By on November 19, 2009

Condition 1: taxpayers get the hose (

This according to the National Taxpayer’s Union report “The Auto Bailout: A Taxpayer Quagmire,” authored by Rochester Institute of Technology Professor of Economics, Thomas D. Hopkins. That number includes the $52.9b taxpayer “investment” in General Motors, as well as GM’s portion of the GMAC bailout, which brings GM’s taxpayer tab to over $60b. Chrysler’s GMAC-inclusive bailout bill totals $17.4b, or $7,600 per vehicle, based on estimated 2009/2010 sales. Don’t believe that GM or Chrysler will match their projections over the next twelve months? The NTU estimates that total government support for the auto industry comes out to $800 per taxpaying American family. These numbers do not include the Cash for Clunkers program, likely future bailouts of GMAC (projected at a further $2b), or Department of Energy retooling loans (ATVML). These numbers also do not reflect the very real possibility that GM, Chrysler and GMAC could continue to drain taxpayer money post-2010. “For each year of survival beyond 2010,” the report warns, “the burden per vehicle would decline [Ed: but not disappear] – so long as no additional government funding is provided.”

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By on February 4, 2009

In fourteen days, GM and Chrysler will submit realistic plans for viability to Congress. See what I did there? With January’s sales slaughter revealed, it’s obvious neither automaker can survive without a huge and ongoing injection of working capital from the nation’s working capitol. Even if Uncle Sam provides this staggering amount of money (more than enough to start a car company from scratch), GM and Chrysler wouldn’t make enough profit to pay the interest and the principal during the loan’s term. The plans the automakers are about to present to your elected representatives are a fictional moon shot—with a make-believe launch vehicle that couldn’t propel a chimpanzee ten feet.  

Chrysler will point to its deal with FIAT as their lifesaver. In truth, it’s nothing more than a “free look” for the Italians to figure out what pieces of Chrysler they want to buy when the liquidation sale begins.

Worse, if Congress bails out Chrysler with more of YOUR dollars, the deal gets even sweeter for FIAT. Entry to the US market on the back of the taxpayers, a significant ownership stake and eventual control (for $25m) of Chrysler and the time to try and make it all work. That’s some plan. For FIAT.

But here’s the kicker. Nardelli says Chrysler needs “only” three billion dollars more of your money to get there. Are Bob Corker and Dick Shelby the only two guys in Washington that can see the sheer and utter stupidity of this? It’s as clear as daylight that this dog won’t hunt.

What’s the point of throwing $7b (or more) into a company that has no reason to exist in the US market?  A company that needs import technology for small cars and engines to meet the new standards from the Green Party? Heck, save our money and let FIAT come in on their own.

In GM’s case, the plan will look like everything else Wagoner and his team have presented in the past. Goals and actions that have no hope of realization. So far, the UAW hasn’t made the accommodations required—and never will—to the terms of wage/benefit/work rule parity with the transplants.

The unsecured bondholders and other financial creditors might take a cramdown BUT . . . one of the most skillful members of this group (PIMCO) has already pulled out of the negotiations. How about restructuring of the brands and dealer network? They’ll reveal their latest “no plan” plan (i.e., “we’re still reviewing all options”).

The facts are self evident. GM alone lost 122k units of sales in January 2009 versus last year. At an average wholesale to GM of say $24k/unit, that’s a loss of nearly $3b in revenues for the month. Or a run rate of $36b/year. Throw in the drop in sales in Europe and elsewhere around the world, and it might be another $1b to $2b dollars a month in lost revenues. Combined, it could be as much as $50b revenue hit (annualized) for the first half of this year. GM simply can’t cut its expenses fast enough.  

As for Chrysler, it’s worth repeating what Jim Press told his dealers. (“Without orders, the company has to liquidate.”) Uh Jim, your dealers have over 350k units on the ground and you sold 62k units in January. Do you really expect them to “stock up” now?

Bottom line: the car market will suck for the next six months, if not longer. It makes no sense for Congress, the President or the Car Czar to try and craft a plan that saves Detroit with taxpayer dollars without a bankruptcy.

GM and Chrysler have no viability plan that can work in the current sales environment (not that they had one during better times). If anything, now IS the time for bankruptcy, not later. Let the bankruptcy court system do what it’s designed to do best: figure out what’s worth saving (GM) and what’s not (Chrysler).

When the market does come back—and it will—a restructured and reorganized GM will be well suited to offer a smart and sensible line of brands, cars, and dealers that will all earn substantial profits. Parts of Chrysler will still exist (Jeep, Mopar, a couple of others). And Ford might be able to survive on its own as it gains share from the pieces shed by its Detroit rivals.

Why go to all this trouble of proving a case that doesn’t meet the sniff test to the most junior financial analyst on Wall Street? Is it pure politics to save union jobs and avoid the shame of bankruptcy? Or has Washington, DC and the Messiah Crew (Obama, Pelosi, Reid, and the Democrats in Congress) simply lost all sense of the common good with your tax dollars?

Forget it. Let’s not spend any more taxpayer dollars on a moon shot from Detroit.

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