The end of the US auto industry ?

Today from Reuters :

The Obama administration seized the wheel of the failing U.S. auto industry on Monday, forcing out General Motors Corp's CEO, pushing Chrysler LLC toward a merger and threatening bankruptcy for both.

GM shares plunged around 20 percent in Frankfurt after steps outlined by the White House autos panel marked a stunning reversal for management at both GM and private equity-owned Chrysler.

The moves came after Europe's second-biggest carmaker by sales PSA Peugeot Citroen ousted CEO Christian Streiff, replacing him with former Corus head Philippe Varin from June 1.

The Obama administration pledged only to fund GM's operations for the next 60 days while it develops a sweeping restructuring plan, instead of granting GM's request for up to a further $16 billion in loans.

GM CEO Rick Wagoner, who had presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steve Rattner. A majority of GM's board will also be replaced.

"We are left to look back and say that Wagoner's appointment as both chairman and CEO in 2003 was little more than an act to ensure the dynasty of GM boardroom arrogance and failure continued," said Howard Wheeldon, senior strategist at brokerage BGC Partners.

Wheeldon said Wagoner's departure had been all but inevitable since the automaker sought government funds and said he was disappointed the authorities had not insisted on an external replacement.

UNDER FIRE

Wagoner protege and GM President and Chief Operating Officer Fritz Henderson was named as new CEO. Wagoner's departure came as the Obama administration came under fire for not blocking bonuses to executives at American International Group Inc.

The senior labor leader of GM's German brand Opel, being spun off with the UK's Vauxhall and seeking investors and government support, said the move was overdue.

In Europe, auto stocks fell on concerns about the broader industry impact of the failure of a major U.S. producer. The DJ Stoxx European autos index fell 6.4 percent by 1000 GMT, while PSA Peugeot Citroen fell 7.7 percent.

In France PSA Chairman Thierry Peugeot said in a statement the exceptional difficulties faced by the industry warranted a change in management, but Streiff defended himself saying his policies had equipped the group to weather the storm.

Some analysts viewed the appointment of Philippe Varin as positive.

"It brings somebody in that can look at the problem with fresh eyes. The hope will be that he will have a similar impact here to the impact (Sergio) Marchionne had at Fiat, and indeed Varin had at Corus," said Credit Suisse analyst Stuart Pearson.

Elsewhere, Russia's Avtovaz bucked the trend, its shares surging after Prime Minister Vladimir Putin pledged 20 billion rubles in aid, while Spain's plan to grant subsidies for green cars won approval from the European

Chrysler, controlled by Cerberus Capital Management, was given 30 days to complete an alliance with Italy's Fiat or face a cut-off of its government funding that could force its liquidation.

Fiat was not immediately available for comment.

The autos panel rejected a claim by Cerberus that Chrysler could be viable on its own, citing its relatively small size, weak product line-up and declining U.S. market share.

AGGRESSIVE RESTRUCTURING

If Chrysler can complete a tie-up with Fiat and cost-saving deals with creditors and its major union, the Treasury would consider investing up to another $6 billion, officials said.

U.S. officials said there had been progress in recent negotiations involving the task force. Fiat had agreed to take less than the 35 percent stake in Chrysler the two companies had first negotiated, the senior official said.

Meanwhile, Henderson, a key architect of GM's now-rejected turnaround plan, was charged with working with U.S. officials and advisers to develop a more aggressive restructuring.

"We believe our approach to GM is starting with a clean sheet of paper," the senior official said.

GM bondholders, the official said, could have to take less than the 33-cent-on-the-dollar payout they have been offered and should abandon hope of a government guarantee.

The Obama administration had also not ruled out a quick bankruptcy process for either GM or Chrysler, he said.

Wagoner had been outspoken in his opposition to a Chapter 11 reorganization, saying it would drive away consumers and probably lead to GM's liquidation.

GM had asked for more than $16 billion in new government loans, while Chrysler wanted $5 billion to ride out the weakest market for new cars in almost 30 years.

