The Truth About Cars » Debt http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Sun, 07 Dec 2014 13:37:29 +0000 en-US hourly 1 http://wordpress.org/?v=4.0.1 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 » Debt http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com NEVS “Not Insolvent,” Will Pay When Possible http://www.thetruthaboutcars.com/2014/08/nevs-insolvent-will-pay-possible/ http://www.thetruthaboutcars.com/2014/08/nevs-insolvent-will-pay-possible/#comments Tue, 19 Aug 2014 10:00:30 +0000 http://www.thetruthaboutcars.com/?p=895298 Remember when Saab’s new parent company was close to being taken to court and forced to declare bankruptcy by one of its suppliers? New information may have helped changed course. Autoblog reports National Electric Vehicle Sweden issued a brief statement proclaiming that while “the company does not have enough liquid cash as today to pay […]

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Remember when Saab’s new parent company was close to being taken to court and forced to declare bankruptcy by one of its suppliers? New information may have helped changed course.

Autoblog reports National Electric Vehicle Sweden issued a brief statement proclaiming that while “the company does not have enough liquid cash as today to pay all outstanding debt,” it is “not insolvent” thanks to having assets larger than its obligations.

The statement also states the supplier — Lado Labs — withdrew its petition to force bankruptcy upon NEVS next month due to not having been paid for testing procedures in February. That said, it doesn’t know when it will be able to pay all of its suppliers.

The funding issues came about when one of NEVS’ shareholders failed to deliver its investment to the company, bringing a halt to manufacturing of the 9-3. NEVS is holding ongoing conversations with two unnamed manufacturers with the aim to restart the line once funding is secured.

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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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New Or Used? : A Young Driver Wants His Milk & Cookies… Right Now! http://www.thetruthaboutcars.com/2014/01/new-or-used-a-young-driver-wants-his-milk-cookies-right-now/ http://www.thetruthaboutcars.com/2014/01/new-or-used-a-young-driver-wants-his-milk-cookies-right-now/#comments Fri, 10 Jan 2014 13:00:59 +0000 http://www.thetruthaboutcars.com/?p=695777   I just got a job that involves a fair amount of driving and I am looking to spend about 11-13k on a car that is fun to drive but at the same time practical and reliable. I have a large dog, bicycle, and significant other that I transport on a regular basis (not all at the same […]

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I just got a job that involves a fair amount of driving and I am looking to spend about 11-13k on a car that is fun to drive but at the same time practical and reliable.

I have a large dog, bicycle, and significant other that I transport on a regular basis (not all at the same time). I’d like to get a manual but the fact of the matter is that I am very likely to get stuck in a traffic jam one way or another so I am still debating on that. My job covers gas and a modest vehicle allowance that will cover wear and tear maintenance with a little pocket change left over. So gas mileage and little things going wrong are not a big deal. However it does need to be reliable in the sense that it will start everyday and get me where I need to go.

Some cars I have been thinking of are Mazda 3, GTI, Focus, E46 3 series(wagon if I can get it), and Mustang(thats a wildcard). I would prefer that any car I get be 2006 or newer so I can finance a modest amount but I do not want to get in the hole of financing a new car thus my budget. Help out a fellow car enthusiast and let me know what you think.

Steve Says:

Your question reminds me of the all too scary fact that my own soon-to-be 11 year old son may someday be in your shoes.

I hope to hear this in, oh, about 15 years from now.

“Hey Dad! Guess what? I just got promoted to hedge fund manager at Milken, Milken & Dacau.”

“Great to hear it son. Remind me to retire soon.”

“I’m sure you’ll die first Dad (thanks son!). Oh, the bosses boss wants me to trade in the Camry and get something really nice. Like a Lamborghini Flatulencia.”

“Jeez! That will be quite a bit of bitcoins!. Are you sure you can afford it?”

“Sure! I’ll just get a loan with….”

… the uncomfortable thought of a loan on a car is enough to stop that happy daydream dead in it’s tracks. It may not be a good idea quite yet to arrange for a long-term divestiture of your wealth. Why?

You just got a job.

You haven’t made any money yet at this particular job.

You are now what we called in my native state of New Jersey, “working class”. Your financial security is exactly equal to your “new job” security. There is good news and bad news with that.

The good news is that you have work. The bad news is that if you’re smart, you are going to be in saving mode for the next several years and eventually buy those things that are worth keeping. Which means that when it comes to cars you may want to hold off on the late model throttle a bit.

I would go a little bit deeper down the model year range and consider an 03 to 05 model that has 100,000 miles or so and has been furiously depreciated. A stickshift on a medium sized coupe or sedan (Infiniti G35, Lexus IS300, Acura CL/TL) would be a worthwhile consideration. You can even go more into the affordable arena and wait for what we call the “rare birds” in the car business. A supposedly plain jane Solara that has a nice V6 and a 5-speed. Or the last of the Q45’s that often gets blurred out of the car shopping process.

If it were me, I would start nagging friends and associates for a well-kept older car and then tweak the suspension and upgrade the tires over time so that it rides the way you like it to. However I can hear my son in the 15 year distance revving up his Flatulencia and wondering how his Dad became so debt averse. The truth is I was raised that way. Debt to me is still a four letter word. So I’ll leave it up to the folks here to offer some more recent 11k to 13k alternatives with financing in tow.

