The Truth About Cars » Bailout Watch http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Fri, 24 Oct 2014 17:28:55 +0000 en-US hourly 1 http://wordpress.org/?v=4.0 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Bailout Watch http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com/category/news-blog/bailout-watch/ NEVS Lays Off 200 In Reorganization Plan http://www.thetruthaboutcars.com/2014/09/nevs-lays-200-reorganization-plan/ http://www.thetruthaboutcars.com/2014/09/nevs-lays-200-reorganization-plan/#comments Mon, 29 Sep 2014 10:00:21 +0000 http://www.thetruthaboutcars.com/?p=921169 With the Saab name reclaimed by the mothership, a host of financial problems, and no product beyond a 10-year-old platform, what else is left for National Electric Vehicle Sweden to do? If you said, “Tap out,” then you just might see that hand pounding the mat rather quickly. Reuters reports the automaker has laid off […]

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National-Electric-Vehicle-Sweden

With the Saab name reclaimed by the mothership, a host of financial problems, and no product beyond a 10-year-old platform, what else is left for National Electric Vehicle Sweden to do? If you said, “Tap out,” then you just might see that hand pounding the mat rather quickly.

Reuters reports the automaker has laid off 200 workers due to a lack of work as of late, work that likely won’t be coming anytime soon. NEVS says the move was part of its reorganization plan that will be presented at a creditors’ meeting October 8.

Originally, the workers were retained since production ceased in May 2014 in the hope that financing would soon come its way to restart work immediately. The remaining staff will keep the factory in good condition should NEVS secure the needed financing to resume assembly.

At present, the automaker owes kr400 million ($56 million USD) to its creditors, and is allegedly in talks with two unknown firms — speculation says Mahindra is one of them — to gain a financial jumpstart for an electric variant of the 9-3, currently in the prototype phase.

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US Treasury Begins Second Divestiture Plan Of Ally Stock http://www.thetruthaboutcars.com/2014/09/us-treasury-begins-second-divestiture-plan-ally-stock/ http://www.thetruthaboutcars.com/2014/09/us-treasury-begins-second-divestiture-plan-ally-stock/#comments Mon, 15 Sep 2014 12:00:51 +0000 http://www.thetruthaboutcars.com/?p=912722 Ally Financial, the lending artist formerly known as GMAC Financial, inches closer to freedom from government ownership as the United States Treasury begins a second trading plan to shed its shares. Automotive News reports the plan would allow the U.S. Treasury “to continue exiting the investment in a manner that balances speed of exit with […]

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Ally at NYSE

Ally Financial, the lending artist formerly known as GMAC Financial, inches closer to freedom from government ownership as the United States Treasury begins a second trading plan to shed its shares.

Automotive News reports the plan would allow the U.S. Treasury “to continue exiting the investment in a manner that balances speed of exit with maximizing the taxpayer’s return,” according to CFO Charmian Uy.

The first plan saw the Treasury sell 8.9 million shares for $218.7 million in ROI for taxpayers, adding to the $18 billion recovered since the department first took majority ownership at the beginning of the Great Recession six years ago.

At the time, $17.2 billion was given to the floundering lender via the Troubled Asset Relief Program to prevent falling into the same abyss that took Lehman Brothers, Washington Mutual and a number of small banks, giving the Treasury 74 percent of the shares then available. Currently, it holds just 13.8 percent — or 66.2 million shares — of Ally common stock, all of which may be sold by the end of 2014.

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PSA-Dongfeng Deal Backed By EU, Skepticism Remains http://www.thetruthaboutcars.com/2014/02/psa-dongfeng-deal-backed-by-eu-skepticism-remains/ http://www.thetruthaboutcars.com/2014/02/psa-dongfeng-deal-backed-by-eu-skepticism-remains/#comments Fri, 21 Feb 2014 17:00:40 +0000 http://www.thetruthaboutcars.com/?p=751025 The PSA Peugeot Citroen-Dongfeng-French government deal agreed upon by the three parties earlier this week received initial backing from the European Union, though skepticism remains as to whether the deal will bring stability to the ailing French automaker. Bloomberg and Automotive News Europe report French Finance Minister Pierre Moscovici received a letter of initial backing […]

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Dongfeng Peugeot 308

The PSA Peugeot Citroen-Dongfeng-French government deal agreed upon by the three parties earlier this week received initial backing from the European Union, though skepticism remains as to whether the deal will bring stability to the ailing French automaker.

Bloomberg and Automotive News Europe report French Finance Minister Pierre Moscovici received a letter of initial backing from European Competition Commissioner Joaquin Almunia, confirming the 3 billion-euro deal met “at first glance” European Union rules related to state aid. The EU also approved an earlier 7 billion-euro guarantee to help Peugeot made by the French government via new bonds issued by Banque PSA Finance, which are set to expire next year.

Fellow Minister of Industrial Renewal Arnaud Monteburg, in an interview with France Inter this week, said the deal allows Dongfeng and PSA to use their complimentary strengths in building their respective brands, defending the French government’s decision to sign based on “economic and industrial patriotism”:

PSA is a company with the technology, the marques, but has not been able to grow in Asia, while Dongfeng doesn’t have the technology or the marques, but has the growth in Asia.

Analysts and observers close to the matter remain skeptical of the deal, especially as to whether it would ultimately stabilize Peugeot. GERPISA director Bernard Jullien told French newspaper Les Echos the deal has no precedent, and comes with the potential for instability down the road. Meanwhile, Financial Times voiced a similar concern over how incoming PSA CEO Carlos Tavares will be able to execute his reform plan with a board consisting of Dongfeng, the French government and the already divided Peugeot family.

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Tavares-Led Peugeot Gains 5.27 Billion Euro Makeover http://www.thetruthaboutcars.com/2014/02/tavares-led-peugeot-gains-5-27-billion-euro-makeover/ http://www.thetruthaboutcars.com/2014/02/tavares-led-peugeot-gains-5-27-billion-euro-makeover/#comments Thu, 20 Feb 2014 17:00:10 +0000 http://www.thetruthaboutcars.com/?p=749857 Former Renault executive and incoming PSA Peugeot Citroen CEO Carlos Tavares aims to use the 3 billion euro investment made in the three-way pact between the automaker, the French government and Dongfeng as part of a 5.27 billion euro makeover of the automaker’s line of vehicles over the long-term. Bloomberg reports Tavares is directing Peugeot […]

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Carlos Tavares

Former Renault executive and incoming PSA Peugeot Citroen CEO Carlos Tavares aims to use the 3 billion euro investment made in the three-way pact between the automaker, the French government and Dongfeng as part of a 5.27 billion euro makeover of the automaker’s line of vehicles over the long-term.

Bloomberg reports Tavares is directing Peugeot to use the funds gained from the deal — as well as capital provided by Banco Santander via the automaker’s lending arm — to boost R&D funding, and to focus model expansion on the most profitable units.

Though the plan will focus on fewer models in the present with future works released down the road along the way to becoming “a global car company,” Tavares said his plan will not fix everything immediately; growing the DS line from a subbrand to a full line to compete against Audi, as one case in point, would take the better part of two decades to accomplish.

The plan will also decrease the number of models sold in unprofitable markets such as Russia while expanding into potential goldmines such as China with the help of partner Dongfeng, both of whom aim to move 1.5 million units annually by 2020.

Complete details of the plan — aimed at ending the steady decline experienced by Peugeot in their sales fight with regional leader Volkswagen AG, as well its six-year slide in overall sales in Europe — will be unveiled in mid-April, weeks after Tavares takes the helm from current Peugeot CEO Philippe Varin.

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PSA-Donfeng Deal Injects New Capital, Extended Life Into Peugeot http://www.thetruthaboutcars.com/2014/02/psa-donfeng-deal-injects-new-capital-extended-life-into-peugeot/ http://www.thetruthaboutcars.com/2014/02/psa-donfeng-deal-injects-new-capital-extended-life-into-peugeot/#comments Wed, 19 Feb 2014 06:23:50 +0000 http://www.thetruthaboutcars.com/?p=747585 The 3 billion euro ($4.1 billion USD) three-way deal between PSA Peugeot Citroen, Dongfeng and the French government, signed this week, is set to inject new capital and a much needed life extension for Peugeot, though at the expense of the Peugeot family ceding control after two centuries. Reuters reports Dongfeng and the French government […]

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2011 Peugeot China 508 With Couple

The 3 billion euro ($4.1 billion USD) three-way deal between PSA Peugeot Citroen, Dongfeng and the French government, signed this week, is set to inject new capital and a much needed life extension for Peugeot, though at the expense of the Peugeot family ceding control after two centuries.