GM has lost about $82 billion since 2005 when its problems began to mount in the U.S. market. GM stock has also lost about 95 percent of its value since Wagoner took over as CEO. Although he inherited many of the company's deeper problems, his critics say he failed to act fast enough to resolve them.

Is this so bad?
It seems to me that companies doing their business well will be in a position to grow once a few big ones fail...

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www.rallyerika.com

I gotta agree with you (erika) to some extent. Big govt needs to step back. How can they run big businesses when they are a group of elitist pigs beholden to lobbiests and special interest groups like 'Move on' and ACORN on the left, and any number of big corps on the right?

I hate to see our auto companies fail. It would have a terrible effect on the economy as all the parts suppliers etc might fail also. But being held up by the government surely reduces incentives to produce a good product NO MATTER WHAT THEY SAY! Obama fired GM's CEO for christsakes! How the hell does that happen? I've never driven a Lada, but I'm betting it's no Toyota or Honda for quality (we're not talking about driving in the woods here).

So what do we do? Sit and watch our auto industry collapse and bring the entire economy much further down with it? Or do we prop it up and hope that we don't encourage dismal product lines and poor quality for ever? No idea what the answer is here, but I vote to step back and let them fix it themselves. The world economy sucks, but people will still buy cars.

Personally I think the government bailout's of the big 3 is a joke as well as very short sighted. I mean what's the use of giving billions of dollars in bailout money to keep them afloat if very few people are buying cars to begin with ?

Why not give that bailout money in the way of tax incentives offering big rebates for new vehilce purchases ? If the rebates are big enough the production could continue, but propping up the industry on the other end is doomed to fail if there is lack of consumer demand.

Last week the US Govt was proposing increasing it's power to be able to seize firms.

It could be a trend that could offer a slipery slope.

The bailouts of the auto industry never should happened in the first place. Use the money to fund un-employment payments, and offer huge rebates.

This is what Chrysler said in November :

"it is not a bailout to keep us from failing it is a loan to help us succeed.”

They got the bailout / loan... and now it's March... and they're asking for $5 billion more.

I wonder how many bailouts / loans that their success would need ?

Some better insight in the moves being made may be had by knowing the Members sitting on the White House Auto Panel. Draw your own conclusions on :

- Tim Geitner Treasurer Secretary
- Larry Summers, Chief Economic Adviser
- Steve Rattner, investment banker type (married to a former polictical party finance director); see here http://en.wikipedia.org/wiki/Steven_Rattner and here from Newsweek http://www.newsweek.com/id/150464
- Ron Bloom, steel workers union adviser and former investment banker (whose former firm was retained by the UAW for work realted to negotiations with GM 3 years ago)
- Matthew Feldman see here http://www.willkie.com/MatthewFeldman
- Diana Ferrell, deputy NEC director, formerly of McKimsey Global Institute, that does a lot of think-tank work see here http://www.mckinsey.com/mgi/

These are all the members of this panel I could quickly find. The White House is not releasing other names, but they are supposedly other cabinet and gov't department personnel. (Is that transparency?) I can see just a few members on the list above who have actual real-world-related business experience, in the auto industry or otherwise.

We'll see.
Mark B.

I've heard for years the biggest industrial secret (next to KFCs secret recipe) was how much "Detroit" actually makes on a car or truck. Tis morning the TV said that GM hasn't shown a profit since 2004. Is that true or a result of good accounting?

heymagic Wrote:
-------------------------------------------------------
> I've heard for years the biggest industrial secret
> (next to KFCs secret recipe) was how much
> "Detroit" actually makes on a car or truck.


I have no idea what they make on a car, however...

I used to work for Packard Electric Div. GM.

During a weekly Monday morning meeting in 1983 or 4 when I suggested
to my manager an extremely inexpensive way to modify a wiring harness
to facilitate service diagnosis, the dickhead said... and I quote:

"We don't care if something is servicable. All we care about is
how inexpensively we can assemble it." (That is almost an exact quote).





Edited 2 time(s). Last edit at 03/30/2009 03:03PM by Jens.

