In America,  government bailouts of ailing car companies are (at least in some circles) viewed as an inalienable right. In the EU, government aid generally is forbidden by law. Ironically, Ford, the only un-bailed-out Detroit company, now is in collision with these quaint continental regulations.

According to Reuters, “ EU antitrust regulators will investigate whether a 25.2 million euros ($32.71 million) grant given by Spanish authorities to U.S. carmaker Ford Motor Co’s van facility in Valencia breached EU state aid rules.”

Ford wants to produce the new Ford Transit Connect in Valencia, and the  Spanish government contributed a little to the cause that costs around $540 million.

The rest is a bit technical. According to Reuters, “the European Commission said on Wednesday that a preliminary investigation showed that the project might exceed the authorized 5 percent increase in production capacity on a market in decline,” but the Commission doubts data by the Spanish government and whether “the market concerned is in decline.”

The EU forbids bailouts not because they are seen as inherently evil, but rather because this is not a zero-sum game, and helping some would mean state-sponsored damage to others.

Stop us if you’ve heard this one before. Unlike the poorly interpreted plans for Mazda to be a “premium” brand, PSA really is planning to take Peugeot upscale, despite having zero brand equity, an upscale Citroen line and zero exposure to the profit center of the future, low-cost cars.

The announcement came as PSA announced a record $6.7 billion loss for 2012, compared with a $588 million profit in 2011. PSA also laid out its plans for a recovery, including the baffling upscale move for the quality-plagued Peugeot brand.

Automotive News reported on the developments, quoting PSA CEO Philippe Varin

“The Peugeot brand will move toward a more modern image,” led by the 208 subcompact’s high-performance GTI version and the new 2008 SUV-styled crossover, Varin said. “In 2013, the positioning of our brands will be supported by a very rich range of products and 17 vehicle launches,” he said.

Despite being fetishized by North American euro-philes, Peugeot is on the cusp of irrelevancy in the European car market. While they have had some success with their B and C-segment offerings, the market for D-segment and above sedans has been moribund since Mitterand was in the Élysée Palace, serving mostly as minicabs in third-rate British towns and transportation for the bad guys in Ronin. The notion of Peugeot as a premium brand is laughable, and complicated even further by their intra-group rival Citroen.

At the turn of the decade, Citroen launched their DS line of premium hatchbacks, models which won critical acclaim but have still yet to set the sales charts on fire (the DS5, above, is the ride of choice for France’s Prime Minister). That will leave PSA with two brands which are aspiring to play in the premium segment, but without any sort of strategy for a low-cost brand to be sold both in Europe and developing markets – a strategy that has helped Renault-Nissan reap fat margins even in the current lean times. Unbelievably  this strategy is a central tenet of PSA’s recovery plan, which was demanded in exchange for government help for its financing unit.

Among the other stipulations include targeting for 50 percent of its vehicles to be sold outside Europe by 2015 (a tough one, in light of having no low-cost product to sell in developing markets), doubling production volumes via its alliance with GM, and achieving a 13 percent market share in a market that PSA assumes will hold at 2012 levels of car sales. In the words of one Credit Suisse analyst ”Both look unlikely now”. Given that the writing is on the wall for a continued decline in European new car sales it’s impossible to fathom how PSA could present these plans with a straight face.

But for a company like PSA, 2015 is a long way away. Let’s see if they make it through 2013 without becoming partially state owned, and then take it from there.

The French government is denying that it plans to acquire a stake in PSA, but France’s Prime Minister told reporters that mechanisms for providing government assistance have already been vetted.

At a time of high unemployment and factory closures across France, the fate of PSA is a sensitive one. PSA’s sales have been tanking, hampered by an uncompetitive product line, falling car sales in Europe and a lack of low-cost product to compete in emerging markets.

Peugeot has already cut 8,00 jobs in the country as part of its plan to break even by 2014. But the company’s losses, estimated at 200 million euros a month. Amid an announcement of a $5.53 billion writedown, French politicians began going on the offensive regarding PSA, with the country’s budget minister declaring that ”Let’s be clear: this company cannot, must not disappear”.

