GM, Chrysler get bailouts

[Admiral Valdemar]

A "Yergin" is a euphemistic unit for $38 oil, as predicted would be the price of oil by CERA's Dan Yergin some time ago when oil started its moonshot. The peak oil community affectionately rates oil prices in how many Yergins it is at the time.

[Count Chocula]

GM still has a chance, their new cars are getting pretty good reviews mechanically. Here's what Car And Driverhad to say about the Cobalt SS:

Highs: Everything associated with moving—engine, brakes, chassis—is superb.

Lows: Everything else is still a Cobalt, which means styling blahs and plastics as paltry as they come.

And of course, there's the Corvette ZR1! [pant mode] Not to mention their Opel and Holden brands in Europe and Australia, and their status as the #1 automaker in China. If they can find a CEO with an IQ above that of the average Chihuahua, they have a chance.

IMO, Chrysler's a bit more iffy. They've got the uber super-duper Dodge Viper ACR, the Grand Caravan, and half of the Jeep brand vehicles - Liberty, Wrangler/Unlimited, and Grand Cherokee (the Patriot, Compass and Commander don't fit well with core Jeepsters), and no European brands. I believe the Jeep brand and some of their vehicles will survive, but the corporation's future seems iffy to me (I own a Jeep).

Of course, the Big Three's ultimate survival depends on the willingness and ability of you and me to buy new cars. ALL the automakers are down, and GM and Chrysler's predicaments are simply what happens when companies at the margin run into tough times.

[Enigma]

A "Yergin" is a euphemistic unit for $38 oil, as predicted would be the price of oil by CERA's Dan Yergin some time ago when oil started its moonshot. The peak oil community affectionately rates oil prices in how many Yergins it is at the time.

I saw the oil price at $42.3. So that is a Yergin and change?

[Phantasee]

And of course, there's the Corvette ZR1! [pant mode] Not to mention their Opel and Holden brands in Europe and Australia, and their status as the #1 automaker in China. If they can find a CEO with an IQ above that of the average Chihuahua, they have a chance.

IMO, Chrysler's a bit more iffy. They've got the uber super-duper Dodge Viper ACR, the Grand Caravan, and half of the Jeep brand vehicles - Liberty, Wrangler/Unlimited, and Grand Cherokee (the Patriot, Compass and Commander don't fit well with core Jeepsters), and no European brands. I believe the Jeep brand and some of their vehicles will survive, but the corporation's future seems iffy to me (I own a Jeep).

Those aren't cars that are going to get them back to profitability. For one thing, the Corvette is not the sort of car that you base an entire business's success on. Neither is the Viper. The Grand Caravan is one of the best selling minivans of all time and all that jazz, I've owned two, but large vehicles in general are not going to be leaders of tomorrow.

And the Jeeps? Please. And I thought they dropped the Compass and Commander? The Compass was a bad idea from the start, it competed almost directly with the same niche the Patriot was going for, and both of them also overlap a little bit onto the Liberty's niche. My uncle had a Patriot he got to lease for cheap for a year or something when I visited back in February. Nice vehicle, but is it really a good idea to push more SUVs?

[Count Chocula]

The ZR1 and Viper ACR are the "big dick" cars of their respective marques. Agreed, not profit centers, but showcases for the best each company can do.

Yeah, Jeep screwed up big time with the Compass, Commander and Patriot. Who needs a boxy-ass Commander when you can get a Suburban or H2? And the Patriot, WTF was Chrysler Design smoking? It's like they took a PT Cruiser and squared off everything.

Jeep (and Chrysler) does best when they stick to the basics. Keep the minivan, people will keep on fuckin' and truckin' no matter what. Keep the Wrangler and Wrangler U, because the first one's an icon and the U is what the Jeepster should have been. If GM and Chrysler merge, flip a coin to see if you keep the Grand Cherokee or Tahoe.

Definitely keep the Lib. It uses a 4WD drivetrain that's been proven for decades, the structure is sound (although I've had a grand worth of dumb-ass repairs in the past 6 weeks), and it's the best off-road compact SUV on the road IMO. A little small inside, but only a Wrangler will go places the Liberty can't.

