|
||
Even After $14 Billion in TARP Money, Detroit's on Life-Support
During the second-round three-ring congressional circus "starring" the CEOs of the Detroit Three and the head of the UAW, there was a lot of talk about General Motors not being able to make it until the end of 2008 without immediate support (read: money) from Washington.
Well, somehow, they made it.
And they managed to make it without receiving one cent in government money until after the new year had begun, when they were lent $4 billion, as was Chrysler (Ford remains officially on the bailout sidelines, but is still pushing for a TARP "line of credit" if they need it, which they probably will).
Industry journal Automotive News reported on its website Tuesday this week that, "GM is slated to get another $5.4 billion on Jan. 16. GM would get another $4 billion on Feb. 17 if Congress authorizes additional federal loans."
Chrysler is not scheduled for anymore bailout loans.
(GM CEO Rick Wagoner demonstrates what he'd like to do to male members of Congress, as his VP, Bob Lutz, looks on approvingly; these two have become the Bush and Cheney of the car world, with Wagoner the young, calm, sober CEO from the company's finance side, not given to memorable sound bites, and Lutz the product expert, the hot rod king and Wagoner's wiser, scheming, arrogant elder, but saddled with a troublesome mouth).
So how has GM already received $10 billion?
The $4 billion loan-out (sub for "bail-out") is not the only TARP money benefiting GM.
The Treasury Department also just injected $5 billion directly into GMAC, GM's captive finance arm, in exchange for stock. And TARP gave GM another $1 billion to invest in GMAC, needed so GMAC could receive a bank charter necessary for them to tap TARP funds.
GMAC not only markets financial products for consumers (they were heavy into home mortgages, too), they also help GM franchise dealers finance their wholesale purchases of GM cars and trucks (aka "floorplanning") for their showrooms. So it's a good bet that most, if not all, of the $6 billion GMAC has received from Washington is going to end up, one way or another, in GM's coffers.
(A Tesla EV Roadster at their Los Angeles dealership; very small carmakers might own their dealerships, but for the majors, franchise laws make that almost impossible; GMAC is the major finance company between GM's factories and its dealers, and between the dealers and car-buyers; nice, cozy set-up, no?).
To spur new-car sales, after getting the billions, GMAC lowered the FICO score threshold for financing GM customers from 700 to 620. Still pretty high these days, when tens of millions of Americans -- and probably many more -- are behind on their bills.
The real "bottom line" is that GM/GMAC has received a total, so far, of $10 billion in TARP funds, with $5.4 billion more coming on January 16th and a good chance of another and hoped-for- final $4 billion February 17th. And there's no reason GMAC couldn't pony-up to the bar again to ask for a few billion more.
(After reading this post, Tom Wilkinson, GM's director of GM news relations, emailed me the following: "GM currently owns only a minority stake in GMAC, and the loan agreement requires that GM reduce its stake to just 10%. There is no question that a stronger GMAC is very important to GM, but to imply that providing $6 billion to GMAC is just like providing it directly to GM is not accurate." [end of GM statement] We welcome all opinions here ... Haven't had to remove any "comment" messages yet).
This week, the public's getting GM and Chrysler PR spin and car dealer-like optimism, a rare automotive double-whammy, both reporting that they might not need more TARP money, that the $4 billion they've each received might be enough to get them through these tough times (even though we now know GM has received $10 billion).
Their PR efforts are all BS. And these Detroit Two out of Three know it.
(A 2009 Dodge Ram pickup atop a 2009 Dodge Ram pickup with a flatbed and dualies in the rear, the Ram practically the only bright spot in Chrysler's catalog; now, why would a carmaker give the media a photo of one of their products on top of another -- might some people think that top one had broken down? Just asking ...).
Executives from Chrysler, GM and Ford, during Monday's press conference calls discussing December and full-year sales for 2008 and their '09 plans with reporters and analysts from around the world, said they don't expect any change in the US marketplace until at least the second half of 2009, and possibly not until 2010 has begun.
Total car and truck sales in the US for 2008 were just above 13 million; 2007 saw full-year sales of 16.2 million. The near-18% drop in 2008 sales translated into more than an $81 billion loss, split among all the carmakers selling in the US. It's not just Detroit that's in trouble, but their particular problems are without doubt the auto industry's worst.
Here's the problem: Many analysts, including this one, predict that if 2009's sales total falls to 11.5 million units or less, the ex-Big Three cannot remain in business. If sales tank that much, some of the import companies might even pull-out of the US market or drastically cut-back their operations there.