French PM Jean-Marc Ayrault told Reuters that a more detailed plan had already been drawn up, while simultaneously denying that any action would be taken at this point

“We do have a tool, the FSI (France’s sovereign-wealth fund), which can if necessary take a stake. But today this question is not being looked at,”

Ironically, Peugeot, unlike its rival Renault, is entirely owned by private actors, while the French government owns a 15 percent stake in Renault. But that could change quickly given the way things are progressing.

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.

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.

TTAC alumni Ed Niedermeyer has an op-ed in the Wall Street Journal. The piece discusses the spin surrounding the bailout in this year’s campaign. Check it out here.

What percentage of new cars sold this year in the United States have European badges?

3%… 5% maybe? Not even close! Through September 2012 it stands at approximately 9.5%

The recent successes of VW, Audi and BMW/Mini are quite noteworthy. 10 years ago, European marketshare in the U.S. was only at 7.1%.

However this isn’t the entire story. Used European vehicles are often considered to be pricey to fix and expensive to own. At a recent sale in Atlanta this week the percentage of Euro vehicles was nowhere near 7%, or 9%.

It was over 23%.

VW 1.8 Liter engine with sludge issues? Present.

Audi in need of ride suspension elimination kit? Yeps!

Volvo with transmission issues. Audi with transmission issues. Saab with transmission issues. You.. bet… cha!

Out of 113 vehicles sold during the run, 27 of them were European… and metro-Atlanta tends not to be nearly as popular with European models as the folks up in the Northeast.  This auction may have been little more than a statistical quirk. But it was quite amusing to see.

There were also a few other surprises.

This 2002 Ford Focus SE wagon with 28,000 miles

And this 2004 Jaguar XJ8 with 181,000 miles.

Sold for nearly the same price. the Focus sold for $4600 (plus auction fee) while the Jag with the Tony the Tiger imprint on the steering wheel sold for all of $4800 (plus fee). No announcements for either of the two.

My beloved Tauruses continue to do well. A 2002 SES model with cloth and 79,000 miles sold for $3500, which happened to be the exact same price I sold a 2001 model with leather and 95,000 miles not too long ago.

Then there was the big kahuna. In this case it was a 2006 Land Rover Range Rover HSE (try to say that ten times really fast.) Two dealers got in a dogfight at around 18 grand and the final tally was $24,200. It had 109,754 miles and I hope the groom of this beastly bride will enjoy being married to it for quite a while. Either that or the Landy had a built in distillery in the back.

I managed to come in second a lot… which is fine. For the last couple of months I have been busy buying up whatever seems to be in decent in full knowledge that when tax season comes around, prices will go up, and quality will go way, way down.

One other thing. Convertibles. Why do some folks feel the need to trade-in their convertible during the mid to late fall? Dealers have to sit on that opportunity in most areas of the country which means the price you get will border on bupkis.

Observe…

2002 Jaguar XKR, no defect announcements, 106k, – $9800

2001 Saab 9-3 SE, Frame Damage, Non-visible, 128k – $2700

2001 Volvo C70 HT, (Tranny Needs Service, Prior Fleet, Frame Damage, Title Branded, Miles Exempt… but looked nice!), 109k- $1900

The last one sold to a guy know who liquidates vehicles at a public auction north of Atlanta. A couple of weeks ago he told me he sold 15 out of 20 at a nearby public sale, and I don’t doubt it. Every dealer has a niche. Although I never would have the stomach for something like that.

This auto auction was ground zero for the falling of the Euro… car. And guess who eventually pays for the bailout? On the cheap of course.

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.

Ford did not receive a government bailout. Not directly. It would have gone down the tubes along GM and Chrysler, if they would have been allowed to die, Steve Rattner, the head of the auto task force, told Bloomberg.

Said Rattner:

“Ford would have closed because it wouldn’t have been able to get parts, because the parts industry in this country was in arguably worse shape than the assemblers.”

