Archive for the ‘Automotive’ Category
Troubled Toyota
In watching Toyota deal with one crisis after another over the past couple of weeks, I cannot help but feel a little Schadenfreude about the whole situation. Here’s why…
For all the time that I was with Chrysler, Toyota was the bogeyman of the automotive industry. We were constantly pounded on that we needed to be more like Toyota. What was worse, being told to do more with less to play catch-up adds up to a no-win situation. I have no doubts that GM and Ford were in the same boat. And we’ve seen where that has led two of the three automakers.
The cornerstone of strength of Toyota has always been its quality, but it has taken some dings in the past couple of years. Its foray into the pickup truck market resulted in engine sludge problems and rusting frames. Now with the accelerator sticking on several models, and reported brake problems with both the “green” Prius hybrid & the flagship Lexus brand, it just adds some much needed tarnish on the Toyota logo. Face it – some humility is needed in order for reality to really sink in and address problems that happen with every manufacturer.
But they aren’t alone – the automotive media has also contributed to the Toyota myth of perfect quality. I understand that the crap that the Detroit-3 churned out in the 70’s & 80’s earned the disdain of the masses and media alike. But to continue the wholesale trashing of an iconic domestic industry that has improved tremendously from those years while either burying or ignoring the troubles of the foreign competition is beyond my understanding. Just review this earlier post, and you’ll understand.
Toyota had it in their sights to become the largest automotive manufacturer in the world, and in the process, lost their way. Becoming bigger doesn’t mean that you are better, and Toyota just found that out the hard way.
Who’s Going To Pay For It?
OK, now all of you folks out there (especially the Obama supporters) stop and think for a little bit on the following:
- A multi-billion dollar “stimulus” bill was passed and signed that was full of waste and earmarks.
- Multiple banking and finance institutions were bailed out with billions from the government treasury.
- Two car companies were also given loans, declared bankruptcy, and were not only able to write the loans off but got more money to see them through the bankruptcy and reorganization.
- A global warming climate change bill was just passed in the House this past week with carbon cap & trade as its centerpiece.
- The President is pushing for a universal healthcare coverage policy for anyone that wants it.
- We are constantly bombarded with information that Social Security and Medicaid/Medicare are going to go broke in the near future.
Now who do you think is going to pay for all of the above?
From ABC’s commentator George Stephanopoulos:
White House senior adviser David Axelrod said the president won’t rule out a health care reform bill that includes a middle-class tax hike.
"The president had said in the past that he doesn’t believe taxing health care benefits at any level is necessarily the best way to go here. He still believes that," Axelrod told me on This Week, "But there are a number of formulations and we’ll wait and see. The important thing at this point is to keep the process moving, to keep people at the table, to the keep the discussions going. We’ve gotten a long way down the road and we want to finish that journey."
I pressed Axelrod on whether Obama will draw a line in the sand and veto any bill that funds health care reform with tax hikes for people making under $250,000 a year — despite a pledge Barack Obama made during the 2008 presidential campaign not to raise taxes on the poor and middle-class.
"One of the problems we’ve had in this town is that people draw lines in the sand and they stop talking
to each other. And you don’t get anything done. That’s not the way the president approaches us. He is very cognizant of protecting people — middle class people, hard-working people who are trying to get along in a very difficult economy. And he will continue to represent them in these talks," Axelrod said."But they’re also dealing with punishing health care costs, and that’s something that we have to deal with."
This should be a clue for the clueless. For those who don’t want to think because it hurts their brains, then here’s the answer: You are!!
What people don’t seem to realize is that every time Congress passes laws and the President signs them, there is usually some cost attached to them. If it is a spending bill, then the funds are drawn from the Treasury. The funds from the Treasury are collected by taxes, and you pay the taxes either directly or indirectly. It won’t matter where you are in the social ladder, you will pay one way or another.
And you thought that the TEA Parties were ladies socials instead of “taxed enough already” protests.
Just thought you would like to know…
It’s a Done Deal.
Yes, it’s now official: Fiat now owns Chrysler without paying a penny. Instead, they bartered technology.
My only question is: Where is Chrysler going to get the money to use the technology to put into their cars? Supposedly, Chrysler doesn’t have any money – they’re broke. Otherwise, why did Chrysler declare bankruptcy?
Oh boy, oh joy…
Was That A Bump or a Pothole?