Reuters reports Dongfeng and the French government will each pay 800 million euros ($1.10 billion) for a 14 percent stake in the new alliance while existing shareholders will receive warrants entitling them to purchase new stock at 7.50 euro, ultimately adding 1 billion euros to the memorandum of understanding signed by the three parties. In return, the Peugeot family’s 25.4 percent stake and 38 percent of voting rights in their namesake company will be brought to parity with their new partners, ceding control after over 200 years of business while surviving the end of guarantees totaling 7 billion euros next year.

Aside from the new infusion of capital, the MOU calls for Peugeot and Dongfeng to sell 1.5 million units annually beginning in 2020, jointly establish an R&D center in Dongfeng’s home market, and consider a new sales wing focused specifically upon Southeast Asia. The third point in the MOU would allow Peugeot to fare better than it does currently, having only sold 6,500 units last year in its largest regional market, Malaysia.

As for Peugeot’s home market and the European market as a whole, analysts warn the MOU doesn’t address how Peugeot will address the ongoing problems the automaker has undergone over the past several years. Though some suggested freezing investments and selling more plants to save itself, French industry minister Arnaud Montebourg stated no further closures were “on the agenda.”

The deal will be formally signed in late March around the time of China’s president Xi Jinping visit to Paris.

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PSA-Dongfeng Deal Approved, Chairman Urged To Scrap Deal http://www.thetruthaboutcars.com/2014/02/psa-dongfeng-deal-approved-chairman-urged-to-scrap-deal/ http://www.thetruthaboutcars.com/2014/02/psa-dongfeng-deal-approved-chairman-urged-to-scrap-deal/#comments Tue, 18 Feb 2014 14:16:06 +0000 http://www.thetruthaboutcars.com/?p=743681 The founding family behind PSA Peugeot Citroen has approved the 3 billion euro ($4.1 billion USD) deal between the French government and Chinese automaker Dongfeng just an industry analyst penned an open letter for PSA chairman Thierry Peugeot to reconsider before it becomes too late to turn back. Automotive News and Reuters report the deal […]

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Peugeot China 508

The founding family behind PSA Peugeot Citroen has approved the 3 billion euro ($4.1 billion USD) deal between the French government and Chinese automaker Dongfeng just an industry analyst penned an open letter for PSA chairman Thierry Peugeot to reconsider before it becomes too late to turn back.

Automotive News and Reuters report the deal would give Dongfeng and France each 14 percent controlling interest at 7.50 euro/share, while the family’s 25 percent stake and 38 percent of voting rights would be brought down to parity with the two parties. The increase in capital — sought by Peugeot as a last-ditch effort to remain solvent after 7 billion euros in state guarantees expire in 2015 — comes with a warrants issue for current shareholders to buy additional stock worth 1 billion euros.

The vote was met with opposition from within the family and from industry analysts, such as Max Warburton of Bernstein Research. In an open letter to PSA chairman Thierry Peugeot, Warburton urged him to scrap the deal and follow the roadmap taken by Ford and Fiat by hiring a chief executive to help turn around his namesake company without bringing in outside parties into the fold:

Their family stakes remain intact. Their shareholders are happy. Neither are reporting to government officials. There are lessons for you and the rest of the Peugeot family from their experiences. It’s not too late to turn back from Wuhan and fight on.

Warburton’s other suggestions include closing a Spanish plant, halt R&D for a year, and sell their controlling stake in supplier Faurecia.

Within the family, Theirry pushed an alternative plan to his cousin Robert by selling new stock on the market without seeking help from France or Dongfeng, warning that the deal would create an unmanageable three-headed hydra of a governance structure. He was also concerned by a clause in the deal that would prevent the three stakeholders from increasing their stakes over several years, fearing that the Peugeot family wouldn’t be able to regain their company at a future date. Thierry was overruled, and support for the three-way deal moved forward.

As for who will become the new chairman of the company, Dongfeng wants a chairman independent of Peugeot while the French government support PSA board member and former Airbus chief Louis Gallois. The Peugeot family have suggested former Nexans CEO Gerard Hauser, as well.

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PSA Peugeot Citroen, Dongfeng, France Reach Outline Deal http://www.thetruthaboutcars.com/2014/02/psa-peugeot-citroen-dongfeng-france-reach-outline-deal/ http://www.thetruthaboutcars.com/2014/02/psa-peugeot-citroen-dongfeng-france-reach-outline-deal/#comments Thu, 13 Feb 2014 16:30:36 +0000 http://www.thetruthaboutcars.com/?p=740649 PSA Peugeot Citroen, Dongfeng and the French government have reached an outline deal to raise $5.5 billion in capital through a planned share sale in a last-ditch effort by PSA to remain alive after General Motors walked out of a similar deal over the Iranian market last year. Reuters reports the deal will be presented […]

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PSA Peugeot Citroen, Dongfeng and the French government have reached an outline deal to raise $5.5 billion in capital through a planned share sale in a last-ditch effort by PSA to remain alive after General Motors walked out of a similar deal over the Iranian market last year.

Reuters reports the deal will be presented to the Peugeot board February 18, at which point the board will sign a non-binding memorandum of understanding that same day according to sources closest to the matter. The plan would allow Dongfeng and the French government to each own 14 percent of PSA, while the two automakers retain and expand upon their alliance toward their goal of penetrating further into the Southeast Asia market.

With most of the plan settled, the only item needed to pull everything together is an independent chairman who will oversee the plan’s implementation. The French government wants senior civil servant Louis Gallois, brought aboard under the existing agreement between the state and PSA since 2012, as their champion, while Dongfeng is pushing for French businesswoman and independent Peugeot director Patricia Barbiezt to fulfill the role.

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Toyota Shuttering Australian Factory By 2017, Local Industry Dead http://www.thetruthaboutcars.com/2014/02/toyota-shuttering-australian-factory-by-2017-local-industry-dead/ http://www.thetruthaboutcars.com/2014/02/toyota-shuttering-australian-factory-by-2017-local-industry-dead/#comments Mon, 10 Feb 2014 15:58:31 +0000 http://www.thetruthaboutcars.com/?p=738457 Toyota announced Monday that as of 2017, the automaker will no longer manufacture any of their vehicles in Australia, driving in the final nail to the coffin containing the nation’s local automotive industry following similar announcements by Holden and Ford. Toyota Australia head Max Yasuda and Toyota Motor Corporation head Akio Toyoda made the announcement […]

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Toyota Landcruiser 70 Troop Carrier Workmate

Toyota announced Monday that as of 2017, the automaker will no longer manufacture any of their vehicles in Australia, driving in the final nail to the coffin containing the nation’s local automotive industry following similar announcements by Holden and Ford.

Toyota Australia head Max Yasuda and Toyota Motor Corporation head Akio Toyoda made the announcement at the automaker’s factory in Altona — a suburb of Melbourne — before an audience comprised of various media and the factory’s 4,200 employees. Yasuda claimed numerous factors in the decision, citing high costs of manufacturing, low economies of scale, increased competitiveness surrounding current and future free trade agreements, and the “unfavourable” Australian dollar as among the many reasons for the closures.

“We did everything that we could to transform our business, but the reality is that there are too many factors beyond our control that make it unviable to build cars in Australia,” Yasuda said. “Although the company has made profits in the past, our manufacturing operations have continued to be loss making despite our best efforts.”

The Australian Manufacturing Workers Union warned that Toyota’s complete exit from the nation’s manufacturing base would devastate not only those directly affected, but up and down the supply chain, as well. AMWU vehicle secretary Dave Smith added that the final result would be “a potential recession all along the south-eastern seaboard.” The Australian Council of Trade Unions also warned that the pullout would ultimately cost 50,000 jobs and erase $18.76 billion from the local economy.

On the government side, Industry Minister Ian Macfarlane said he was disappointed in the decision, and felt that the government would have been able to help had there been enough time to put a plan in place to keep Toyota manufacturing in Australia. Victoria Premier Denis Napthine concurred with Macfarlane’s sentiment and desire to have been able to work through the issue, and would be seeking a commitment from Australia’s coalition government — currently led by Prime Minister Tony Abbott — for a comprehensive adjustment package similar to the one made to Holden employees late last year.