Rattner repeated another favorite talking point of bailout supporters, namely that the U.S. government was the only entity that could save the domestic automakers because no one, including banks that were dealing with their own financial crises, was willing to put private capital into GM and Chrysler at the beginning of 2009.

But then, as the head of the taskforce, what should he say?

People in Europe had a lot of time to think about their troubled future during their long vacation. Coming back to work, they are “ready to shut plants and lay off staff,” as Reuters observes. Executives and union leaders are said to be in rare agreement over who to emulate: Obama, the UAW, and Detroit. Europeans want their bailout too. Some do, at least.

“Barack Obama said the federal government was ready to help (GM and Chrysler) on condition they carry out the necessary restructuring,” said Laurence Parisot, head of French employers’ organization Medef. “”If we want our companies to be competitive market leaders again in five or 10 years, we have to accept some adjustments.” Likewise, some union leaders “are calculating that cuts now can save more jobs later,” says Reuters.

Those “adjustments “ could be brutal if the U.S.A. is taken as an example. At GM alone, the adjustments did cost four brands, 14 U.S. plants and 21,000 jobs. The fact that employers and employees in Europe start thinking about cutting off the leg to save the body illustrates the level of pain they are going through

“Higher restructuring hurdles, from bankruptcy law to labor protection, also mean European cutbacks will never match Detroit’s for depth or speed” says Reuters.”Still, the U.S. example is too recent and, so far, successful to ignore.”

There is a much bigger hurdle: Not everybody in Europe is hurting: “Two in five European plants are running below 75 percent, deemed the minimum profitable rate, while Volkswagen’s factories are close to full tilt. The laggards are concentrated in Italy, France and Spain,” says Reuters.  Government bailouts are against EU regulations. Those regulations can be changed or flouted – but that needs unanimous consent. So far, the call for government help come from Fiat’s Marchionne and now  from GM-partner PSA. Volkswagen says “let them die” and is getting ready to pick up the pieces. But what if Volkswagen also gets affected?

Germany’s Automobilwoche [sub] reported over the weekend that Volkswagen is getting ready to cut its currently red-hot production by ten percent. Nonsense, says Volkswagen.

“The given scenarios are speculative and factually not correct,” a Volkswagen spokesman told Reuters. He also added that the situation in some markets is “tense” and that the coming months will be “significantly more difficult and demanding.”

Auto plant visits, long a staple of election-year vote-courting for politicians, are now banned at both GM and Chrysler plants until after the votes have been counted.

GM and Chrysler implemented the move in response to the highly politicized nature of the auto industry following the bailout. An article in the Detroit Free Press contains a summary that could have been lifted right from the TTAC comments section, complete with references to “Government Motors”, the Chevrolet Volt and the question of when the Treasury will dump GM’s stock.

The most encouraging quote comes from GM’s Bob Ferguson, VP for global public policy, who told the paper

“We would like to put all of our energy behind selling our cars and trucks…it’s an understatement to say we can’t wait for November to get here.”

Amen to that.

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.”

The most successful brands in our industry don’t have much meaning to them.

Toyota, Chevrolet, Ford, Hyundai, Kia, all of these are names that wouldn’t evoke much of any imagery had their manufacturers never existed.

Mercury and Saturn are popular planets that make you think of space and the futuristic pursuit of those faraway places. Acura should be quite accurate and precise. Rams are tough. Infiniti pays homage to the outer limits of capability and performance.

Yet all of these names experienced failure, or ultimately failed, due to the key essential ingredient within any brand’s reputation.

Product.

Scion now finds itself on the edge of irrelevance due to a series of bad products. Although I believe that Scion is essential to Toyota’s long-term performance in North America, other experts have plenty of good reasons to disagree with me.

The most obvious loser these days is smart, which has turned out to be a failure par excellence. You didn’t need a brilliant iQ or bat 500 with our prior features on dead brands to figure out why. Bad product will always be to cars what bad loans will be to the banks.

A risk free opportunity to shed debt, liquidate assets, and drink deeply in the vassals of government loans and grants.

Doubt me?