 

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Debt Upgrade to Investment Status Restores Blue Oval to Ford Ownership, GM Upgrade Expected http://www.thetruthaboutcars.com/2012/05/debt-upgrade-to-investment-status-restores-blue-oval-to-ford-ownership-gm-upgrade-expected/ http://www.thetruthaboutcars.com/2012/05/debt-upgrade-to-investment-status-restores-blue-oval-to-ford-ownership-gm-upgrade-expected/#comments Wed, 23 May 2012 14:09:05 +0000 http://www.thetruthaboutcars.com/?p=445615 It’s almost a cliche. Someone mentions the $23.5 loan package that Ford Motor Company presciently took out in 2006, a loan that allowed Ford to develop new products and survive the economic meltdown and credit crunch of 2008 while its crosstown rivals were reduced to begging Washington for a bailout, and almost invariably they will […]

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Seth-Gold-Hardcore-Pawn-Ford Images: Ford Motor Co. & Tru-TVIt’s almost a cliche. Someone mentions the $23.5 loan package that Ford Motor Company presciently took out in 2006, a loan that allowed Ford to develop new products and survive the economic meltdown and credit crunch of 2008 while its crosstown rivals were reduced to begging Washington for a bailout, and almost invariably they will bring up the fact that Ford pawned everything including their “blue oval”. Well, Ford once again owns the famous cerulean logo free and clear. Now that Moody’s has joined Fitch Ratings in restoring the rating on Ford’s debt to investment grade from junk status, the collateral that Ford put up for the loan, which included the logo, Ford’s “glass house” headquarters, several factories, and intellectual property including the Mustang and F-150 trademarks, is no longer security on that debt, per the terms of the loan.

Ford Chairman Bill Ford Jr., the great grandson of Ford founder Henry Ford, said, “The Ford Blue Oval is back where it belongs with the Ford family of 166,000 employees around the world. This is a great day for us and is the result of several years of hard work and progress by everyone associated with Ford.”

The hocking of the Blue Oval was a hugely symbolic step for Ford to take, emblematic of the straits the company faced. Ford Jr. said that the logo was more than an asset. “We pledged our heritage.”

Ford CEO Alan Mullaly, who relied on the advice of now retiring CFO Lewis Booth in taking out the loans, had described them earlier as “the world’s biggest home improvement loan.”

In a statement (full statement below) announcing the debt upgrade, Mullaly and Ford said, “Moving forward, we will continue to focus on driving profitable growth for all of our stakeholders. We are confident that, by staying focused on our plan and working together, we will maintain strong investment-grade ratings through all economic cycles.” Under Mullaly’s leadership, Ford has returned to profitability and the Dearborn automaker has hacked away at its debt in huge chunks. Ford’s current debt stands at $5.9 billion.

In other credit rating news, Moody’s continued General Motor’s Ba1 rating, saying that they expect GM to be upgraded to investment-grade status within a year. “GM’s credit quality continues to improve and the company remains on track to regain an investment-grade credit rating over the course of the next 12 months,” said Bruce Clark, Moody’s chief analyst for the North American auto industry. The credit rating company listed GM’s performance in North America and China as upsides, with the company facing challenges in Europe and continued concern over pensions, GM Financial, and the consequences of the U.S. Treasury Department’s stake in the automaker.

From: Bill Ford and Alan Mulally

Sent: Tuesday, May 22, 2012 3:50 PM

To: The Ford Team

Subject: Investment Grade

This afternoon, Moody’s Investors Service announced its decision to upgrade Ford Motor Company to Baa3 with stable outlook, or investment grade. This is a significant milestone for all of us and the result of several years of hard work and progress by everyone associated with Ford.

We all can be very proud of today’s decision by Moody’s and the resulting release of the collateral securing the loans we took out in 2006 — particularly the Ford Blue Oval. This is further proof that, by staying laser-focused on our One Ford plan, the Ford team can deliver great products, build a strong business and contribute to a better world even through the most challenging external environment.

When we pledged the Ford Blue Oval as part of the loan package, we were not just pledging an asset. We pledged our heritage. The Ford Blue Oval is one of the most recognized symbols in the world, and it is a source of great pride and passion, both inside and outside our company.

Moving forward, we will continue to focus on driving profitable growth for all of our stakeholders. We are confident that, by staying focused on our plan and working together, we will maintain strong investment grade ratings through all economic cycles.

The Ford Blue Oval is back where it belongs. This is a great day for everyone associated with our company.

Congratulations and thank you!

Bill and Alan

Ronnie Schreiber edits Cars In Depth, a realistic perspective on cars & car culture and the original 3D car site. If you found this post worthwhile, you can dig deeper at Cars In Depth. If the 3D thing freaks you out, don’t worry, all the photo and video players in use at the site have mono options. Thanks for reading – RJS

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With Less Than $1m In The Bank, Saab Hits Up The Wall Street Loan Sharks http://www.thetruthaboutcars.com/2011/08/with-less-than-1m-in-the-bank-saab-hits-up-the-wall-street-loan-sharks/ http://www.thetruthaboutcars.com/2011/08/with-less-than-1m-in-the-bank-saab-hits-up-the-wall-street-loan-sharks/#comments Fri, 19 Aug 2011 17:17:47 +0000 http://www.thetruthaboutcars.com/?p=408033 I know I’ve said this several times before, but the end really is near for Saab. The WSJ [sub] reports that Sweden’s Debt Enforcement Agency began auditing Saab’s finances after several debts came due earlier this week, and found only 5.1 Kroner ($796,291) in its Skandinaviska Enskilda Banken account. That’s barely enough to cover the […]

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I know I’ve said this several times before, but the end really is near for Saab. The WSJ [sub] reports that Sweden’s Debt Enforcement Agency began auditing Saab’s finances after several debts came due earlier this week, and found only 5.1 Kroner ($796,291) in its Skandinaviska Enskilda Banken account. That’s barely enough to cover the 5.06m Kroner in debts that came due this week alone… and Saab’s total outstanding debt is ten times that amount, around 50m Kroner. And as if the financial trouble weren’t dire enough, key stakeholders are abandoning Saab in embarrassment, like Benny Holmgren, one of Sweden’s largest car dealers. Holmgren tells SvD.se that his contract to sell Saabs has expired and that he won’t renew, explaining

“For me, it is important to be proud of the brands that we have in our halls. Saab does not deliver cars they promised, they do not pay wages to their employees, nor debts to their suppliers while the owners pick out big money. It does not feel right for a [my] car dealers.”