[Ekiqa]

Chrysler is the only one of the 3 that does not have a subcompact car in its 2009 line up. If it wants to survive, it needs to have small cars, not horribly expensive monster muscle cars. Why cant we get some proper small cars over here, like there are in Europe? A nice Citroen, Puegot or Fiat? If you want an SUV, get a Fiat Panda.

[Sea Skimmer]

The ZR1 and Viper ACR are the "big dick" cars of their respective marques. Agreed, not profit centers, but showcases for the best each company can do.

Car for car the automakers make some very good money off cars like that in the 75-150,000 dollar bracket, especially in America when we've consistently proven at we can deliver much higher performance for the money then Euro imports. The cars are cheap enough to sell worthwhile numbers to justify the production line, but expensive enough that a nice profit margin can be built into the price. American companies are going to take a big financial hit then the new fuel economy regs force them to kill off everything like that, since manufactures can only longer take lower production numbers into account when meeting the corporate average fuel economy standard. This is entirely dumb, especially since the regulations will not apply equally to foreign firms, but it’s the reality.

[Starglider]

This is entirely dumb, especially since the regulations will not apply equally to foreign firms, but it’s the reality.

Could you clarify this please? I know that the US DOT fines European manufacturers (e.g. Ferrari) who don't meet the standards, and they just pass that cost on the consumer. If you mean the new 'footprint' thing that is rather silly, but I hadn't heard anything about foreign companies being exempted?

[Count Chocula]

Starglider, Sea Skimmer was referring to the Corporate Average Fuel Economy standard forced on US manufacturers by Congress in the Carter era, IIRC. Trucks, or vehicles built on truck chassis, are exempt, one reason for the SUV popularity explosion in the US over the past 10-20 years. That's right, Barney Frank helped invent the SUV!

Corvettes and Vipers, on the other hand, are classified as automobiles and thus subject to the CAFE standard. Every 15MPG Viper sold has to be offset by x number of Stratus CAFE-compliant small cars to avoid the federal government's ire. You see that as excise taxes in import Ferraris, Lamborghinis, Maybachs, etc. because they're classified in the US as "gas guzzlers" by some bureaucrat's reckoning, and therefore eeevvviiilllll and deserving of a hefty guzzler tax. Congress just passed a law that requires cars and trucks from a manufacturer to achieve, on average, 35 MPG by 2020. This will inevitably result in a dimunition of pickup trucks, SUVs, and showcase cars like the Viper or Corvette.

[Starglider]

Starglider, Sea Skimmer was referring to the Corporate Average Fuel Economy standard forced on US manufacturers by Congress in the Carter era, IIRC. Trucks, or vehicles built on truck chassis, are exempt, one reason for the SUV popularity explosion in the US over the past 10-20 years.

I know, what confused me was the 'can no longer take lower production numbers into account' part, I thought meant that the averaging system might be changing. Producing a small number of Covettes has very little effect on the mean fuel consumption for a company as big as GM, but obviously including SUVs in the mean is a big deal.

[aerius]

Well this is getting strange now, you gotta wonder what the catch is.

WSJ Link

Fiat Nears Stake in Chrysler That Could Lead to Takeover
By STACY MEICHTRY in Rome and JOHN STOLL in Detroit

In an attempt to revive two of the world's storied auto makers, Italy's Fiat SpA and Chrysler LLC are poised to announce a partnership as soon as today in which Fiat could take control of the U.S. company's operations, people familiar with the matter said.

Under terms of a pact that is being hammered out, Fiat is likely to take a 35% stake in Chrysler by the middle of this year. It would have the option of increasing that to as much as 55%, these people said.

Fiat wouldn't immediately put cash into Chrysler, but would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the U.S., these people said. Fiat would also provide engine and transmission technology to help Chrysler introduce new, fuel-efficient small cars, they said.

The companies believe working together could generate savings of $3 billion, they said. The deal is the latest maneuver by Fiat's chief, Sergio Marchionne, who took over the Italian company in 2004 when it was near collapse.

The partnership would provide each company with added economies of scale and geographical reach at a time when both are struggling to compete with larger and more global rivals like Toyota Motor Corp., Volkswagen AG and the alliance of Renault SA and Nissan Motor Co.

