By on February 18, 2009

The viability plans presented by Chrysler and GM to the US Treasury and the public yesterday signaled the end game. The plans amount to nothing more than begging for enough cash to stay afloat until the market turns upwards. Not only are the automakers’ arguments based on flawed assumptions about the US car market, but they singularly fail to address the fundamental problems that brought Chrysler and GM to their knees. The fact that anyone would take these pleas seriously indicates the simple triumph of fear and over common sense. You’d have to be willfully ignorant not to see these plans as the worst kind of cheap fiction. Well, maybe not so cheap . . .

Of the two submittals, Chrysler’s plan was worse. It was a non-plan. To start, Chrysler pointed to its reduction in warranty claims, its lower rate of recalls, and other “proof positive” of a turnaround in quality which justifies further Federal money into the money pit called Chrysler. Too bad all the quality rating folks like JD Power and Consumer Reports still rank Chrysler at or near the bottom.

And when the total number of rigs on the road sold in the last few years goes down, warranty payments should be reduced as well. Funny thing, Chrysler’s total sales have dropped about as much as their warranty claims in the last three years.

As for future vehicles? Nothing but speculative hype about future cars from Planet Gullible. And by the way, ChryCo’s cutting three vehicles previously destined for death (Aspen, Durango, and PT Cruiser). But there’s a new Grand Cherokee coming! And Fiat with its “not ready for American prime time” Euro cars. Perhaps Fiat should be talking to the Saturn dealers instead?

Chrysler’s first lien bank lenders have not agreed to any cuts whatsoever. Why would they? They’ve got priority over the government loans already. The UAW hasn’t agreed to the cut in the health care VEBA for retirees (same goes for GM too). And by the way, Chrysler needs an additional $5B to keep going.

The coup-de-jour: Jim Press said that the dealers stepped up in February and ordered 78k rigs—thanks to $2k of dealer cash. And who do you think paid for this channel stuffing? Hey, Jim, what happens in March when your 150-day supply of cars becomes 180 days? How big will the bribe be then?

GM’s plan was too late. It’s the plan that should have been implemented in 2005. Saab will return to Sweden—if the government there forks over the 17 kroner necessary. Otherwise Saab will be toast by the end of the month. Saturn and HUMMER will wither and die—unless Chindia gets tired of waiting for a C7 liquidation.

Don’t think so. India’s auto tycoons aren’t stupid; they’ve watched Ratan Tata drive Land Rover/Jaguar straight over the metaphorical bridge to nowhere. Mahindra & Mahindra has stopped making noises about entering the US with rough and tumble SUVs and chicken tax surmounting mid-size pickups. China may buy a US brand or they may not. If they do, GM will get pennies on the dollar, if not actually having to pay someone to make Saturn, Saab and HUMMER go away.

In fact, no matter what, GM’s going to have to pay to make its excess brands disappear. Wagoner faced the cameras yesterday and blithely assured reporters that GM would fight terminated dealer franchise dealer lawsuits on a state-by-state basis. All together now: who’s paying for that? And speaking of money . . .

GM said they need another $18B (on top of the $13B already received) to make the plan work. And that’s before we get to the UAW retiree health care issue, the cost of mopping-up Delphi, guarantees to suppliers, and god-knows-what-else. That doesn’t include the Section 136 loan money (none given so far) authorized and appropriated for “viable” auto companies and parts suppliers to improve fuel economy.

When does it stop? Or is that where? GM is also holding a gun to Europe, Canada, Britain, Thailand and Australia, extorting money to keep its operations going.

Truth be told, we don’t know the total bailout funding required. Figure $40B-$50B dollars as a lowball estimate. And that’s just short term misery extrapolated over five years (Comrade). Let’s not forget the US pension contributions due in 2013/2014. Or shall we?

This is bad craziness. Never mind the cost. Or the fact that the bailout is doomed to failure. Government money provided to private enterprise on this basis completely distorts the function of the marketplace. It rewards incompetence. It perpetuates incompetence. The bailout does nothing to address GM’s fundamental inability to sustain car brands with class-leading products. Nor can it. It is not the government’s responsibility to pick a winner in a free market. Nor is it the government’s responsibility to “save” a loser.

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40 Comments on “Editorial: Bailout Watch 404: Crime of the Century?...”


  • avatar
    dwford

    It’s not just the management at the Big 3 that are still in denial (except maybe Ford). Over at blueovalnews.com in the forums, Ford works are up in arms over the proposed cuts in the 3% bonuses and the cuts proposed in the SUB pay (the differential Ford gives them if they get laid off and collect unemployment). The union workers don’t want to even give up the money they MIGHT get if they get laid off, let alone take any actual cuts in wages or benefits.

