Tuesday, November 25, 2008

November Sales "Less Anemic"

The first report on auto sales for November is (a little) encouraging. It shows sales are just bad, as opposed to being in a death spiral. Edmunds.com tracks inquiries to its car buying website, and those web hits correlate strongly with near-term auto sales. Last month, Edmunds was within a couple percent of the final (awful) industry numbers. This month Edmunds predicts a 29% drop industry-wide from last year. General Motors is predicted to do a little better than that with a 28% drop. Honda did the best (relatively) with a 20% drop. High incentives and low gas prices may have been the cause of the slight increase over last month.
GM's Bold Trash Initiative

is reporting that GM is eliminating personal trash cans at its Warren Technical Center in an effort to save money. What's next? Red staplers?

Saturday, November 22, 2008

Welcome Back McCotter

Representative Thaddeus McCotter of Michigan, a Republican from suburban Detroit, had a tough task this week: to represent his constituents in favor of a bailout, while not appearing to be a liberal sell-out. Embedded below is his speech, which I think is quite eloquent. You can disagree with his position, but I think he stated his case very well.

Friday, November 21, 2008

She's Got a Basketball Jones

Five years old, and she dribbles better than I could ever hope to.

Obama Team Examining Prepackaged Bankruptcies

The Obama transition team is looking at prepackaged bankruptcies as bailout vehicles for the Detroit 3. Makes sense to me.

From the "I told him we already got one" file:
Congress Demands Business Plan by Dec. 2 or No Dough

Yesterday there was an early story that described a bipartisan compromise on the Detroit 3 bailout. Later in the afternoon, Nancy Pelosi gave a press conference and said that, based upon the poor showing by the CEOs in the week's hearing, Congress would not supply the funds. She gave the automakers until December 2 to come up with a detailed plan to demonstrate viability post-funding. If the plans are sufficient, Congress will come back in session December 8 to vote on the plan.

Not to be deterred, GM CEO, Rick Wagoner, stated that GM already has a plan. Yeah, okay, we believe it.

Wait, I have exclusive information about the GM plan. GM wanted a slick plan that could be ready in a short period of time. They hired students from Staten Island Technical High School to prepare the plan. I don't have access to the plan, but here's an embedded video of one of their previous projects.

Thursday, November 20, 2008

Hitler Confronts the Bursting Real Estate Bubble

2010 Ford Fusion is Star of LA Auto Show

While attention is focused on Capital Hill, the second most important auto show of the year is going on in Los Angeles. As it stands now, it looks like the 2010 Ford Fusion is going to be the star of the show. Since its introduction, the Fusion has been a competitive midsized car, often winding up second choice to either the Camry or the Accord. The major revisions for 2010 seem to directly address the usual criticisms of the car. The car was criticized for being just a little underpowered, and just a little behind the leaders in terms of fuel efficiency. Both of these concerns were addressed by new 2.5 and 3.0 liter engines that are more powerful and more fuel efficient than the ones they replace. The Fusion will be available with a 6-speed manual transmission (if you can find one), or a new 6-speed automatic. Fuel efficiency for the 4 and 6 cylinder engines will be competitive with the class leaders. Interior and exterior styling was addressed. On the outside, the Fusion is sleeker, and on the inside, better quality materials are evident.

For 2010, the Fusion is available in a Dual Mode Hybrid version. Ford promises 5 MPG better than the Toyota Camry Hybrid. As you will see in the embedded video, the trick digital dashboard is techno cool.

At least at first, it looks like the Fusion will continue to be built in Mexico; however Ford is in the middle of a plan to replace truck production with car production in several US plants, so it is possible that the Fusion will be moved to one of the US facilities.

Bailing Out is Hard to Do

It should have been a simple thing for the Detroit 3 to walk into the halls of Congress this week, do a dog and pony show, and walk out with $25 billion. After all, going into this week, the Republican leadership had a $25 billion plan, and the Democratic leadership had a $25 billion plan. The big difference was where the money was to come from, and they can compromise on that, right? Not so fast.