Chrysler last year sold two million cars and trucks world-wide, with almost all of its sales in North America. Fiat sold 2.5 million vehicles and is heavily dependent on Europe -- particularly its home market in Italy.

While Fiat has a wider global reach than Chrysler, the two auto makers are smaller players compared to their global rivals. Toyota and General Motors, for instance, each have sold more than nine million vehicles annually.

Chrysler spokeswoman Lori McTavish said, "In today's economic environment, talks are going on between companies in all industries -- ours is no different."

The pact with Fiat could give Chrysler a stronger case as it seeks more loans from the U.S. government. Chrysler nearly ran out of money late last year, before the Treasury Department provided $4 billion in emergency loans, and has suffered a steep drop in sales in the past three months. The auto maker needs to show it can remain a viable business by March to keep those loans and to qualify for the $3 billion in additional government aid it says it needs.

Last week, a vocal critic of Chrysler, Sen. Bob Corker, R-Tenn., said the company needs to "merge or go away." A Chrysler official declined to comment on Sen. Corker's remark.

Kimberly Rodriquez, an automotive consultant at Detroit-based advisory firm Grant Thornton, said Chrysler has little choice but to find an alliance. "Without further funding, they don't survive with the level of sales and cash they have right now," she said in a telephone interview.

Working with Fiat could complicate a separate partnership Chrysler arranged last year with Nissan. Chrysler is supposed to start making pickup trucks in a few years that Nissan would sell in the U.S., and Nissan has agreed to make compact cars for Chrysler -- vehicles that potentially could compete with any small cars Fiat provides to Chrysler. Nissan's partner, Renault, is also a key Fiat rival in Europe.

Chrysler and Nissan have discussed joining in a broader alliance, and top executives of the two companies spoke as recently as last week, a person familiar with the matter said. But Carlos Ghosn, chief executive of both Nissan and Renault, is wary of any deal that would require Nissan to put money into Chrysler, a person familiar with Mr. Ghosn's thinking said.

The tentative terms Fiat and Chrysler have worked out would call for Chrysler's owners, Cerberus Capital Management LP and Daimler AG, to retain stakes in the U.S. carmaker, people familiar with the discussions said. If Fiat takes the entire 55% stake, Cerberus will see its 80.1% stake diluted. It is unclear whether Daimler will want to keep its entire 19.9% stake.

A Daimler official couldn't immediately be reached.

News of the partnership was previously reported by Automotive News, a trade publication.

The potential alliance will need the blessing of Fiat's founding family, the Agnellis. The family, which holds a 30% controlling stake in Fiat, has said in the past that to stay competitive, Fiat needed to link up with a larger rival.

Fiat's board is likely to discuss the potential deal with Chrysler when it meets Thursday to approve third-quarter results, one person familiar with the matter said.

On the Chrysler side, Cerberus has been trying to find a partner for the auto company for months. Cerberus, a massive private-equity fund, acquired Chrysler from Daimler in 2007, pledging to rebuild its status as an American industrial icon. To come up with cash to fund its ambitions, Cerberus had Chrysler mortgage almost all of its plants and other assets to raise $12 billion in loans from a group of banks led by J.P. Morgan, Goldman Sachs and Citigroup.

Then, in the spring of 2008, gasoline prices soared to $4 a gallon and Chrysler's sales plunged.

Scrambling to save cash, Chrysler slowed development of new vehicles. At the North American International Auto Show, which opened last week in Detroit, Chrysler didn't show a single new vehicle that will be launched in 2009.

Chrysler's troubles worsened last fall when the meltdown on Wall Street hit. In the second half of 2008, the company used up $10 billion in cash, forcing it to seek help from the U.S. government. As part of the deal with Fiat, Chrysler is supposed to restructure the $9 billion in debt it still has on its books, people familiar with the matter said.

With this deal, Cerberus would be stepping away from the auto business after an 18-month stint trying to fix Chrysler. While the private-equity firm and its investors likely will lose billions on the Chrysler deal, Cerberus could take an even bigger hit if it is forced to put Chrysler in Chapter 11 bankruptcy protection or continue running the auto maker amid a slump in the U.S. auto industry projected to last at least another year.