You should, if the automaker you are considering is headquartered in Europe.

Opel, Fiat and Peugeot appear to be suffering a decline that is, in part, due to their dependence on home markets that are stunted by an endless sea of bad governance and legacy costs.

A lot of folks believe that European consolidation has been due ever since British Leyland got sliced, diced and sold to whatever foolish suitors were willing to buy their market sizzle. Those rotten stakes didn’t add up to very much back then. Today the sizzle of a brand name means even less since the profit in mature markets may be non-existent.

Now these victors of yesteryear find themselves competing against global automakers that are not dependent on mature and declining markets with little to no profit. Europe’s long cold recession may only give VW the smallest of sniffles. While Opel, Fiat and Peugeot are now suffering with varying levels of flu like symptoms, and unprofitable products developed for a home audience that is simply not there.

The historians among us may look back on the past failures of these three in North America and wonder, “Does a lack of success in major overseas markets eventually yield itself to domestic weakness?” If this is the case, does the ‘new’ GM and Chrysler stand even a shadow of a chance over the long run?

As for Japan Inc., Mitsubishi seems to be tanking it here in North America… even as a Hertz special. Suzuki is hanging on in a near zombie state of North American product rot. Not too far away in India, Jaguar and Land Rover are still not quite ready for a prime time hit. Should they pack up their star spangled tent and focus their limited resources on the emerging economic engines of East Asia and the Pacific Rim?

Then we have the high end of the market. Too many names and certain pseudo-elite manufacturers are playing too many games with an information enriched public.

The shakeout is already taking place. Maybach never could muster up the prestige of Mercedes. But how about Maserati? Will their social equity investments continue to yield a small dividend of increased sales? Or will the better funded competitors in Germany and Japan turn the beleaguered trident into an archaic pitchfork?

Change in the global auto industry is always slow. You always see the dimming headlights well before the automaker sees the cliff. But time and money are finite, as is the future for some modern day manufacturers and their brands.

It looks like nearly everyone will emerge from 2012 with a continuing lease on life. SAAB may even be revived. But how about everyone else by say… 2014?

Who do you believe is already on the slippery slope to a depreciation hell solely reserved for orphan brands?

The closing of the Oshawa Consolidated Line supposedly had GM in the bailout doghouse – the company was supposed to maintain a certain level of production in Canada according to the terms of their bailout package. As far as we know, GM hasn’t replenished that yet, but they are throwing the Canadian federal and Ontario governments a bone by investing an undisclosed nine-figure sum into R&D at Oshawa.

A report in The Globe and Mail explains the funding increase

“One of the promises GM Canada made to the two governments in 2009 was that it would spend about $1-billion on research and development projects between then and 2016…The projects to be initiated or expanded between now and 2016 are expected to focus on environmental technologies, electric vehicles, vehicle weight reduction and so-called intelligent transportation systems.”

Prime Minister Stephen Harper and Ontario Premier Dalton McGunity are expected to be in attendance, though the recent string of gun deaths in Toronto will likely dominate the media scrum. That means that nobody will ask GM how it plans on meeting other bailout conditions, like

“As part of its 2009 commitments, GM Canada also agreed that its Canadian plants would produce 16 per cent of the vehicles General Motors Co. assembled in North America between 2009 and 2016…a fuel-efficient transmission at its St. Catharines, Ont., operation and… assembly of five new vehicles in Oshawa or Ingersoll during the same period.”

“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.”

Republican Presidential hopeful Mitt Romney told voters in Ohio that he deserves “a lot of credit” for the auto industry turnaround since the bailout era.

Romney told the Detroit News

“I pushed the idea of a managed bankruptcy, and finally when that was done, and help was given, the companies got back on their feet,” Romney said in an interview inside a Cleveland-area auto parts maker. “So, I’ll take a lot of credit for the fact that this industry has come back.”

