Detroit Bureau on Twitter

Posts Tagged ‘u.s. treasury department’

Chrysler Board Meets Today, as Fiat Loses Millions

Chrysler's new owner is itself having trouble making money, as its head determines next North American steps.

by on Jul.27, 2009

Luca Cordero di Montezemol, Chairman Fiat SpA left, and Sergio Marchionne, CEO

The board of the newly formed Chrysler Group is starting from scratch, and must base its initial decisions based on covenants dictated by the U.S. and Canadian governments.

The new Chrysler Group board of directors is scheduled to meet for the first time today, working on an unspecified agenda. While boards traditionally set overall strategic direction, and approve management’s capital spending requirements from previously approved product development plans, the board of the newly formed Chrysler Group is starting from scratch, and must make its initial decisions based on loan covenants dictated by the U.S. and Canadian governments.

Complicating things, it’s not at all clear if the new board understands the products currently in production, let alone has any basis for making the billions of dollars in product decisions required to refresh the aging — and slow selling — lineups of the Chrysler, Dodge and Jeep brands. The new board appointments have experience in finance, corporate restructurings and modifying union contracts in the airline industry. Auto industry experience is, well, scarce, to put it politely.

The board also faces an immediate tactical issue regarding Chrysler’s extremely weak vehicle sales. The smallest of Detroit’s once so-called “Big Three” has been hardest hit by consumer concerns and the Great Recession, with U.S. June sales plunging 42%, the worst of all major manufacturers, but its new head has repeatedly stated that Chrysler needs to move away from the huge sales incentives that put it in — and keep it in — red-ink results.

Chrysler Group is now offering to double the U.S. government’s Cash-for-Clunkers subsidy, which translates for incentives of up to $9,000 on “eligible” Chrysler, Dodge and Jeep products, which include most. This “Double CA$H for Your Old Car” program is the first big incentive campaign since Chrysler emerged from Chapter 11 protection, in June.

No Board Meeting Needed!

No Board Meeting Needed!

The severe challenges the Chrysler Board faces come with Fiat’s own troubles as a backdrop. Both companies are headed by Sergio Marchionne as CEO, although Marchionne said he is spending less than half his time on Chrysler, as he spoke about Fiat’s losses on a conference call with analysts and reporters last week. If you’re looking for a precedent here, think of Carlos Ghosn, the head of both Nissan and Renault, whose alliance is loss-making, as are both the individual car companies he runs.

During the second quarter of 2009 Fiat posted a net loss of $254 million, compared with profits of $918 million a year ago, as the Milan-based conglomerate lost money in its industrial operations, which include Fiat, Alfa Romeo, and Lancia automobiles. Ferrari and Maserati are held in separate companies.


Treasury Department Continues Maneuvering to Get General Motors out of Bankruptcy Court

A series of compromises are designed to quash objections and allow the New GM to emerge by summer's end.

by on Jun.29, 2009

Treasury Auto Task Force, Ron Bloom

How other groups fare as the case moves forward appears to be directly related to the threat they pose to the Treasury plan.

As the summer heats up, so is opposition to the proposed reorganization of GM by multiple groups who claim they are not being treated fairly. And since for every action there is a reaction, The U.S. Treasury Department is stepping up its maneuvering to keep its GM plan on track.

The latest such choreography saw trial lawyers receive a handsome sop over the weekend when GM agreed to allow product liability suits to continue on pre-bankruptcy GM vehicles, as TDB has reported.

Not only are the trial lawyers large contributors to the Democratic Party, who have resisted reforms to a system that sees most of the victim’s compensation redistributed to lawyers’ fees, but they represented a potentially massive roadblock to a quick emergence from bankruptcy for GM.

How other groups affected by GM fare as the case moves forward appears to be directly related to the threat they pose to the Treasury plan to do a so called section 363 sale that will preserve some of GM instead of liquidating all of it.

As in the Chrysler case, the strongest argument for this government plan is that more is saved and more – but not all — parties benefit from a quick resumption of business and the trimming back or elimination of as many liabilities as possible from the New GM. The argument also leaves room, as has now been demonstrated, for some political deals that change the terms of the two cases.

Delete this copy after inserting to retain outline box as in photos

In an earlier move less than three weeks after GM declared bankruptcy, Treasury rejected the request for additional funds for suppliers who are strapped because of the GM meltdown and cessation of production at virtually all of its North American plants.


UAW Vote on Revised GM Contract Proceeding

Asian imports are not directly addressed in the agreement.

by on May.28, 2009

UAW Vice President Cal Rapson, photo: Rebecca Cook

Union protests appear to have stymied, for the moment anyway, GM's plans to import large numbers of cars from abroad.

Members of the United Auto Workers Union are expected to vote to accept more concessions as part of revised contract with General Motors Corporation, including a ban on strikes until 2015. GM needs the concessions to survive and the union has no choice but to give them, observed one local union leader. “Ron Gettelfinger and Cal Rapson did about as well as they could do,” he added.