Yesterday evening, the Supreme Court cleared the sale of Chrysler to Fiat over the objections of the three Indiana secured bondholders. From SCOTUSblog.com:
Insisting that it was denying a postponement “in this case alone,” the two-page order said the challengers had not met their burden of showing that a delay was justified. The reference to this case alone perhaps was a signal that the Court did not want its order to appear to give advance clearance for any other government rescue plan — such as that to save another auto company, General Motors.
The order allows a closing of the deal by no later than next Monday, because it lifts a temporary stay that Justice Ruth Bader Ginsburg had issued on Monday; she did so, apparently, only to give the Court time to ponder the issue.
Presumably, the closing could occur before next Monday, since that was the “end date” only in the Chrysler agreement.
The Court said nothing about the biggest issue lurking in the case: the legality of using federal “bailout” money to pay for the rescue of an auto manufacturer. In fact, the order stressed that “a denial of a stay is not a decision on the merits of the underlying legal issues.”
Actually, a second but no less important issue (at least in my mind) is the legality of the Federal Government (specifically, the Executive Branch) to flout bankruptcy law to place unsecured creditors interests before secured creditors. The Supreme Court did not address this concern at all in its decision. But I’m not surprised…
If you remember, the Supreme Court ruled in 2005 that the Government could acquire property via eminent domain and sell that property to another individual if that action would be in the public good. While this could be considered a “stretch” of that decision, the sale of Chrysler could be considered in the public good since the company would not be liquidated, thereby saving the livelihoods of thousands of workers and preserving the tax-base of many communities.
Caught in this mess are still the 789 Chrysler dealers that are being closed down (also devastating many communities) and the bondholders like the Indiana group that were forced to accept pennies on the dollar for their $Billions in secured investments.
Quite frankly, if I was an investor, this decision would send a chill down my spine. This means that any secured investment is not secured, and that the terms of the note could be ignored.
Yeah, it really is all about money…but should it?
What is disturbing to many (including the few readers of this blog) is that our government is now in the business of business more than ever. Make no mistake, is always has been, but now it is more blatant than ever. It used to confine itself to regulations, rules, & tariffs to try & keep consumers from being injured and otherwise harming the environment unnecessarily. Now government is making sweeping changes including deciding ownership of companies and how they are run from within the companies themselves.
We, as a nation, must decide if this is the role that we want our government to take. If so, then we are no better than the old USSR, Venezuela, Cuba, and a host of other Socialistic countries. And look where their economies are. And that is cause for alarm.
Just a Speed Bump…
Just heard on the radio that the US Supreme Court has delayed the sale of Chrysler to Fiat. The announcement from SCOTUSblog states:
Supreme Court Justice Ruth Bader Ginsburg put a temporary hold Monday on the deal to sell Chrysler to save it from collapse. Her order, however, simply gives her or the full Court more time to ponder whether to postpone the sale further, or allow it to go forward. The order can be found here.
It will be interesting how this shakes out. Fiat could pull out of the deal if it is delayed past June 15.
I still think that the sale will go through, although there may be some “modifications.”
Damn the Potholes, Full Sale Ahead!!
There are several potholes in Chrysler’s bid to emerge from bankruptcy with Fiat as its owner/partner.
Pothole #1 is from the Detroit Free Press:
The sale creating a new Chrysler-Fiat could close Monday afternoon, unless the U.S. Supreme Court decides to hear a last-ditch appeal from three Indiana pension funds.
Thomas Lauria and Glenn Kurtz, representing the pensioners, argued that the government-financed deal puts interests of unsecured creditors such as the UAW’s retiree health care trust ahead of secured lenders, such as their clients. The Indiana pension funds hold $42 million of a $2.6-billion package of loans from four large banks and about 40 investment funds, hedge funds and pension funds. The other lenders have accepted the U.S. Treasury’s offer of 29 cents on the dollar, or $2 billion in cash if they write off their respective portions of the loans.
As I stated in an earlier post, the actions of the court and the Obama Administration in regards to secured and unsecured bondholders is in violation of current bankruptcy law. From Bloomberg.com:
The package the White House hammered together to convert big, old, dying Chrysler into a smaller, healthier car company looks a lot like a massive violation of bankruptcy law. A few dissident creditors, namely three Indiana pension funds that banded together, remain defiant enough to say so.
The Chrysler plan “seeks to extinguish the property rights of secured lenders, trampling the most fundamental of creditor rights in disregard of over 100 years of bankruptcy jurisprudence,” the funds argued in bankruptcy court papers.