What? On what planet does Romney deserve credit? As far as anyone knows, Romney published a New York Times op-ed…and that was it. Romney claims that Obama took his advice on a managed bankruptcy, but there’s no real proof of that ever occurring. Chrysler and GM did go through bankruptcy after a government bailout but their demise looks far from “guaranteed” at this point in time (as Romney put it in his piece). In the same vein, perhaps Romney will take credit for President Obama’s health care plan.

Vice-President Joe Biden has been talking about the auto bailout frequently as the campaign for his re-election heats up in the coming months. A speech to NYU had him tout the record of the Obama administration, while also criticizing Gov. Mitt Romney’s famous “Let Detroit Go Bankrupt” op-ed.

“If you’re looking for a bumper sticker to sum up how President Obama has handled what we inherited, it’s pretty simple: Osama bin Laden is dead and General Motors is alive,” Biden said Thursday at New York University. “Gov. Romney is counting on our collective amnesia. But Americans know that we cannot afford to go back to the future.”

Is this a new bumper sticker slogan, or what? In the interest of not bringing on accusations that TTAC is an anti-GM, anti-democrat, anti-Volt yellow rag, we’ll leave it to the B&B to make what they will of the article.

Old habits die hard. Whether it’s GM’s desire to slice-and-dice its fuel economy achievements to make them look better than they are, or our instinct to correct the record, it’s all just a little bit of history repeating.

GM, like most of the Detroit automakers, has never had an easy time marketing its fuel economy achievements. With a huge percentage of its sales and an even higher percentage of profits traditionally coming from full-sized trucks and SUVs, GM has had to respond to rising gas prices with some questionable claims. Perhaps the most infamous: 2008′s campaign touting the assertion that Chevrolet sold more cars getting 30 MPG on the highway than Honda or Toyota. Not only did this claim ignore the most accurate measures of fleet-wide efficiency, but it also stretched the truth rather badly. When TTAC’s readers analyzed this claim, they found that Chevy was counting different bodystyles as different models, effectively “double counting” cars like the Aveo (which was counted the four- and five-door models as separate cars). When the same counting technique was applied to Toyota’s model range, it was shown to have even more 30 MPG-capable cars than Chevy, essentially invalidating what was already a fairly marginal marketing claim.

But since 2008, the pressure has only mounted on GM to show improvement in its fuel economy. Though gas prices aren’t higher than they were back in the Summer of ’08 (yet), GM’s bailout has created a new kind of pressure. As I pointed out in a December 2010 NY Times Op-Ed, President Obama’s green justification for the bailout seemed to be something of a mirage. With gas prices then falling and pickup and SUV sales picking back up, Detroit was hardly living up to Obama’s vow that

This restructuring, as painful as it will be in the short term, will mark not an end, but a new beginning for a great American industry. An auto industry that is once more outcompeting the world; a 21st-century auto industry that is creating new jobs, unleashing new prosperity and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy-independent future.

Now, not only is GM facing pressure put on it by a President who seemed to offer fuel economy leadership from Detroit as a public reward for the public’s investment, but gas prices are also beginning to rise once more. And though GM has absolutely improved its fuel economy in the meantime, it still significantly lags the rest of the industry on an objective fleet-wide basis. And what’s worse, it’s marring its modest but admirable achievements by falling back on the old “most models over 30 MPG” chestnut.

In a post titled “Digging Into GM’s Fuel Economy Record” at his new “BTW” blog, GM’s VP for Communication Selim Bingol resurrects GM’s pre-bailout canard by arguing

GM has been selling a lot of fuel-efficient vehicles in many different sizes and styles – and more than you may think.

Just look at March.  We sold more vehicles in the United States that deliver an EPA-estimated 30 mpg or better on the highway than ever before – more than 100,000 – and the figure includes cars like the Chevrolet Camaro V-6 and crossovers like the GMC Terrain.

It might surprise you to know that these results make GM far and away the leader among the “Detroit” Three automakers, and we’re not that far off the pace set by Toyota.

So, instead of “more models over 30 MPG than Toyota,” GM is claiming 30 MPG option leadership over its Detroit competitors. And, to its undying credit, it’s not misleading the public by double-counting models this time around. Thanks to its genuinely improved offerings, GM legitimately has 12 options rated at over 30 MPG on the highway. On the other hand, the fact that GM sells more 30 MPG cars than its Detroit competitors is, as Bingol admits, at least

partly a function of our scale.