But among the hardcore Saab faithful, today is not a day of sorrowful resignation… but a day of totally overblown and unrealistic hope for their dying brand. Yes, really…

Earlier in the week, Saab hinted at something it called “The Deal,” which would

“carry us through this near-term liquidity shortfall and into the future, so that we can re-start production and get back to being a car company again.”

Now, Saabsunited is hailing news that Saab has hired Endeavor Advisor Group to round-up some $350m in financing as “the deal,” and the end of Saab’s long nightmare. Not so fast. Saab hasn’t found money, they found an Investment Bank that is willing to take them on. It’s like a mortgage broker who is willing to accept your application. Except that these brokers, and that’s what they are, charge a hefty upfront-fee.   Then there is a “success fee.” Both fees rise quickly commensurate with the desperation of the customer. Desperation runs high.

According to a Wall Street banker we interviewed, “they probably talked to some of the bigger firms who did not take them. Endeavor probably won’t charge them a huge  upfront, because they don’t have the money. My guess is a $100,000 retainer a month.” When asked what the success fee could be, he said “this is usually capped at 10 percent, but the cap applies only to U.S. companies. As a foreign company – whatever it takes. However, if they really find an investor, he won’t want a huge chunk of his money go to some agent. So they’ll cut a deal.” His estimate was the deal would cost Saab in excess of $20 million plus “a good chunk of warrants for the bankers.”

After we explained that Master of the Universe Victor Muller had jetted around the world and came up empty-handed, we asked his guess for the chances of success: “In this climate? Those guys are [BLEEP].”

By signing the money-hunt over to EAG, Saab is simply admitting that Victor Muller’s round-the-world beggathon has yielded nothing and that it’s time to bring in the pros. But then, Victor Muller was supposed to be a pro when it comes to rounding up cash… and it’s not like he brought much else to the table, besides experience running a money-losing supercar firm. If Muller is giving up on his finance hunt, this may actually be one of the surest signs that Saab’s sad story is winding down.

The plan is for Endeavor to raise $350m, with which to buy out the EIB loan, which would then allow Vladimir Antonov to buy the stake he’s been wanting for some time. But there are a number of problems here: first, Endeavor has to find lenders and pitch them more successfully than Muller. Second, Saab has to survive for 60 days… and with the firm in default, it could be forced into bankruptcy court by the Debt Enforcement Agency when they meet next week. Finally, even if the EIB is bought out, Antonov still has to be approved by GM before he can buy in. Needless to say, the odds are against all of these things happening, and the most likely scenario is that Saab will be placed into bankruptcy court next week.

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Three Suppliers Request Saab Bankruptcy, August 16 Is Judgement Day http://www.thetruthaboutcars.com/2011/08/three-suppliers-request-saab-bankruptcy-august-16-is-judgement-day/ http://www.thetruthaboutcars.com/2011/08/three-suppliers-request-saab-bankruptcy-august-16-is-judgement-day/#comments Thu, 11 Aug 2011 15:06:20 +0000 http://www.thetruthaboutcars.com/?p=406676 Just three weeks after Saab narrowly avoided being pushed into bankruptcy by supplier SwePart, SvD.se reports that three other suppliers have now initiated the bankruptcy process by requesting that Sweden’s national debt bailiffs pursue their debts. One Spanish supplier is reported to be foreclosing on €2m ($2.8m in debt), while two of the rebelling German firms […]

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Just three weeks after Saab narrowly avoided being pushed into bankruptcy by supplier SwePart, SvD.se reports that three other suppliers have now initiated the bankruptcy process by requesting that Sweden’s national debt bailiffs pursue their debts. One Spanish supplier is reported to be foreclosing on €2m ($2.8m in debt), while two of the rebelling German firms are said to be owed at least €5m each. And though Saab says it is meeting with the Spanish firm to try to hammer out a deal,  SvD reports that four of the 14 outstanding claims against Saab have run out of time. Lars Holmqvist, head of the European Association of Automotive Suppliers argues that, by paying some suppliers and not others, Saab is de facto bankrupt, and that a trustee should be brought in to pay suppliers in order of priority, rather than order of Saab’s necessity. Meanwhile, Saab CEO Victor Muller has been in Brazil and the US, trying to bring new investors on board, as  its Chinese funding won’t be approved for two-to-three months, if ever. Meanwhile, “taxes and fees” must be paid by Friday, August salaries are due in just two weeks, and Muller cut his latest money-raising trip short to reassure workers back in Trolhättan. But according to thelocal.se, even the most optimistic of union leaders hope Saab will have a new CEO soon. Do I hear the fat lady warming up her vocal cords?