On the subject of government subsidies, Abbott said his government had wanted Toyota to soldier onward, going as far to hold private talks with Yasuda as recently as hours before the announcement of the manufacturing pullout — contradicting what Abbott said in an earlier press conference regarding knowledge of the announcement — though as with Holden prior to its decision, paying the automaker any extra taxpayer dollars was ruled out.

Abbott said that while nothing could be said or done to “limit the devastation that so many people will feel” from the fallout of Toyota’s decision, he wanted everyone to remember that “while some businesses close, other businesses open, while some jobs end, other jobs start,” and that there would be “better days in the future.”

Opposition Leader Bill Shorten, proclaiming the Toyota closure an “unmitigated disaster,” offered this statement on the matter:

The car industry has died under the Abbott government — it’s a disgrace.

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One-Time Tax Gain Nets Chrysler $1.6 Billion In Q4 2013 http://www.thetruthaboutcars.com/2014/01/one-time-tax-gain-nets-chrysler-1-6-billion-in-q4-2013/ http://www.thetruthaboutcars.com/2014/01/one-time-tax-gain-nets-chrysler-1-6-billion-in-q4-2013/#comments Thu, 30 Jan 2014 11:00:04 +0000 http://www.thetruthaboutcars.com/?p=727898 The American half of the newly dubbed Fiat Chrysler Automobiles reported a net income of $1.6 billion in Q4 2013, the majority of which came from a one-time tax gain of $962 million. Automotive News reports that revenue in the fourth quarter for Chrysler advanced 24 percent to $21.4 billion, while total revenue for the […]

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FCA - Fiat Chrysler Automobiles

The American half of the newly dubbed Fiat Chrysler Automobiles reported a net income of $1.6 billion in Q4 2013, the majority of which came from a one-time tax gain of $962 million.

Automotive News reports that revenue in the fourth quarter for Chrysler advanced 24 percent to $21.4 billion, while total revenue for the outgoing year totaled $72.1 billion, up 10 percent from 2012’s $65.8 billion. Meanwhile, the total adjusted net income in 2013 for the brand came out to $1.8 billion, $2.8 billion unadjusted.

Within the next four to six weeks, Chrysler’s 37,200 unionized hourly employees will receive profit-sharing checks to the tune of $2,500, with an extra $1,000 split into two awards for quality and performance to be distributed in June and December, respectively. Some individual plants will also add to the pot based on their own quality and efficiency goals.

Regarding market share, Chrysler’s home market gained two-tenths of a percentage point to 11.6 percent in 2013 on the backs of 1.8 million units sold in the United States, an increase of 9 percent driven by the brand’s redesigned truck and SUV lines. Globally, 2.6 million vehicles in 2013 were delivered, including those made for parent company Fiat.

As far as cash on-hand and debt are concerned, Chrysler reported a nest egg of $13.3 billion with $12.3 billion in gross industrial debt; in 2012, the brand held $11.6 billion in cash and $12.6 billion in debt. The bottom line marks the first time Chrysler held more cash than debt since the Italo-American marriage was consummated before the U.S. federal government back in 2009.

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U.S. Government Sells Remaining General Motors Stock http://www.thetruthaboutcars.com/2013/12/u-s-government-sells-remaining-general-motors-stock/ http://www.thetruthaboutcars.com/2013/12/u-s-government-sells-remaining-general-motors-stock/#comments Tue, 10 Dec 2013 10:30:21 +0000 http://www.thetruthaboutcars.com/?p=676634 It’s official: the United States government has sold off its remaining $49.5 billion investment in General Motors. U.S. Treasury Secretary Jack Lew announced that of the aforementioned investment — made during the fallout of the Great Recession — $39 billion came back to the government’s coffers while the taxpayer lost $10.5 billion on the deal. […]

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gmstock

It’s official: the United States government has sold off its remaining $49.5 billion investment in General Motors.

U.S. Treasury Secretary Jack Lew announced that of the aforementioned investment — made during the fallout of the Great Recession — $39 billion came back to the government’s coffers while the taxpayer lost $10.5 billion on the deal. The government originally received 912 million shares — or 60.8 percent total ownership — in exchange for saving the automaker from certain doom in 2008. Once the company regained its footing in November 2010, the government began selling shares in a divestiture that lasted until this afternoon, when only 2 percent remained of GM remained in the federal investment portfolio.

On the other side, GM’s stock rose to $41.17 during regular trading hours, the highest peak the stock has seen since their IPO debuted in 2010. The automaker currently sits upon a nest egg of $26.8 billion in cash, and is considering bringing back dividends to their stockholders. Most of the nest egg was built during 15 consecutive months of profitability based on the strength of their brand and rising sales in North America and China.

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General Motors to Divest Remaining Ownership of Ally Financial http://www.thetruthaboutcars.com/2013/12/general-motors-to-divest-remaining-ownership-of-ally-financial/ http://www.thetruthaboutcars.com/2013/12/general-motors-to-divest-remaining-ownership-of-ally-financial/#comments Thu, 05 Dec 2013 12:53:39 +0000 http://www.thetruthaboutcars.com/?p=671586 Ally Financial, the bank holding company formerly known as GMAC, is still a major part of the United States federal government investment portfolio in the five years since it was bailed out at the start of the Great Recession. Yet, it may be able to soon divest its ownership in part due to General Motors […]

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Renaissance Center

Ally Financial, the bank holding company formerly known as GMAC, is still a major part of the United States federal government investment portfolio in the five years since it was bailed out at the start of the Great Recession. Yet, it may be able to soon divest its ownership in part due to General Motors selling their remaining shares.

GM announced Wednesday that they would sell off their remaining 132,000 shares — or 8.5 percent of the total shares available — of the finance company through a private placement. The action would clear the way for Ally to begin final preparations for their long-awaited IPO to the investing public. In turn, the federal government could sell part if not all of their ownership, currently holding at 64 percent.

When the IPO will be offered is still unknown, though both GM and Ally are hoping rising interest in the latter by investors will light the path toward complete freedom from government ownership. In the meantime, GM will net $900 million from the private placement.

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Ally Exits Superprime Loans, Enters Used Car Market http://www.thetruthaboutcars.com/2013/11/ally-exits-superprime-loans-enters-used-car-market/ http://www.thetruthaboutcars.com/2013/11/ally-exits-superprime-loans-enters-used-car-market/#comments Tue, 12 Nov 2013 10:00:11 +0000 http://www.thetruthaboutcars.com/?p=645522 Best known for underwriting public radio programming such as “All Things Considered” and “Marketplace,” Ally Financial — formerly known as GMAC until the subprime market collapse kicked off the Great Recession — has decided to go for the gold in the used car and leasing markets, citing “irrational” pricing found in the superprime mortgage loan […]

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Renaissance Center

Best known for underwriting public radio programming such as “All Things Considered” and “Marketplace,” Ally Financial — formerly known as GMAC until the subprime market collapse kicked off the Great Recession — has decided to go for the gold in the used car and leasing markets, citing “irrational” pricing found in the superprime mortgage loan sector for its move from the latter toward the former.

The other reason? Better returns on investment; according to Ally CFO Chris Halmy, leasing a vehicle takes more expertise than conducting a low-risk, low-return superprime loan. Thus, Ally can gain more from financing a lease or used car purchase while still remaining inside a low-risk bubble.

As for its current lease and used car financing operations, 29 percent of Ally’s total originations came from leases while 27 percent came from the used car lot in the third quarter of 2013, up 2 and 3 percent respectively from the same time last year. Total originations for the third quarter netted the organiztion $9.6 billion, unchanged from Q3 2012.

Regarding future plans, Ally is planning to buyout the United State Treasury, which currently holds 74 percent of Ally. There are also plans for an IPO, but when is still a matter to be discussed behind closed doors.

