Bailout Watch 569: Exit Strategy? What Exit Strategy?
By Edward NiedermeyerNovember 2, 2009
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!
Posted in Bailout Watch | Government | News Blog | 12 comments 
White House To Edmunds: Don’t Knock Cash For Clunkers
By Edward NiedermeyerOctober 30, 2009
It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone. There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most.
The Department of Transportation’s Bill Adams lays into recent Edmunds.com analysis showing Cash For Clunkers could have cost as much as $24,000 per vehicle sale [via CNN]. But one man’s negativity is another man’s constructive criticism. After all, Adams doesn’t touch the heart of the matter: the program’s cost per vehicle, and Edmund’s analysis (like all analysis) was educated guesswork. Luckily, CNN was able to shed a little more light on how Edmunds came up with their numbers.
Posted in Government | News Blog | Sales | 43 comments
GM To Draw On Government Funds For Delphi Rescue
By Edward NiedermeyerOctober 29, 2009
The WSJ reports that GM will draw “north of $2.5b” from its government escrow account to fund its own bailout of its major supplier, Delphi. Considering GM has committed $1b in debt assumption, $2b in forgiven claims and $1.75b in investments, we can assume the amount will be well north of $2.5b. But how much is left in that escrow account anyway? Estimates at the time of GM’s exit from bankruptcy were that some $20b was left to draw upon. And we’ll know exactly how much is left when GM discloses its government-money expenditures to the SEC by the end of this week. GM sources claim the money has not been used to cover operating shortfalls, and CEO Fritz Henderson has even gone on the record to say GM will not need further government assistance. Considering GM’s cash burn over the last four years was in the $10b/year range, let’s hope that claim isn’t entirely based on the assumption that a planned IPO next summer will be a rousing success.
Posted in Bailout Watch | Government | High Finance | News Blog | one comment
Edmunds: Cash For Clunkers Cost $24k Per Car
By Edward NiedermeyerOctober 29, 2009
Edmunds‘ analysis shows that only 125k of the nearly 690k vehicles sold during Cash For Clunkers were incremental. Divide the three billion the government spent by that number, and you’re left with a $24k per-vehicle subsidy of additional sales. Which Edmunds admits were largely pull-forward anyway. Edmunds’ research also shows that fewer consumers would have traded in gas guzzlers had the stimulus not existed. As a result, “that may give some credence to the environmental claims, but unfortunately the economic claims have been rendered quite weak,” according to Edmunds analysts. All hail the Potemkin Economy!
Posted in Government | New Cars | News Blog | 25 comments
The Detroit Lobby Lives
By Edward NiedermeyerOctober 27, 2009
After a dismal PR year for Detroit (if only because lobbying efforts were successful enough to secure an unpopular bailout), the American Automotive Policy Council has been launched to represent the very special interests of Ford, GM and Chrysler. As Politico unironically puts it, “(Debbie) Dingell, the wife of Rep. John Dingell (D-Mich.) and longtime auto industry lobbyist Stephen Collins are leading the new American Automotive Policy Council.” Because former GM lobbyist Dingell, who was moved to an administrative position when she married Rep John Dingell (D-MI) is somehow not a longtime industry lobbyist? Marrying the then-Chairman of the Energy and Commerce Committee is like winning the gold medal for Detroit lobbyists… Dingell just had her number retired. Anyway, the new lobbying council is an offshoot of Automotive Trade Policy Council, a group known for such truth-telling efforts as Driving The Future: The New American Auto Industry [PDF], published in the heady optimism of June 2008. Which is a good indication of what we can expect from the AAPC. First up, a “manufacturing initiative” intended to “develop credible and reliable information for policymakers.” This is gonna be good.
Posted in Government | Industry | News Blog | 8 comments
Rattner On His Detroit Adventure
By Edward NiedermeyerOctober 21, 2009
Former head of the Presidential Task Force on the Auto Industry, Steve Rattner has penned a retrospective for Fortune on his time guiding the auto industry bailout. He covers everything from how he assembled his team and developed a strategy to the decision to fire Rick Wagoner and the showdown with Chrysler’s creditors. There are no real surprises if you’ve followed TTAC for the last year or so, but it’s fascinating stuff to read coming from the horses mouth. Take Rattner’s initial impressions of the GM “culture thing”:
Everyone knew Detroit’s reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.
