Thursday, July 31, 2008

The Linda Richmond Scenario
How Picking Hillary C as Vice President could be "Like Buttah"

Now that talk about Barack Obama's vice-presidential choice is the talk of the town, I'm finally going public with a scenario that I came up with several months ago.

Here's the scenario. Obama picks Clinton as a running mate. They win. The governor of Illinois fills Obama's seat with Oprah Winfrey. The governor of New York fills Clinton's seat with Barbra Streisand. The result: Linda Richmond gets verclemped. Talk amongst yourselves.
GM Employee Discounts to be Eliminated? reported today that GM is on the verge of eliminating employee discounts, at least those on car models that are selling reasonably well, such as the Chevrolet Cobalt. There is nothing official about this, but thetruthaboutcars has a pretty good track record with its rumor reports. The effective date for this? August 8, next Friday.

Tuesday, July 29, 2008

Chrysler Leaves Leasing
GMAC & Ford Motor Credit - Kind of

Following a trend in the auto industry to announce bad news on Friday, this Friday Chrysler announced that it would be ending the consumer leasing business as of August 1. Apparently this decision was leaked to the Wall Street Journal and some other sources before it was disclosed to the dealer network. Chrysler has the most Truck and SUV heavy line-up in the Detroit 3, and in the wake of rising gas prices Chrysler has been hammered by low trade-in values of its models. The low trade-in values have killed the lease residuals.

Maybe Chrysler didn't have much of a choice, but this decision seems like a critical mistake by Chrysler. Even if it could not continue to make the leases, a public disclosure that it was suddenly leaving the leasing business flashed to the public a stunning lack of confidence in the value of its products. Witness the front-page headline in the New York Times: Plummeting Resale Values Lead Chrysler to End Leases.

It would have been smarter to simply continue to offer leases (in theory) but price those leases so high that nobody would want them. Apparently, that's just the route that Ford is taking. GM is apparently going both ways, GMAC will no longer write leases in Canada (where leases comprise over 40% of the market thanks to GST (sales) taxes of up to 18%), while leases will be harder to come by in the US.

It's clear that all of the Detroit 3 are taking billions of dollars worth of losses in lease residuals due to the falling used car values. Now they are having trouble attracting money to underwrite leases at any cost. What is coming out of this looks like a feedback loop of falling sales causing increased discounts, causing lower residuals, causing lower trade ins and lease residuals, causing falling sales, and so on. At some point another variable comes into the picture and adds to the downward spiral, and that is diminished consumer confidence in the viability of the brand.

What will it take to get them out of this? Some external force. It may be an improved economy. It could be a hot new model. (If you see one, let me know.) A sharp decline in gas prices MIGHT do it. I don't think a federal hand out will have any significant effect, at least not at the $300 million proposed by Senator McCain or the $4 billion level Senator Obama has suggested.

I wonder what I can get for my leased Canyonero?

Thursday, July 24, 2008

Ford's Bad News Day:
New Small Car Strategy announced along with $8.7 Billion 2nd Q. Loss

Last week Ford prepared the markets for bad news in its second quarter 2008 financial statements. Today the figures were released. The bottom line figure is a $8.7 billion quarterly loss. Most of that is an accounting adjustment for written down assets; however, most troubling is the disclosure that Ford's cash on hand went dropped $10.8 billion from this time last year to $26.6 billion total. This 28.8% cash drop is after Ford mortgaged most of its assets to build the cash hoard in the first place. It sets up a race against time for Ford to get new models out and make them successful before the cash runs out.

Ford's North American operations lost $1.3 billion, for the quarter, about double what the European division posted as profit. Speaking of Ford Europe, the biggest product news is that Ford is planning on building a number of European models in the US, converting three truck plants to do so. This is a strategy that armchair pundits (including me) have been advocating for years. In fact, it is the presence of a ready-to-go line-up of efficient cars that gives Ford the best chance of the Detroit 3 to survive over the longer term. Here's the product information as quoted from

The company also reconfirmed that it will:

• Add the European Transit Connect small van to the North American lineup in mid-2009.

• Add a new Lincoln seven-passenger crossover. It will arrive in 2009, Ford said today.

• Add the European Ford Fiesta in sedan and five-door hatchback versions in early 2010.