  • avatar
    karkidd

    So are we allowed to take the money back then?

    Extremely serious question.

    Was the *first* bailout just some check that said “miscellaneous”?

  • avatar
    mel23

    A telling point in Wagoner’s press CONference last night came when someone asked him (more or less) “what went wrong with the Saturn approach”. To me at least, the question went to the whole no-hassle thing, etc. But dealing with the real question would have meant dealing with the fact that Saturn lost money every year but one in its history. So Wagoner’s answer was something about industry sales falling off a cliff the last few months. The guy is just not connected to reality, as the results since he’s been in the job indicate. There is no way he’s capable of coming up with a plan that will lead to a viable GM. If he stays in the job through these negotiations with the Feds, that’ll tell me at least that the Feds are in denial too. If he gets bounced, maybe there’s hope.

    At another point, someone asked him why we should believe GM had a future (wildly paraphrasing). His answer was about new models. I have books in my basement nearly 20 years old by Maryann Keller lambasting GM execs for saying the same thing over the years with no positive results.

  • avatar
    TireGuy

    Until yesterday I thought that GM might get away with the bailout. But now, easily doubling the bailout request, not proposing a real solution to the problems, and having not made any real agreement with the UAW, I feel that the government has enough right to stop it and force GM to Ch11. There was enough reason for this anyway, but yesterday Waggoner basically confirmed this view himself, although he said differently.

  • avatar
    karkidd

    Damn I hope so. They need some real restructuring and not this clown BS.

  • avatar
    psarhjinian

    But dealing with the real question would have meant dealing with the fact that Saturn lost money every year but one in its history. So Wagoner’s answer was something about industry sales falling off a cliff the last few months.

    The truth would have been something along the lines of “We all hated how Roger Smith tried to show us up, so we tried our damndest to f_ck Saturn up without doing anything so explicit as actually shutting it down”.

    Which, of course, opens up the whole question of: “Exactly how dysfunctional is GM’s upper management, anyway?”, when then leads to “Hey, haven’t you been in upper management at GM for nearly twenty years? Aren’t you part of the problem?”

  • avatar
    210delray

    It is the crime of the century. Why should we taxpayers be burdened with throwing billions down an endless sinkhole?

    I can’t stand listening to Wagoner — he goes on and on — but has nothing to say.

  • avatar
    segfault

    “…they singularly fail to address the fundamental problems that brought Chrysler and GM to their knees.”

    Especially Chrysler. I mean, their Powerpoint looked like it was made by a fifth grader. “We’ll have an all-new, decontented 300, and a new Grand Cherokee that we hope will go from its current black circle to a red circle in Consumer Reports’ quality rankings. And we’ll have more starbursts than a candy store.” Chrysler’s presentation would be considered seppuku-worthy over at Toyota. GM at least put forth an effort.

  • avatar
    nudave

    Crime of the century?

    Uh, Ken – so that all of us might better understand what’s going on in your head, why don’t tell us what you consider to have been the 20th Century’s “Crime of the Century”.

  • avatar
    windswords

    Ok Ken, we get it. You don’t like the bailout and everything short of C11 for GM and total liquidation for Chrysler will not work. In your opinion. In my opinion you are only seeing what you want to see in these reports. I haven’t had time to look at GM’s this morning but I did look at Chryler’s. It was a not only a new GC but a new 300 and Charger (with what appear to be very nice interiors). And a goal (yes a real goal) for rrange extended electric vehicles in 2010.

    http://scoop.chrysler.com/wp-content/uploads/20090217ChryslerUSTfinal.pdf

    “Restructuring Actions
    Chrysler LLC has aggressively restructured operations to significantly improve cost competitiveness while improving quality and productivity. Through year end 2008, Chrysler has:

    Reduced fixed costs by $3.1 billion
    Reduced its work force by 32,000 (a 37 percent reduction since January 2007)
    Eliminated 12 production shifts
    Eliminated 1.2 million units (more than 30 percent) of production capacity
    Discontinued four vehicle models
    Disposed of $700 million in non-earning assets
    Improved manufacturing productivity to equal Toyota as the best in the industry as measured by assembly hours per vehicle according to the Harbour Report
    Achieved lowest warranty claim rate in Chrysler’s history
    Recorded the fewest product recalls among leading automakers in 2008 [funny how I always here about Ford\'s quality, but they have more recalls]

    The following additional restructuring actions are planned in 2009:

    Reduce fixed costs by $700 million
    Reduce one shift of manufacturing
    Reduce total manpower by 3,000 people
    Discontinue three vehicle models
    Take out 100,000 units of capacity
    Sell $300 million additional non-earning assets”

    So by my calculations if they are successful that would bring total fixed costs down by $3.8 billion.