With economists predicting a rough 2009, 2010 and maybe even 2011, there's not much chance of '09 and '10 car sales reaching even 2008's miserable 13.1 million. In fact, the NY Times' Nobel-laureate and Professor of Economics at Princeton, Paul Krugman, wrote in this past Sunday's paper: "Let's not mince words: This looks an awful lot like the beginning of a second Great Depression."
(Infiniti premiered their new G37 hardtop convertible at the summer, 2008 Paris Auto Show, when we were all still young and naive. By the time the LA Auto Show rolled around in November, '08, some show attendees seemed more interested in how fast the top goes up and down than in actually buying one).
And in what might portend some of the import companies leaving or drastically cutting-back in the US market, Nissan and their luxury brand, Infiniti, are not exhibiting at the coming Detroit auto show. The Detroit and Los Angeles shows are the nation's most important, and Nissan has told their Detroit area dealers to not attend the show in any official capacity (Nissan/Infiniti officials might have seen the rotten exhibit Chrysler dealers created for last November's Los Angeles Auto Show, made necessary when Chrysler canceled their corporate participation).
During a radio interview last night, the host asked me if Chrysler is already bankrupt, but just hasn't completed the paperwork. I answered that his question was a pretty good read on the company's situation.
The new Dodge Ram full-size truck and the Jeep Patriot are bringing some customers into showrooms, but Chrysler offers no real compelling, relevant or high-mileage products. In spite of their trotting-out an EV or two for the media and politicians recently, even those vehicles, if Chrysler were serious about them, would need another four to five years of development before their production and sale (hear the one-hour interview at www.TalkRadioOne.com; we covered a lot of ground).
(In the center of the crowd of media falling over itself is the Chevrolet Volt, the "extended-range plug-in hybrid" promised for 2010. Now it's as big a question mark as GM itself).
A top Chrysler exec said during his Monday press conference that 20% to 25% of people wanting to buy a new car from a Chrysler/Dodge/Jeep showroom can not get financing; so what will happen with Chrysler Financial, their version of GMAC?
They'll want "support," too.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
Cerberus Capital Management is proving remarkably adept and scooping up Fed bailout money. Not only has Cerberus-controlled Chrysler LLC received a $4 billion bailout from the U.S. government but, unlike publicly owned General Motors, they are not required to tell the public how that money is being spent. http://www.bloomberg.com/apps/news?pid=20601103&sid=a7j3.G3lZrBA&refer=us
Following the $6 billion bailout of Cerberus-controlled GMAC, an action that was necessary because home financing company ResCap, a division of GMAC, was heavily invested in sub-prime mortgages, Cerberus is now preparing to return to the Federal trough with a proposal to qualify Chrysler Financial, the auto loan company that services Chrysler dealerships, for Federal money.
And by the way, it Chrysler Financial is no longer owned by Chrysler LLC, but has been purchased by a division of Cerberus. Along with the sprawling Auburn Hills Chrysler headquarters that were quietly sold to Cerberus more than a year ago, the private equity company seems to be systemically stripping Chrysler LLC of its most valuable assets---resources the company will need if it has any hopes of returning to profitability, or, more likely, being successfully operated by a foreign auto maker. As it stands today, Chrysler LLC pays rent to---you guessed it---Cerberus.
http://blog.pennlive.com/leftcoast/2009/01/chrysler_death_watch_week_twel.html
I'm convinced there's a remarkable story behind Cerberus, considering how many failing and failed companies, or simply companies with questionable (indictable) business practices, they have had a direct claw into. GMAC, Chrysler, Inovis, Aozora Bank, BAWAG P.S.K., Aegis Mortgage, Connexion Cable, Albertsons, Mervyns... the list goes on. I understand capitalism, and the benefit of buying up companies on the cheap when they're at their weakest and liquidating what is left at a profit, but that is not all they're doing - they're also absorbing tax payer money, with zero accountability.
Not to mention, the chairman of Cerberus is John W. Snow, George W. Bush's previous Treasury secretary, who resigned amid an ethics investigation for supposedly unknowingly buying up Freddie/Fannie bad debt.
If GM were on such life support so to speak, why then did they announce, on the same day the government loan was approved for that matter, the continued financial support of Daytona Racetrack and the Daytona 500? Isn't this money to keep this "in dire straights" company running?
How can this be allowed to happen?
Oh and since it is now MY taxes paying for this sponsership when can I expect my tickets to the Daytona 500 to arrive?
I'm sorry, I am a big race fan but shame on GM and shame on NASCAR for accepting the money.