• Switch over to a new European Ford Focus in sedan and five-door hatchback versions in 2010.

• Build a unibody version of the next-generation Ford Explorer. It will arrive in 2010 and improve fuel economy by up to 25 percent.

Note that none of these products will be available before 2009. Ford doesn't say it will build the Transit Connect in the US. If you read between the lines, the Lincoln 7-passenger crossover will likely be a rebadged and gussied up Ford Flex, which in its second month in the showrooms is already setting the world on fire - NOT. Ford cancelled the planned 3rd shift at the plant that makes the Flex and the Edge. The European Fiesta and Focus should be hits based upon current reviews; however it remains to be seen if Ford can make sell them profitably over here. There was no announcement about some lauded European models that I would like to see here, the Mondeo, Cmax, and Galaxy. (The new Mazda6 is closely related to the Mondeo, and it should be here in a month or two.) Ford's major new products in the meantime include a redone F-150, a made-over Fusion/Milan, and not much else.

Mr. Ranger is hardier than the average bear. The old man of Ford's line-up, the Ranger small pick-up has cheated death more times than Indiana Jones. Since Ranger sales are only down 3% this year, despite no significant updates since 2001, Ford has decided to keep the Ranger at least through 2011. In so doing, Ford granted a stay of execution to the St. Paul, Minnesota plant that builds the Ranger.

To save cash, Ford is putting together a buy-out package for many of the unionized employees in Michigan and Ohio. The Ohio cuts especially will likely result in a reduction of the membership of our AFSCME Local 3357.

Primary Source: (free registration required)

Wednesday, July 23, 2008

Countrywide Has Over $2 Billion in Foreclosed Homes For Sale

Read all about it, with a state-by-state breakdown at this link.
Blog Spotlight - Caveat Emptor

If you have an interest in consumer law, check out the excellent Caveat Emptor blog. The original movers & shakers of the blog were two Minnesota consumer attorneys, Sam Glover and Nick Slade. More recently, they have been joined by two bloggers from AFFIL (Americans for Fairness in Lending), Jim Camper and Sarah Byrnes.

Tuesday, July 22, 2008

Flint Michigan Says No to Crack

Even though Flint Michigan has been hemoraging auto industry (and other) jobs for decades now, apparently the biggest problem in Flint involves butt cracks.

According to the Detroit Free Press, the city of Flint has declared war on baggy pants. If you show your underwear, you'll get a warning. If your pants sag to the point where your underwear is exposed to the (covered) buttocks, you'll be cited for disorderly conduct. If your pants sag and your buttocks show, look out, that's indecent exposure. The ACLU is thinking about getting involved, because apparently these cases only come around once in a blue moon. Until the ACLU gives Flint a whipping, don't get cheeky in Flint.

How will people get their Norge refrigerators repaired?

Sunday, July 20, 2008

Meet GM's "Car Guy", Bob Lutz
Lutz shows the world how to kiss his Astra

What can you say about General Motors' Vice Chairman of Global Product Development, Bob Lutz, aka "Maximum Bob, aka "the Car Guy", that hasn't been said (especially behind his back) before?

This is the guy who publicly called global warming a "total crock of shit" earlier this year.

Now he's kissing the hind end of a Saturn Astra, putting his personal seal of approval on GM's Kiss My Astra campaign. No, I did not make this up. Here's a link to the website.

I wonder how long it will be before GM has Ross Perot take Maximum Bob for a little joyride. I guess Ross calls him Admiral because Bob used to be a fighter pilot. (Probably ran his head into the gunsight one too many times on a hard carrier landing.) "I'm hungry."

Wednesday, July 16, 2008

Purdue University and Corn Stover to Save The World

Purdue University researchers announced the results of a study showing that corn stover is a better source material for cellulosic ethanol than switch grass.

In related news, after much experimentation and research, Purdue University animal researchers have found another use for sheep. Wool. (Old joke, sorry.)