    Another possiblity for vehicle discontinuation is the Dakota. If the FIAT deal goes through, then by 2012 the Compass and Caliber too, to be replaced by something (better) from FIAT.

    As for reliability – yes warranty and recalls are way down. Too much to be just because of less vehicles being sold. Just check the waaranty and recall percentages of the other automakers who ALL have had less sales – the drop has not been the same.

    The Volkswagon Routan (built by Chrylser in Windsorm, Ontario) according to VW is the HIGHEST QUALITY LAUNCH IN VW’S HISTORY. Of course that’s not saying much giving the historical reliability of VW’s, but there you go.

  • avatar
    windswords

    As bad as Chrysler looks, GM is in real trouble. No wonder Lutz is Aruba bound in his military jet trainer.

    Sounds like a cuple of divisions disappear and 5 factories and 47000 more workers. Plus at least $16 billion more.

    http://news.yahoo.com/s/ap/20090217/ap_on_bi_ge/gm_bailout

    Chrysler is viable on a run rate of 10 million cars per year and 10% market share. According to Detroit news GM’s plan depends on run rate of 12.8-13.2 million in sales which aint happening right now.

    As I have said before the idea of killing Chrysler so that GM can survive is not workable. Gm couldn’t surve without gubment assistance even if Chrysler and Ford disappeared. Not as it is today. Maybe as it sees itself in the future with Hummer, Saab, and Saturn gone. But I think another brand will have to go (Pontiac or Buick).

    Ford is in just as bad of shape but they borrowed $20 billion last year so they are burning thru their creditors cash. If GM and Chysler has jumped on loans like Ford had to last spring they could last a little longer. Note also GM has $20 to 35 billion of unsecured debt, Chysler has none.

    Since GM is going to layoff another 47,000 and Chrysler employs 56,000, it sounds like GM is cutting off a Chrysler size junk of itself, employee wise. So why “kill” Chrysler when there is a Chrysler-sized hole in GM?

  • avatar
    BenFarmer

    And a goal (yes a real goal) for rrange extended electric vehicles in 2010.”

    Color me impressed.

  • avatar
    RickCanadian

    Hey, windswords, I also read the reports from GM and Chrysler, but somehow I got a different impression. Could you pass me your glasses? Everything looks a lot better through them.

  • avatar
    bluecon

    So if the companies reduce jobs by thousands to the government will provide billions to save jobs.

    Next up GM unveils their new Trabant.

    The government now owns these companies.

  • avatar
    twonius

    OK Chrysler.. what steps have you taken in the last 2 years to make more money instead of just cutting costs?

  • avatar
    brettc

    Saturday Night Live predicted this in late November. The sketch consisted of GM, Ford, and Chrysler asking for billions of dollars every month until about 2011. It was funny at the time, but now it’s sad because it’s coming true. Luckily Ford hasn’t participated yet. If they keep not participating, I might just have to buy a vehicle from them as their reward for not sucking so hard.

    http://videocafe.crooksandliars.com/heather/snl-spoofs-big-three-bailout-hearing

  • avatar
    KixStart

    windswords: “And a goal (yes a real goal) for rrange extended electric vehicles in 2010.”

    Try “surreal goal.”

    Chrysler has almost zero experience with gas-electric vehicles. They whithdrew the Aspen/Durango whybrids before any could sell (as if they would). Do they have any people left that can engineer this?

    As much as I think GM is incompetent in this sphere, Chrysler is even moreso.

    An E-REV for Chrysler is about as likely as Pope Benedict is to marry.

  • avatar
    mtypex

    American Leyland is here.

  • avatar
    geeber

    windswords: Ford is in just as bad of shape but they borrowed $20 billion last year so they are burning thru their creditors cash.

    Ford is in serious trouble – no denying that fact. But Ford is also burning cash to bring new models to market, not just to keep the lights on.

    At the Washington, D.C., auto show I saw the 2010 Taurus and Fusion, scheduled for introduction later this year. The all-new Fiesta comes later. Those are important models that could appeal to a broad swath of the market…does Chrysler have anything comparable in the pipeline?

  • avatar
    RickCanadian

    KixStart,

    “An E-REV for Chrysler is about as likely as Pope Benedict is to marry.”