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Saab Referred To Collections. Bankruptcy Threatened http://www.thetruthaboutcars.com/2011/06/saab-referred-to-collections-bankruptcy-threatened/ http://www.thetruthaboutcars.com/2011/06/saab-referred-to-collections-bankruptcy-threatened/#comments Wed, 15 Jun 2011 18:47:36 +0000 http://www.thetruthaboutcars.com/?p=398836 A group of businesses that are owed anywhere between $198 and $744,083 could force ailing Saab to declare bankruptcy.  They have turned to the Swedish Enforcement Agency, better known (and feared) in Sweden as the “Kronofogden.” That agency introduces itself as follows: “Is there a bill you cannot pay? Or are you not getting paid […]

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A group of businesses that are owed anywhere between $198 and $744,083 could force ailing Saab to declare bankruptcy.  They have turned to the Swedish Enforcement Agency, better known (and feared) in Sweden as the “Kronofogden.” That agency introduces itself as follows:

“Is there a bill you cannot pay? Or are you not getting paid by someone who owes you money? In both cases, it will be Kronofogden that you come into contact with. A debt that is not paid ends up in Kronofogden´s register. This register is open for all to consult. As a result, anyone wishing to find out how someone else manages their finances can check the register. If a person´s name appears in the register, he/she can find it difficult to buy on hire purchase, borrow money or rent an apartment.”

Currently, there are 48 entries on that list that claim that Saab owes them.  Lots of suppliers. A few bill collectors. A patent attorney. One of the world’s largest CPA firms, Pricewaterhouse-Coopers, demands $104,904.

Swedish online newspaper GT published a list of all the claims allegedly reported up to Tuesday. Here it is:

Creditor Amt SKR AMT USD
Svensk Bilprovning: 10,309 kr $1,595
Supplies Team Sverige: 1,559 kr $241
Uddeholm Svenska: 150,272 kr $23,246
Dahl Sverige: 50,661 kr $7,837
Michael Page International: 1,812,330 kr $280,360
Posten Meddelande: 443,330 kr $68,581
Effect Management Search: 128,014 kr $19,803
Kongsberg Automotive: 4,338,708 kr $671,180
De Lage Finans: 157,904 kr $24,427
Siemens: 19,007 kr $2,940
Bording: 99,134 kr $15,336
Posten Meddelande: 244,909 kr $37,886
Kontentan Förlags: 1,280 kr $198
Awapatent: 319,513 kr $49,427
Öhrlings Pricewaterhouse-Coopers: 678,521 kr $104,964
Benteler Aluminium Syst.: 82,029 kr $12,690
Mutual Benefits: 455,948 kr $70,533
Brännkammaren 67: 223,224 kr $34,532
Teliasonera Sverige: 5,525 kr $855
Ultramare: 32,890 kr $5,088
Chemetall Skand. Ytteknik: 361,174 kr $55,872
Infotiv: 215,653 kr $33,361
Granzow: 90,867 kr $14,057
Materialcenter Väst: 93,725 kr $14,499
Benteler Aluminium Syst.: 973,005 kr $150,520
Netgroup Engineering i Gbg: 92,847 kr $14,363
Svea Ekonomi: 4,128 kr $639
Kopparberg Finans: 129,683 kr $20,061
Bording: 5,162 kr $799
Atlas Copco Compressor: 141,875 kr $21,947
Atlas Copco Compressor: 6,127 kr $948
Runelandhs Försäljnings: 3,234 kr $500
Live Nation Sweden: 238,001 kr $36,818
Carlhag: 5,129 kr $793
TDC Sverige: 2,597 kr $402
Svenska Elektrod AB: 2,262 kr $350
Fasitet PDE: 4,809,973 kr $744,083
Eniro Sverige: 35,762 kr $5,532
Dacat: 238,653 kr $36,919
Atlas Copco Compressor: 448,501 kr $69,381
HIQ Göteborg: 3,327,844 kr $514,803
Inkasso Marginalen: 436,099 kr $67,463
Awapatent: 233,601 kr $36,137
Mima Skepps- och Industriservice: 686,278 kr $106,164
I3tex: 425,939 kr $65,891
Releasy Customer Management: 266,967 kr $41,299
J Event: 729,118 kr $112,791
Chemetall Skand. Ytteknik: 341,427 kr $52,817
Chemetall Skand. Ytteknik: 142,316 kr $22,016
23,743,014 kr $3,672,944

This list is as published by GT, we assume no responsibility for completeness or correctness.

GT points out that this is just the list of the creditors that turned to the state agency for collection. “The total debt is many times greater,” says the paper. “The situation is extremely serious,” said  Sven-Ake Berglie, president of Fordonskomponentgruppen. He also points out that this list just scratches the surface: “The largest creditors are abroad. For example, GM.”

Germany’s Automobilwoche [sub]  reports that “increasingly impatient suppliers could soon file a petition for bankruptcy.”  Getting on the Kronofogden list establishes priority in bankruptcy proceedings. Kronofogden is not just bill collector and keeper of the list of shame, it also supervises bankruptcy proceedings:

“A company whose debts are excessive may be declared bankrupt by those to whom it owes money. The company is then taken over temporarily by a bankruptcy administrator, often a lawyer, whose task it is to share the remaining money among those with claims on the company. Kronofogden supervises the bankruptcy administrators and ensures that they perform their task correctly.”

But Kronofogden is also here to help: “

If you have major debts that you think you will never be able to repay, you can apply to Kronofogden for help with debt relief. This will require you to live for five years at the minimum possible level of financial outgoings. All surpluses in your finances will be used to pay off your debts. After five years, you will be clear of debt.“

Come on: Just five years at minimum possible level of financial outgoings, and you are debt-free.

But wait. Aren’t there bazillons coming from China? Says Automobilwoche: “Currently, these are non-binding dreams of the future out of a joint letter of intent.  The reality faced by the more than 3,700 workers that had to fear for their jobs for more than a year looks a lot more dismal than a rosy future Made in China.”