General Motors has at least a 35 year history of cheaping out, dumbing down, keeping a product in production years after it ceased being competitive, or killing a product just as they figure out how to build it right (and then proceeding to foul up its replacement).

Or a combination of all of the above.

That's not to say they don't have some product worth saving. The Saturn Astra could be much better if it had either a diesel or that supercharged EcoTec from the Cavalier...errr Cobalt (yes I know they're the same platform, the Cobalt still looks like a 93 Cavalier to me), and was priced a little lower. That Caddy CTS thing is supposed to be really nice, their pick-em-ups are solid, and the Vette has phenomenal numbers, especially for the price. That G8 thing is also supposed to be decent, and the new Camaro should appeal to the mullet set. But Buick? Hummer? Pontiac (by and large)? Is there any redeeming product there? Saturn and Saab have unfortunately been killed by beancounters strangling product development.

Seems like Chrysler got plundered by Daimler Benz...and left with junkier product than every before. Seems like the only things they have worth saving are maybe Jeep (although note that Jeep has a long history of being sold to companies that go belly up or are absorbed into other entities), their minivans as relatively cheap boring family transport (although they have been eclipsed by Toyota and Honda product), and the Cummins engine in their 2500 and 3500 pick em up trucks (although noting else).

GM should have been forced into Chapter 11 last year, maybe earlier. Chrysler is probably headed for Chapter 7, or will become fodder for the next generation of Fix It Again Tony jokes.

Hopefully Ford won't mess up the Fiesta when it comes over, and if they were really smart, they'd get the current world Focus over here instead of continually reskinning the original 1998 vintage chassis (which made a nice little econo-car new, just it's now 2009...). If they can get the Fusion and Taurus a little better in the bread and butter boring sedan market, they should be OK.

In the bigger picture, the government shouldn't be dumping all this good money after bad. But that seems to be the only thing our congress knows how to do anymore. That and meddling in affairs that are people's personal business.

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Andrew Steere
Lyndeborough, NH
KB1PJY

Jeep? Seriously? What crap/garbage.

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Grant Hughes

NoCoast Wrote:
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> Jeep? Seriously? What crap/garbage.
>
> Grant Hughes
> www.nocoastmotorsports.net
> Denver, CO


Oh, I'm not saying I'd buy one, but there is value there to a certain marketm, and the brand name itself still has worth (kinda like Harley, even thought the bikes are heavy, loud, slow, poor-handling and unreliable, people line up around the block to buy them, because they're Harleys and they want to be awesome. When financing is available). Although whoever came up with the Liberty and Patriot and Compass should be [insert potentially criminally threatening comment made in jest here].

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Andrew Steere
Lyndeborough, NH
KB1PJY

I don't get it -- Bushy gives nearly a trillion dollars to the greedy f*cksticks at the banks and wallstreet (who employ the teensy, tiny minority of highly overpaid non-productive, non-contributing "skimmers" who CAUSED this mess and we're still getting pissy about a few billion dollars in loan guarantees to the companies that pretty much underpin the entire economy?!?

Seriously?

Yes, GM needs to restructure, yes, Chrysler needs to get an owner more in tune with the automotive sector -- but starving them of working capitol (they got less than half of the $30 billion they asked for last fall -- after a brutal bashing at the hands of the same schmoes in congress who gave the banks all the dough the never even asked for in 3 days, no questions asked) then forcing them into bankruptcy is going to put millions of autoworkers, engineers, parts suppliers etc out to pasture -- what do you suppose that's going to cost the economy?

Cheers, Ted

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Pure mathematics is the enemy of every truly creative man -- Sir Alec

fiasco Wrote:
-------------------------------------------------------
>
> Seems like Chrysler got plundered by Daimler
> Benz...and left with junkier product than every
> before. Seems like the only things they have worth
> saving are maybe Jeep (although note that Jeep has
> a long history of being sold to companies that go
> belly up or are absorbed into other entities),
> their minivans as relatively cheap boring family
> transport (although they have been eclipsed by
> Toyota and Honda product), and the Cummins engine
> in their 2500 and 3500 pick em up trucks (although
> noting else).
>
> Lyndeborough, NH
> KB1PJY

You need to add the Challenger to your 'save from Chrylser' list. And...uuuh.....Cummins makes the Cummins engine......