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U.S. Treasury Sells 110 Million Shares of GM Stock, Reducing Stake to 7.3% http://www.thetruthaboutcars.com/2013/09/u-s-treasury-sells-110-million-shares-of-gm-stock-reducing-stake-to-7-3/ http://www.thetruthaboutcars.com/2013/09/u-s-treasury-sells-110-million-shares-of-gm-stock-reducing-stake-to-7-3/#comments Thu, 19 Sep 2013 16:45:03 +0000 http://www.thetruthaboutcars.com/?p=523473 The United States Treasury has reduced its stake in General Motors to 7.3% after selling off  another block of the shares it acquired during the bailout of the giant automaker. According to documents released earlier this week cited by Reuters, the Treasury sold at least 110 million shares between May 6 and September 13, raising more […]

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The United States Treasury has reduced its stake in General Motors to 7.3% after selling off  another block of the shares it acquired during the bailout of the giant automaker. According to documents released earlier this week cited by Reuters, the Treasury sold at least 110 million shares between May 6 and September 13, raising more than $3.82 billion.

The U.S. government’s stake in GM is now down to 101 million shares, which means that more of GM is currently owned by the provincial Ontario and federal Canadian governments, 110 million shares, than by the U.S. Treasury. The U.S. government’s share in GM was originally almost 61%. Treasury put $49.5 billion into General Motors during the bailout and the agency says that it has recovered $35.4 billion so far.

“We remain on track to complete our exit from GM by early next year at a cost far less than originally projected,” Treasury Assistant Secretary Timothy Massad said in a statement. GM shares closed Tuesday at $36.71, making those 101 million remaining shares worth about $3.7 billion. If current stock prices hold, once divested, Treasury will likely lose about $10 billion on the bailout of GM.

Some analysts have predicted that once that full divestment is completed, GM may again start paying dividends on common shares, which it hasn’t done since the second quarter of 2008. GM executives have declined to comment on possible dividends, saying that the automaker’s current focus is on reinvesting in company operations.

 

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Ally Financial Explores Options For Treasury Exit, Seeks Immunity From ResCap Related Lawsuit http://www.thetruthaboutcars.com/2013/07/ally-financial-explores-options-for-treasury-exit-seeks-immunity-from-rescap-related-lawsuit/ http://www.thetruthaboutcars.com/2013/07/ally-financial-explores-options-for-treasury-exit-seeks-immunity-from-rescap-related-lawsuit/#comments Thu, 18 Jul 2013 13:00:00 +0000 http://www.thetruthaboutcars.com/?p=495655 Ally Financial, what used to be known as the General Motors Acceptance Corporation, GMAC, before GM’s bankruptcy and bailout, itself received over $17 billion from the U.S. Treasury during the bailouts of 2009. On Tuesday the company said that it was looking into options on how to repay that money and comply with the Federal […]

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Ally Financial, what used to be known as the General Motors Acceptance Corporation, GMAC, before GM’s bankruptcy and bailout, itself received over $17 billion from the U.S. Treasury during the bailouts of 2009. On Tuesday the company said that it was looking into options on how to repay that money and comply with the Federal Reserves’ latest stress tests for financial institutions. Ally is 74% owned by Treasury and it is trying to buy back some taxpayer-owned stock and reach an agreement with the Fed on its capital structure (known as the “Comprehensive Capital Analysis and Review”) so it can offer stock in an IPO. Ally had originally planned on a 2011 IPO but having to resolve claims against its bankrupt Residential Capital mortgage unit delayed that. ResCap hopes to be out of bankruptcy by 2014.

More recently, in March the Fed said that Ally didn’t have enough capital, should there be another economic meltdown. Ally objected and they’re trying to come up with a plan that will get the Fed’s blessings.

In a filing with the SEC, Tuesday, Ally said that they are “exploring a number of alternatives in furtherance of repaying Treasury and supporting its Comprehensive Capital Analysis and Review resubmission to the Federal Reserve Board, including a possible primary issuance of common stock by Ally, and the use of available cash (and the proceeds of any stock issuance by Ally) to address Treasury’s mandatorily convertible preferred shares. No decision has been made to pursue any approach under consideration and the implementation of any such approach may require regulatory and other approvals.”

In a related matter, Ally won a small legal victory. In its role as conservator of Freddie Mac, the Federal Housing Finance Agency sued Ally, ResCap and affiliates alleging that there were false and misleading statements in documents concerning mortgage-backed securities that were bought by Freddie Mac. When ResCap filed for bankruptcy last year, the FHFA dropped them from the lawsuit but pursued it against Ally.

Ally responded by having ResCap sue the agency, claiming that to sue Ally and other non-bankrupt affiliates was a violation of bankruptcy’s automatic stay. The Bankruptcy Code in the U.S. automatically halts lawsuits against bankrupt companies.

A federal district court judge ruled that FHFA’s lawsuit against Ally could proceed and ResCap appealed, resulting in Tuesday’s ruling from the U.S. Court of Appeals that kicked it back to district court, instructing that judge that “automatic stay may apply” to non-bankrupt affiliates “in some limited circumstances”, that the stay would apply if the FHFA’s lawsuit would have “immediate adverse economic consequences” on ResCap, that the lower court should make “explicit findings” on the matter of if continuing the suit against non-bankrupt affiliates would have such consequences on ResCap.

What the lower court may do is not clear, particularly because things have changed since ResCap’s suit was filed. Since then the mortgage unit has reached a settlement with all of it’s creditors and has filed a reorganization plan under Ch. 11 of the bankruptcy code that is up for court approval next month. That plan involves Ally paying $2.1 billion to ResCap’s creditors.

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The TARP Is Lifting: Government Motors No More, In About A Year Or So http://www.thetruthaboutcars.com/2012/12/the-tarp-is-lifting-government-motors-no-more-in-about-a-year-or-so/ http://www.thetruthaboutcars.com/2012/12/the-tarp-is-lifting-government-motors-no-more-in-about-a-year-or-so/#comments Wed, 19 Dec 2012 15:00:30 +0000 http://www.thetruthaboutcars.com/?p=470695 It has been repeatedly suggested that GM should use its ample profits to buy back the shares held by the U.S. government (don’t forget the Canadians.). Finally, GM listens to reasons. Or, possibly, strong suggestions from Washington. GM will purchase 200 million shares of GM common stock held by the U.S. Department of the Treasury […]

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It has been repeatedly suggested that GM should use its ample profits to buy back the shares held by the U.S. government (don’t forget the Canadians.). Finally, GM listens to reasons. Or, possibly, strong suggestions from Washington. GM will purchase 200 million shares of GM common stock held by the U.S. Department of the Treasury for $5.5 billion, or $27.50 per share, the company said in a statement  The share buyback is part of the Treasury’s plan, also announced today, to fully exit its entire holdings of GM stock within 12 to 15 months, subject to market conditions.

Stock buyback plans usually lift the price of the share. Promptly, GM shares were up some 8 percent to 27.57 at the open.

After the buyback, Treasury will still own a stake of about 19 percent, down from about 26 percent currently. Treasury said it will sell its remaining stake of about 300.1 million shares “through various means in an orderly fashion” over the next 12 months to 15 months, and could begin the process as soon as January. That could bring the price down again.

According to Reuters, Treasury has agreed to relinquish certain governance rights, including required levels of U.S. manufacturing and barring the purchase of corporate jets. Senior executive payment caps under TARP remain in place. Once Uncle Sam is completely out of the picture, it will be bonus time at RenCen.

The Canadians remained unmentioned in the declarations of impending independence. Canadian Finance Minister Jim Flaherty told Reuters that his government has no immediate plans to sell its stake in General Motors. Not now, maybe later. Oh well, maybe Government Motors a little longer.

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FT: GM-PSA Tie-up On The Ropes Due To Irreconcilable Differences http://www.thetruthaboutcars.com/2012/11/ft-gm-psa-tie-up-on-the-ropes-due-to-irreconcilable-differences/ http://www.thetruthaboutcars.com/2012/11/ft-gm-psa-tie-up-on-the-ropes-due-to-irreconcilable-differences/#comments Wed, 14 Nov 2012 12:17:23 +0000 http://www.thetruthaboutcars.com/?p=466864 A while ago, I chatted with an industry executive who had “done time” (his words) at GM. I asked him how that was, and he said: “There is always that talk about the current Big Deal that will bring the company back to its former glory. When that Big Deal fizzles, it’s on to the […]

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A while ago, I chatted with an industry executive who had “done time” (his words) at GM. I asked him how that was, and he said: “There is always that talk about the current Big Deal that will bring the company back to its former glory. When that Big Deal fizzles, it’s on to the next Big Deal.” A formerly Big Deal is fizzling in Europe.

As we reported yesterday, General Motors and PSA have put the brakes on a broader alliance. Allegedly after PSA accepted financial assistance from the French government, as Reuters says, which broke the story. GM’s stock price immediately changed course southwards, because the consequences  can be enormous..

