The BIG 3 Bailout...

[Falc'man]

"...We Are Facing a Death Sentence Here"




"Nothing concentrates the mind like a death sentence. And we are facing a death sentence here." Senate Banking Committee chairman Chris Dodd's (D-CT) assessment of the plight of the Detroit Three was blunt and to the point as he wrapped up a marathon six hour appearance by Motown CEOs Rick Wagoner, Alan Mulally, and Robert Nardelli in Washington earlier today.


Dodd is not exaggerating. During today's hearing Wagoner admitted GM had investigated acquiring Chrysler a month or so back, but had abandoned the idea because it was running out of money: "...we were concerned we did not have the liquidity to survive until the deal closed." Senator Bob Corker from (R-TN) made this point: "GM is the reason we are here. There is no way we would be having these meetings if GM was not having problems." UAW chief Ron Gettelfinger told the assembled Senators: "Unless something changes, General Motors will be bankrupt by the end of the month."

No-one disagreed with him.

Here are some of the key themes to come out of today's hearing:

* The actual bailout bill could be $75 billion to $125 billion

Mark Zandi, chief economist, Moody's Economy.com, attending as an expert witness, claimed the $34 billion requested by the Detroit Three would not be enough to avoid bankruptcy in the next two years. Zandi contends the new car market will not recover as quickly as the Detroit Three anticipate. The credit crunch will continue to keep customers out of showrooms, and that the frenzied discounting of the past decade has led to a pull forward of demand that has yet to work through the system. He says a market of 17 million units -- close to the average of the past few years -- "is not supportable by underlying demand".

* Bankruptcy is not an option

Rick Wagoner confirmed fears over a possible bankruptcy had already begun to impact GM sales. "It is clear the overhang surrounding bankruptcy is affecting certain buyers." Ford Boss Alan Mulally claimed American consumers needed to believe in the company they were buying their cars from. Bankruptcy would mean "sales would fall off so fast we couldn't restructure". Mark Zandi pointed out the automakers would not get the financing they needed to work through a Chapter 11 bankruptcy in the current environment, so the government would likely have to provide that money. The taxpayers would therefore be on the hook "no matter what". "We recognize bankruptcy is not an option," said Senator Elizabeth Dole (R-NC).

* There should be a government-appointed "car czar" with wide powers

The need for strong oversight to ensure public funds were being applied correctly was a recurring theme among the senators questioning the Detroit Three CEOs, mainly, as committee chairman Dodd implied in his closing remarks, because it was felt the banks had gotten public money with too little clear direction as to how it was to be used. All three CEOs agreed with the idea of an oversight board or a trustee to monitor how loan money be used, even if that body or person had the power to impose sweeping restructuring conditions.

* GM and Chrysler should merge

"No thinking person thinks three companies can survive," said Senator Corker, who questioned Chrysler CEO Bob Nardelli at length as to why Ceberus would not make further investments in the company. "Chrysler doesn't want to be a stand alone business," he said, adding that it troubled him any loan to Chrysler would simply allow Cerberus to keep the company operating long enough to find a suitable buyer. He described a consolidation or merger of GM and Chrysler as "the kinds of things we need to force to make happen". "Everything I've seen suggests a merger between GM and Chrysler is a good idea," said Senator Bob Bennett (R-Utah), who claimed the two companies didn't need loans but an injection of government money he called "patient capital". Bennett then asked if GM and Chrysler would agree to a merger if it was made a condition of receiving government money. "I would be very willing to look at it," said Rick Wagoner. "The first job that would go would be mine," said Nardelli, "but if that's the criteria ...I would do it."

* Only $17 billion -- for now

Economist Mark Zandi recommended any money be paid in two tranches. As GM claims it needs $10 billion to get through into the first quarter of 2009, and Chrysler $7 billion (Ford's Alan Mulally stuck to the line the Blue Oval may not need to touch the $9bn credit line it's requesting) it was suggested this amount be paid, and a review set for March 31 next year to see whether restructuring plans were on track. The "car czar" or oversight body would then decide whether more money would be paid.

* The UAW needs to give up more

Senator Corker pressed UAW chief Gettelfinger hard on the issue of more concessions. GM's core problem, Corker said, was its debt level. He believed it would be necessary for GM's bond holders to accept 30 cents for every dollar of debt they held by March 31 (roughly a 50 percent premium over what it is currently trading for) to reduce the debt burden. But he said it was unreasonable to expect the bond holders "to take a haircut" without the UAW giving up more. Specifically, he wanted Gettelfinger to agree to cut UAW wage rates to the same level as that paid in transplant factories "and not a penny more", and wanted 50 percent of the $35.5 billion GM was due to pay into the union-owned VEBA fund by 2010 to be taken in the form of equity.