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Chrysler Debt Effort Stalls: Goverment Loans Not So “Shyster” After All? http://www.thetruthaboutcars.com/2011/05/chrysler-debt-effort-stalls-goverment-loans-not-so-shyster-after-all/ http://www.thetruthaboutcars.com/2011/05/chrysler-debt-effort-stalls-goverment-loans-not-so-shyster-after-all/#comments Mon, 16 May 2011 16:56:49 +0000 http://www.thetruthaboutcars.com/?p=395048 As Steve Rattner described in his book “Overhaul,” the Presidential Auto Task Force very nearly decided not to rescue Chrysler, with the decision coming down to a single vote. Now, it seems, that with Chrysler blaming the “shyster” interest rates on its government loans for its lack of profitability, Chrysler’s viability now depends on rounding […]

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As Steve Rattner described in his book “Overhaul,” the Presidential Auto Task Force very nearly decided not to rescue Chrysler, with the decision coming down to a single vote. Now, it seems, that with Chrysler blaming the “shyster” interest rates on its government loans for its lack of profitability, Chrysler’s viability now depends on rounding up a “lender of second to last resort.” And, according to the latest reports, that rescue-of-a-rescue effort is still very much hanging in the balance as well. If CEO Sergio Marchionne thought the government’s loan terms were “shyster”-ish, he was clearly in need of some context from Wall Street… and he doesn’t seem to be liking it.

Though Chrysler needs about $7b in fresh debt to get out from under its oppressive government rescuers, the WSJ [sub] reports that Chrysler’s current debt proposal includes only $3.5b in loans and $2.5b in bonds. And, as the Journal describes, one of those elements is facing some trouble

While the bonds, which yield more than the loans, attracted strong interest from the beginning, the loan portion is off to a slow start. The loan will likely now be reduced, with a corresponding increase to the bond, according to people familiar with the matter. The loan will also likely carry a higher interest rate than previously proposed, they said. Overall, that shift will slightly increase the cost of the new debt.

Chrysler, which currently pays around 10 percent on its government loans is looking for loans at 5.5-5.75 percent. The fact that it’s having trouble getting loans at that rate means it’s more likely to have to take a disproportionate amount in bonds, which yield a not-insignificant 7.5%. The takeaway: nobody wants to lend Chrysler money at what it considers fair interest rates, and it will likely reduce its interest costs by less than half. Perhaps those government loans were more fair than Marchionne gave them credit for?

So what’s the problem? Well, the market, for starters.

The loan market’s limits have been stretched this month by the appearance of a number of large leveraged transactions, including multi-billion dollar deals by Delphi Automotive and Asurion Corp. The timing of Chrysler’s deal was complicated by the process of getting consensus from the U.S. government, the Canadian government and Fiat, said the people familiar with the matter.

The pool of money available for leveraged loans has shrunk because new collateralized loan obligations, known as CLOs, have disappeared. Also, many of the hedge funds that previously specialized in either loans or bonds are now buying both and are searching for attractive values across both markets.

Other problems? Well, Chrysler’s profitability has to be one of them. With $337m in interest expenses in Q1, a 33% reduction on a quarterly basis (a conservative best-case scenario for the re-fi), would still leave the firm with just under a billion dollars per year of interest costs. Given that Chrysler’s first profit in years was a razor-thin $116m, few of the lending banks are likely to delude themselves into thinking this re-fi will unshackle a slumbering giant that’s poised on the brink of huge profits. Add to this, the fact that the auto industry largely sees Chrysler’s rescue as negative for the health of the industry as a whole, and banks are going to be very hesitant about wading into a lot of Chrysler exposure.

Reuters adds some investor perspective to the picture, noting

Chrysler’s loan deal has struggled in part due to the troubled history of the company, as well as a pickup in supply of new leveraged loans that launched for syndication in recent days, potential investors said.

“In a market like this, trading sideways and with so much supply, people can afford to be choosy, especially when it comes down to a name where you have lost money before,” one of the investors said.

A second investor looking at the deal earlier this week said that pricing on the transaction may not adequately compensate lenders for the risk involved in the loan.

A third investor who was shown the deal said that given the large size of the loan, lenders didn’t feel pressed to rush in.

“Worst case, they can always pick it up in the secondary,” he said, adding that Chrysler’s car lineup consists mainly of larger cars that use more gasoline and that the company is relying on the Fiat brand, which is not widely known in the U.S. market.

Chrysler’s four underwriting banks, Citigroup, Morgan Stanley, Bank of America and Goldman Sachs, have each committed $200m to a $1.5b Chrysler revolving credit line, and though that facility is fully subscribed, the larger term loan is where the hesitation is taking place even though the revolver and the term loan are being priced identically, as follows:

400 to 425 basis points over Libor with a 1.25 percent Libor floor, along with a discount of 99 to 99.5 cents on the dollar.

Will Chrysler wrap up its financing and pay back the government? No matter what terms it finally gets, it will certainly save money with the re-fi, and will want to reap the PR benefits that come from misleading taxpayers into thinking the bailout payback is complete. Whether a Wall Street re-fi really changes much in the fundamentals of Chrysler’s business remains very much to be seen.