You have a right to be curious why GM, itself no stranger to government assistance, suddenly can’t stand it when an alliance partner receives a much smaller alm from a sympathetic government. As so often, the ostensible reasons mask the true ones. Not to our surprise, Financial Times Deutschland heard from its informants that the couple has irreconcilable differences, and GM is begging for a reason to get out. Says the FTD:

“The French are disappointed about the alliance with GM: PSA hopes for financial assistance for their expansion into growth markets such as China. All GM is looking for is a partner to help them with the rehab of GM’s problem child Opel. The alliance is at the end of its rope.”

Isn’t it always like that: The girl dreams of a log lasting future, of travel to far away lands. All the boy wants is to deposit his wad and run.

What have the French been drinking anyway if they thought GM would help them break into China et al, where a scrappy Volkswagen most likely already unseated GM as China’s largest automaker (pending Volkswagen data)? GM’s again ostensible reason to deny Saab its licenses were to avoid competition in China. As for what GM has been smoking if they thought PSA would volunteer to be used as a hazardous waste site for Opel– we have asked this repeatedly.

Another reason: France’s new socialist government has been openly opposed to PSA’s diddling with Les Américains, and money talks. Not that  France’s new industry minister Arnaud Montebourg is totally against alliances, mais non,  but they must be with the proper people:

“Peugeot needs to build alliances. But we need to … measure their consequences for our country and obtain Peugeot’s commitment to preserve all its French sites.”

And wouldn’t you know, a day after the story breaks,  PSA is said to be in talks with India’s Tata Motors about an alliance, Reuters reports. Now this one would be a better fit. Growth markets beckon for PSA, Europe beckons for Tata, everybody happy.

The Big Deal du jour was for PSA and Opel to move in together in a joint-venture type setting. A joint study found by la Tribune envisaged the automotive arm of PSA and GM form a new entity. GM would contribute Opel, along with $5 billion, and GM’s best wishes for a happy future. That would have been a Very Big Deal for GM. Adam Jonas, an analyst at Morgan Stanley, figures $13 billion would be more like the proper dowry to off-load sick Opel.  Hear the fizzling sound?

PSA has been bailed out by the French government with a $24 billion rescue package, ostensibly to shore-up Peugeot-Citroen’s bank. Giving it directly to PSA would have violated EU rules. The Germans promptly cried foul and may sue. If Brussels says no, then Paris can (as it had done before) throw up its arms, say “we have tried” and the romantic couple can be at it again.

Spokesfolk at PSA and GM say it’s business as usual, and that an unbroken alliance will focus on “logistics, purchasing and product development.” Of course they would say that. However, if you lose between $1.5 and $1.8 billion in Europe, you won’t make it up with group purchases of wiper blades. As far as PSA is concerned, it has received nothing but grief from the deal with GM. BMW dumped them after BMW found a new lover in Toyota. Much more painful: PSA had to sacrifice a juicy parts and components deal with Iran, after a U.S. pressure group created a stink. Doubly painful: Having no American beau, Renault’s business with Iran thrives.

Messy, messy, messy.

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How The GM Bailout Turned Into Foreign Aid http://www.thetruthaboutcars.com/2012/10/how-the-gm-bailout-turned-into-foreign-aid/ http://www.thetruthaboutcars.com/2012/10/how-the-gm-bailout-turned-into-foreign-aid/#comments Sat, 13 Oct 2012 10:20:49 +0000 http://www.thetruthaboutcars.com/?p=463624 Longtime reader and new contributor Tyler Vandermeulen is a financial analyst by day. He took a deep dive into the EDGAR database to unearth how much of GM’s money flows abroad. Please welcome Tyler with the respect he deserves. Rude comments will not be tolerated. Before the bailout of General Motors, it was well understood […]

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Longtime reader and new contributor Tyler Vandermeulen is a financial analyst by day. He took a deep dive into the EDGAR database to unearth how much of GM’s money flows abroad. Please welcome Tyler with the respect he deserves. Rude comments will not be tolerated.

Before the bailout of General Motors, it was well understood that the world’s largest automaker was losing huge amounts of money in the US and was staying afloat thanks to stronger performance in overseas markets. Since the bailout, however, that dynamic has been turned on its head. Thanks to a leaner manufacturing footprint, debt eliminations and steadily recovering sales, GM’s US operations have generated the lion’s share of the company’s profit since the bailout. And now, as the rest of the world economy slows, GM is spending more and more of its taxpayer-enhanced cash pile to shore up its faltering foreign divisions. In fact, according to an analysis of GM’s SEC filings, the company is likely to incur over $6.5 billion in losses and expenditures overseas in the 2011-2014 period, not counting over $1.6b in foreign potential legal liabilities or several other incalculable expenses that could add up to billions more. Not only are these expenses a challenge to GM’s overall financial health at a time when it also faces billion-dollar expenditures on pensions in the US, it shows the basic problem with national bailouts of global companies. Taxpayers who were told they were saving an American company are now seeing their tax dollars flowing overseas by the billions.

A full calculation of GM’s overseas expenditures since the bailout would be a daunting task indeed. Simply by scouring GM’s latest SEC filings, one finds no shortage of losses and one-time expenditures abroad. In fact, nearly every division of GM’s global empire has required some kind of assistance over the last year or so. These expenditures come in many forms, from tax assessments to investments, from bailouts to severance deals, and due to the complex nature of GM’s global finances they cannot be fully accounted with precision. But they all emphasize the reality that, after years of living off foreign operations, GM’s bailed-out North American division is now bailing out the rest of the world.

Europe: Black Hole Opel, Unions, PSA

GM’s European losses currently get the most attention from analysts, and are nothing new for The General, which has reportedly lost over $14b in Europe over the last decade. Those losses and expenditures continue to add up. In the two full years since GM decided to cancel a planned sale of its European division Opel, GM Europe’s losses have added up to $2.74 billion, with another $617m lost in the first half of 2012 (EBIT). Additional goodwill adjustments of $590m in the first half of 2012 and $621m in 2011 further added to the losses. Additionally, GM has spent some $313m on voluntary severance for European workers, and expects to spend another $100m on the same program through the end of next year. Finally, GM has an undisclosed agreement with European labor unions to spend as much as $265m per year between 2011 and 2014. The company has pledged some $406m in inventory as collateral for that agreement. Not counting the spending agreement with European unions, this puts GM’s losses and outlays on Opel and GME in the last two and a half years at more than $4.25 billion.

GM’s losses in Europe aren’t likely to end there. This year, GM spent $400 million on a 7% stake in Peugeot-Citroen PSA, an investment that GM admits has already lost value. GM says it plans to hold onto that stake for the long term, and has chosen not to write down that loss… yet. Just today, rumors surfaced that GM could spend even more money on its Peugeot tie-up, possibly providing capital for an Opel-PSA joint venture. Meanwhile, the worst-case scenario for Opel involves an estimated $13b outlay to shut down plants and prepare Opel for a sale, according to Morgan Stanley analyst Adam Jonas. In this scenario, GM could spend as much as half of its cash pile extricating itself from its money-losing European operations.

GM losses and outlays in Europe, 2010-June 2012: $4.5b+

Asia: Korea Debt, Murky Hong Kong Dealings 

GM’s Asian operations are consolidated as GM International Operations (GMIO), a division that includes Korea, China, Australia, India and other Asian markets. Prior to the bailout, GM’s Chinese operations were widely considered to be a major profit center for the company, while Korea has become increasingly important as a development center and India has potential for future growth. However, GMIO’s profitability has been weak in comparison to the revitalized North American division, generating just $400m in consolidated adjusted EBIT in the first half of 2012. And since 2011, GM has had several expenses associated with its Asian operations.

In 2011, GM spent $100m for 7% of its GM Korea subsidiary, increasing its holding to 77%. This year, GM has recorded a $27m Goodwill impairment related to its Korean operations, and has paid $22m to Korean workers as part of its severance program there. GM Korea also carries significant amounts of short-term and long-term debt to Korean creditors that GM will have to pay down.