However, barring a successful appeal to the Supreme Court, Chrysler will most likely be sold to Fiat by the end of business on Monday regardless of any objections.
Pothole #2 from another Bloomberg.com article:
Indiana Treasurer Richard Mourdock said he was pleased the Court of Appeals agreed to hear the state funds’ arguments that they and other secured creditors have been made secondary to government-preferred unsecured creditors “in contravention of longstanding bankruptcy law.”
“Indiana retirees and Indiana taxpayers have suffered losses because of unprecedented and illegal acts of the federal government,” Mourdock said yesterday in a statement.
The treasurer said the illegal acts include using Troubled Assets Relief Program funds, designated for aid to “financial institutions,” in the Chrysler sale.
What Mr. Mourdock is objecting to is the use of TARP funds by first President Bush and President Obama to keep Chrysler and GM alive. The TARP fund legislation was very specific as to the uses that the fund was to be used for, and the automotive industry was not included. If you remember, a similar bill to provide relief for the automotive companies was introduced and defeated in Congress. Somewhere down the line, I expect this topic to come up in a future lawsuit, especially if Chrysler later implodes.
Pothole #3 are lawsuits currently in the courts from suppliers, customers, and former partners. For instance:
Getrag Transmission Manufacturing LLC, a German transmission maker also in bankruptcy, had argued that the right to bring a lawsuit against Cerberus was property of its own bankruptcy estate. Getrag contended that by barring it from bringing lawsuits, Chrysler violated the so-called automatic stay that protects Getrag’s own assets in bankruptcy.
And:
Schnader Harrison Segal & Lewis had sought, on behalf of a group called the Ad Hoc Committee of Consumer-Victims of Chrysler LLC, to have the bankruptcy judge appoint an official committee of tort claimants. The Ad Hoc Committee has more than 150 members who each have tort claims involving personal injuries against Chrysler. Those claims were valued by the Ad Hoc Committee’s members and their counsel at a total of more than $650 million.
Last:
The new Chrysler is willing to honor warranties on vehicles sold before or after the bankruptcy. But for personal injury lawsuits, Chrysler says it will be responsible only for problems with vehicles sold after the bankruptcy.
What this means that when Chrysler is sold to Fiat, Chrysler would be freed of any liability from those lawsuits. So I wonder if someone could then sue the Federal Government for relief since the Government was complicit in relieving the “new” corporation of its obligations? I can see this one coming…
Pothole #4 are the dealers that are being cut by Chrysler, and some of them have met or exceeded the parameters that Chrysler set to stay in business. From The Oakland Press:
To determine which dealerships would be terminated, Chrysler created a matrix that named the dealers selling fewer than 100 cars per year and those close to another franchise.
Yet McDonald’s two Chrysler dealerships do not fall into either category. Einstandig said both were profitable and had no debt. “Each of her dealerships sell over 100 cars per month,” he said. “That’s 10 times more than the metric that Chrysler put on their rejected profile.”
There is no reason Chrysler would want to terminate two profitable stores, she added, saying she thinks it was a “political decision.”
Chrysler originally told the dealers it would help them sell the cars, but McDonald said the company has been of no assistance.
“They have done nothing so far to help get rid of the cars — absolutely nothing,” she said. “And if they do help you, they’ll charge you $350 a car to get rid of them.” McDonald said the company then hands off the cars to the remaining 2,392 dealers, who already have a surplus of cars and parts.
“So the people that are going forward, they’re getting screwed, too,” McDonald said, adding she thinks dealers are afraid to speak out against the company because Chrysler might switch them to the termination list if they do.
Although she has much work to do, McDonald said it may be a blessing in disguise that her stores are being forced to shut down.
“Quite honestly, I think I’ve been spared because dealing with these people is like dealing with the devil, and I want nothing to do with them at all,” she said. “And I’m not saying that because I was rejected. I’m truly saying that in the last three years, that company is just not a moral company at all.”
I can understand McDonalds last statement. At the risk of violating my termination agreement with Chrysler, I can only state that I observed and heard of business practices that, while they may not have been illegal, I believe they were definitely unethical. Which leads to -
Pothole #5 is the public’s perception of the whole ordeal. The longer that this “sale” to Fiat drags out, the worse it seems. But on the other hand, if the sale is completed quickly, and a lot of stuff comes out, then that can damage an already shaky company.