Tomorrow the CEOs sit down in front of the House Financial Services Committee for another grilling. While Chris Dodd took a swipe at the Bush Administration for not making some part of the TARP funding quickly available to help automakers, noting drafting legislation in the next 72 hours to ensure funding would be a mammoth task, he did say "...inaction is not an option". It's a long way from a slam-dunk, but the mood in Washington seems to be tilting towards a bailout. Whatever happens in the next few days is still open to plenty of speculation. But this much is clear: Detroit has changed forever.

http://blogs.motortrend.com/6369773/...ere/index.html

[Falc'man]

Do GM and Chrysler Face a Shotgun Wedding?





DETROIT - Senator Bob Corker, Republican from Tennessee, thinks General Motors and Chrysler LLC should resume merger/acquisition talks. A shotgun wedding, if you will. Hot Rod Detroit Editor Bill McGuire and I watched the Senate Banking, Housing and Urban Affairs Committee hearings on the Detroit Three loan guarantee request on C-SPAN from the Detroit Bureau Towers. Bill said what I wish I had said.


"Just like British Leyland."

Indeed. Earlier, Chairman and CEO Rick Wagoner described how GM looked at acquiring Chrysler before the credit crisis. When the credit crisis hit, GM had neither the money nor the time to pay attention to Chrysler.

I don't know what's more troubling: that GM might re-consider buying Chrysler, perhaps to refill its North American brand lineup now that it has a plan to change or get rid of Saab, Saturn and Pontiac, or that a Republican senator is willing to mandate a "shotgun wedding."

Corker's interest in a federal government-forced merger does stem from a rational concern. The good senator, much to Chrysler chairman Bob Nardelli's dismay, said he spoke with a Cerberus Capital Management board member Wednesday who told him the automaker's private equity owners has enough cash on its own to avoid a government bailout. Cerberus has no interest in giving Chrysler more money for its operations, Corker said.

Nardelli replied that private equity doesn't work that way; it consists of pension funds and other investment money, just like investors in public GM and Ford Motor Company. He also asserted that Cerberus isn't considering selling Chrysler. Corker said that Nardelli's probably the only person with knowledge of the matter who believes that.

Ford and Chrysler wouldn't have come to Capitol Hill to request bailouts, Corker said, if not for GM's desperation. And therein lies the rub. Corker, and his Republican and Democratic colleagues don't want to lend Chrysler $7 billion just to see it sold to a foreign company.

Corker also wants GM to consider restructuring its debt, a kind of pre-bankruptcy, including paying 30-cents on the dollar for its bonds, and of course, getting a better deal from the United Auto Workers. The UAW remains conservative Republicans' biggest target. Senator Richard Shelby (R-Alabama) maintained his status as biggest opponent of the loan guarantees.

Senator Christopher Dodd (D-Connecticut), the committee chairman, said that the only person at the witness table who has already contributed to a Detroit Three turnaround is UAW President Ron Gettelfinger. "They haven't said what they're going to do. They're saying what they've done. Hundreds of thousands of workers at the Big Three already have made concessions."

Good to see someone still calls them the Big Three, even if it's someone with little prior knowledge of how the auto industry works. From dealership floorplans to the vagaries of production, the Senate committee learned a lot about the industry Thursday.

Senator Sherrod Brown (D-Ohio), asked Wagoner what it takes to "ramp up" production for the 2011 Chevrolet Cruze.

"A good rule of thumb would be half a billion dollars," Wagoner responded. "If we have to develop the product as well (if it's all-new, not on an existing platform) that's three years. It's a long-cycle business."

"What happens in Lordstown (Ohio)?" Brown asked.

"We're going to proceed. We're going to build the Chevy Cruze in Lordstown," Wagoner replied.

Will GM still be around to do it? "We're not going to write a blank check, but we're going to get something done," Dodd told reporters after the hearing. "People are angry about bailouts. I suspect they'd be angrier about the failure of the auto industry with hundreds of thousands of jobs. My preference would be if the Federal Reserve and Treasury would step up with the authority we gave them."

Dodd believes the public opposition to loan guarantees for the D3 stems from the mishandled Troubled Asset Relief Program (TARP). Wagoner, Mulally and Nardelli all agreed to oversight - they said they'd prefer a "car czar" to a government board.