Source: Autobloggreen

Steve Hofer
BS-Purdue University 1982

Tuesday, July 15, 2008

From the Ugly Cuts to the Bone file:
2009 Honda Ridgeline unveiled

If they made burkhas for cars, the 2009 Honda Ridgeline would force me to become an automotive Taliban. I'll see if I can find a picture to embed. In the meantime check it out at, if you dare.
The Inside Story on the Tesla Electric Car

Michael Copeland, writing for Fortune Magazine, has published the story we've all been waiting for on Tesla Motors, the company that makes the cool electric sports car that George Clooney and Matt Damon drive. has a Tesla Birthwatch series dedicated to the proposition that the Tesla sports car is vaporware headed the way of the Tucker Torpedo. I'm not so sure. I'm kind of rooting for them. I'm one of those people that believe that there is nobility in attacking a difficult task and doing it better than anybody else, even if you don't get it right 100%. Apparently I'm not alone, according to the article, despite missed deadlines and turmoil within Tesla Motors, of the 1,000 customers that put down deposits, only about 30 have asked for their money back, and many of them were replaced.

Writer Copeland paints a vivid picture of the personality clash between the two key founders of Tesla, entrepreneur Martin Eberhard and financeer Elon Musk. In these days of guarded statements, you gotta love it when Musk allows himself to be quoted: "I was too busy trying to fix the f****** mess he [Eberhard] left. I haven't had time to tell my story." Musk gets his say in the Fortune article. It's a must read.
Meet Rick Wagoner - Crisis Manager

I just uncovered some video of GM CEO Rick Wagoner that was taken before he took the helm at GM. As it turns out, he used to have a mullet, and he spent his time taking care of his stepdaughter Caitlin. Boy the old Rickster sure was calm under fire, even back in the day.

Video by NBC, via
An Annotated Guide to GM's Press Release
GM's Target: $10-15 Billion in Savings to Ride out Slump

GM Chairman Rick Wagoner held a press conference today discussing GM's plan for getting through the current slump in the auto industry and to handle cash flow interruptions in the meantime. In regular print below the line is GM's Press release. In italics are my comments.


DETROIT, July 15 /PRNewswire/ -- General Motors Corp. (NYSE: GM) today announced it is taking further steps to adapt its business to rapidly changing market conditions, marked by the weak U.S. economy, record high fuel prices, shifts in consumer vehicle preferences, and the lowest U.S. industry sales volumes in a decade.

"We are responding aggressively to the challenges of today's U.S. auto market," said GM Chairman and CEO, Rick Wagoner. "We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix. We remain committed to bringing to market great products that target changing consumer preferences for more fuel-efficient vehicles." Wagoner noted that 11 of GM's 13 most recent major U.S. product launches, and 18 of its next 19 launches, are cars and crossovers, which are key growth areas.

"Today's actions, combined with those of the past several years, position us not only to survive this tough period in the U.S., but to come out of it as a lean, strong and successful company," Wagoner said. Blah Blah Blah, get to the meat.

For liquidity planning purposes, GM is using assumptions of U.S. light vehicle industry volumes of 14.0 million units in 2008-2009 which are significantly below trend. Last I heard, sales in June trended out to 12.8 million for the year. Other planning assumptions include lower U.S. share of approximately 21 percent and continued elevated average oil price estimates ranging from $130 to $150 per barrel by 2009. We'll see. Based on those assumptions, GM is taking actions to further reduce structural cost, and generate cash, with the goal of maximizing liquidity.

At the end of the first quarter 2008, GM had liquidity of $23.9 billion, with access to U.S. credit facilities of an additional $7 billion. Do you really think the credit lines will be there if GM's liquidity is down to, say, $10 billion? There's nothing in the press release about GM's "burn rate". While the company has ample liquidity to meet its 2008 funding requirements, it is taking additional measures to bolster liquidity to protect against a prolonged U.S. downturn. Is this another way of saying that the money will otherwise run out in 2009? The actions include a combination of operating and related actions, as well as asset sales and capital market activities. The cumulative impact on cash through 2009 is projected to be approximately $15 billion.

Operating and Other Actions

Through a number of internal operating changes and other actions, GM expects to generate approximately $10 billion of cumulative cash improvements by the end of 2009, versus original plans. So some of these cash savings measures won't bear fruit until the end of 2009. What if you need the money before then?