More puzzling is GM’s strange Indian joint venture with its Chinese partner SAIC. In late 2009, GM rolled its Indian operations into a 50-50 joint venture with SAIC, known as the Hong Kong Joint Venture, or HKJV. By the first quarter of 2011, that venture had lost enough value for GM to record an impairment of $39m and “other charges totaling $67m.” From there things get strange. According to GM’s 10-Q:

“We were informed of SAIC-HK’s intent to exercise its right to not participate in future capital injections in HKJV. If this occurs we plan to settle the promissory note in the three months ending September 30, 2012 and provide an additional equity investment of $125 million into HKJV. As a result SAIC-HK’s interest in HKJV would be diluted from 50% to 9%. We also anticipate that the shareholders agreement would be amended such that we obtain control of and consolidate HKJV.”

It would seem that GM is buying its partner out of the Indian arrangement at a cost of $125m, however, GM has had several convoluted transactions with SAIC in the past, most notably in the sale of its “Golden Share” in the Shanghai-GM joint venture, which was offset by a Chinese bank loan and was eventually rolled back. It’s too early to say for sure whether GM will purchase the controlling stake in HKJV, and thereby regain full control of its India business. It is unlikely that SAIC will relinquish its grip on India, just because it suddenly can’t service the capital requirements of the HKJV. Possibly, more information will become available when GM files its Q3 paperwork, or possibly later. With some 30% of GM’s global sales in China, GM shareholders  deserve more visibility into this byzantine part of GM’s world.

GM Outlays on GMIO, 2011-2012: ~$380m

South America: Tax Assessments

GM’s South American unit dipped into the red in the second quarter of this year, and its $64m net EBIT through the first half of 2012 is just $7m better than its Q1 2011 performance alone. But even if GMSA’s performance improves this year, it has paid out around $100m this year between the purchase of GMAC’s Venezuelan financing operation and a worker severance program in Brazil. $700m was also spent in 2011 to retire debt facilities at GMSA. Furthermore, GM has run into several tax assessments in South America, including a $292m assessment for the years 2002-2004 by the Mexican government and a $180m assessment for 2007 by the Brazilian government. GM says it has “adequate reserves” to meet these obligations, but notes:

“Certain South American income and indirect tax-related administrative proceedings may require that we deposit funds in escrow or make payments which may range up to $0.9 billion.”

GM Outlays in South America, 2011-2012: ~$1.7b

Legal Liabilities

Due to the unpredictable nature of legal disputes, the amount of overseas legal liability carried by GM may not result in actual expenditures. That said, the following legal liabilities are noted in GM’s SEC filings:

Settlement of class action suits regarding Canadian pricing policy: $21m

GM Canada “Lock up agreement” lawsuit: potential liability $918m

Korean labor law suit: $152m in accrual, $556m in further potential liability.

Potential overseas legal liability: ~$1.65b

Without including potential liability costs or the more inevitable costs associated with Opel’s restructuring, GM has spent or lost in excess of $6.5b overseas in the last 30 months or so. With more losses and expenses coming, taxpayers can expect to see their investment in GM’s North American operations continue to support a steady flow of cash to GM’s overseas operations. Perhaps taxpayers should have been told that they weren’t simply bailing out an American automaker, but a variety of overseas operations as well.

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Fitch: GM Not To Go Bust Anytime Soon http://www.thetruthaboutcars.com/2012/08/fitch-gm-not-to-go-bust-anytime-soon/ http://www.thetruthaboutcars.com/2012/08/fitch-gm-not-to-go-bust-anytime-soon/#comments Fri, 24 Aug 2012 19:38:37 +0000 http://www.thetruthaboutcars.com/?p=457831 While there is renewed chatter about a renewed GM bankruptcy, ratings agency Fitch thinks otherwise. The agency that assesses the chances of defaults by companies and countries raised GM’s default rating from BB to BB+, which is once notch below investment grade. In a statement distributed via Reuters, Fitch says the better outlook reflects GM’s […]

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While there is renewed chatter about a renewed GM bankruptcy, ratings agency Fitch thinks otherwise. The agency that assesses the chances of defaults by companies and countries raised GM’s default rating from BB to BB+, which is once notch below investment grade.

In a statement distributed via Reuters, Fitch says the better outlook reflects GM’s continued positive free cash flow generating capability, very low leverage, strong liquidity position, reduced pension obligations and an improved product portfolio.

Fitch complains that GM’s profitability is nowhere close to the levels of its strongest competitors. The efficiency of GM’s manufacturing operations and the pace of new product development needs to be increased. Fitch is worried about GM’s European losses, and thinks it will be “several years at least” before Europe stops being a drag on the bottom line. Fitch wags fingers at  GM’s management turnover, and notes that the underfunded status of its pension plans remains high.

Fitch thinks that GM would burn a substantial amount of cash in a downturn, but will survive it intact.

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Bailed-Out GM Wants To Help Bailed-Out Ally With Some Of Its Bail-Out Money. Investors Not Amused http://www.thetruthaboutcars.com/2012/08/bailed-out-gm-wants-to-help-bailed-out-ally-with-some-of-its-bail-out-money-investors-not-amused/ http://www.thetruthaboutcars.com/2012/08/bailed-out-gm-wants-to-help-bailed-out-ally-with-some-of-its-bail-out-money-investors-not-amused/#comments Fri, 17 Aug 2012 11:18:49 +0000 http://www.thetruthaboutcars.com/?p=457156 Bailed-out GM might sink $2 to $4 billion into likewise bailed-out Ally Financial to buy some of the lender’s international operations. Ally “ironically wants to use the proceeds to help repay its own federal bailout aid,” says Reuters. That plan does not sit too well with some observers. Says the wire: “Analysts and investors disagree […]

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Bailed-out GM might sink $2 to $4 billion into likewise bailed-out Ally Financial to buy some of the lender’s international operations. Ally “ironically wants to use the proceeds to help repay its own federal bailout aid,” says Reuters. That plan does not sit too well with some observers. Says the wire: “Analysts and investors disagree on whether that would be the best use of cash, with some preferring a stock buyback or dividend payment.”

Large banks have paid back the Treasury the bailout funds they received, with GM and Ally the holdouts. GM can always take the position (popular with its apologists) that it does not owe anything to the taxpayers. Treasury took stock instead of an I.O.U.  but “critics of GM’s $50 billion federal bailout in 2009 say the Obama administration stuck taxpayers with a bill that will never be paid in full as Treasury’s 27 percent stake in GM remains underwater,” Reuters says.

To get its money back,  Treasury would need to sell its remaining 500 million shares of GM for more than $52 each. The stock is at $21. However, if GM would use its $33 billion cash pile (also a favorite talking point amongst the company’s fans) to declare a dividend or to buy back shares, the stock could reverse its downward course. Which would look a little better, especially three months before the elections.

Remember: If you pay U.S. taxes, you are a GM investor, like it or not.

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Report: Treasury Behind Delphi Pensions Debacle http://www.thetruthaboutcars.com/2012/08/455806/ http://www.thetruthaboutcars.com/2012/08/455806/#comments Tue, 07 Aug 2012 17:21:58 +0000 http://www.thetruthaboutcars.com/?p=455806 The Daily Caller says it has emails that prove that the pensions of 20,000 salaried retirees at Delphi were terminated “solely because those retirees were not members of labor unions.” The emails, says the conservative website “contradict sworn testimony, in federal court and before Congress, given by several Obama administration figures. They also indicate that […]

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The Daily Caller says it has emails that prove that the pensions of 20,000 salaried retirees at Delphi were terminated “solely because those retirees were not members of labor unions.”

The emails, says the conservative website “contradict sworn testimony, in federal court and before Congress, given by several Obama administration figures. They also indicate that the administration misled lawmakers and the courts about the sequence of events surrounding the termination of those non-union pensions, and that administration figures violated federal law.”

In 1994, GM spun off its parts business into Delphi.  In 2005, the company went Chapter 11.  Later, parts of the business was sold, wound down, or sold back to GM. Says the Daily Caller:

“Twenty thousand of its workers lost nearly their entire pensions when the government bailed out GM. At the same time, Delphi employees who were members of the United Auto Workers union saw their pensions topped off and made whole.”

In sworn testimony, former Treasury official Matthew Feldman and former White House auto czar Ron Bloom, stated that the Pension Benefit Guaranty Corporation (PBGC), and not the administration, “led the effort to terminate the non-union Delphi workers’ pension plan,” the Daily Caller says. “The emails TheDC has obtained show that the Treasury Department, not the independent PBGC, was running the show.”