Dodd, who blasted Fed Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson several times Thursday for failing to show up at the hearing, said he'll continue to push to fund automaker loan guarantees from the $700-billion TARP. GM, Ford and Chrysler have requested a total of $34 billion, and it appears the "136" funds from the Energy Bill for fuel-efficiency are not available.

"The secretary of the treasury is in China right now. He needs to come home."

Perhaps Paulson is trying to find a buyer for Citicorp.

And so, after a six-hour hearing with no break, things don't look so bleak for GM, Chrysler and Ford, at least not on the Senate side. The fun continues Friday, at the House Financial Services Committee. Stay tuned.

http://blogs.motortrend.com/6369851/...ing/index.html

[Bossxr8]

Could that spell the end for the Holden/Pontiac G8 exports?

I don't understand how GM just sat around and watched the company fall into such a massive hole and made no plans to try to get themselves out. Its beyond comprehension. :

Thank god for Mullally. He's going to come out of this looking like a genius, if he wasn't already considered one for the rescue job he did for Boeing.

[Falc'man]

Saving Detroit: It's Now a Race Against Time






"If we are lucky we will come out with a bill next week that nobody likes." Representative Barney Frank (D-MA), chairman of the House Financial Services Committee, understands the political process all too well. His assessment of the task facing lawmakers, delivered after a second round of pleading for financial assistance from the Detroit Three in Washington today, was delivered with the weary certainty of someone facing days of frantic debate, discussion, and deal-making as they try and figure out what to do about Detroit.


Detroit is in a mess. But what's concentrating the minds of even the most anti-Motown politicians on Capitol Hill is the grim realization America is in a mess, too. Unemployment is rising faster than expected, consumer confidence continues to plummet, and the billions of taxpayer dollars thrown at the financial sector so far hasn't produced the expected results. Even the hard-liners are wary of making the problem worse. "This is our largest industry," expert witness Dr. Jeffrey Sachs, director of The Earth Center at Columbia University, reminded the Committee at one point. "Are we just going to watch it melt down by Christmas?"

Every politician in the room was aware of the figures released today showing a record jump in layoffs in November, and what the failure of the Detroit Three might do to that number. The number of unemployed workers grew by 533,000 during the month, the largest increase since the Bureau of Labor Statistics started keeping numbers over a century ago, boosting the national unemployment figure to close to seven percent.

Well almost every politician -- when Representative Jackie Speier (D-CA) claimed the American people were "mad" at Detroit and "do not want us to bail out this industry," Dr. Sachs quickly reminded her they would probably be madder when unemployment hit nine, then 12 percent in the next two years as a result of the collapse of the American automakers.

There will be fierce arguments over where the bail out money should come from. As with yesterday's hearings, the Bush Administration and the Federal Reserve were again slammed for not moving to help: "The double standard with Wall St is hard to understand," said Dr. Sachs, citing the billions quickly handed over to troubled Citigroup with few questions asked. "This [crisis] is absolutely as systemic as Citigroup." But at least the consensus view on the Hill seems to be inching toward a bail out. With strings attached.

Deciding what those strings are will be the hard part, not the least because of the competing interests of the legislators involved. Here's just a brief sample of some of the more granular issues raised by committee members today:

* Executive compensation. Rep Paul Kanjorski (D-PA) suggested the salaries of the Detroit CEOs should be no larger than that of a CEO of a successful Japanese automaker "as long as you are indebted to the United States".
* Unfair advantage. Rep Tom Price (R-GA) wondered whether it was fair to ask taxpayers who worked in transplant factories to help companies that were going to compete with the companies they worked for. (In reply, GM boss Rick Wagoner pointed out that in many cases those transplant companies were seeking help from their own governments, and that many of them had been given large tax breaks to locate their factories in various states.)
* Emissions standards. Rep Carolyn Maloney (D-NY) demanded the Detroit Three CEOs pledge to cease all efforts to block the adoption by 16 states of tough California restrictions on CO2 emissions that effectively boosted fuel economy standards beyond the 2020 CAFE regulations.
* Dealer protection. Rep Maxine Waters (D-CA) said the lack of assistance for dealers in any of the plans made them hard for her to support. "Consolidation means big dealerships will put small ones out of business. That bothers me."

The Earth Center's Dr. Sachs made the blindingly obvious point things like these were not going to be resolved over the next few days -- and arguing over them would waste valuable time: "We need to make sure these companies don't go into default in the next two to three weeks."