Fiat is also facing challenges. Analysts have long doubted whether it has the scale to survive as an independent manufacturer of small cars. Small vehicles produce relatively thin profit margins.

Fiat has for months been exploring ways to gain a foothold in North America, hunting for a partner that could manufacture its Fiat 500 mini model and re-launch its high-end Alfa Romeo brand in the U.S.

The financial crisis has exacerbated Fiat's challenges. New-car registrations in Europe, a measure of demand, reached a 15-year low in 2008, falling 7.8% from the year before, the European Automobile Manufacturers Association reported last week.

Most analysts say Chrysler has little hope of surviving as a standalone company. Amid a rash of mergers in recent decades, and the rise of well-funded newcomers in China and India, the auto industry is dominated by multinational players that can quickly move production and engineering from region to region.
—Jeff Bennett contributed to this report.

Write to Stacy Meichtry at stacy.meichtry@wsj.com and John Stoll at john.stoll@wsj.com

Since the Chrysler/Daimler shotgun marriage & divorce worked so well, they're in talks to do another one with Fiat.

[Ekiqa]

Since the Chrysler/Daimler shotgun marriage & divorce worked so well, they're in talks to do another one with Fiat.

Fiat does have some nice small cars, including the SUV Panda. Getting Fiat into the North American scene might be good for Chrysler, and shake up the rest of the automakers.

[Elfdart]

This is a better match. Both produce crap cars. Fiat still stands for "Fix It Again, Tony".

[Ma Deuce]

Chrysler's pretty much finished on their own anyway, so I don't see how it could hurt. GM should have the potential to be viable, with another bailout or two for the restructuring necessary to get their finances in order, since they still have a very strong design and engineering department plus a global sales base and some competitive products to show for it, provided the management uses that chance competently enough (though I admit that's a pretty big if); Ford has those assets as well (their overall bread-and-butter lineup is better than GM's at the moment), plus their CEO's foresight allowed Ford to thus far weather the credit crisis without government money.

But Chrysler? Not only are their present finances as bad as GM's, but they don't even have GM's engineering and design assets, nor the sales base to ever be truly competitive in R&D on their own. They are effectivly a regional automaker, when all of their competitors (including GM and Ford) are global companies, with the resources to match. In fact, forget what I said above: the last thing we need is a merger for Chrysler (with an automaker that ain't in great shape themselves) that'll only prolong the inevitable. Reiterating what I said earlier in the thread, to strenthen the positions of GM and Ford in this shrunken market and thus ensure an American domestic auto industry continues to exist, I now think the death of Chrysler is not only something that will happen, but MUST happen, but in a managed "soft landing", rather than a free fall collapse: Unless of course Fiat intends to simply dismember Chrysler and take what they like, discarding the rest, but that doesn't seem to be the case so far.

[The Yosemite Bear]

which reminds me, GM, remember that much lampooned cheap, fuel efficiant car you used to produce called the "Geo" now would be a good time to bring them back. (provided you actually put some decent springs and shocks on them this time)

[Ma Deuce]

which reminds me, GM, remember that much lampooned cheap, fuel efficiant car you used to produce called the "Geo" now would be a good time to bring them back. (provided you actually put some decent springs and shocks on them this time)

The Metro was nothing but a rebadged Suzuki Swift, and GM has since sold off their stake in Suzuki, making a return of the Metro in that capacity pretty much impossible. The Metro's position in GM's lineup has since been filled by the Daewoo-made Chevy Aveo, although unlike Suzuki, GM actually owns Daewoo outright.

[The Yosemite Bear]

mind you by the time I got mine off a used car lot, the bumper was being held on by bailing wire and duct tape literially.

I swear one of these years I need to build a frankienstine car....

[Alyrium Denryle]

mind you by the time I got mine off a used car lot, the bumper was being held on by bailing wire and duct tape literially.

I swear one of these years I need to build a frankienstine car....

Oh god damn it I cant resist. My native nerd-creche already did...

The anti-Chrysler
Profile view

Yes that is duct tape.

At the time a 1993 concorde that was falling apart at the seams and practically needed virgin sacrifices to get the engine turned over.

To add something constructive...