For example, under the previous administration’s loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.
Posted in Bailout Watch | Government | Industry | News Blog | 46 comments
It’s Official: Three-Wheelers Are Cars Too. For Subsidy Purposes.
By Edward NiedermeyerOctober 19, 2009
Congress has passed legislation qualifying three-wheeled vehicles for federal subsidies by classifying them as advanced technology vehicles. According to Automotive News [sub], the legislation has passed the House and Senate and should be signed by President Obama by week’s end. The classification is crucial for firms like Aptera to secure the federal Advanced Technology Vehicles Manufacturing Incentive Program funds that have been critical for firms like Tesla, GM and Ford. Aptera has asked for $75m, but efforts to include the three-wheelers like Aptera’s 2e have been criticized by GM, which is waiting on $10b in Department of ATVM funding. So, on the one-hand you have self-interested, tax money-bloated firms like GM who want the money for themselves, and cottage industry EV freaks who call their three-wheeled designs “innovative.” But not only are three wheeled designs far from unique (they tend to show up in every major recession), they also aren’t cars. If the Feds are going to give money to to the makers of three-wheelers, which have to be licensed as motorcycles, they should have to allow electric motorcycle firms like Brammo and Zero to apply as well. After all, a $10k motorcycle isn’t any less ridiculous than a $45k Volt or a $40k Aptera.
Posted in Electric Vehicles | Government | Green | News Blog | 27 comments
Ray LaHood Holds Detroit Love-In
By Edward NiedermeyerOctober 13, 2009
I think what I saw at Chrysler is what people felt when Iacocca was there. It’s a new level of energy and enthusiasm because there’s new leadership of people that know what they’re doing, of people that have been successful in the automobile manufacturing business.
Transportation Secretary Ray LaHood waxes eloquent about the New New Chrysler and its Iacoccian leader, Fiat’s Sergio Marchionne. Speaking at the Detroit Economic Club [via Automotive News [sub]] LaHood said Marchionne represents “the next generation of leaders for the American automobile industry.” But who’d have thought Detroit would have had to look outside of, well, Detroit for that? Luckily LaHood was able to ward off such awkward questions by simply stating that “Detroit is back.” Yeah, now that the Italians have taken over. Elsewhere in his Detroit visit, LaHood also pronounced “Taurus is back. Ford is back” after a test drive, confirmed that “high speed rail is not competition for cars,” and predicted Detroit would become a “Midwest cruise-ship capital.” TTAC is still trying to confirm rumors that Secretary LaHood has money on the Lions making the playoffs this year.
Posted in Government | News Blog | PR | People | 19 comments
Do You Have The Right To Repair?
By Dustin StocktonOctober 13, 2009
Growing up my family owned a Jeep Wagoneer that consistently broke down towing our boat. My frugal parents couldn’t afford to have it repaired by a mechanic so my Pop dutifully bought the repair manual and spent his days off cursing under the hood in our driveway. He eventually grew so frustrated that he dropped a 500cu Cadillac engine in that old Jeep. Technology has made do-it-yourself repairs little more than nostalgic memories. Now it takes expensive diagnostic computers to identify why the light on the dash came on. And not only are the diagnostic computers expensive but in many cases the codes are proprietary. With recent dealership closures, congress has proposed legislation to protect consumers access to this critical repair information. HR 2057, the Rural Communities Stranded Without The Right To Repair Act would require auto manufacturers to make repair information and computer diagnostic codes available to the general public.
Posted in Gizmology | Government | News Blog | Used Cars | 54 comments
Quote Of The Day: Betting Odds Edition
By Edward NiedermeyerOctober 12, 2009
“What do you think the percentage likelihood is that, if we give this deal a chance, it will succeed?” Rattner didn’t make the decision any easier. “Fifty-one per cent,” he said. “But, Mr. President, in my experience, deals get worse, not better, over time.”
Ryan Lizza recounts the decision to bail out Chrysler in his epic New Yorker piece on Larry Summers and the president’s economic team [via Kausfiles]. This exchange came after the economic council split 4-4 on the automaker bailout, and Rattner was identified as the tie-breaking vote. Is it safe to say now that nobody expects Chrysler to survive?
Posted in Bailout Watch | Government | High Finance | News Blog | Quote of the Day | 23 comments
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