But although Bingol makes a more credible case for the “more models over 30 MPG” claim than his predecessors, achievements like these don’t get better with age. For one thing, the competition has moved on: Hyundai, for example, now reports the percentage of its sales that are rated at 40 MPG on the highway… some 41% as of March. Bingol as good as admits that GM is still playing catchup when he notes

Of course, 30 mpg is not the goal line.  We can and will move the needle higher because customers and our CAFE commitments demand it.  Soon enough, 40 mpg will be the new 30.

Here’s the thing: it already is. GM is touting a claim that might have been impressive four years ago… had it been accurate. Today, with well over 20 models available with at least 40 MPG highway ratings, it’s a yawner.

But not only has the industry moved on since 2008, the market has as well. Thanks to the rise of sites like TrueCar and Edmunds, consumers have access to more data on new cars than ever before. And since transparency has improved in the auto market, there are now far more accurate ways to compare manufacturer fuel economy than existed in 2008. With the fuel economy leader Hyundai self-publishing its sales-weighted fleet fuel economy numbers, TrueCar has stepped in to provide similar data for the entire industry. And isn’t the best way to compare fuel economy by measuring what the manufacturers actually sell?

By this measure, however, GM does not come out looking like an industry leader. In fact, as a manufacturer, GM doesn’t even make the industry average fuel economy. And its greatest deficit is in the car segments, where it’s nearly two MPG off the industry average. Moreover, GM’s rate of improvement in March was one of the lowest in the industry, which means it’s actually falling behind the competition. By brand, the picture is similar: each of GM’s brands comes in below the industry average, with truck-free Buick coming the closest at just .1 MPG off the mean.

This is not to say that GM hasn’t made improvements. As Bingol points out, GM sells a far more balanced mix of cars, trucks and crossovers than ever before. By segment, GM’s offerings beat the industry average for Large Cars, Large and Small Trucks and Large and Midsized SUVs. In fact, TrueCar shows that GM’s Midsized SUV offerings are by far the most efficient in the industry, at 24.1 MPG compared to a 21.9 MPG average.

Though these are clearly signs of movement in the right direction, they’re not enough to give GM a credible claim to fuel economy leadership… even among the Detroit automakers. But then, that was fairly apparent from the moment The General dusted off an ineffective marketing claim from  2008. Thanks to the relatively slow run-up in gas prices, pickup and SUV sales are remaining strong and GM needs their profits far more than it needs to become a fuel economy leader. But if the market experiences another Summer ’08-style rush towards high-efficiency cars, GM is going to have to come up with a better pitch to economy-minded consumers. And ultimately, it’s going to have to work harder than everyone else if it ever wants to make good on Obama’s promise of fuel economy leadership.

A year ago nearly to the day, I was investigating the connection between Libyan dictator Muammar Gaddafi and Fiat. With an American-led intervention in Libya underway, Reuters had reported that a Wikileaked State Department document revealed that the Libyan Government owned a two-percent stake in the automaker Fiat as recently as 2006. When I contacted Fiat’s international media relations department for comment, I received this response:

Dear Mr Niedermeyer,

Further to your email, I would mention that the Reuters report you refer to is incorrect. As too are other similar mentions that have appeared recently in the media concerning the LIA’s holdings in Fiat.

The LIA sold all of its 14% shareholding in Fiat SpA in 1986 – ten years after its initial stake was bought.  It no longer has a stake in Fiat SpA.

I trust that this clarifies the matter.

It didn’t, actually. In fact the matter remained as clear as mud to me until just now, when I saw Reuters’ report that Italian police have seized $1.46 billion worth of Gaddafi assets, including “stakes in… carmaker Fiat,” under orders from the International Criminal Court.