UAW local union leadership representing UAW members at General Motors facilities across the country voted unanimously on  Tuesday to recommend for ratification a new settlement agreement that modifies the 2007 UAW-GM National Agreement as well as changes to the Voluntary Employee Beneficiary Association trust for retiree health care.

As usual, the UAW is not releasing details of the agreement until after the vote is completed later this week. The agreement reduces the number of skilled trade classifications – long a point of contention inside GM plants – to just three for electrical, mechanical and tool and die trades. The sweeping consolidation of skilled trade classifications had long been sought, unsuccessfully, by GM’s management.

While not part of the latest contract, union protests appear to have stymied, for the moment anyway, GM’s plans to import large numbers of cars from abroad. The new GM plan outlined for UAW officials this week also increases the chance that of the four additional assembly plants GM was planning to close, at least three will now be retooled for new products previously slated for GM factories in other countries. The shift came on the heels of intense lobbying blitz by the union that put pressure on GM, the U.S. Treasury Department and the Obama Administration.

GM assembly plants in Orion Township and in Pontiac, Michigan have been on a speculative list of plants targeted for closing, along with GM plants in Wilmington, Delaware, Spring Hill, Tennessee and Shreveport, Louisiana. In fact, union officials in Tennessee last week had publicly pronounced the former Saturn plant Spring Hill plant as good as closed.    (more…)

GM Unlikely To Reach Deal with Bondholders before the Dept for Equity Swap Deadline

Bankruptcy closer to reality for a second U.S. automaker.

by on May.19, 2009

President Barack Obama and President Barack Obama shakes hands with GM President Fritz Henderson, AP Photo/Charles Dharapak

The dispute over GM exporting jobs is shaping up to become a major political headache for the Obama Administration, with its claims to be promoting policies that will create American jobs.

General Motors Corporation late today filed a prospectus supplement with the Securities and Exchange Commission about its exchange offers for $27 billion of its unsecured public notes and the related consent solicitations that began on April 27, 2009.

In plain English, the filed supplement says that as of today GM has not reached agreements with its bondholders about a debt-for-equity swap — and it is unlikely to do so before the midnight May 26, 2009 expiration date.

Since the swap is a key element in its revised “viability plan” bankruptcy appears certain. The bondholder deal is necessary to obtain the agreement of the U.S. Treasury Department for further financing. It is also needed for the United Auto Workers Union and the VEBA-settlement class representative to accept GM stock for cash payments due. Bondholders, as they did in the case of the now bankrupt Chrysler LLC, are not cooperating. And the UAW is taking a hard line over other aspects of the plan.

Ron Gettelfinger, president of the UAW, spent the afternoon at the U.S. Treasury Department in Washington, D.C. While not commenting directly on what the issues concerning the union are, Gettelfinger went public over the weekend with at least one of them by releasing a letter to members of Congress that complained about the doubling of imports by GM from non-union and restricted-trade countries in Asia. The union wants job guarantees as part of the fragile, controversial deal Treasury is trying to put together to save GM.

Alan Reuther, UAW Legislative Director, wrote Congress that “As the discussions continue concerning the restructuring of General Motors, the UAW wishes to restate our strong opposition to the company’s plan to close 16 manufacturing facilities in the United States, while at the same time dramatically increasing the number of vehicles it will be importing from Mexico, Korea, Japan and China for sale in this country. We urge Members of Congress to join with the UAW in urging the Obama administration to insist, as part of any further government assistance, that GM should be required to maintain the maximum number of jobs in the U.S., instead of outsourcing more production to these other countries.”    (more…)

GMAC moves on

GMAC Financial Services is staking a claim to its independence.

by on May.15, 2009

"Given the recent financial market turmoil, people are looking for a safe, honest and efficient place to save."

"Given the recent financial market turmoil, people are looking for a safe, honest and efficient place to save."

General Motors CEO Fritz Henderson said this week that GM no longer has any representation on the board of GMAC. GM sold a majority interest in GMAC to Cerberus Capital Management back in 2006. Last December, GMAC was reorganized in an exchange for $5 billion in federal funds. When it accepted money from the Trouble Asset Relief Program (TARP), GMAC was required to loosen its ties to Cerberus and GM, which is why Henderson said he doesn’t always have up to the minute information about what’s going on at the big finance company.

GMAC, which is now being overrun by refugees from Wall Street meltdown, has now announced that it is changing the name of the consumer bank that is one of the keys to its future plans. 

“The world doesn’t need another bank, it needs a better bank.” This philosophy is at the heart of the launch of Ally, a new brand for a U.S. online bank designed to disrupt the status quo and challenge win-lose practices in the banking industry, GMAC said. Ally Bank offers a variety of savings products, including no-penalty certificates of deposit (CDs), online savings accounts and money market accounts.

“We are launching a new brand with a new approach of treating customers with total transparency,” said GMAC Chief Executive Officer Al de Molina. “Unlike other banks which depend on fees as a business model, we want to make money with customers, not off customers.”    (more…)

Chrysler Fires 789 Dealers

Cleaning up the distribution system is key to a viable company.

by on May.14, 2009


The 789 terminated dealers accounted for only 14% of Chrysler's total sales volume.