FIAT has commted to a 20% stake; I suspect this was the real message from the White House on Chrysler: "This has been arranged in the background and we are going to politicially push this over the finish line."

Regards,
Mark B.

One wonders with current US politics how long before Honda and Toyota plants in the US are forced into becoming union and how that will effect their bottom line ...

Now with the talks of filing bankruptcy after already having been fiscally helped out and not getting more funds ... I think the market shows how most feel about government involvement, well those that are left in the market. Crazy stuff going on!!!

---

As always IMHO

SEAN TENNIS KF7JJR
SEATTLE, WASHINGTON
SAAB 99, SAAB 850
SAAB V4, SAAB 99T

...I don't get it -- Bushy gives nearly a trillion dollars to the greedy f*cksticks at the banks and wallstreet (who employ the teensy, tiny minority of highly overpaid non-productive, non-contributing "skimmers" who CAUSED this mess and we're still getting pissy about a few billion dollars in loan guarantees to the companies that pretty much underpin the entire economy?!?

Seriously?

Yes, GM needs to restructure, yes, Chrysler needs to get an owner more in tune with the automotive sector -- but starving them of working capitol (they got less than half of the $30 billion they asked for last fall -- after a brutal bashing at the hands of the same schmoes in congress who gave the banks all the dough the never even asked for in 3 days, no questions asked) then forcing them into bankruptcy is going to put millions of autoworkers, engineers, parts suppliers etc out to pasture -- what do you suppose that's going to cost the economy? ...

Bush and Congress F'd up big time by letting it get so far out of hand (not having a clue it was coming), then they F'd up again by panicking and throwing OUR money at the problem. OBAMA and Congress REALLY F'd up when they did the same thing AGAIN (after the first one didn't work)...they didn't even read the bill for christsakes!!

Wall Street and the banks are full of greedy assholes. But I find it hard to pin this on them when the bottom line is this: Leftist agendas (not just driven by Dems, but by Repubs also) that forced Fannie, Freddie and others to lend to WAY sub prime mortgages (a house for everybody!). It's the Governments fault. The Bush team saw something coming a couple of years ago and tried to regulate Fannie/Freddie, but Congress stopped it. Bush still should have sounded the alarm loud enough for the American people to hear.

I don't think the banks should have gotten all the $$, so I don't see that as a reason to give to GM and Chrysler. If our economy is underpinned by an industry that builds sub-standard cars then we have a problem. Detroit has rested on its laurels for so long. As long as gas was cheap and Americans wanted Suburbans that's all they had to be good at building. Now if you're a good company do you even want to be beholden to Obama? Hell no! Go through bankrupsy, restructure, and come back stronger without having to worry about salary caps, or CEO's being fired by El Hefe!
Two sides (or more) to every story. The UAW is a large part of why Detroit isn't profitable right? Who's to blame there? Could it be partly the Government??? In which case maybe the Government owes Detroit? Doesn't seem like the big Gov can get it right more than 50% of the time. Regulations and initiatives with good intentions get perverted by lobbiests and agendas most of the time.

I dunno. I just wish people would stop throwing my money at entities that don't deserve it! I hope GM and Chrysler survive and build cars that are as good as Hondas for less... I'll buy.

SEANT Wrote:
-------------------------------------------------------
> One wonders with current US politics how long
> before Honda and Toyota plants in the US are
> forced into becoming union and how that will
> effect their bottom line ...
>
> Now with the talks of filing bankruptcy after
> already having been fiscally helped out and not
> getting more funds ... I think the market shows
> how most feel about government involvement, well
> those that are left in the market. Crazy stuff
> going on!!!
>
> As always IMHO
>
> SEAN TENNIS
> SEATTLE, WASHINGTON
> SAAB 99, SAAB 850


Ya that union thing..I have a '91 Accord in the shop today, US built. Still a nice car. Not many 91 Berettas or Taurus' that I'd want to drive. Danged non-union help.