The Democrat plan called for the $25 billion to come from the $700 billion TARP money. The Republican plan called for the $25 billion to come from the $25 billion already allocated for energy efficiency updates. Significant difference yes, but plenty of room for a deal. After all, Secretary Paulson already said he was going to leave half of the $700 billion for the incoming administration to decide what to do with. Why not let them use a little bit now? To look at it from the other side, the Detroit 3 can't use the $25 billion for developing energy efficient vehicles if they can't keep the lights on long enough to rehire the engineers that they've already laid off. Moreover, when President Obama comes in, he's going to (hopefully) lay out a comprehensive energy plan anyway that's going to require hundreds of billions of bucks. What's $25 billion more or less among friends? Split the baby, take half from each pot, and walk away happy, right? Nope.

Then there was the dog and pony show. The Three Amigo CEOS, Nardelli, Wagoner and Mulally came to testify. What do you call this act? We call them THE ARISTOCRATS!. The Teenage Mutant Ninja Turtles could have done a better job making the case for an auto bailout. It didn't help that they all flew in corporate jets to get to the hearing. First of all, Bob Nardelli didn't even belong there. Chrysler is owned by Cerberus, Cerberus allegedly has tens of billions of dollars sitting around that it could invest in Chrysler, if it made sense. They haven't even opened the books to show the company's true financial position. Secondly, Alan Mulally basically said Ford doesn't need the money right now, which is not exactly the truth because they just sold most of their crown jewel, Mazda, for the equivalent of half a month's negative cash flow. If you really want to kill a deal, bring out the big geeky kid, Rick Wagoner. It was like a frat boy who goes on a bender the night before a big test, writes the answers on his hand before the test, and gives the wrong answer for each question. He wouldn't say how much money GM really needs. He wouldn't say that he would work for a dollar like Lee Iaccoca -- or better yet, resign for the good of the company. He wouldn't convey the image that GM has the foggiest idea how to straighten its course without bankruptcy. He is sure, however that bankruptcy is the wrong answer. The bottom line is that after the hearing fiasco, there had to be a number of congress members from each party who were convinced that giving these folks federal money would be about the same thing as throwing it away.

While the most recent news stories suggest the bailout deal is dead, I'm not so sure. I think they probably will pass some kind of loan program. The problem is, that program will have some kind of prerequisite that to get the money, you will have to show that you have a plan for actually paying that money back. GM and Chrysler (at least) don't have a plan. So, the end result will be that the resulting loans will be as illusory as the HopeNow loans for homeowners.

Photo credit: Associated Press via Detroit News

Saturday, November 08, 2008

The Day after GM's (most recent) Black Friday - An Analysis

As I reported Thursday, Friday was a day of an important announcement for General Motors. GM released its 3rd quarter financial results. It's amazing how many news organizations completely focused on the wrong numbers, especially the $2.5 billion quarterly loss. Far more critical was the disclosure of a $6.9 billion in negative cash flow, with total cash reserves including (aparently those held for VEBA disbursements) down to $16.2 billion. Even General Motors doesn't know the minimum amount of cash it takes to keep the lights on and running as a going concern. Various estimates have ranged from $10 to 14 billion. This leads us to the key statement in the whole presentation.

Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. The success of GM’s plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe.

What this means, in plain English is that even if GM does everything right and saves all the money it can between now and the end of 2008 -- not 2009, mind you, 2008, as in 6 weeks from now -- GM will not be able to continue operating. It will cease to be. It will be an EX-carmaker If, however, someone (Uncle Sam, Santa Claus) comes to the rescue with new money, GM could hold out longer. It could hold out, for example, until sometime in 2010, when the Chevrolet Volt is ready for sale. Of course, GM plans on losing $10,000 or so for each Volt sold, so that won't really be much of a boost.