So, did Fiat lie? Not exactly. The Libya Arab Foreign Bank did sell back its shares in 1986, but the Wikileaked memo claimed that a successor entity, the Libyan Arab Foreign Investment Company, was the more recent Libyan investor. Not being well-versed in the structure and history of Libya’s sanction-avoiding foreign investment shell companies, and lacking the resources to effectively pursue the story (tracking Gaddafi-era investments is a chore), I left it there. And even now that Italian police confirm that a Gaddafi-controlled stake in Fiat has been seized, it’s not at all clear whether Fiat’s management was aware of this.

The AGI has the most detailed account, reporting

The Guardia di Finanza Corps of Rome has seized property worth more than 1.1 bln euro from members of the Ghaddafi family upon a warrant of the International Criminal Court of The Hague. The property seized includes real estate, company shares and bank accounts that belong to members of the Ghaddafi family or to people of Ghaddafi’s entourage with an overall value of more than 1.1 bln euro

Property investigations carried out by the GdF of Via dell’Olmata, in Rome have enabled to discover two financing companies through which leaders of the former Libyan regime had made investments in Italy. [emphasis added]

That covers Fiat management fairly well: at the very least, it appears that they didn’t know about Libyan investment until police were involved. I might suspect that this very Gaddafi stake in Fiat was frozen by Italian authorities prior to my request for comment, and Fiat’s representative misled me about it… but I have no way of proving it. Time will (hopefully) tell.

Meanwhile, on this side of the pond, it’s only a little strange that this wasn’t somehow brought to light in pre-bailout vetting of Fiat. Sure, a foreign enemy of the United States was a significant shareholder in the firm that was handed a bailed-out Chrysler for no cash down. On the other hand, Libya was not on the War On Terror radar at the time, and the auto task force had enough to worry about without investigating Fiat’s shareholders. All the same, chalk this up as yet another example of the unintended consequences of government intervention in the economy.

Finally, there’s the real question: did Gaddafi actually benefit from his Fiat investment? It all depends on when this second investment in Fiat shares took place. The Wikileaked memo says Libya owned two percent of Fiat as of 2006, which means it was enjoying the short-lived Marchionne boom (financed in part by General Motors) after years of decline and stagnation. And when things headed south in 2008, snagging Chrysler for nothing sent Fiat stock on its last real bounce… which means the Gaddafi regime did benefit to some extent from the auto bailout. Still, with Fiat’s shares pricing at all-time lows the Libyan dictator almost certainly lost money on his Fiat investment over the years. Unless the Guardia di Finanza find evidence that Fiat’s management knew about Libyan investment, this might well be a case of “no harm no foul.”

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.”

Days after Republican Presidential candidate Mitt Romney penned an op-ed in the Detroit News over his thoughts on the bailout, UAW President Bob King is firing back.

In a statement released to the media, King said that

 ”He’s trying to rewrite history and attack President Obama and the UAW for successfully saving the auto industry. He is misleading voters about the president’s bold and decisive rescue of the auto industry and about sacrifices made by workers. But voters deserve the truth.”

Romney is hardly the only Republican candidate who has come out against the bailout; 2008 nominee John McCain spoke out publicly against it, and Rick Santorum, a candidate in this year’s race, has also come out against it, but placed the blame largely with President George W. Bush. Nevertheless, Michigan Governor Rick Snyder endorsed Romney this past Thursday.

Republican Presidential candidate Mitt Romney published an op-ed in the Detroit News calling the auto bailout “crony capitalism on a grand scale.” Boasting of his Michigan roots, Romney takes the Obama administration and the UAW to task for what he suggests is a symbiotic relationship between the two that allowed the union to get stakes in GM and Chrysler. In short, nothing new from the man who is running an election that is a referendum on Obama’s presidency.

Readers of TTAC will recognize that Romney’s explanation of the bailout and his own suggests are a sort of “For Dummies” executive summary of what went on, and his suggestions for improvement, like the feel good rhetoric about the resurgence of the Motor City are nothing we haven’t heard before. Buried towards the end is the one major piece of the article, with Romney suggesting

The shares  [in General Motors belonging to the Treasury] need to be sold in a responsible fashion and the proceeds turned over to the nation’s taxpayers

Starting in March, the Chevrolet Volt will be eligible to use the HOV lane on California highways. The catch? You have to buy a new Volt to use the carpool lane.

