This according to the National Taxpayer’s Union report “The Auto Bailout: A Taxpayer Quagmire,” authored by Rochester Institute of Technology Professor of Economics, Thomas D. Hopkins. That number includes the $52.9b taxpayer “investment” in General Motors, as well as GM’s portion of the GMAC bailout, which brings GM’s taxpayer tab to over $60b. Chrysler’s GMAC-inclusive bailout bill totals $17.4b, or $7,600 per vehicle, based on estimated 2009/2010 sales. Don’t believe that GM or Chrysler will match their projections over the next twelve months? The NTU estimates that total government support for the auto industry comes out to $800 per taxpaying American family. These numbers do not include the Cash for Clunkers program, likely future bailouts of GMAC (projected at a further $2b), or Department of Energy retooling loans (ATVML). These numbers also do not reflect the very real possibility that GM, Chrysler and GMAC could continue to drain taxpayer money post-2010. “For each year of survival beyond 2010,” the report warns, “the burden per vehicle would decline [Ed: but not disappear] – so long as no additional government funding is provided.”

(Read More…)

Ron Bloom, the defacto head of the government’s auto restructuring task force (or what’s left of it), tells Reuters that the government wants to hurry up a GM IPO in order to get out of the “investment” as soon as possible. And as we’ve predicted, this means taxpayers will be getting the fuzzy end of the lollypop.

Private markets would like to see us exit this investment, and I think they will be more comfortable if we’re on a sustained path out the door than if they think we’re going to try to market time it to maximize return.

And really, why would taxpayers expect any kind of a return from $50b dumped into one of the most prolific wealth destruction machines in recent economic history? So when will this IPO/giveaway take place?

(Read More…)

The engine in question is Fiat’s 1.4 liter “Fire,” planned for use in the Fiat 500 as well as planned Dodge and Chrysler B-segment hatchbacks. Automotive News [sub] reports that the Michigan Economic Growth Authority has authorized ten years worth of employment tax credits if Chrysler builds the engines at an unused plant in Dundee, MI. But the credits are only worth an estimated $4.6m, and MEGA admits that that building the engines in Mexico would be cheaper for Chrysler. The most important factor: the engine will primarily power the Fiat 500, which will be built in Toluca, Mexico. Since most of the 500s built in Toluca will be headed to the Brazilian market, Michigan engine production makes even less sense. And since there won’t be any other North American products using the 100 hp, 92 lb-ft engine until 2013 (if the Fiatsler experiment even makes it that far), there’s almost no reason for Michigan to build these engines. Still, with 250k units planned annually, it’s no wonder MEGA dangled tax credits anyway. Besides, there’s one more wrinkle: one of the ways Fiat can gain another five percent of Chrysler’s imaginary equity is to “manufacture state-of-the-art, next-generation engines at a U.S. Chrysler facility.” Fiatsler is bringing Fiat back to the US as a one-model-brand (500) with a dedicated sales and support staff just to meet one of these government benchmarks… will they be crazy enough to build an engine in Michigan and ship them to Mexico to meet another?

According to GM’s 3rd Quarter financial results announcement:

GM plans to repay the United States, Canadian and Ontario government loans in quarterly installments from escrowed funds, beginning next month with an initial $1.2 billion payment to be made in December ($1.0 billion to the UST and $192 million to the EDC), followed by quarterly payments. Any escrowed funds available as of June 30, 2010 would be used to repay the UST and EDC loans unless the escrowed funds were extended one year by the UST. Any balance of funds would be released to GM after the repayment of the UST and EDC loans.

Though this sounds like positive news, don’t let it fool you. GM’s financials only acknowledge $6.7b in government debt, a sum that barely scratches the surface of the taxpayer “investment” in The General (let’s use $52b as a baseline). The escrow fund in question contains $13.6b of the final $30b GM was given as it exited bankruptcy. Having burned through nearly half of that princely sum, GM now plans on using at least part of the rest to pay off the “outstanding $6.7b.” The escrow account expires in June 2010, at which point whatever is left unpaid of the $6.7b will be returned to the government, and GM will keep the rest. GM will then declare victory and pretend like it has squared up with the tax paying public, when in fact the public will have merely paid itself back a paltry fraction of what GM actually owes. This “repayment” will then be dutifully reported without question by the mainstream media, and the stain of bailout will be symbolically lifted. Except, of course, it won’t. GM and the government are playing a classic shell game, taking advantage of the public’s inability to keep the billions straight. Shameful.