The Last Word: The bottom line is that Chrysler/Fiat needs to start up fast, bringing to market vehicles that are solid, well built, and have great styling. Unfortunately, the mileage isn’t there, and that will be something that will also become very important as we are now seeing fuel prices edging up. And from a personal standpoint, I just don’t see it happening, although I do hope that I’m wrong for the sake of my former coworkers.
Chrysler will be sold to Fiat – period. After that, it’s anyone’s guess
GM Filing Chapter 11, Chrysler to be Sold
According to multiple news sources, GM has filed for Chapter 11 Bankruptcy protection at 8:00 AM this morning. It should also be noted that even before this filing, GM was negotiating with the various stakeholders for agreements for who will own how much of the “new” company after it emerges from bankruptcy. The news that is being reported has the following highlights:
- 11 plants are to close, with 3 to be idled. (specific plants to be announced later)
- 21,000 employees will be cut (34% of the workforce).
- The US Government will own 60% after “contributing” another $30.1 Billion
- The UAW will own 17.5%.
- Canada will have a 12% stake after loaning $9.5 Billion to the new company.
- GM Bondholders will have 10% with the possibility of owning up to 25%.
- Four brands (Saturn, Saab, Hummer and Pontiac) will be discontinued.
- Approximately 2,600 dealers will be closed.
An additional note is that the Administration has stated that the government will not interfere in day to day operations. What the Administration has not stated is that they would stay out of the direction of the new company. And that doesn’t bode well for the car-maker and for the taxpayer.
We have all heard of the new CAFE standards that were “agreed to” by the automakers. I thought that Jerry Flint put it best with this:
Most amusing is the government’s estimate that it would cost $1,300 or so per car to accomplish this. It’s always wonderful how our government, which paid $7,000 for a coffee thermos and $240 million for a fighter airplane and $3 billion for a new presidential helicopter–money it doesn’t have–always figures that private industry can produce miracles for next to no cost.
Here are a few points to remember:
It’s seven years to 2016 and there will be a new president and a new Congress and a different economy by then. Many rules change over time.
There’s always a possibility that we will have no domestically owned auto industry by then, so no one will be upset about kicking foreign automakers who can’t meet our rules.
And there’s usually a fine for those who can’t meet the requirements. If you figure a $3,000 per vehicle fine for each one missing the target–and that’s a modest number–that’s $45 billion in fines in a 15 million-car year if they all miss the target. That’s enough to build four $250 million “Bridges to Nowhere” in every state. That might appeal to Congress.
And well all know how fiscally responsible our government is, so we shouldn’t worry, right?
Of course, the whole deal smells of politics to high heaven, and we have to remember – the companies will not pay the increased costs, the consumer (you) will.
That is, of course, if we still have jobs to buy these vehicles…
On a related note, the bankruptcy judge has approved the sale of Chrysler to Fiat. How Fiat is going to buy Chrysler without putting any cash down is a mystery to me…
Memorial Day Weekend 2009 (and More)
While I haven’t written a post in a week (and I’ll get into that later), we all need to stop and thank the men, women, and families that have served in the Armed Forces of this country, the United States. It is not only those who have lost their lives in serving who need to be recognized, but those who are still living and their families. The sacrifices may not be evenly shared among those living and dead, but the families that waited for their return have also sacrificed as well.
This past week has seen continuing GM’s steady march toward bankruptcy, and the frighteningly rapid developments of Chrysler’s bankruptcy. The Obama Administration’s continuing influence in both of these automakers is extremely disconcerting, especially since Chrysler and GM both announced the termination of approximately 1900 dealers nationwide. Further reductions in the workforce were also announced by both companies earlier this week.
To add to the governmenal interference is the passing of fuel mileage requirements, of which the automakers(!) agreed to. But then again, when the government owns so much of your company and they say “jump”, you ask “how high?” Never mind that in order to meet these new requirements GM is wanting to close down plants in this country and import cars from China.
Now I need to stop and ask: How is this going to save American jobs? I thought the reason for all of the government loans was to save American jobs. But it sounds more and more like we’re saving Chinese jobs…
The bottom line is that no matter if the companies emerge from bankruptcy or not, both companies need to sell vehicles in order to survive. Otherwise…
But then again, look at Amtrak…
Amtrak was created in 1971 to provide intercity rail service due to a decline in rail service. Part of this was due to overwhelming taxation of the industry as well as inflexible rail costs. An expanded interstate highway system and airline travel also contributed to this decline.
Amtrak was expected to break even by 1974. It has never broke even or made a profit, and lives only by government subsidy.
