High Finance

David Cole: Ford’s Debt Adds $1500 to Cost of Every Vehicle

By Robert Farago
November 6, 2009

We tore David Cole a new one the other day, when the leader of the manufacturer and union-supported Center for Automotive Research suggested that trimming GM and Chrysler dealers wasn’t such a good idea—based on some schmoozing with his pals. Never let it be said that I won’t trot-out a dubious source when it suits my editorial needs, especially when it comes to bashing Ford. Just kidding. I love Ford. My first three cars were Fords. I want Ford to succeed. I am not, however, blind to the fact that Uncle Sam shoveled $10 billion worth of no-to-low-interest twenty-five year loans in FoMoCo’s direction. Nor am I Detroit News columnist Daniel Howes; I will not predict sunshine and roses simply because there’s a government-sponsored break in the clouds hanging over the Glass House Gang. TTAC commentator Mark MacInnis shares my skepticism, with a nod to Mr. Cole . . .

Amidst all the hoopla yesterday about Ford’s quarterly profit, was this little nugget, which doesn’t bode well for their future. “‘That puts Ford at a competitive disadvantage,’ said David Cole, chairman of the Center for Automotive Research in Ann Arbor, who estimated that servicing Ford’s debt adds more than $1,500 to the cost of every vehicle the automaker sells in the United States.” Now, Ford sells as many or more cars worldwide as they do in the U.S., so the cost advantage per-vehicle is actually less than this hyped number. But it’s still what? A six percent or seven percent cost dis-advantage? That’s BEFORE the labor costs, which are higher than GM since the UAW repudiation of Ford’s contract do-over. And higher than Toyota’s and Honda’s. Still. So, add it up, and Henry’s company has to build vehicles ten percent more efficiently or ten percent more desirable to overcome that debt-related disadvantage. A formidable task. So, before we all start congratulating Ford on dodging the bullet, we better watch out for that ricochet . . .

Posted in High Finance | News Blog | 22 comments

Chrysler’s Financial Plan: Leveraged Assumptions

By Edward Niedermeyer
November 5, 2009

Chrysler’s financial plan is where the rubber hits the road for Sergio Marchionne’s turnaround. It starts with a break-even projection for 2010 on net revenue of about $42.5b, which is more than double the projections for 2009 of $17b net revenue. As the previous sales projection chart and product plan analysis indicates, a short-term turnaround of this magnitude seems highly unlikely. Unfortunately, because Chrysler plans to spend $23b on R&D and other capital expenditures (capex) between 2010 and 2013 without injecting any fresh capital, this sales turnaround absolutely has to happen in order for the rest of the plan to move forward. Though this plan is said to be stress-tested for a zero-SAAR growth by 2011 scenario, there’s no indication that these projections consider the possibility that Chrysler’s market share won’t grow. In this weak-market/strong share growth scenario, Chrysler believes that despite a $7b drop in revenue, $.4b operating profit could be rescued through cost interventions. But it’s not specified where those cost interventions would come, leading to the inevitable assumption that product development (the crucial factor in any market share growth) would be drastically reduced. It’s worth noting again that Fiat does not plan on contributing any new capital to Chrysler.

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Posted in High Finance | News Blog | 23 comments

Chrysler’s Cash Claim: A Cruel Con?

By Robert Farago
November 4, 2009

Sergio Marchionne stunned the mainstream media—literally—with his revelation that Chrysler has improved its post-C11 cash position from $4 billion to $5.7 billion. “’Some of you have been surmising we’re burning through cash,’ he said in brief remarks opening the company’s presentation of its five-year plan. ‘This is not true.’” Uh, yes, it is. Can you say “accounts payable?” When Chrysler entered into bankruptcy, it stopped production.  Remember the Chrysler Cash for Clunkers product drought? Like that. Since then, Chrysler’s been taking in [meager amounts of] cash without paying out anything much, as production more or less stopped during the interregnum. And now that production has resumed? Chrysler’s about to pay those 90-day payables. Look for Fiatsler’s cash pile to erode like a California beach during an El Niño storm.

Posted in Chapter 11 | High Finance | News Blog | 23 comments

Positive Post of the Day: Chrysler Has Cash, Will Produce Diesel Wrangler

By Edward Niedermeyer
November 4, 2009

Surprise! There’s some good news coming out of Chrysler’s five-year plan presentation. Okay, the really surprising part first: Sergio Marchionne has revealed that Chrysler has $5.7B in cash, up from $4B when it exited bankruptcy in June. The somewhat less surprising part: Jeep is bringing a stop-start-equipped, diesel-powered Wrangler. How niche-tastic is that?