Responding to TTAC commentator Ohsnapback, Ford’s Communications rep defended his employer’s turnaround plan. “At Ford we have never said that we have won the battle already,” Jay Ward wrote. “Just that we are making considerable progress against our plan. You are right that the job is not done, but the evidence so far is overwhealmingly [sic] positive.” So far, so PR. And then . . . “We are managing our debt and working hard to pay it off. We are also going to pay back our loans unlike other companies (not just automotive – how about the banks while we are on the subject).” It’s a blunt and entirely accurate appraisal of GM and Chrysler’s chances of returning the government’s $72 billion (plus) “investment” in the failed domestic automakers. Ward goes on to underline Ford’s official position that its $10 billion no-to-low interest, 25-year “retooling” loan from the Department of Energy does not constitute a government bailout. ” . . . we did shun bail out money. We accepted government loans available to all auto manufacturers both domestic and foreign. We have committed to paying these back and I fail to see how we can be critisised [sic] for that.” And just in case you thought the attack on GM and Chrysler’s mega-suckle was a slip of the tongue, Ward makes a second strafing run. “If everyone else pays back every penny that Uncle Sam has ‘loaned’ them, I will eat my Mustang and my Flex.” Jay’s cars are safe. His ability to post on TTAC without interference from The Glass House Gang? Not so much.

We do have the ability, if it’s necessary, to provide support directly, but again that’s only if necessary… We are able to run a global business

GM CEO Fritz Henderson in the Detroit Free Press, explaining that GM is allowed to spend US -government bailout money on overseas operations, in this case, Opel. According to the Freep’s paraphrase of Henderson, “the terms of the prebankruptcy loans and the new government financing are different.” So why did GM insist just weeks ago that it wasn’t allowed to spend US taxpayer money on a $413m Daewoo rescue? Has GM been shuffling bailout cash to mismanaged overseas operations? Or would an Opel rescue mark the first time this had happened? In any case, wasn’t GM saved to prevent disaster in the US economy rather than stop job loss overseas? The unintended consequences of bailout keep marching on… and so will our search for answers to these questions.

Next up in today’s series “Selections from the GAO report on the auto bailout which closely resemble TTAC editorials of a year ago” we have the report’s discussion of a possible exit strategy. Or rather, the report’s disclosure that there’s so not an exit strategy it hurts. From the report’s conclusions:

While Treasury has stated that it plans to review all possible options for divesting itself of its ownership interest in Chrysler and GM, Treasury officials have focused primarily on an IPO for GM, both in our discussions with them and in their public statements. However, given the complexity of the economy and the financial markets, considering all of the options in the context of the companies’ financial progress and current financial conditions will be important for Treasury. The past year has indicated the extent to which a company’s financial situation can change within a period as short as a few months. Given the fluidity of conditions and the number of factors that will need to be considered when determining how and when to divest, it is important that Treasury identify the criteria it will use to evaluate the optimal method and timing for selling the government’s ownership stake. Determining when and how to divest the government’s ownership stake will be one of the most important decisions Treasury will have to make regarding the federal assistance provided to the domestic automakers, as this decision will affect the overall return on investment that taxpayers will realize from aiding these companies

Notice the use of future tense to describe these decisions? Not only is there no plan, there’s also no timeline and precious few staff to implement it. More importantly, there’s not much of a chance of a divestiture plan succeeding under any circumstances. Oh, and plenty of potential for unintended consequences. Hurray!

(Read More…)

More new information from today’s GAO post:

Moreover, whether enough time has passed for the impact of the structural changes to be seen is unlikely, especially given that the automakers have not completed restructuring, the economy is still recovering, and new vehicle purchases remain at low levels. For instance, although the federal Car Allowance Rebate System program resulted in a sales spike in August,16 September sales returned to historically low levels. These and other challenges are likely to delay the companies’ recovery beyond what it would be under more favorable economic circumstances.

As TTAC noted last Friday, “finding a real, sustainable bottom of the market from which to grow is not made easier by erratic bursts of stimulus frenzy.”

From the just-released GAO report (PDF) on the auto bailout:

Chrysler’s shareholders, including Treasury, have agreed that  Fiat’s equity stake in Chrysler will increase if Chrysler meets certain benchmarks, such as producing a vehicle that achieves a fuel economy of 40 miles per gallon or producing a new engine in the United States. Treasury officials stated that they established such up-front conditions not solely to protect Treasury’s financial interests as a creditor and equity owner but also to reflect the Administration’s views on responsibly utilizing taxpayer resources for these companies. While Treasury has stated it does not plan to manage its stake in Chrysler or GM to achieve social policy goals, these requirements and covenants to which the companies are subject indicate the challenges Treasury has faced and likely will face in balancing its roles.

Well, it turns out that October sales won’t be released until tomorrow, but luckily we have a hot-and-sweaty-fresh report by the Government Accountability Office (PDF) to keep things interesting. And we’re learning all kinds of new things about the auto bailout. To wit:

Chrysler must either manufacture 40 percent of its U.S. sales volume in the United States or its U.S. production volume must be at least 90 percent of its 2008 U.S. production volume. GM agrees to use its commercially reasonable best efforts to ensure that the volume of manufacturing conducted in the United States is consistent with at least 90 percent of the level envisioned in GM’s business plan.

Who knew? Not us! And as surprising as it is to find that GM and Chrysler face federally-mandated production quotas, we’re almost more surprised that the most the UAW (or whomever) could negotiate was 40 percent of Chrysler’s US sales volume. Especially since the UAW owns a majority stake in Chrysler. But wait, there’s more!