And we are expecting better for government-run automobile companies? Whom are we trying to snooker?
The Wall Street Journal had an opinion column by John Gordon which listed the following reasons with explainations why government cannot run a business. By the way, this is a must read.
- Governments are run by politicians, not businessmen.
- Politicians need headlines.
- Governments use other people’s money.
- Government does not tolerate competition.
- Government enterprises are almost always monopolies and thus do not face competition at all.
- Successful corporations are run by benevolent despots.
- Government is regulated by government.
Need further proof besides the above cited article? Then consider the plight of the British automotive industry. What automotive industry, you ask? Exactly!! Ian Murray of National Review Online had this to say:
What we now face is a nationalized car maker, with the government owning 51 percent of the company and the United Auto Workers (UAW) union holding a stunning 38 percent of shares. Bondholders, who normally have first claim on a company’s assets, receive only 10 percent instead, and the current stockholders get the remaining 1 percent.
Consider that for a moment. The government and the current administration’s political fellow-travelers own 89 percent of an American company. This is a terrible precedent. Just ask the domestic British auto industry. Unfortunately, it won’t answer, because most of it went out of business when the British government tried the same tactic in the 1970s. The government attempted to save a dying domestic industry by nationalization and heavy investment in R&D to produce a “product-led” recovery. That recovery never emerged, because the unions put saving jobs before producing good vehicles (as I detail elsewhere). With the UAW now owning 38 percent of the company, should we expect anything different from GM?
And here is the crux of the matter – President Obama has political dues to pay, and in this case, it’s the UAW. In the case of the banks, it was all of the financiers that “donated” money to the Democratic party. Unfortunately, we, the taxpayer and our descendants for at least two generations, will be paying the bill.
If you’re not angry by now, then you should be…
What Does GM Really Stand For?
Saw this just a few minutes ago from Reuters:
General Motors Corp’s (GM.N) plan for a bankruptcy filing involves a quick sale of the company’s healthy assets to a new company initially owned by the U.S. government, a source familiar with the situation said on Tuesday.
The government’s plans include giving stakes in the new company to GM’s union and bondholders, although the ownership structure of the company is still being negotiated, said the source who is familiar with the company’s plans.
In addition, the government would extend a credit line to the new company and forgive the bulk of the $15.4 billion in emergency loans that the U.S. has already provided to GM, the source said.
Setting up a new company to buy the healthy assets is aimed at reassuring consumers who might not be willing to make a major purchase from a bankrupt company, fearing it would not honor warranties or provide service.
The board of the new company would be established with the tacit approval of the government. Fritz Henderson, who took the helm of GM earlier this year after the government pushed out Rick Wagoner, would likely head the new company, the source said.
Doesn’t this sound familer? Makes the following graphic all the more true.
Scary, isn’t it?
8 Weeks Ago …
… I walked out of the Chrysler Technical Center for the last time as an employee.
It still sucks.
Since that time, I watched Chrysler file for Chapter 11, and GM is on the precipice of doing the same. All the while, I’ve also watched the government through President Obama state that government doesn’t want to run the automotive companies, but has demanded the resignations of several executives, ramrodded a deal with Fiat at the expense of secured bondholders, and made announcements that the government will demand or direct, as part of its loans to the automotive companies, the types of cars that the companies are to build.
It must be absolutely reassuring to the clueless that government will take care of us all while destroying the means of income to thousands of people, employees and investors alike. And yes, that means the UAW too, because the government can only prop up these companies for a limited period of time, and that will end when it becomes politically expedient to do so.
And that means that the unemployment rate will rise to new levels, especially in Michigan where the rate is currently 12.6%!! And the Governor is wondering why people are leaving the state in droves.
I have looked for jobs out of state, and while just starting to scratch the surface, there isn’t a whole lot out there for a person of my background. And with the job market flooded with people looking for work, companies can certainly pick and choose who they want.
I don’t know what is next. Jobs within the state are few and far between. Jobs out of state mean that selling the house would mean a huge loss. It’s never fun being caught between two rocks, and that is exactly where I am at.
It may mean that I would need to change careers, and that is going to be a daunting task because it would almost mean that I would need to start at the very bottom again. I’m not greedy – I’m just looking for something that I can do so that my wife and I can live comfortably and save for a comfortable retirement. Unfortunately, I may not have the time nor the money to be able to get the educational qualifications for a new career.
Yep, it really sucks…
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