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GM To Buy Government Preferred Stock http://www.thetruthaboutcars.com/2010/10/gm-to-buy-government-preferred-stock/ http://www.thetruthaboutcars.com/2010/10/gm-to-buy-government-preferred-stock/#comments Thu, 28 Oct 2010 17:28:26 +0000 http://www.thetruthaboutcars.com/?p=370611 News that the government will sell only $6b-$8b worth of its GM equity has been joined by an even more surprising GM IPO announcement: GM will buy the Treasury’s entire $2.1b holding of preferred stock in the initial offering. GM has not announced how much it will pay for the stake, and the Detroit News […]

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News that the government will sell only $6b-$8b worth of its GM equity has been joined by an even more surprising GM IPO announcement: GM will buy the Treasury’s entire $2.1b holding of preferred stock in the initial offering. GM has not announced how much it will pay for the stake, and the Detroit News reports that it’s not yet clear if GM will also buy some $400m in preferred stock held by the Canadian and Ontario governments. We’re also getting word via Twitter that GM will put $4b in cash and $2b worth of its stock into its overdrawn UAW pension fund, as well as making a $2.8b payment to the UAW VEBA account. With a $5b line of credit secured, GM says these and other steps will reduce its debt by $11b over an unspecified timeline. And speaking to Reuters, GM CEO Dan Akerson made it clear what the point of these moves are:

It’s up to people like you and me, the burden we share, that we deliver on the promise and return the investment to the American taxpayers. We are going to do our level best to make that happen, and we will only do that by expanding our industrial base and entering new markets and being a better competitor.

Of course, we’ll have to see what value The General places on the preferred stock to know how seriously Akerson should be taken. After all, talk is cheap and money isn’t. [UPDATE: It appears that GM will buy the preferred stock for $25.50 each, essentially giving the Government its book value of $2.14b]

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Ford’s Tall Order: Debt Free By 2011 http://www.thetruthaboutcars.com/2010/10/ford%e2%80%99s-tall-order-debt-free-by-2011/ http://www.thetruthaboutcars.com/2010/10/ford%e2%80%99s-tall-order-debt-free-by-2011/#comments Sun, 03 Oct 2010 11:47:22 +0000 http://www.thetruthaboutcars.com/?p=367314 When Alan Mulally came to FoMoCo, his strategy was simple. Quite literally. “One Ford.” Jaguar? Out. Land Rover? Out. Volvo? Out. Mercury? Out. Aston Martin? Out (but we’ll keep a small stake, just in case…). It’s all about “Ford.” And it’s worked. Ford is flying high and is closing in on GM in the US […]

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When Alan Mulally came to FoMoCo, his strategy was simple. Quite literally. “One Ford.” Jaguar? Out. Land Rover? Out. Volvo? Out. Mercury? Out. Aston Martin? Out (but we’ll keep a small stake, just in case…). It’s all about “Ford.” And it’s worked. Ford is flying high and is closing in on GM in the US market. But there’s one thing that stops Ford flying even higher. It’s that millstone around their neck, called debt. And lots of it. About $27.3b in the most recent quarter. Some economists believe that is what is depressing Ford’s stock price. Well, it seems Mr Mulally is going to have a laser focus on this problem.

The Wall Street Journal reports that Mr Mulally wants to pay off Ford’s debt (not personally, but corporately) by 2011. My goodness! He’s going to tackle Mount Everest?! “We plan to get rid of the net debt in 2011,” said Alan Mulally, “we will already be firmly profitable this year with a positive cash flow in the auto business…In 2011, we will do even better.” Honestly, you turn a company around and soon you’ll start believing your own hype.

Mr Mulally then turned his focus to Ford Europe, one of the crown jewels in the Ford crown. In the huge poker game he is playing with other car makers in the European market, Mr Mulally thinks the others are bluffing. Supposedly, Mulally does not want to increase Ford’s market share in Europe just for the sake of it. “In Europe…some competitors do it because they have a surplus of production capacity, but they will not be able to do it for long,” said the Ford CEO. You mean, Ford backed-off from Europe’s largest brand? Or could Mr Mulally be having a sly dig at Vauxhall/Opel? No, not Mr Nice Guy? Doesn’t he know who owns them…?

UPDATE: Since writing this article, the WSJ have changed their article. It appears that the original story from Il Sole 24 Ore “misrepresented” Alan Mulally’s comments. Ford is aiming to have more cash than debt by 2011. The new article posits that Ford need $5.4b to have enough cash to cover existing net debt. Unfortunately, it doesn’t end there. Ford still need that cash to invest in new projects, new factories, keep current operations going, etc. Same goal, same mountain to climb, different angle.

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Government Loan Guarantees Help Ford Beat The Debt http://www.thetruthaboutcars.com/2010/08/government-loan-guarantees-help-ford-beat-the-debt/ http://www.thetruthaboutcars.com/2010/08/government-loan-guarantees-help-ford-beat-the-debt/#comments Tue, 10 Aug 2010 16:12:07 +0000 http://www.thetruthaboutcars.com/?p=362560 At the end of the second quarter of this year, Ford’s overall automotive debt totaled $25.8 billion. Just three months before, its debt level was at $32.6 billion. The debt reduction is all part of CEO Alan Mulally’s plant to earn an investment-grade debt rating by the end of 2011, a move that will lower […]

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At the end of the second quarter of this year, Ford’s overall automotive debt totaled $25.8 billion. Just three months before, its debt level was at $32.6 billion. The debt reduction is all part of CEO Alan Mulally’s plant to earn an investment-grade debt rating by the end of 2011, a move that will lower Ford’s cost of borrowing as well as lowering interest payments. And though Ford’s been making a healthy profit, America’s bailout-free automaker has had more than its fair share of government help to beat the debt. According to the WSJ [sub], Ford’s extensive collection of government loan guarantees has been key to its ability to pay down more expensive debt accumulated during Ford’s 2006 restructuring.