Dr Sachs recommended a short term measure to provide funding until May 1 or June 1 next year, by which time the incoming Obama Administration would have had time to conduct a sweeping review of the entire industry and all the issues. "What we are doing is getting to a position where we make a fundamental decision [on the future of Detroit] next spring," he said. Dr Sachs estimated the cost of keeping the Detroit Three alive until then to be about $16 billion to $18 billion. The U.S. Government Accountability Office's acting comptroller general, Gene Dodaro, agreed with Dr Sach's strategy: "Structuring a short and long term approach is appropriate," he said. "but even in the short term, there has to be a Federal guardian [providing oversight]."

It makes sense to buy Detroit Three time while we as a nation figure out what to do with them. And it makes sense that any radical restructuring of the American automakers must be made in the context of broader economic and political issues. For example:

* Does it make any sense to allow states to impose different fuel economy regulations?
* How do you ensure U.S. consumer demand for fuel efficient vehicles if U.S. fuel prices remain low?
* Should auto dealers work under a single national franchise law, instead of a different one for every state?
* Is the American health care system a cost burden that makes American companies uncompetitive?

If a funding bill is signed into law in the next week or so -- and that's still a sizeable assumption, given President Bush's total lack of interest in the American auto industry over the past eight years, and his continuing indifference in the aftermath of the meltdown on Wall St. -- the Detroit Three could be kept afloat until the middle of next year. That's probably enough time to craft a meaningful long term survival strategy. But only just.

[Falc'man]

Bush and Pelosi Compromise: $15 Billion for GM, Chrysler from Energy Bill




DETROIT - As predicted, Congress is working on a short-term bailout bill for General Motors and Chrysler, the two of the Detroit Three that need emergency cash before the end of the Bush administration. House Speaker Nancy Pelosi and President Bush have agreed on a compromise bill that would provide about $15 billion in short-term funds from the "136" money, the Energy Bill funds to be used for fuel-efficient advanced technology. Avoiding Troubled Asset Relief Program (TARP) funding eliminates Bush's threat to veto the bill.


Pelosi and other House Democrats had opposed plans to transform the 136 money, which was the subject of a compromise Republican-Democratic Senate bill compromise late last month. The 136 funds were to be dispersed between 2008 and 2020, with no more than $7 billion available in the short term. Pelosi reportedly wants assurances that the 136 funds, essentially a "green car" program, will be paid back quickly.

That means House Democrats are counting on President-elect Obama, who has repeatedly acknowledged support for an auto industry bailout, to do what Bush has no taste for - using a portion of TARP's $700 billion initially earmarked for the financial industry.

No doubt Friday's Bureau of Labor Statistics report that 533,000 Americans lost their jobs in November greased the skids for an auto industry bailout. On the same day, Chrysler CEO Bob Nardelli said that if his company fails, the jobs of 1 million people would be in jeopardy. Most analysts say a GM failure would collapse the U.S. auto industry, including suppliers, and affect up to 3-million jobs. Coincidentally, perhaps, Obama has announced he will quickly implement a huge, FDR-like public works program after he takes office, including construction and repair of the nation's roads, in order to create up to 2.5 million jobs. Here's hoping a good portion of those 2.5 million newly employed will need new Chevy Cruzes, Ford Fiestas and Foci, and whatever Chrysler is still building to drive on the smooth, new roads.

[Falc'man]

So, after 533,000 people lost their jobs they thought "okay, lets do something about this" :togo:

[Gobes32]

I heard from someone that Rick Wagoner is being pushed to resign? Anyone else hear this?

[Sprint XR8]

Outside Pressure Grows for GM to Oust Wagoner
DETROIT -- General Motors Corp. Chairman and Chief Executive Rick Wagoner is coming under increasing pressure from outside the company to resign as part of any broad bailout of the auto maker by the federal government.

On Sunday, Sen. Christopher Dodd (D., Conn.), a supporter of emergency loans for Detroit, suggested Mr. Wagoner should go if the government follows through and provides billions of dollars to help the auto giant restructure and return to profitability.

"I think you've got to consider new leadership," the senator said on the CBS talk show "Face The Nation." A Dodd aide said later the senator's demand for change would not be a "condition written into the" rescue package coming together on Capitol Hill, and draft legislation prepared by top Democrats doesn't make that explicit requirement. But Mr. Dodd's displeasure was clear. "If you're going to restructure, you've got to bring in a new team to do this," he said. "I think [Mr. Wagoner] has to move on."
http://online.wsj.com/article/SB1228...googlenews_wsj

[vztrt]

Originally Posted by Gobes32

I heard from someone that Rick Wagoner is being pushed to resign? Anyone else hear this?

Apparently under the obama administration the board of big 3 will be told to leave for them to get the money.

[Gobes32]

Originally Posted by vztrt

Apparently under the obama administration the board of big 3 will be told to leave for them to get the money.