-- GM plans further salaried headcount reductions in the U.S. and Canada in the 2008 calendar year, which will be achieved through normal attrition, early retirements, mutual separation programs and other separation tools. Mutual separation programs aka "buyouts" take cash. How much is budgeted? "Other separation tools", you mean layoffs. How many, who, and when? In addition, health care coverage for U.S. salaried retirees over 65 will be eliminated, effective January 1, 2009. Affected retirees and surviving spouses will receive a pension increase from GM's over funded U.S. salaried plan to help offset costs of Medicare and supplemental coverage. And there will be no new base compensation increases for U.S. and Canadian salaried employees for the remainder of 2008 and 2009. Hey retirees, you get Medicare and squat. Forget what we promised, we can't give it to you if we're out of business anyway.

Beyond these moves, which also impact GM executives, additional actions are being taken. There will be no annual discretionary cash bonuses for the company's executive group in 2008. With the elimination of the annual cash bonus, combined with GM's long-term incentives which are driven by GM stock price performance to assure alignment with its stockholders, GM's executive group will have a significant reduction in their cash compensation opportunity for 2008. For the company's top executive officers, it represents a reduction in their cash compensation opportunity of 75 to 84 percent. Boo hoo.

These benefit changes, salaried headcount reductions and other related savings will result in an estimated reduction in cash costs of more than 20 percent, or $1.5 billion in 2009. Okay. We'll post $1.5 B to the board.

-- Additional structural cost reductions of approximately $2.5 billion are expected in GM North America (GMNA). The reductions will be partially achieved through further adjustments in truck capacity and related component, stamping and powertrain capacity in response to lower U.S. industry volume. Truck capacity is expected to be reduced by 300,000 units by the end of 2009, half of which is from acceleration of prior announced actions, and half from new capacity actions. I don't know whether to count this or not. If they have new capacity cuts, can they really do that under the previous industry sales & market share assumptions. What about commitments to the UAW relating to new plant closures? Let's give 'em half credit $1.75 B, total now is $3.25.

In addition, GM will reduce and consolidate sales and marketing budgets, with a focus on protecting launch products and brand advertising. Engineering spending in 2008 and 2009 will be held at 2006-2007 levels, substantially lower than original plans. These operating actions, combined with the benefits of the 2007 GM-UAW labor agreement, are targeted to reduce North American structural cost from $33.2 billion in 2007 to approximately $26-27 billion in 2010, a reduction of $6-7 billion. Where did 2010 come from? I thought we are talking about cuts through 2009. 50% penalty for apples to oranges switcheroo. We'll give you credit for $3 billion. Total now is $6.25 billion.

-- GM is revising its capital spending plan and reducing approximately $1.5 billion in expenditures versus prior plans. Capital expenditures are now estimated to total $7 billion in 2009 versus prior plans of $8.5 billion (these figures do not include the $1 billion in capital spending planned in both 2008 and 2009 in China, which is self-funded by the GM joint ventures, to support growth in that market). A major part of the reductions is related to the delay of the next generation large pickup and SUV program, as well as V-8 engine development and associated capacity. I'll give you full credit $1.5 billion, running total $7.75 billion.

Spending for non-product programs will also be significantly reduced, while powertrain spending will be increased to support the development of alternative propulsion and fuel economy technologies and small displacement engines. The revised 2009 capital spending plan is higher than the average capital expenditures in 2005-2007, excluding large pickup and SUV-related spending. Excluding China, GM expects capital expenditures to run in the $7-7.5 billion range beyond 2009. Where's the number?

-- Aggressive actions are being taken to improve working capital by approximately $2 billion in North America and Europe, primarily related to the reduction of raw material, work-in-progress and finished goods inventory levels as well as lean inventory practices at parts warehouse. If these cuts were so easy, why haven't they already been made? No credit.

-- GM will defer approximately $1.7 billion of payments that had been scheduled to be made to a temporary asset account over the balance of 2008 and 2009 for the establishment of the new UAW VEBA. Can they do that? Against my better judgment, I'll give them credit - provisionally for $1 billion. Running total is $8.7 billion.

-- The GM Board of Directors has decided to suspend future dividends on common stock, effective immediately, which is expected to improve liquidity by approximately $800 million through 2009. Full credit here (and long over due). The running total is $9.5 billion.

Asset Sales and Financing Activities

In addition to the operating changes and other actions, GM expects to raise additional liquidity of $4-7 billion through asset sales and financing activities. Vagueness penalty assesed, credit for $3 billion. Total $12.5 billion.