Last week’s US Export-Import Bank loan of $250m was just the latest in a string of government loan guarantees that have helped Ford cut its debt. THe UK government also recently put a $572m guarantee for a $715m European Investment Bank loan to Ford. The EIB has also promised Ford $527.6m to produce cars in Romania. Ford has also taken on $1.8b in low-cost Department of Energy loans this year, on top of last year’s $5.9b DOE “Section 136″ retooling loan. And the help is working

In April [Ford] made a $3 billion pre-payment on a $7.5 billion revolving loan.

In June, it paid $3.8 billion in cash to the United Auto Workers Retiree Medical Benefits Trust. A large chunk of the payment for retired worker health-care benefits was paid ahead of schedule.

Ford said its total debt payment in the second quarter should yield annual interest savings of more than $470 million.

Despite the EIB’s rejection of another $264m loan, Ford is clearing its bad debt with remarkable speed, a fact that was rewarded last week when Fitch raised Ford’s debt rating to within three steps of an investment-grade rating. Doubtless Ford would have been prioritizing debt reduction regardless of its government help, and it’s certainly made enough profit this year to make a start on the task. Thanks to generous government assistance, however, Ford is blowing through its debt faster than previously imagined.

In the second quarter of this year, Ford paid an estimated $318 per vehicle produced just to pay interest on its debt. Ford now estimates its total annual savings due to second-quarter debt reductions of more than $470m. And thus far consumers continue to see Ford as having avoided a bailout. Talk about having your cake and eating it too.

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F Word O.K. Again http://www.thetruthaboutcars.com/2010/06/f-word-o-k-again/ http://www.thetruthaboutcars.com/2010/06/f-word-o-k-again/#comments Wed, 30 Jun 2010 15:01:33 +0000 http://www.thetruthaboutcars.com/?p=359850 It’s safe to buy Ford again. Ford as in the F share. After trading at close to $15 in April, it could be had below $10 yesterday. A bargain. Or so it seems. As we all know, Ford does pretty well selling cars, but without the help of D.C. sugar daddies, their balance sheet is […]

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It’s safe to buy Ford again. Ford as in the F share. After trading at close to $15 in April, it could be had below $10 yesterday. A bargain. Or so it seems.

As we all know, Ford does pretty well selling cars, but without the help of D.C. sugar daddies, their balance sheet is a mess. Ford ended the first quarter with a debt of $34.3 billion. The market was worried that Ford would issue additional shares to pay off that debt, which would seriously dilute current stockholders. So the stock pushed the “Down” button.

In April, Ford paid off $3b in debt, which provided the lift to $14.57. Then, with new payments looming, the share went South again. Today, Ford wiped another $4 billion in debt off its overloaded balance sheet, reports Reuters. Today’s move will save more than $470 million in annual interest payments, Ford said. Their debt load is now down to $27b. Ford has forecast a solid profit for 2010.

According to the New York Times, “Ford’s debt load has been analysts’ biggest concern about the automaker, which has been profitable for four consecutive quarters and projects positive cash flow this year. The announcement suggests that Ford will report strong results for the second quarter, which ends Wednesday.” Buy Ford before someone else does.

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GM-Daewoo Stayin’ Alive. Barely. http://www.thetruthaboutcars.com/2010/01/gm-daewoo-stayin-alive-barely/ http://www.thetruthaboutcars.com/2010/01/gm-daewoo-stayin-alive-barely/#comments Mon, 18 Jan 2010 19:02:38 +0000 http://www.thetruthaboutcars.com/?p=342148 An interview with Forbes the boss of the Korean Development Bank, which GM-Daewoo still owes several billion dollars, reveals that GM’s South Korean unit had a debt-to-equity ratio of 912 percent as recently as last June. GM “rescued” its crucial small-car development center by buying up all $413m of GM-Daewoo’s recent share offering, keeping the […]

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Sweep it under the rug...

An interview with Forbes the boss of the Korean Development Bank, which GM-Daewoo still owes several billion dollars, reveals that GM’s South Korean unit had a debt-to-equity ratio of 912 percent as recently as last June. GM “rescued” its crucial small-car development center by buying up all $413m of GM-Daewoo’s recent share offering, keeping the the KDB from imposing its will on the automaker. That was enough to keep the wolf from Daewoo’s door in the short term, but if Daewoo is ever going to develop a new generation of GM small cars and global products, it will have to address its $2b KDB debt and raise additional funds. For now though, GM-Daewoo is just hoping to keep a little momentum going.

Thanks to the already-developed Lacetti Premiere (Chevy Cruze) and Matiz Creative (Chevy Spark), Daewoo has new products that are actually selling quite well. Daewoo’s December sales were up 65 percent, to their highest level since 2006 on the strength of those two new models. But, as the Korea Times reports, quality issues are dogging those models. Airbags and windshield wipers have already proven to be a trouble point on the Spark, while seatbelts and software troubles have marred the launch of the Cruze. Presumably GM will fix these issues before the models debut in crucial markets like the US, but in the damage has already been done in Korea where GM-Daewoo’s market share dropped from 10.7 to 8 percent last year, despite the year-end surge.

But despite the thoroughly mixed picture coming out of GM’s Korean operations, GM-Daewoo’s executives remain blithely optimistic. “We’re self-sufficient. We are generating cash and don’t need a line of credit. We’re starting 2010 with a very very strong cash position,” Daewoo President and Chief Executive Mike Arcamone tells Reuters. Huh? There’s no way that the less than half-billion dollar cash injection made a game-changing impact on GM-Daewoo’s 900 percent debt-to-equity position. So what gives? Arcamone credits “aggressive cash conservation efforts over the past year and improving auto industry conditions,” for his assessment.