General Motors added a secondary air-injection pump to the Volt’s catalytic converter in order for the Volt to meet certain emission requirements. The Volt will also qualify for a further $1,500 in tax credits as well as the HOV lane sticker. Any Volts sold before the new package comes into effect are shut out, and GM has been strategically reducing allocation of the cars to prepare for the launch of the revised Volt.

Ford’s Australia branch is getting $34 million AUD (roughly $35 million U.S. dollars) plus an unspecified contribution from the government of Victoria (an Australian state), to sustain a Ford plant in Melbourne.  Total investment is said to be roughly $105 million USD. Holden, GM’s Australian division, is looking for some government funds too, and its raising questions about the viability of Australia’s domestic car industry.

Holden has been negotiating for their own package, would help develop a new Commodore. More significantly is the fact that some money would be earmarked to help develop a next-generation Holden Cruze (nearly identical to our Chevrolet version), currently the sole small, fuel-efficient car produced in Australia. While Australian cars are generally thought of as being large, V8 powered brutes, consumer tastes have been shifting towards cars like the Cruze, which was Australia’s 5th best-selling car. The Mazda3 also unseated the Commodore as Australia’s best-selling car for the first time in 15 years.

In 2008, Mitsubishi closed up shop after getting government assistance to produce the 380 (similar to our Galant) . Production lasted a mere three years, even though the 380 was supposed to be the begging of a turnaround for Mitsubishi’s Australian operations. The 380′s failure has cast a shadow on Australian vehicle production ever since, and more importantly, advanced a notion among some that continued bailout money merely prolongs the natural death of a financially unsustainable plant or vehicle.

Of course, the deal has strings attached – some of the money must go towards making the Falcon, and the Ford Territory SUV, safer and more fuel efficient. While the Australian government hasn’t exactly told Ford that it needs to “build a 40 mpg car“, we’ve seen shades of this before at home. The Falcon and Territory are under specific threat due to Alan Mulally’s  ”One Ford” doctrine which demands global variants of vehicles rather than market-specific product.

One analyst pegs the amount of government money pumped into the local industry at about $500 million per year since 2001, in a program that is supposed to run until 2020. One opposition politician even suggested that the car industry in Australia couldn’t survive without government assistance. Compared to America, the culture of government assistance seems much more deeply entrenched, and opinion is starting to shift towards the view that a perpetual appetite for taxpayer funds, especially for an industry that produces increasingly irrelevant vehicles (anecdotal evidence suggests that most Commodores, Falcons etc are bought by government and private fleets) and exports little is becoming unsustainable.

Reasonable minds can disagree about the wisdom of the auto bailout, but according to analysis by the EPA and Department of Transportation (based on data from the Department of Energy and auto forecasters CSM), the Government’s rescue of GM and Chrysler may not have been the best idea (at least from a market perspective). According to data buried in the EPA/DOT proposed rule for 2017-2025 fuel economy standards [PDF here], Fiat-Chrysler is predicted to be the sick man of the auto industry by 2025, losing over half of its 2008 sales volume, while GM is expected to improve by only 3%, the second-worst projected performance (after Aston-Martin). In terms of percentages, even lowly Suzuki and Mitsubishi are projected to grow faster than The Mighty General. Ouch.

On the other hand, the proposed rule notes that data will be finalized before the final rule comes out. Besides, the agencies appropriately admit (in as many words) that projecting auto sales so far into the future is one hell of a crapshoot. Still, with the obvious exception of “Saab-Spyker” and with some skepticism about the projection’s optimism about overall market growth aside, these are not the craziest guesses I could imagine. Who knows what the future holds, but it certainly is a bit troubling that the government’s own data suggests the two automakers it bailed out may well have some of the weaker performances of the next 14 years. At least the Treasury could have sold off their remaining GM stock before this report was released…