    ROFL

  • avatar
    RetardedSparks

    Many have said it here before me – GM and Chrysler cannot cut their way to viability. That requires a proposal for selling cars, not just cutting costs. I have business plan right here on my desk for a company that has no expenses and no income. Does that make it “viable?”
    A gutted company with no R&D, no investment, poorly designed, executed and marketed vehicles, pissed off workers, suppliers and dealers, is not viable. There is no evidence whatsoever in these plans that either company can change their CULTURE. That is the cancer that has ravaged these companies for decades and is killing them. Sure, they can make “painful decisions” and offer to cut off both arms and legs, but the cancer is in the brain and the heart of these companies. Until someone admits that to save the patient is to kill the patient, this is all a farce. You can’t cut off enough to make them viable.

  • avatar
    forraymond

    Crime of the Century? Even if the American auto manufacturers are “loaned” $70Bn, that is still 10% of what the banking industry has been given.

    Is there a banking enthusiast web site like TTAC for banks? I’d like to hear folks rip on CEOs of banks and insurance companies with the zeal of the B&B.

    R

  • avatar
    tom

    Actually, I have to agree with windswords to a degree. I’m not a Mopar fanboy and I don’t have this peachy view of everything Chrysler, but there are reasons, why I think Chrysler could in fact be turned around:

    1) Cerberus is transforming Chrysler into an OEM. So unlike GM, Chrysler won’t suffer as much from killing R&D, which they are both doing in order to save money in the short term.

    2) At least according to the report, Chrysler has in fact a total equity of zero. Way better than GM’s $-60 billion. That alone is reason enough why GM won’t survive.

    3) Chrysler is in fact the small and potentially flexible company, GM tries to become (well, maybe they don’t want to become THAT small).

    However, while these facts indicate that Chrysler could be turned around, here’s why it won’t be turned around:

    1) Legacy costs. In order for the plan to work out, the UAW would have to play along. Which they won’t. And that’s basically the end of it.

    2) Unattractive cars. Sure, the 200C looks great, but it will probably never see the show rooms. But even if it all works out perfectly (and why should it?), Chrysler won’t have an attractive line-up before 2012, which is simply too late.

    And the ultimate question remains: If Chrysler can be turned around, why does it need government money? The fact that they’re in Washington, begging for money shows how little confidence Cerberus has.

  • avatar
    GS650G

    GM is nothing if not resourceful, you have to admire their gall at asking for that kind of money. Ford is looking better every day as an investment because at least they are swimming on their own so far.

  • avatar
    Ashy Larry

    ex-gm — It’s incredibly hard to argue with the Swedish government here. GM is just dumping Saab like an unwanted orphan at the doorstep of Swedish taxpayers. Their blunt assessment is the kind of clear thinking that our own Congress seems incapable of. We just don’t have the money to save GM anymore.

  • avatar
    Airhen

    On a Jeep forum I read that someone bought an ’09 Rubicon Unlimited for $28,000 that’s MSRP was $36,000. Another poster responded, “You are welcome!”

  • avatar
    OldandSlow

    How many future tax payer dollars has GM asked for so far? I say future dollars, because I get the feeling that the treasury has had to borrow the money to loan it GM.

    So far it looks like 13 billion in December and now another 17 billion, which is 30 billion. We could have given a million and half taxpayer $20,000 to buy a GM product and I doubt that GM would of showed a profit if it sold that many cars.

    30 billion dollars is a lot of money. Will GM ever pay it all back?

  • avatar
    wsn

    forraymond said:
    Crime of the Century? Even if the American auto manufacturers are “loaned” $70Bn, that is still 10% of what the banking industry has been given.

    1) The banks, all combined, still dominates almost 100% of market share. They are short of cash, but their business model is viable. It’s only a matter of time before they can repay that money.

    But GM/Crysler has 30% market share combined. Their market share will shrink more and more. They have no dominance whatsoever in their industry. So whatever money given is wasted.

    2) I oppose the bailout of banks as well. The bailout of banks is wrong. That doesn’t make bailout of GM/Crysler any right.

    It’s like, Hilter used concentration camps before. That doesn’t make Bush’s Guantanamo right.

  • avatar
    wsn

    I think Rick Wagoner made a mistake by asking too little.

    If he intended just to stay afloat and ask 10B~20B per quarter, he will soon find that the American public losing patience.

    Instead, he should ask for 100B outright. Really, does 100B sound all that differently from 10B, in the context of 1T+ deficit?

    And a 100B restructure would sound more credible anyway.

  • avatar

    My mind strays back to 2005, back when Dan Neil at LATimes called for Wagoner to be fired, for gross mismanagement of GM, and GM’s response was to cancel ads in LATimes.
    http://www.independent.co.uk/news/business/news/angry-gm-withdraws-ads-from-la-times-530535.html

    Those were the days. GM’s turnaround could have begun four years ago – but facing truth is not GM’s strength.

