I don't know the details.
Lots of Car News . . .

There has been a lot of car news in the past couple days. I've been busy, and I haven't been able to post. Let's see if I can catch up some today. Some of these posts may be sketchy. I also have several half-written posts going back a while that I will try to get out this week.

Monday, February 26, 2007

New Breath Test Diagnoses Lung Cancer

This one is true, not one of my phoney news stories. Scientists have come up with a breath test to identify patients who have lung cancer. Lung cancer is notoriously hard to detect in its early stages, but this chemical test was found to detect the disease in 75% of the cases. The test is said to be simple and inexpensive. Once the test is perfected, they should make the cigarette manufacturers put a test strip in each carton of cigarettes.
More Detailed Speculation on the GM/Daimler Chrysler Deal

The Financial Times (as reported here in the Detroit News) has speculated that a deal for General Motors to take over Chrysler USA would be fueled by Daimler Chrysler purchasing a 20% equity stake in General Motors. Of course, that's pretty much what I predicted when I posted in connection with the first news story of the GM-Chrysler deal. There's absolutely no possibility that a deal will go through unless it is cash-positive to General Motors, because GM has no cash to invest in the deal. Moreover, GM has to get enough cash to pay for the integration costs and the short-term negative cash flow of the Chrysler division. If dealers need to be bought out, the cash outlay could be huge. Here is a clip from the Detroit News Article

"Since GM is short of cash, an equity deal would make sense if it is interested
in Chrysler, and an equity valuation of Chrysler at, say, 3 billion euros ($3.94
billion), would wind up giving DaimlerChrysler a 20 percent stake in GM," said
Stephen Cheetham, a senior analyst with Sanford C. Bernstein Ltd. said.
kind of deal has some face-saving potential for management, and we believe that
from a shareholder perspective, 20 percent of a combined GM/Chrysler entity is
preferable to owning Chrysler outright," said Cheetham. "However, it does not
give DaimlerChrysler a clean break from equity exposure to the troubled world of
U.S. domestic carmakers, and we would expect the presence of a GM stake to be an
ongoing irritant in (its) relations with investors."
Chrysler earlier this
month announced it lost $1.475 billion in 2006 and said it expects losses to
continue through 2007. Parent DaimlerChrysler, however, earned $4.26 billion in

Although I haven't seen any articles reporting on this element, don't be surprised if GM doesn't buy the Chrysler Division, but instead, buys the rights and tooling to certain product lines. This would allow Daimler Chrysler to take a huge tax write-off on shutting down its North American operations. It MIGHT trigger an escape clause in dealer contracts. Finally, General Motors (and Daimler Chrysler as GM shareholder) would not be stuck with deadwood. On the other hand, most corporate buyouts are structured as tax-free transactions through the exchange of 80% or more of the stock of one of the entities. Under the asset-sale scenario, I don't know how a tax-efficient result could be reached. Perhaps, if your write down for discontinued assets is high enough, you can afford to report some taxable gain on the minority of assets that are sold.

As I said before, Daimler Chrysler would be unwise to get into a deal that doesn't protect them in the event of a GM bankruptcy. Here's where the investment bankers will really earn their money - in coming up with creative provisions to make sure that happens.

As you are looking at the prospects for a GM/Chrysler deal, keep these factors involved, because they will drive the deal. General Motors has almost no cash, but their stock market price has gone up greatly in the past year, so an equity stake in GM can look like it is worth some real money. Secondly, the stock market has put a null-to-negative value on Daimler Chrysler's North American operations, therefore Chrysler can come out ahead even if it gets no real cash in return for selling Chrysler.

Friday, February 23, 2007

Youtube Video of the Day:
Idol Fav - Lakisha Jones

I didn't see American Idol this week, but the buzz is that the going-away favorite is a singer named Lakisha Jones, from Flint Michigan. Last night she sang the Dream Girls song, And I'm Telling You I'm Not Going. Lakisha's performance isn't on the American Idol website, but for a while, at least, there's a performance of her singing the same song in a different competition on No question, Lakisha knows how to bring it. The Youtube performance is from a Houston, Texas area competition called Gimme the Mike.