The “cash conservation” aspect is definitely the crucial element, and it’s not something that GM can afford to keep up if it wants Daewoo to continue developing so many of Chevrolet’s global products. And with GM injecting hundreds of millions into Opel with no sign of European governments offering to lend a hand, there are just too many hungry mouths abroad for GM to save them all. If Opel is really supposed to be a more independent division going forward, look for GM to send more taxpayer cash to South Korea. Or, at the very least, to shift some of its exposure to Daewoo to its Chinese partners along the lines of its recent India strategy.

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Debt Rating Upgrade Fuels Ford Resurgence http://www.thetruthaboutcars.com/2010/01/debt-rating-upgrade-fuels-ford-resurgence/ http://www.thetruthaboutcars.com/2010/01/debt-rating-upgrade-fuels-ford-resurgence/#comments Tue, 12 Jan 2010 17:39:30 +0000 http://www.thetruthaboutcars.com/?p=341546 Despite Ford’s surging stock price, new models and rising customer confidence there’s always been that one bone of contention which had divided peoples’ opinion: debt. $35 billion of it. Though they’ve tried to restructure it, selling new shares and raising cash throughout 2009, it’s still a problem. But apparently it’s becoming less of a problem. […]

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On the upswing (courtesy:thestar.blogs.com)

Despite Ford’s surging stock price, new models and rising customer confidence there’s always been that one bone of contention which had divided peoples’ opinion: debt. $35 billion of it. Though they’ve tried to restructure it, selling new shares and raising cash throughout 2009, it’s still a problem. But apparently it’s becoming less of a problem. ABC news report that Fitch Ratings upgraded their assessment of the risk of Ford defaulting on its debt obligations, basing their optimistic view on a better economic environment, the company’s stronger margins, increased market share and cash position. Oh yes, and a small matter of $5.9b in federal DOE retooling loans [full Fitch release here]. Ford’s Credit unit also received a hearty slap on the back from Fitch because of its improving access to capital, as its rating was raised from “CCC” to “B-“. But let’s not get carried away. While this is a positive step in Alan Mulally’s vision of a sustainable Ford, the rating still qualifies Ford debt as non-investment grade.

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Ford Pushes Back $7.2b Of Logo-Backed Debt http://www.thetruthaboutcars.com/2009/11/ford-extends-7-2b/ http://www.thetruthaboutcars.com/2009/11/ford-extends-7-2b/#comments Wed, 25 Nov 2009 22:30:16 +0000 http://www.thetruthaboutcars.com/?p=337012 Managing debt is a most American exercise, and after finishing the third quarter of this year owing $26.9b in debt, Ford is in management mode. According to Reuters, Ford will repay $1.9b of its $10.7b “mother of all subprime mortgages” revolving credit line, part of $23.5b in loans Ford backed with all of its assets […]

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Safe... for now (courtesy:thepiratesdilemma.com)

Managing debt is a most American exercise, and after finishing the third quarter of this year owing $26.9b in debt, Ford is in management mode. According to Reuters, Ford will repay $1.9b of its $10.7b “mother of all subprime mortgages” revolving credit line, part of $23.5b in loans Ford backed with all of its assets (up to and including its logo) in 2006. $7.2 billion of revolver debt is being pushed on down the road though, from November 2011 to November 2013, and $724m has been converted to a term loan due in December 2013. More worryingly, lenders refused to roll over $886m of the debt Ford requested, bringing it due in December 2011.

But as many Americans have learned, extending debt isn’t exactly a perfect solution. Though details aren’t available on the terms of the extension, but it was reported prior to the deal that Ford was offering one percent higher interest and undisclosed additional fees to lenders who agreed to extend debt. Feel the burn? Oh, and Ford still plans on offering another $2.3b in senior convertible notes, which come due in 2016 in the form of a 4.25 percent coupon or common stock at $9.30 a share. And sell another billion dollars of common stock. Proclaiming comebacks is another popular American pastime, but until crushing debts (even in the metaphorical sense) are being paid down rather than managed, they tend to ring a little hollow. Ford’s “debt issue” is here to stay.

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GM-Daewoo: No Bailout Needed. For Now. Maybe. http://www.thetruthaboutcars.com/2009/10/gm-daewoo-no-bailout-needed-for-now-maybe/ http://www.thetruthaboutcars.com/2009/10/gm-daewoo-no-bailout-needed-for-now-maybe/#comments Fri, 30 Oct 2009 15:01:19 +0000 http://www.thetruthaboutcars.com/?p=333587 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. […]

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Hmm... seems more like a different kind of storm (courtesy:wardsauto.com)

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.

“Even though we may not need any cash, we would still like to have a credit line for the long term…KDB is one candidate for that,”  Reilly tells The Wall Street Journal. “We will be still in talks with KDB for no urgency.” Because in the meantime GM can keep covering up Daewoo’s $3.6b annual cash burn with non-US bailout funds? Because this time Daewoo has the winning currency hedge numbers? (Daewoo previously lost $2.3b hedging). Or because GM will simply bear any burden to not lose control of its growth-market division? Either way, it’s hard to see how a $413m rights offering makes any difference at all when maturing debt alone slurps down $300m per month.

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Bailout Scorecard Version 1.2 http://www.thetruthaboutcars.com/2009/02/bailout-scorecard-version-12/ http://www.thetruthaboutcars.com/2009/02/bailout-scorecard-version-12/#comments Wed, 04 Feb 2009 20:14:46 +0000 http://www.thetruthaboutcars.com/?p=239392 Curious about the price tag on the current round of auto industry bailout mania? An updated TTAC Bailout Scorecard (pdf) is now available.

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Curious about the price tag on the current round of auto industry bailout mania? An updated TTAC Bailout Scorecard (pdf) is now available.

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