What about bankruptcy, GM could keep operating in Chapter 11 bankruptcy, right? Well, Rick Wagoner continues to say that bankruptcy is not an option, and GM is not planning for bankruptcy. Hey Rick, your company has $59 billion more in liabilities than assets and is losing $2 billion a month, do you have any better options? If he does, he's keeping pretty quiet.

Congress just released $25 billion in loans for tooling up for energy efficient cars. The Department of Energy just released draft regulations for applying for these loans. Wouldn't you know it, the DoE had the audacity to require that a company applying for billions of dollars in taxpayer money must be able to show that it is solvent, or at least has a plan to become solvent. Curses, foiled again.

As it stands now, Rick Wagoner's complete failure to be honest and plan for hard times shows every sign of killing the American institution from where he has drawn at least $100 million in paychecks. Wagoner points to a company-funded study that says most consumers won't buy a car from a company in Chapter 11. What makes him think customers will be more likely to buy cars from a company that is being shut down a little at a time because it can't pay its bills? At least in a Chapter 11, you can make plans for continuing warranty coverage. Rick could have planned for bankruptcy early this year, when it still had some cash. GM knew a year ago that money was tight for debtor-in-possession financing, because it couldn't get money for Delphi. Now, if GM needs DIP financing, the only realistic source would would be the federal government.

The government, in rare bipartisan cooperation appears to be ready, willing and able to bail out General Motors, but it also appears that the government will require a level of fiscal responsibility and accountability that GM has been so far unwilling to provide. It's really not a difficult concept, Rick, when you apply for a business loan, you submit a business plan. We're not being unreasonable here.

Perhaps Congress will pass a Band-aid(tm) for GM in the next few weeks. Amything done before January 20 will likely be in the form of life support so they can figure out whether they want to operate or pull the plug after the Obama administration takes over.

It seems to me that GM is heading for some form of involuntary receivership. Either a creditor or the government will have to take over the rudderless-ship called General Motors. One creditor with an interest in keeping the company going is the trust set up to run the company's retiremee healthcare VEBA. A huge VEBA payment is due soon. Right now, it doesn't look like GM will have the cash to pay it.

Assuming GM does not file bankruptcy, one thing to look for as a sign that GM has run out of cash is that it will simply start defaulting on its bills. One bill that it should refuse to pay is any salary or severence benefit for Rick Wagoner. Good luck on collecting that one, Rickster.

Friday, November 07, 2008

Toyota Profits down 74%

Even the Japanese car companies are struggling these days. Toyota is driving us crazy with Saved by Zero, and its profits were down 74% for the quarter.

Then one day, a stong rain came, and washed all the crops away . . .

Wednesday, November 05, 2008

Good Rex, Bad Rex, Amazing Rex

In this Youtube clip from Madden-08, Rex Grossman isn't "Good Rex" or "Bad Rex". He's "Amazing Rex. Don't try this at home.

How to Save the Detroit Three

Pelosi on Thursday - "Important Changes" on Friday

Something is up. According to an Associated Press wire story, GM and Ford are planning on releasing their 3rd quarter financial statements on Friday. Executives from the Detroit Three and the UAW are scheduled to meet with Speaker of the House, Nancy Pelosi tomorrow. GM told its employees to be ready for an announcement of "important changes" to be disclosed over GM's internal television network at 11:00 AM, Friday. General Motors routinely announces bad news on Fridays, but generally after US stock trading hours.

The Detroit-3 want the $25 billion that Congress authorized for retooling for high-efficiency vehicles, and they want it now, and with no strings attached. Apparently, they also want at least another $25 billion on top of that.

I'm reminded of my favorite quote from The Drew Carey Show. "It's like the doctor said the day you were born: it's gonna get ugly."

Obama Wins Handily - Dems Increase Control of House & Senate

Tuesday, November 04, 2008

October Car Sales - GM off 45%, Industry down 32%

Read all about it at Autoblog.com.