-- GM is undertaking a broad global assessment of its assets for possible sale or monetization, which is expected to generate approximately $2-4 billion of additional liquidity. The company believes there is significant liquidity potential from asset sales, without impacting the strategic direction of the company. Outside advisors are currently engaged in evaluating alternatives. A strategic analysis of the Hummer brand is underway, and GM is continuing to focus on profit improvement initiatives across all remaining GM brands. I already gave you credit for asset sales.

-- GM will continue to opportunistically access global markets to raise additional liquidity. The company is initially targeting at least $2-3 billion of financing. The company has gross unencumbered assets of over $20 billion, which could support a significant secured debt offering, or multiple offerings, that would far exceed the initial target. Examples of such assets include stock of foreign subsidiaries, brands, stake in GMAC, and real estate. This is an interesting paragraph. "We'll hock the family jewels to make upt he difference." I'll give you credit for the whole $15 billion. Congratulations, you win a cookie.

Actions outlined today comprehend the anticipated impact of second quarter results, which the company plans to announce in the near future. GM anticipates it will report a significant second quarter loss, driven in part by the previously disclosed negative impact of the American Axle and local union strikes in North America, as well as the continued weakness in the U.S. auto market and adverse vehicle segment mix.

In addition, the company expects to record significant charges or expenses related to its previously announced hourly attrition program in the U.S., the recently announced North American truck capacity actions, valuation of GMAC stock, lease assets, Delphi recoveries, the American Axle settlement, the Canadian labor contract, and others.

GM is highly confident that the initiatives announced today, in conjunction with the current cash position and its $4-5 billion of committed U.S. credit lines, will provide the company with ample liquidity to meet its operational needs through 2009.

"The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions," said Wagoner. "Even under conservative planning scenarios, GM is well-positioned to withstand the U.S. market downturn and emerge a stronger company. We have a solid position in the rapidly growing emerging markets, a global operating framework that allows us to respond to changes in the U.S. market, a commitment to technology leadership, and an ever stronger and competitive product line-up."

Wednesday, July 09, 2008

Is GM REALLY "The Lindsey Lohan of the Bond Market"?

According to analyst Shelly Lombard, General Motors is the "Lindsey Lohan of the Bond Market." If you know what that means, you've got one on me. Yet, somehow, it just sounds right. You can read about it in this article at

The article seems to suggest that GM will have trouble borrowing in the debt market the money necessary to buy time for the turnaround. That's why I posted last month that what GM really needs is an EQUITY offering, preferably starting with a RIGHTS offering aimed at current shareholders. GM has to do this because any equity offering worth undertaking will dilute most of the owner share of current shareholders.

Sunday, July 06, 2008

Tentative Contract Announced

Internal Business - Tentative New Contract Announced

On July 3, our fearless leader, Local 3357 President Mike Forbes, announced that the negotiating committee has reached a tentative new contract with UAW-LSP management. Given that these negotiations have taken place in the context of some of the worst financial news to hit the domestic auto industry in our lifetimes, the Committee really deserves a lot of credit. I don't know any more than Mike disclosed in his letter, available on the website. A raise, no healthcare givebacks, and perhaps more importantly, quarterly 401k contributions rather than yearly. If your 401k is updated in down markets like the one we have now, and if the market picks up, there is room for a lot of appreciation. Of course, if the market keeps going down, well .... Stop it. I don't want to think about it. With this year's market, my 401(k) looks more like a 200.5(f).

First there was Wikipedia, then there was Youtube - or was it the other way around? Anyway, what would happen if you took two great tastes and put them together? Wikitubia is a Wiki devoted to Youtube videos. This site is still in its infancy, but it shows some promise, including giving you all the background info you need on such Youtube All-Stars as Charlie the Unicorn. Oh yes, that's our Youtube video of the week. Almost 26 million people have viewed Charlie the Unicorn. That's the equivalent to 179 person/years. What a senseless waste of human life. (FYI, the sequel is even weirder.)

Youtube Video of the Week:
Charlie the Unicorn

Saturday, July 05, 2008

13 Passenger Smart Car

Smart is known for its two-seat city car, the ForTwo. Vince Burlapp on his Hollywood Extra Car Page, now apparently renamed, has posted pictures of the new car from Smart that retains small proportions, yet can fit 13 passengers. Here's the link.