Lakisha finished SECOND in that competition to a country singer named Christy Suggett who also had songs on Youtube. In my opinion, Christy can carry a tune, but she projects the appearance of a generic NASCAR-country singer, happily selling the virtues of redneck life. It's everything I hate about modern country music.

Note that these videos are a good example of the giant wealth transfer engine that is Copyrighted songs, copyrighted performances, billions of Google dollars going to the Youtube insiders, and nothing going to the artists or the people who created the content.

Thursday, February 22, 2007 Video of the Day:
The Nigerian Dead Parrot Sketch

If you take the set-up at face-value, this clip linked here is a video of two would-be Nigerian scammers being conned into auditioning for a scholarship by acting out the classic Monty Python Petshop (a/k/a Dead Parrot) Sketch.

Is this the next Numa Numa?

Wednesday, February 21, 2007

Holy Turbo Pinto Batman

My daddy said son you're going to drive me demento, if you don't stop driving that hotrod Pinto.

1972 Pinto, Lime Green, Turbocharged, Nitrous-injected, work in progress.

In the spirit of equal time, here's a link to a turbocharged 1972 AMC Gremlin.

Chevy fans - sorry, I couldn't find any links to turbocharged Chevettes or turbocharged Vegas.

Tuesday, February 20, 2007

Nissan to Offer Buyouts to Tennessee Workers

Reuters is reporting that Nissan has announced that it will offer buyouts to all of the workers in its Smyrna, Tennessee assembly plant and Decherd engine plant. The buyouts will be based upon $45,000 plus $500 for each year of service. The buyouts will be voluntary. If the buyout was mandatory, would it be an Altimatum? (Remember, if puns were outlawed, only outlaws would have puns.)

Monday, February 19, 2007


Some said it couldn't be done, and maybe it can't, but they're going to try anyway. The two major satelite radio networks, XM and Sirius have agreed to a "merger of equals." Apparently they saw that it worked so well for Chrysler.
GM May Ask for Extension to File Annual Report

Rumors that GM may take over Chrysler are flying, and they are largely overshadowing the fact that General Motors has not yet filed its 10k annual report. The latest news reports that GM may ask for a short extension of time to file, bringing the deadline from March 1 to March 16. The same news story reports that GM's figures will include restatements to past year's reports that cumulatively bring GM's retained earnings up by $700 million. This may or may not be significant depending upon GM's other disclosure when the report is issued.
Co-Inventor of TV Remote Control DEAD at 93

Robert Adler, the co-inventor of the television remote control, is dead today at age 93. According to reports, after a private ceremony, he will be buried between the couch cushions where no one will ever find him.

Thursday, February 15, 2007

Chrysler on the Auction Block and Chopping Board
13,000 Layoffs through 2009
Chrysler Division being Prepped for Sale - To General Motors?

As I reported last week, Daimler Chrysler announced plant closings and layoffs. The total number will be 13,000, somewhat more than originally announced, but an overall smaller percentage than in recent restructurings by General Motors and Chrysler.

The over-all tone of the announcement suggests that German management isn't just pruning deadwood, it's prettying up the yard to sell the house. Daimler Chrysler stock has surged in recent months as speculation surrounding a US - Chrysler spinoff has escalated. In today's Wall Street Journal, there is an analysis that argues that the Chrysler division is a net drag on DCX stock such that even if Daimler Chrysler gets nothing in return for getting rid of Chrysler, it's still worth doing.

The Detroit News speculates that a variety of entities would be interested in buying Chrysler. Renault-Nissan is the first one that comes to my mind. Renault is interested in entering the U.S. market, and that company has had long historic ties to Chrysler. To a certain degree, Renault was involved with the design of the first generation Chrysler minivans and the Omni/Horizon subcompacts. (See for more details.)


Here's the good part, though. There are rumors of a GM purchase of Chrysler. How could nearly-bankrupt General Motors buy its former-Big-3 rival? Why would General Motors buy Chrysler? Doesn't GM already have too many models and dealers? At first look, the idea seems ridiculous. But, after giving it a little thought, I think you could construct a deal that would be a win-win proposition.