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Paper: Auto Bailout Was A UAW Bailout http://www.thetruthaboutcars.com/2012/06/paper-auto-bailout-was-a-uaw-bailout/ http://www.thetruthaboutcars.com/2012/06/paper-auto-bailout-was-a-uaw-bailout/#comments Thu, 14 Jun 2012 07:15:29 +0000 http://www.thetruthaboutcars.com/?p=448985 Moody’s has been less than impressed with GM’s recent pension cuts/buyouts: “GM’s plan has some constructive elements,” said Bruce Clark, senior vice president at Moody’s. “It will reduce the company’s pension assets and liabilities by $26 billion and relieve it of the obligation to make future payments to most of its salaried retirees. It will […]

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Moody’s has been less than impressed with GM’s recent pension cuts/buyouts:

“GM’s plan has some constructive elements,” said Bruce Clark, senior vice president at Moody’s. “It will reduce the company’s pension assets and liabilities by $26 billion and relieve it of the obligation to make future payments to most of its salaried retirees. It will also free it from the volatility associated with pension investment returns, long-term interest rates and mortality rates.”

“These benefits come with a cost. GM will spend $3.5 billion to $4.5 billion on this undertaking, and when all is said and done, the company’s total underfunded pension liability will be reduced by only $1.0 billion. The aggregate underfunded liability will still be a very large at about $24 billion.”

There could have been a more cost-effective solution: Bankruptcy. Before you scream “unfair:” What about the nesteggs that had GM stocks and bonds in them? Why are GM pensions sacrosanct when others aren’t?

A new paper out today, by George Mason University prof/Mercatus Center scholar Todd Zywicki and Heritage Foundation scholar James Sherk, argues that the auto bailout was really just a transfer of $20+ billion from taxpayers to the UAW:

The U.S. government will lose about $23 billion on the 2008-2009 bailout of General Motors and Chrysler. President Obama emphatically defends his decision to subsidize the automakers, arguing it was necessary to prevent massive job losses. But, even accepting this premise, the government could have executed the bailout with no net cost to taxpayers. It could have—had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion—more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.”

Another summary in a Heritage blog post on the paper:

“We estimate that the Administration redistributed $26.5 billion more to the UAW than it would have received had it been treated as it usually would in bankruptcy proceedings. Taxpayers lost between $20 billion and $23 billion on the auto programs. Thus, the entire loss to the taxpayers from the auto bailout comes from the funds diverted to the UAW.”

Zywicki, argued in RealClearPolitics last year that GM could’ve been in a better competitive position had it gone through a normal bankruptcy:

“But perhaps most misleading about the myth of the auto bailout success is that by restructuring through a politicized bailout process both companies were left in a weaker competitive position than they would have been had they simply gone through a traditional chapter 11 process. Rather than a restructuring process focused on maximizing the economic value and viability of the firms, they were saddled with 535 new members of their boards of directors driving decision making through the lens of politics rather than economics.”

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Government Motors On http://www.thetruthaboutcars.com/2012/03/government-motors-on/ http://www.thetruthaboutcars.com/2012/03/government-motors-on/#comments Wed, 21 Mar 2012 20:28:11 +0000 http://www.thetruthaboutcars.com/?p=435939 After GM’s  IPO, stockholders looked with great anxiety at the 32 percent the U.S. government still holds in General Motors. Allegedly, the U.S. government wanted to shed that share as quickly as possible, and someone dumping the stock does not make for rising stock prices. Now, GM is sending out smoke signals that a sale […]

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After GM’s  IPO, stockholders looked with great anxiety at the 32 percent the U.S. government still holds in General Motors. Allegedly, the U.S. government wanted to shed that share as quickly as possible, and someone dumping the stock does not make for rising stock prices. Now, GM is sending out smoke signals that a sale is far from imminent. GM’s chief spokesman Selim Bingol wrote in a blog  that “the day will eventually come when the Treasury sells its GM stake. When is anybody’s guess (we have no say in the matter).”

In a perverse way, the GM stock had tanked before the U.S. government could dump it. The low stock price holds the government hostage. “At current stock prices,” writes the Detroit News, “the Treasury would incur a loss of nearly $16 billion on its bailout of GM.”

The stock currently is 24 percent below its $33 IPO price. Says the DetN:

“Given that a sale before the November presidential election would highlight the cost of the government’s rescue of GM, officials say it is unlikely the government will sell any shares before then.”


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Treasury: Loss On GM Bailout Rises To $23.6B http://www.thetruthaboutcars.com/2011/11/treasury-loss-on-gm-bailout-rises-to-23-6b/ http://www.thetruthaboutcars.com/2011/11/treasury-loss-on-gm-bailout-rises-to-23-6b/#comments Thu, 17 Nov 2011 18:38:01 +0000 http://www.thetruthaboutcars.com/?p=418968 One of the great mysteries to many inside the auto industry is why is GM’s stock price so low? Though the company had a weak third quarter, its stock price has been stuck well below its IPO price for much of the last year, despite a return to profitability. Though GM faces challenges, few inside […]

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One of the great mysteries to many inside the auto industry is why is GM’s stock price so low? Though the company had a weak third quarter, its stock price has been stuck well below its IPO price for much of the last year, despite a return to profitability. Though GM faces challenges, few inside the auto industry understand why its stock price remains so low. One theory: the government’s mere continued presence as a major stockholder creates uncertainty around the company. If this is the case, it creates something of a vicious cycle: the lower the stock price, the less likely the government is to sell its  shares, leaving it lingering with no exit strategy, in turn driving the stock lower. Though that’s not likely to be the whole story, one thing is certain: the government has been forced to increase its loss estimate for the GM bailout. The Detroit News reports that the Treasury’s losses on GM are now estimated at $23.6b, up from $14.4b. And with an election looming, it seems likely that the White House will sell within the next six months. But will the government’s desire to protect itself politically trade off with GM’s PR? After all, whatever the Treasury’s final loss is, that number will be pinned to GM as a symbol of what it owes the American people. On the other hand, with most analysts insisting that GM stock is undervalued, another year of government ownership could convince investors to bid up the price, greatly reducing GM’s public debt. Too bad electoral politics will probably prevent that from happening….

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Half of American Car Shoppers “More Likely” to Buy Fords Because of Bailouts http://www.thetruthaboutcars.com/2011/10/half-of-american-car-shoppers-more-likely-to-buy-fords-because-of-bailouts/ http://www.thetruthaboutcars.com/2011/10/half-of-american-car-shoppers-more-likely-to-buy-fords-because-of-bailouts/#comments Mon, 03 Oct 2011 17:38:45 +0000 http://www.thetruthaboutcars.com/?p=413255 Whether or not the White House pressured or even contacted Ford Motor Company after the company released their recent ad appealing to anti-bailout sentiments we’ll probably never know. We’ll also probably never know if this was all just a symphony of leaks and disclaimers orchestrated by Ford. What we do know, thanks to a Rasmussen […]

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Whether or not the White House pressured or even contacted Ford Motor Company after the company released their recent ad appealing to anti-bailout sentiments we’ll probably never know. We’ll also probably never know if this was all just a symphony of leaks and disclaimers orchestrated by Ford. What we do know, thanks to a Rasmussen opinion poll [Sub. required, some data here], is that Ford had good reason to stoke American consumers’ resentment against it’s domestic competitors because they were bailed out by the government. The poll shows that the bailout is clearly a factor, sometimes an overriding one, in automobile purchase decisions. Not only did nearly one in five recent Ford buyers say that they or family members specifically chose Ford products because they didn’t take a government bailout, about half of all consumers surveyed said that they were more likely to buy Fords than GM or Chrysler products specifically because Ford didn’t get bailed out. [Note: Yes, Ford took Dept. of Energy loans and other government funds, but this survey was looking at people's opinions, not facts.]

To be clear, this was a political opinion poll of likely voters, not market research, and the questions were worded to provoke a response but the results were pretty consistent.

Nineteen percent of those questioned responded “yes” to the question: Have you or anyone in your family bought a car from Ford because it didn’t take a government bailout? Of people age 18 to 29, that figure rises to 33%.

When asked: Has the bailout and government takeover of GM caused you or anyone you know to avoid buying a GM car?, 25% of respondents said yes.

To “Does the fact that GM took bailout money make you more or less likely to buy a GM car?”, 50% said less likely. I’d really be interested in interviewing some of the 4% that said “more likely”. How does the fact that a company had to be bailed out make its products more desirable? Perhaps that’s a sympathy vote.