Chrysler LLC this morning filed a motion with the U.S. Bankruptcy Court in New York cancelling its U.S. dealer agreements with 789 dealers in 49 states. The only state spared was Alaska. If the court approves, and there is no reason to think it won’t, 2,392 Chrysler, Jeep or Dodge dealers will continue with the new company as it emerges from bankruptcy in a global alliance with Fiat.  

For owners and prospective customers, this latest development clarifies where to buy or where to get Chrysler products serviced. The 789 terminated dealers accounted for only 14% of Chrysler’s total sales volume.

“This is a difficult day for us, but we’re going forward with the approval of the bankruptcy court,” said vice chairman Jim Press.  “There are no winners and no losers. This is the way it is,” said Press, adding Chrysler will now have a “once in lifetime” opportunity to build a powerful dealer network that maximizes dealer franchise value, sales and convenience for customers. 

Clearly the losers are the 789 dealers who will no longer be authorized to handle Chrysler products. However, many of them, 44%, were dualed with other makes, or sold more used cars than new cars, creating opportunities for them to remain in business. (more…)

Global Auto Sales Will Continue Decline in 2009

Study shows worldwide volumes won't return to pre-crisis levels until at least 2012. Growth is in Asia.

by on May.14, 2009

The chase to catch Toyota continues through 2020?

The chase to catch number one Toyota with a global share of 12% continues through 2020.

Global light vehicle sales will decline 14.7% from 2008 levels to 55.2 million units in 2009, according to R. L. Polk & Company. The study released today also predicts that the automotive markets won’t emerge from the worldwide recession until 2012, later than previously forecast, due to worsening economic conditions.

Whether this revised forecast is an accurate prediction or just more wishful thinking remains to be seen. At stake is the profitability of all the automakers in the world, and the survival of many of them, as depressed volumes continue to generate large, unsustainable losses.

Critics have maintained that automotive forecasts — and automaker’s plans derived from them — have been unrealistically high given the massive decline in global wealth brought on by the ongoing Great Recession. As just one example, the U.S. Treasury Department’s Auto Task Force rejected GM’s restructuring plan as being too optimistic in its use of industry volumes in  the U.S. in the 12.5 million unit range that Polk is now forecasting.

Polk acknowledges such criticism. It points out that its current forecast for 2009 of 55.2 million units is 23% below the 71 million vehicles that the company predicted in mid-2008, which was prior to the start of the economic crisis in fourth quarter 2008. To be fair virtually no one  foresaw the Great Recession coming. Right now it looks like global light vehicle sales through 2015 will be more than 80 million units lower than Polk predicted in mid-year 2008.

The U.S. auto market has been flattened by this ongoing economic crisis. New vehicle sales have dropped from a high of almost 17.5 million in 2000 to 13.2 million in 2008, with a further decline to 10 million projected for 2009. Polk doesn’t forecast the U.S. market reaching the 12.5 unit level until 2012. Automakers insist that “pent-up demand” is building and sales are on the verge of a turnaround, but there is no evidence in the sales data, thus far, to support this wishful thinking.    (more…)

General Motors Loses $6 billion in First Quarter

Worse, the ailing automaker burns another $10 billion in cash.

by on May.07, 2009

Not much to smile about for GM CEO Fritz Henderson. The automaker posted another $6 billion loss for the first quarter of 2009.

Nothing to smile about for Fritz Henderson as GM posted a $6 billion loss, and shares traded at $1.66.

General Motors Corporation reported a huge net loss of $6.0 billion this morning, including special items, which translates to -$9.78 per share in the first quarter of 2009. This compares with a reported net loss of $3.3 billion, or -$5.80 per share, in the year-ago quarter. 

Excluding special items, the company reported an adjusted net loss of $5.9 billion, or -$9.66 per share, in the first quarter of 2009 compared to an adjusted net loss of $381 million, or -$0.67 per share, in the first quarter of 2008.

The company said a worldwide decline in industry sales of 21% was responsible for the sea of red ink. However GM production declined at roughly twice that rate.

GM’s revenue for the first quarter of 2009 was $22.4 billion, down 47% from $42.4 billion in the year-ago quarter. The drop in revenue was primarily due to GM’s production volume decline of 903,000 units, or approximately 40%, on a global basis year-over-year.

The company said the losses were partially offset by cost cutting. However, GM continues to run through cash at a non-sustainable rate, hemorrhaging $10.2 billion in Q1. alone. Without government financing, GM would be history by now. And its future is by no means assured.

Cash and marketable securities totaled $11.6 billion on March 31, 2009, down from $14.2 billion on December 31, 2008. The change in liquidity from the negative operating cash flow in the first quarter of 2009 was partially offset by U.S. TARP funding. Further details on GM’s current liquidity position and outlook will be disclosed in a Form 10-Q filing with the Securities and Exchange in the coming day. Surely, the news here will not be good.

“Our first quarter results underscore the importance of executing GM’s revised Viability Plan, which goes further and faster to lower our break-even point,” said Fritz Henderson, president and chief executive officer.  The failing automaker desperately needs to get out of the headlines as saturation coverage is clearly driving away potential buyers. (more…)