  • avatar
    TireGuy

    wsn :
    February 18th, 2009 at 11:25 am

    I think Rick Wagoner made a mistake by asking too little.

    If he intended just to stay afloat and ask 10B~20B per quarter, he will soon find that the American public losing patience.

    Instead, he should ask for 100B outright. Really, does 100B sound all that differently from 10B, in the context of 1T+ deficit?

    And a 100B restructure would sound more credible anyway.

    The problem with this idea is that Waggoner has estimated the costs of a government sponsored CHapter 11 at 100bn Dollars. In Chapter 11 at least the chance would exist to get away with less, and also Ch 11 seems more fair to all interested stakeholders, as everybody has to contribute. Therefore, asking for 100 bn USD right away would have meant to ask for a Chapter 11 filing.

  • avatar
    jkross22

    RetardedSparks is right… For the Chrysler supporters, you guys never address the issue of corporate culture. Not many people want to buy Chrysler products. Chrysler has managers that would be better suited managing warehouses full of boxes, but no leaders.

    There is zero evidence that this can or will change. It’s not a money issue… Chrysler, as a company, and as a culture, doesn’t give a shit.

    The company has AIDS, cancer, menangitis and needs a heart transplant.

  • avatar
    Dynamic88

    . It is not the government’s responsibility to pick a winner in a free market. Nor is it the government’s responsibility to “save” a loser.

    It’s the government’s responsibility to do what we want it to do. You can argue that “we” don’t necessarily want to save the D3, but there is no “out of bounds” rule.

  • avatar
    Qwerty

    Is there a banking enthusiast web site like TTAC for banks? I’d like to hear folks rip on CEOs of banks and insurance companies with the zeal of the B&B.

    Calculated Risk.

  • avatar
    Adub

    We wouldn’t be here if that POS Bush hadn’t caved in the last two months of his presidency. What a pussy!

  • avatar
    Tommy Jefferson

    I will NEVER purchase a vehicle made by these welfare cheats.

    NEVER.

    My yet-to-be-born grandchildren will pay the interest on the debt from this rip-off for their entire lives. It’s obscene and shameful.

  • avatar

    Crime of the century?

    To get the government loans, GM & Chrysler had to present restructuring plans. Funds that GMAC and Chrysler Financial got from the TARP have been used to finance floorplanning and low interest sales promotions.

    Compare that to the bank bailout. The money from the TARP has gone overwhelmingly to bank holding companies, not their subsidiary banks. There’s no oversight and the bank holding companies can use the injection of cash as they see fit.

    JP Morgan, Citigroup, Bank of America and Wells Fargo — initially received a total of $90 billion in TARP money in the fall, but by the end of 2008 they had contributed less than $15 billion in equity capital to their subsidiary banks.

    Those bank holding companies are using the TARP funds for other investments or as cash reserves, but they aren’t funneling it to their banks to loan to businesses and consumers. That’s one reason why credit is still so hard to get.

    Compared to the thievery of the bank holding companies, GM & Chrysler’s raid on the taxpayers is petty crime, small beer.

  • avatar

    Tommy Jefferson :
    February 19th, 2009 at 10:42 am

    I will NEVER purchase a vehicle made by these welfare cheats.

    Are your bank accounts and mortgage with a TARP recipient? Will you refuse to do business with a bank holding company that got taxpayer money? You can, you know, transfer those accounts to solvent regional banks or credit unions. You don’t have to do business with TARP banks.

    Do you refuse to buy milk, cheese and eggs because taxpayers have given farmers $175 billion over the past decade?

    It’s your decision but I’d like to hear how the domestic automakers are any more “welfare cheats” than the banks or the farmers. You want to boycott Detroit? That’s your right to do so, but if you’re going to be consistent, you’re going to have to boycott Citi, Wells Fargo, and a few aisles in the grocery store as well.

  • avatar

    @ Ronnie Schreiber :

    the problem isn’t bank bailouts or the farmer’s food troughs; the problem is none of the detroit three make anything that i consider worth buying & yet i’m involuntarily paying for their crappy products. also, i’m not keen on the fact that i’m paying for wall street’s managerial incompetence & greed as well as detroit’s …

  • avatar
    wsn

    Ronnie Schreiber, are you are UAW member?

    No, I don’t support TARP bailout of banks. Yeah, we have been robbed. So, you wanna be the next robber and be proud of it?

    I may not be able to retaliate the farmers, but I definitely can retaliate the automakers. I will make sure the next cars for my family members are Japanese branded, produced on the island of Japan.


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