To the question: “Ford didn’t take bailout funding. Does this make you more or less likely to buy from Ford?”, 51% said more likely and 12% said less likely. Perhaps those 12% don’t think Ford needs their help.

Either way, the survey results quantify the subjective experience of Chris McDaniel, the F-150 owner who was featured expressing anti-bailout sentiments in the commercial at the center of this brouhaha. Politics aside, this Rasmussen poll shows that Ford would have missed a marketing opportunity had it not exploited those sentiments.

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EPA Inspector General Questions GHG Emissions Science, Issa Attacks On All Fronts http://www.thetruthaboutcars.com/2011/09/epa-inspector-general-questions-ghg-emissions-science-issa-attacks-on-all-fronts/ http://www.thetruthaboutcars.com/2011/09/epa-inspector-general-questions-ghg-emissions-science-issa-attacks-on-all-fronts/#comments Sat, 01 Oct 2011 01:59:17 +0000 http://www.thetruthaboutcars.com/?p=413095 In a report released earlier this week [PDF], the EPA Inspector General criticized the Technical Support Document for the portion of greenhouse gas regulation dealing with “Endangerment,” or the possible effects of greenhouse gasses. Inspector General Arthur A. Elkins Jr. summed up his office’s findings [PDF], writing The OIG evaluated EPA’s compliance with established policy […]

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In a report released earlier this week [PDF], the EPA Inspector General criticized the Technical Support Document for the portion of greenhouse gas regulation dealing with “Endangerment,” or the possible effects of greenhouse gasses. Inspector General Arthur A. Elkins Jr. summed up his office’s findings [PDF], writing

The OIG evaluated EPA’s compliance with established policy and procedures in the development of the endangerment finding, including processes for ensuring information quality. We concluded that the technical support document that accompanied EPA’s endangerment finding is a highly influential scientific assessment and thus required a more rigorous EPA peer review than occurred. EPA did not certify whether it complied with OMB’s or its own peer review policies in either the proposed or final endangerment findings as required. While it may be debatable what impact, if any, this had on EPA’s finding, it is clear that EPA did not follow all required steps for a highly influential scientific assessment. We also noted that documentation of events and analyses could be improved.

Oy vey. Greenhouse gas science controversy. So, what’s the problem really about?

The question basically comes down to the way the EPA assesses outside data, and whether data assessments were worthy of the Technical Support Document (TSD)’s importance. Or, to put it into DC style “summary.”

In our opinion, the TSD was a highly influential scientific assessment because EPA weighed the strength of the available science by its choices of information, data, studies, and conclusions included in and excluded from the TSD. EPA officials told us they did not consider the TSD a highly influential scientific assessment. EPA noted that the TSD consisted only of science that was previously peer reviewed, and that these reviews were deemed adequate under the Agency’s policy. EPA had the TSD reviewed by a panel of 12 federal climate change scientists. This review did not meet all OMB requirements for peer review of a highly influential scientific assessment primarily because the review results and EPA’s response were not publicly reported, and because 1 of the 12 reviewers was an EPA employee.

EPA’s guidance for assessing data generated by other organizations does not include procedures for conducting such assessments or require EPA to document its assessment. EPA provided statements in its final findings notice and supporting TSD that generally addressed the Agency’s assessment factors for evaluating scientific and technical information, and explained its rationale for accepting other organizations’ data. However, no supporting documentation was available to show what analyses the Agency conducted prior to disseminating the information.

But, there’s one more thing that the Inspector General wants to make perfectly clear:

We made no determination regarding the impact that EPA’s information quality control systems may have had on the scientific information used to support the finding. We did not test the validity of the scientific or technical information used to support the endangerment finding, nor did we evaluate the merit of EPA’s conclusions or analyses.

Accordingly the major Republican attack on the back of this report hasn’t been on the basis of GHG regulation science, but at procedural issues, most especially concerning transparency. With more than a dash of the requisite economic populism. In a statement today, House Oversight Committee Chair Darrell Issa argued

Improved fuel efficiency is a worthy goal. Unfortunately, the path pursued by the Obama Administration has the potential to increase vehicle costs for consumers, reduce passenger safety and ultimately impact American jobs. We cannot afford job-killing regulations forced through the process without regard to these consequences at a time of economic vulnerability. Further, there are real questions about the transparency of new standards negotiated in secrecy without adequate public input or concern for jobs and consumer choices.

With the news that they have delayed the release of these standards until November, it would seem the Administration is having difficulty fitting a pre-determined conclusion driven by outside special interests and the California Air Resources Board into the statutory structure created by Congress.

The general conclusion of that last sentence may seem like nothing more than a twist of the partisan knife, but there’s truth there. Earlier in the year the EPA had to coax CARB into waiting for “studies examining the technological and financial ramifications” before announcing new CAFE standards, indicating that the recent delay of the new rule until mid-November could be related to those studies. And this EPA Inspector General report just adds fuel to that fire. On the other hand, the DetN reports that the Obama Administration has already addressed Issa’s transparency concerns, noting

White House counsel Kathryn Ruemmler told Issa the government will conduct a traditional rule-writing process.

“The agencies have made clear that they intend to conduct a public rulemaking with additional opportunity for public comment,” she wrote in the Sept. 8 letter obtained by The Detroit News that has not been made public.

But Issa’s not just going after the EPA. Bloomberg reports he’s taking on NHTSA (the other agency tasked with writing CAFE) as well. Issa fired off a letter to Transportation Secretary Ray LaHood, in which he thundered

“I am concerned about the negative impact these standards could have on the safety of automobiles, the possibility that the National Highway Traffic Safety Administration acted outside the scope of congressionally delegated authority and the lack of transparency in the process leading up to the agreement”

Transparency? Scope of powers? Not my department. Safety? Well, there again Issa has done his homework. As an EPA supplemental Notice Of Intent notes

for the 2017-2025 NPRM, NHTSA and EPA will conduct an analysis of the effects of the proposed standards on vehicle safety, including societal effects. CARB is undertaking and coordinating with EPA and NHTSA on a study of how a future vehicle design that incorporates high levels of mass reduction complies with vehicle safety standards and voluntary safety guidelines. NHTSA is also initiating a new study of the feasible amount of mass reduction based on a mid-size passenger car platform, and the effects of several advanced mass reduction design concepts on fleet safety. The NHTSA studies are being coordinated with EPA, DOE, and CARB.The agencies expect that several, but not all of these studies will be completed in time to inform the NPRM. Others are expected to be completed in time to inform the final rule [Emphasis added]

In other words, Issa is concluding that a delay in the final rule could be related to this study… which could affect safety. But lets face it, cars have never been safer… and unless the EPA has a mess on its hands with this report, this could easily end up being seen as what the kids call “concern trolling.” And some will likely conclude that’s the case based on the sheer scope of Issa’s assault on GHG regulation. Issa also sent a letter to EPA Administrator Lisa Jackson today, in which, Bloomberg tells us

Issa also questioned the EPA’s role in writing a previous fuel-economy rule that takes effect next year, saying it negotiated with automakers around the same time General Motors Corp. and Chrysler LLC were getting U.S. bailout money. The timing “heightens the concern that the administration used the promise of taxpayer dollars to obtain GM and Chrysler’s support for the new fuel economy standards

This is probably the bridge too far. Issa has been harping on that theory for well over a year now, and it’s got him nowhere. And no surprise: the Obama Administration has always given the auto bailout a thin green veneer, so a successful investigation by Issa would only prove that the greenwashing had something behind it. Furthermore, the CAFE rules he’s talking about are riddled with loopholes,  and the subsequent version is even more riddled, and with larger loopholes. And that jives with what I’ve heard from industry lobbyists, who generally downplayed CARB’s power to pull the White House to the left, let alone the White House’s ability to set impossible standards. The line I got was that overhauling GM and Chrysler gave the government a “look under the hood,” which helped it see the OEM perspective on regulation.

Be that as it may, Issa is launching investigations into how the EPA and NHTSA handled auto GHG emissions regulation, adding to his ongoing investigation of the Obama Administration’s role in CAFE [PDF letter of investigation here]. He says his staff will “further review” the “serious questions” raised by the EPA Inspector General’s report. Say what you want about the guy’s politics, when he moves on something, he moves on something. And he’s definitely earning his title as Obama’s “Annoyer-in-Chief.”

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