That's unfair if it also applies to Ford, because just before the global financial crisis, Ford were starting to turn things around.

[vztrt]

Thats what I thought, but Mullaly might stay and they get rid of the other deadwood. I guess Ford showing their plan would be able to get access to more loans, especially when they were getting around to making cash.

[Gobes32]

It seems stupid that the Ford family are entitled to a position on the board merely due to the amount of shares they own. Would rather have someone on there that is knowledgeable and an asset to the company.

[vztrt]

Well Bill Ford was smart enough to bring Mullaly in and step aside for him. So i'll give him some credit.

[vztrt]

GM is cutting 10,000 jobs worldwide

http://business.theage.com.au/busine...0211-84cq.html

GM's 10,000-job cut won't affect Holden for now

February 11, 2009 - 2:10PM

GM Holden will not be immediately impacted by a decision from General Motors in the United States to cut white collar jobs from its global car making operations.

The US company said it would cut 10,000 jobs worldwide this year, amounting to 14% of its salaried workers, as it pulls together a plan for the Treasury Department on how to return to profitability.

GM said it expected the cuts to reduce its global salaried workforce to about 63,000 in 2009.

The job losses were combined with reductions in pay for salaried workers of between 3% and 10%.

''These difficult actions are necessitated by a severe drop in vehicle sales worldwide and by the need to restructure GM for long-term viability,'' the automaker said in a statement.

A Holden spokesman on Wednesday said the move by GM would not impact immediately on the company's Australian operations, but it continued to look at what steps it needed to take to combat the economic downturn.

``The announcement out of the US overnight doesn't trigger any immediate reactions for Holden but at the same time we are certainly looking at what needs to be done in Australia,'' said national manager of media relations Scott Whiffin.

''The outlook for 2009 is extremely challenging with shrinking local and export markets impacting on our sales volumes and manufacturing schedules.

''We're looking at how we can move to a business model that will make us strong and profitable long term.

''The harsh reality is that we're facing some big challenges, some big decisions.

''We haven't made any decisions yet but we are looking at all aspects of the business and fundamentally asking how do we structure Holden to protect it for Australia and future generations.''

Holden has cut production at its manufacturing operations in Adelaide this year, with workers taking periods of leave in the first quarter.

But it has also announced plans to build a new small car in Australia from 2010.

AAP

[Steve]

I can't help but think that if it were Ford instead of Holden, it would read "Massive layoffs imminent for Ford".

[Gobes32]

I call bullcrap on that Holden announcement, they were/ still are? producing cars on all three shifts. If they honestly think they can support three shifts of production purely on local sales they are dreaming. There is going to have to be a massive clean out at Holden, mark my words. I have been going through this for the last four years, I went from working seven nights a week in 2005 to working 4 days a week in late '08. In the meantime, FoA cut the night shift from engine plant, then 12 months later it shrunk night shift in stamping to a skeleton crew who were there purely to catch up on lost production. Now night shift production is gone completely and afternoon shift work as a catch up crew. HOWEVER, although it's not ideal, we are profitable(?) at this rate and we have the right amount of employees to manufacture the amount of cars we are currently selling month to month. It is pleasing to know that the worst is behind us and the only place for FoA to go is up. If by some miracle the public started demanding new fords, then we would work over time to try and cover the demand, but at this rate we are nicely placed to ride out the current financial doom and gloom.
Holden however, will need to start retrenching people because they really do have too many employees for the amount of cars they sell each month.

[vztrt]

Originally Posted by Gobes32

I call bullcrap on that Holden announcement, they were/ still are? producing cars on all three shifts. If they honestly think they can support three shifts of production purely on local sales they are dreaming. There is going to have to be a massive clean out at Holden, mark my words. I have been going through this for the last four years, I went from working seven nights a week in 2005 to working 4 days a week in late '08. In the meantime, FoA cut the night shift from engine plant, then 12 months later it shrunk night shift in stamping to a skeleton crew who were there purely to catch up on lost production. Now night shift production is gone completely and afternoon shift work as a catch up crew. HOWEVER, although it's not ideal, we are profitable(?) at this rate and we have the right amount of employees to manufacture the amount of cars we are currently selling month to month. It is pleasing to know that the worst is behind us and the only place for FoA to go is up. If by some miracle the public started demanding new fords, then we would work over time to try and cover the demand, but at this rate we are nicely placed to ride out the current financial doom and gloom.
Holden however, will need to start retrenching people because they really do have too many employees for the amount of cars they sell each month.

Third shift was canceled during the VY.