First, you have to figure that GM would not actually pay any cash for Chrysler. The key to making the deal work would be an investment by Daimler into GM in exchange for GM stock. Most likely, the stock would be a new class of convertible-preferred stock, coupled with a debt issue secured by Chrysler assets. Prior to all this happening, Daimler would have to get Chrysler ready for sale, and that's what the announced restructuring is leading to. The plant closings essentially prune high-cost light-truck capacity. General Motors already has plenty of truck models. While some would disagree, the market has determined that GM trucks are better. Chrysler has some stars though. The Jeep product line is profitable and isn't duplicated by any GM division, Hummer notwithstanding. GM would love to have the 300 series rear-wheel-drive models. GM has given up on minivans, and Chrysler still sells a third of a million a year of them. A GM purchase of Chrysler could be structured such that GM and Daimler would end up with a structure like a Japanese Keiretsu.

In a smartly structured deal, Daimler could be positioned to pick up the juicy bits in the case of a General Motors bankruptcy. In fact, selling Chrysler to GM on the eve of a General Motors bankruptcy might allow Daimler to get back key Chrysler assets without being burdened by union contracts and dealer obligations. I thought Carlos Ghosn was positioning Renault/Nissan for a post-bankruptcy GM when a GM deal was being bandied about last year. In response, Rick Wagner & Co. responded with a Pythonesque "I'm not dead yet", and squashed any hope of a deal.

Anyway, if there's a GM-Daimler Chrysler deal involving secured debt and a new stock class issuance, you heard about it here first. I'll take my corporate finance endowed and tenured university chair in red velvet please. You'll know that there's something to this GM talk if the next big announcement from Daimler Chrysler involves a massive reduction in the number of dealers. On the other hand, if Dieter Zetsche really wants to take advantage of a GM bankruptcy, he may not worry about the dealer network at all prior to making a deal. The dealer network becomes GM's problem, a problem easily resolved in bankruptcy.

Monday, February 12, 2007

Valance Technology
Can't Miss Technology - Can Miss Investment

I've been keeping an eye on Valance Technology, a company that trades on the NASDAQ market as VLNC. Valance's claim to fame is a battery technology that supposedly makes lithium batteries safer. This is exactly what hybrid vehicles need, a high density, relatively low-weight battery that does NOT catch on fire easily. Can't miss? right?

Well, based on the 5 year performance of Valance, maybe you can miss. Five years ago, Valance was trading at around $5.00 per share. Now it is trading at under $2.00 per share. So if you would have bought the stock five years ago, you would have lost over half your investment.

The moral to the story: beware of story stocks. It's not enough to have a hot product, you have to be able to deliver the hot product at a price and in a quantity that the market demands and at which you can make a profit. It wouldn't hurt if you can do it better than everybody else.

There are competitors in the advanced battery market. It's too early to determine which technology will win out.

Friday, February 09, 2007

Toyota Workers Made More than UAW Workers in 2006
But . . .

Thanks to $6,000 to $8,000 bonuses paid to its workers in Georgetown, Kentucky, Toyota workers in the non-union Georgetown plant made more than similarly-situated UAW auto workers. Toyota pay worked out to $30/hour or $60,000 per year for a 2,000 hour year. UAW workers made $27/hour or $54,000 on average last year. Source Detroit Free Press via

Toyota workers may find that the gravy train may soon skid off the tracks. In an internal Toyota memo that was discovered by the Detroit Free Press, a Toyota executive complains that the company's U.S. manufacturing wages are rising faster than company profits. (Toyota made record profits last year, by the way.)

Traditionally, to forestall unionization efforts, Toyota and the other "transplant" foreign automakers have paid wages close to the UAW wages for the same jobs. The transplant automakers have nevertheless enjoyed substantial savings due to less generous benefits, more flexible work rules and a younger work force. The age of the workforce is of huge importance. The transplants have virtually no retirees to care for, and the health insurance for younger workers is much cheaper.

With the decline of the UAW, Toyota may change its wage strategy, thinking that unionization efforts are less of a threat. In the memo referenced above, the Toyota executive suggested pegging its wages at the prevailing industrial wage for the area. In the South, where Toyota and the other transplant companies base their plants, the prevailing industrial wage may be $15.00 per hour or less.