General Motors Corp. has renewed its decades-long sponsorship of the Daytona International Speedway and its signature race, the Daytona 500. Instead of a multi-year deal, the cash-strapped automaker will sponsor NASCAR's most prestigious event on a year-to-year basis. The renewal ends speculation that GM's money woes, would force the automaker to terminate sponsorship of an event that was the top-rated motorsports telecast in North America last year. GM finalized the new deal Dec. 19, the same day President George W. Bush announced the Detroit automaker and Chrysler LLC would receive up to $17.4 billion in short-term loans. GM provides fire and safety vehicles, pace cars and other vehicles for the race, as well as a July race at the track. GM did not disclose how much it spends on the Daytona deal or NASCAR sponsorships. (Detroit News)(1-8-2009)
It gets worse. GM told the Detroit Symphony Orchestra, the Michigan Opera Theatre and the Detroit Institute of Arts not to expect any 2009 support. Apparently they have money for NASCAR in Daytona but not the fine arts in Detroit. Maybe the DSO should paint Chevy logos on the cellos or Cadillac logos on the kettle drums.
You can't sell cars and trucks without marketing, and race fans are still a big market for new vehicles. Companies need to be strategic in what they spend and where the spend it, but they need to continue to market and advertise.
"Many analysts, including this one, predict that if 2009's sales total falls to 11.5 million units or less, the ex-Big Three cannot remain in business."
Please return 12 months from now and tell us you your prediction fared on all three.
Considering Cerberus Capital Management has majority stakes in both GMAC and Chrysler, they got bailed out more than once too. There were some talks a while ago about merging Chrysler Financial into GMAC to help keep both afloat. I have no idea if it is a good idea, but it'd at least be something - on top of what others have already mentioned.
The only real way out for the Detroit based vehicle makers and suppliers will be a government takeover of worker and retiree health care costs. Those costs are sucking out any hopes of profits and reinvestment for more efficient vehicles.
So you are putting the whole automobile industry in eternal tax payer retirement?
Cool. How about the chemical industry? How about two million Walmart employees? How about unemployed actors? How about... just about everyone? Wouldn't that be the next logical step?
If GM goes bankrupt, all the retirees will go into the Pension Guaranty Fund, which is underfunded and will need a "bailout!" Over 40% of their long term debt is to the UAW to take over the health care costs. If they can last for a couple of tears, those health care costs will be gone.
A Chapter 11 filing for GM could be a taxpayer nightmare. The federally-backed Pension Benefit Guaranty Corp., the safety net for corporate pension plans, could be stuck with billions in pension liabilities. The PBGC says GM's pension plan is presently underfunded by over $30 billion, although the actual amount is debatable. See http://www.businessweek.com/magazine/content/05_50/b3963114.htm
If we do not have a NEW DEAL you will know the NEW FEUDALISM.
How else can America give 97% of the world consumption and keep the rich RICH
I have 20 cars, but need a 4-wheel drive that gets 30 mpg. I could upgrade to a big pickup if could replace my diesel for $20,000 and not $40,000. That was of course before the wife lost her job and now we have to worry about keeping our house
If GM does not lower prices to sell cars they cannot sell at the current price. Giving them money will not help
GM hasn't been profitable for many years and they won't be profitable in the future either. They are basically a money-incinerator that produces cars on the side.
Not bad. It is true they loose billions every year. And labor costs are only 10%. Makes one ponder what are the other 90% cost are, figuring w/o the loss amounts.
My hunch is that they are basically giving their earnings away in those $3000 cash back sales events. The emphasis of management and dealerships seems to always have been on sales and not, as it should have been, on profits. On average they should have been earning between $500 and $2000 on each car. But it looks like they have trained their customers to wait for the quarter end sales event where they would give up all of their earnings on all vehicles to clear the lots. So what they basically did is low sales for the first two months of the quarter and then a fire sale at the end. Add in the inventory cost and what should have been a nice income turns into a zero sum game. Of course you can play that for ten years or more if you are a company the size of GM, but one day there comes a recession like we have now and suddenly your non-earnings turn into a tsunami of losses. QED.
With the U.S. trade deficit running nearly $2 billion a day, nothing incinerates more money than U.S. consumers buying imported cars.
In fact, GM only owns a minority stake in GMAC, and has committed to reduce that stake to just 10%. A healthy GMAC is important to GM, its dealers, and its customers. But to imply that a loan to GMAC is the same as a loan to GM simply is not accurate.
Please see our recent 8-K for details.
http://www.gm.com/corporate/investor_information/sec/
The federal support of GMAC is being used to make loans to consumers and dealers, thus supporting the weak, credit-starved economy. In contrast, other financial institutions receiving TARP funds are hoarding the funds to bolster their balance sheets or devour weaker prey, with no benefit to consumers or the economy. It looks to me that Paulson finally did something right.
You must be logged in to comment. Log in or connect with