Posted in Future Vehicles | High Finance | News Blog | Positive Post Of The Day | 25 comments

Opel Workers Set to Strike, Germans Recalling $2.2B Bridge Loan

By Robert Farago
November 4, 2009

GM’s last minute (i.e. post-German election) decision to pull out of a deal to sell its European Opel division to a consortium lead by Canada’s Magna Corporation has left chaos in its wake. The Associated Press reports that Opel workers throughout Europe are planning to strike GM on Thursday, protesting the automaker’s planned “rationalization” of  over ten thousand jobs. “IG Metall said workers at Opel’s four German plants would halt work Thursday, followed by similar moves Friday at other Opel locations in Europe.” Meanwhile, German Economy Minister Rainer Bruederle vowed “We will get the taxpayers’ money back.” Note: that’s German taxpayers’ money. And there’s only one way the nationalized automaker’s going to pay back that loan: with American taxpayers’ money. Seriously? Seriously. “GM Europe spokesman Karin Kirchner said the company is prepared to repay the euro1.5 billion bridge loan from the German government. ‘If we’re asked, GM will repay the bridge loan in question.’” Uh, that didn’t sound like a “request” to me. And speaking of plain speaking . . .

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Posted in Chapter 11 | Germany | High Finance | News Blog | 20 comments

Ford Posts $997 Million 3Q Profit

By Edward Niedermeyer
November 2, 2009

Ford turned a profit in the second quarter of this year, thanks to a share offering and other debt-reduction actions which covered a $424M pre-tax operating loss. In the third quarter, however, Ford’s profit needs no such qualification. Pre-tax operating profits were $1.1B, including a $357M from North American operations. For the record, this marks the first Ford North America profit since Q1 2005. Perhaps more importantly, for an automaker that’s mortgaged up to (and including) its logo, Ford’s cash pile grew by $2.8B (on $1.3B positive cashflow), to $23.8B. On the strength of these surprisingly strong results, Ford has revised its 2010 guidance from being “break even or better” to “solidly profitable.” The future is looking far brighter for Ford than any of its cross-town rivals, but there are a few more considerations to keep in mind before we can pronounce Ford officially out of the woods. Even the Blue Oval is warning that its 2010 guidance will be revisited after full-year results are in.

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Posted in High Finance | Industry | News Blog | 39 comments

Opel Workers: Can We Do This Deal Already?

By Edward Niedermeyer
October 30, 2009

GM’s sale of Opel to Magna/Sberbank is being held up by the European Union, which is looking into whether the German government unfairly favored Magna’s bid. But while the interregnum plays out (the EU will decide by November 27th), GM has plenty of time to develop a case of seller’s remorse. After all, GM’s VP for Global Engineering Mark Reuss recently told Autoline After Hours that Opel is completely integrated into GM’s global product development, and that the relationship “won’t change.” Does that, as Business Week’s David Welch asked, mean GM will keep all of Opel’s development capacity while reducing loss exposure to 35 percent? Reuss had to change the subject, but it’s obviously not the case. With Daewoo under fire, GM would clearly prefer to keep Opel’s development capacity integrated, and keep its intellectual property out of the hands of Russian automakers. And with German newspapers reporting that GM’s board is considering a “plan B” to keep Opel within the GM fold, Opel’s workers are threatening to strike.

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Posted in Europe | High Finance | Industry | News Blog | 3 comments

GM-Daewoo: No Bailout Needed. For Now. Maybe.

By Edward Niedermeyer
October 30, 2009

It’s not that GM’s Korean Daewoo division doesn’t need more money. The problem is that the only bank willing to lend a dime, the Korean Development Bank, wants strings attached. Since GM came up with the cash to buy up Daewoo’s $413m rights offering, it says Daewoo is out of trouble for two more years. Or 18 months… depending on that troublesome global car market. Meanwhile, GM-Daewoo’s $5b worth of forward contracts will burn up $300m in cash every month, as the debt matures. Although KDB and GM-Daewoo’s other lenders refuse to roll any of that debt forward and have been firm about enacting safeguards before loaning the automaker more money, GM’s Nick Reilly says Daewoo can now negotiate from a position of relative strength. Emphasis on relative.

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Posted in High Finance | Korea | News Blog | 4 comments

U.S. Treasury Secretary: GMAC Needs Less Money Than We Thought

By Robert Farago
October 29, 2009

“We’re likely to have to put in less capital [to GMAC] than we expected,” U.S. Treasury Secretary Tim Geithner told the House of Representatives Financial Services Committee earlier today. Which raises six major questions. First, huh? GMAC has already received not one but two direct injections of federal taxpayer assistance. Why are we arguing over amounts rather than the question of whether or not we should draw a line under the fetid financier and call it quits? Second, when did Geithner’s mob/GMAC figure out that $12.5 billion wouldn’t be enough to keep the lame-ass lender afloat? Third, why hasn’t anyone been called on to the carpet (i.e. shit-canned) for underestimating the federal teat provision needed to prop-up these sub-prime pricks? Fourth, how much taxpayer money did U.S. Treasury Secretary think GMAC would need to stay afloat—you know; before he figured out that the meshugganah money men didn’t need quite so much? Fifth, how much new capital does GMAC need anyway? And sixth, why should we believe we will ever get this money back? Which brings us back to d’oh. “The only thing we’re doing is making sure we follow through on that commitment,” Geithner testified. Or, as the Brits would say, in for a penny, what’s yours is mine.

Posted in High Finance | News Blog | 12 comments

GM To Draw On Government Funds For Delphi Rescue

By Edward Niedermeyer
October 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