Thursday, February 08, 2007

The Mortgage Lender IMPLODE-O-METER
Chronicling the Opening Shots of the Great 2007 Depression

In the news today, giant British Bank HSBC announced that it was going to make a financial reserve against expected losses in the range of $10.6 billion. That amount is the same order of magnitude as the cost of the 25,000 troop "surge" in Iraq. HSBC's stock has taken a 2% hit on the news. In fact, HSBC's $10 billion charge is just the tip of the iceberg when it comes to financial losses relating to bad mortgage loans. For years now, the mortgage industry has played loosey-goosey with other people's money writing loans that no thinking person would write: no-doc loans, 120% loan-to-value, 100% subprime with exploding interest rates . . . the list goes on.

While the real estate market was hot, the bad loans could be covered by increasing home values. Now that the market isn't hot, stupid loans can turn a burst bubble into a death spiral in many areas. Bad loans result in foreclosed and abandoned properties, which results in lower home values for neighboring properties, which causes an inability to refinance, which causes more defaults and foreclosures, etc. etc. etc. Ultimately, the total cost of the bad loans could exceed the cost of the Iraq war. In fact, I've heard the number TRILLION seriously discussed in relation to this mess.

All of this gets to the central link of the post. A guy named Aaron Krowne runs a blog called the Mortgage Lender Implode-O-Meter. This blog is an excellent source of information and perspective on the troubles in the mortgage industry. Since December 2006, Aaron has tracked news stories announcing the demise of 19 mortgage lenders. It's amazing that this subject has gotten less attention in the press than Britney's style of exiting a limo.

Right now there are hearings in Congress concerning possible legislative remedies for abusive mortgage loans, but as far as the current crisis goes, that's like closing the barn door after the cow has escaped. It looks like the economy is just going to have to take its lumps. I just have a bit of concrete advice. Get out of any financial services mutual fund that you may have, and watch your bond funds carefully. If you have a bond fund that invests heavily in mortgage-backed securities, get out now.

Tuesday, February 06, 2007

From the WTF File: No Bull
Ford Five Hundred to Change name to Taurus

Exit Taurus, enter New Taurus. I'm at a loss to explain this one. I'll grant you, the name Five Hundred sucks. It has nothing to do with anything. Supposedly though, Ford had lots of reasons for not naming the car Taurus to Begin with. The existing Taurus was still Ford's most popular car, but it had a lousy resale value that might risk blowing the profitability of any successor. In the past week the major Ford-related headline was that Ford surrendered 3rd place in market share domestically to Daimler Chrysler. Ford's sales fell 19% in January. A big part of that was the retirement of the Taurus, the car that was Ford's top selling passenger car from the day it was introduced until the day it died. Perhaps Ford was irked that you could go to your local Ford dealer and buy TWO barely-used 2007 Ford Taurii for the $24,000 cost of a well-equipped Fusion or a moderately equipped Five Hundred. At $24,000 the Taurus couldn't cut it. At half that price, the Taurus is a steal. One of my coworkers may be picking up a pair of them fairly soon.

It's one thing to just say no to fleet sales. It's another thing to make up market share and pay fixed costs without fleet sales. For a manufacturer faced with this dilemma, the intelligent solution seems to be to isolate fleet-sales into models that are not marketed at retail. In doing so, low resale values may hit the brand but don't necessarily hit the models you are selling retail. Until last fall, that's exactly what Ford did with the Taurus. As long as you can make even a modest profit on the fleet sales, go ahead and sell the fleet cars. If you don't, your competitors will. If your competitors make the sales, their dealers get the profitable used-car sales that follow, making their dealerships strong.

The big winners on the cancellation of the Taurus are the Hyundai Sonata and the Chrysler Sebring. The new Sebring is not as nice a car as the old Taurus. The Sebring's engine and transmission are barely on speaking terms. It's trunk is too small. Its interior was designed by a committee of blind men. The Sonata is basically an okay car, but it has a vaguely offensive odor to it. Then again, I suppose that in the rental car market, a "vaguely offensive" odor is better than average.
Toyota Reports Record Sales & Profits for January '07

Toyota reported a 15% jump in sales and 7% jump in profits. Not too shabby.
Hasbro Recalls EasyBake Ovens