I am not sure mandating 35 MPG by 2020 is good enough. For fuck's sake my '98 mazda makes that. 35 MPG by that data is too little too late as far as I am concerned.

[Elfdart]

which reminds me, GM, remember that much lampooned cheap, fuel efficiant car you used to produce called the "Geo" now would be a good time to bring them back. (provided you actually put some decent springs and shocks on them this time)

The Metro was nothing but a rebadged Suzuki Swift, and GM has since sold off their stake in Suzuki, making a return of the Metro in that capacity pretty much impossible. The Metro's position in GM's lineup has since been filled by the Daewoo-made Chevy Aveo, although unlike Suzuki, GM actually owns Daewoo outright.

They also made the Prism, which was a Toyota Corolla with slightly different grill.

[Ma Deuce]

They also made the Prism, which was a Toyota Corolla with slightly different grill.

Every car sold as a Geo was a captive import. that was the whole point of the brand.

I am not sure mandating 35 MPG by 2020 is good enough. For fuck's sake my '98 mazda makes that. 35 MPG by that data is too little too late as far as I am concerned.

Doing what, cruising on the highway? the CAFE standards are based on the average fuel economy rating provided by the EPA, and going on the EPA's website, I find one '98 mazda model that averages 29 MPG, and no other model from that year gets better than 25. Fast forward to today, and no gas-only Mazda gets better than 27 (the hybrid Tribute SUV, which is a rebadgd Ford Escape, gets 32). Thrrow in the fact that the 35 MPG standard doesn't only include cars, but light trucks as well, and you can see where meeting that standard could be a problem since the CAFE standards don't influence people's car buying habits, but as we saw last year, gas prices most assuredly do.

It is interesting to note the United States is the only developed country that actually imposes fuel economy standards on automakers, but the average fuel economy of vehicles sold and on the road is among the lowest (and this has less to do with the models of cars automakers offer, and more to do with the mix of vehicles consumers choose to buy). Clearly, CAFE has been an abject failure, and should be scrapped outright. In it's place, you'd institute what most other countries use to keep fuel consumption down, high gasoline excise taxes, which we could make more palitable to the average voter through corresponding decreases in income tax and/or other excise taxes, tax breaks for work vehicles, gas tax refunds for poor people etc. All this of course would be done gradually to give industry and consumers time to adapt. We also need to do more to encourage the sale of diesel cars here (like taxing diesel much less heavily than gasoline). That's the other major part of the reason other developed regions get better fuel economy than we do. This approach would also have the effect of giving automakers more freedom to design the models they want to, and let the market decide what mix of cars will be sold.

The onus should be on the consmer, not the manufacturer, but of course in America the consumer is king, and among American consumers it's become fashionable to make domestic industries the whipping boy for everything and treasonously egg on their destruction, while putting their foreign competitors up on a pedistal.

[Arthur_Tuxedo]

Considering the share prices and outstanding shares, I'm pretty sure the govt could have bought both companies for less than the amount of the bailout. I know Americans are allergic to nationalization and all, but there are lots of examples of governments buying up failed companies, restructuring them, and then selling them at a profit when the private sector was unable / unwilling to do so. With a team chosen by the Obama administration to head them, I think nationalization would have been the quickest way to return GM to competitiveness and profitability. Chrysler hasn't been competitive for a long time and I'm not sure they can ever be competitive again. If it were my decision, I would have just let Chrysler be liquidated.

[Ma Deuce]

Considering the share prices and outstanding shares, I'm pretty sure the govt could have bought both companies for less than the amount of the bailout.

I don't think the automakers are simply as cheap to buy as the value of their stock. After all, if the government bought all their shares, would they not also have to assume all their considerable debts? (not to mention they'd still have to spend the price of the bailout to restructure the companies and absord any operating loses in the interem). Also, how would nationalization affect the facilities and subsiduaries that GM owns in other countries? Nationalization should definately be on the table, but I can't see it as the first option. If we're allowing solutions as drastic as nationalization, the most efficient option would probably be a "cramdown" that removes GM's debt and legacy expenses, and immediately recapitalizes the company with fresh wad of cash needed for the paring-down of dealers and factores to adjust to the reduced market.