Hasbro has recalled almost one million Easy-Bake Ovens. Here's a Hof's blog exclusive comment from an official at the Consumer Product Safety Commision commenting on the dangerousness of the ovens:

The ovens have several problems. First, you have to put the damn
thing together which takes f***ing forever, then you find out that it needs a
lightbulb that they hardly ever make any more, and you don't have one lying
around. Then you need to listen to the little S*** whine that she wants to
bake NOW. So then you're in a Catch-22, either you forget about the
lightbulb and put the thing on the shelf & hope she forgets about it, or
maybe you can regift it, but that's always dangeorus with toys. Or, let's
say you buy the lightbulb and actually try tou use it. That's two hours
you'll never see again for six f***ing cookies. And, if you possibly
manage to suffer through using up the little bit of ingredients that come with
the oven (and live through the gut-busting taste), you get the privilege of
paying $9.99 for four ounces of additional cookie mix. If you're
smart, you realize halfway through putting this toad together that it's just too
dangerous for your precious little darling, and you'll thank God that we
recalled it.
The "New Blogger" Era Begins

Today marks my transition from "Old Blogger" to "New Blogger". I'm not sure what the significance of this is really, I think maybe "New Blogger" is a floor wax and a dessert topping.

Chrysler to Cut up to 10,000 Jobs

Ken W sent me the link to this story. Chrysler is planning on shutting at least two plants, including the plant in Delaware that assembles the Durango. Total job loss is said to be about 10,000. Though it's a huge number, it's a fraction of the job losses at Ford and GM, in part because Chrysler made previous cuts and in part because Chrysler was a smaller company to begin with. (Thanks to Ken W. for the link.)

Apparently, Daimler Chrysler can comfortably close the Delaware plant now that the odds of Delaware Senator Joe Biden becoming President are effectively zero. (Maybe I counted him out too soon. Rumor has it that Joe has hired Michael Richards and Mel Gibson as image consultants.) In the Blogosphere, it's not enough to make clever comparisons, you gotta be quick too. The Googleteer says that the number of posts that have linked Joe, Michael and Mel now top 25,000. Take off Click Crusader, nobody asked you anyway.

Jet-man - Flying or Falling with Style?

Holy Buzz Lightyear, Batman, you have to see Swiss daredevil Yves Rossy. He's put together a foldable, jet-powered wing that you have to see to believe. He jumps out of an airplane with the wing folded. He unfolds the wing, lights the burner and blam - the next thing you know, he's catching the airplane he just left. When he runs out of fuel, he folds the wing, pops his chute and glides to an ordinary parachute landing. Thanks to Steve A. for the link.

Thursday, February 01, 2007

Delphi posts $5 Billion Loss for 2006

Delphi just posted the results of its first complete year under bankruptcy protection. The net result was a $5 Billion loss. From public posture, it's hard to distinguish Delphi in Feb. 2006 from Feb. 2007. The company is still talking about extensions and canceling its Union Labor contracts. In the meantime, customers have had a year to find alternate suppliers. Companies supplying parts and services to Delphi have taken losses and tightened terms.

As I write this, General Motors has not yet published its end of the year 2006 results, but executives have predicted a modest profit. I wonder then, if GM didn't absorb the brunt of the $5 billion Delphi loss, who did? And how much more loss are the poor buggers willing to take?

Indianapolis Loses its Last Black Car Dealer

Last week the mortgage lender for Payton Wells Chevrolet filed for foreclosure, and the dealership suddenly closed. With the closure, Indianapolis lost the last of three black-owned new car dealerships. Are black dealers the canaries in the coal mine? The major automakers have/had an affirmative action program to encourage African-American businesspersons to open franchised car dealerships. From time to time these programs have been criticized on various grounds, including allegations that the minority dealers were getting unfavorable locations and vehicle deliveries. It is likely that second-choice locations mixed with undercapitalization has hurt minority-owned car dealerships disproportionately in the current downturn in the domestic car industry.

From personal experience, I can say that it's a real shame that the Payton Wells dealerships are closing. I bought a car from Payton Wells Lincoln Mercury several years ago, and I received top notch service. In my several contacts with Payton Wells Chevrolet, I came off with favorable impressions as well. I wish Mr. Wells good luck in his next enterprise.