General Motors Selling Cadillac and Chevy to…

GM's new headquarters?

Here’s a sentence I’d never thought I’d write while covering the auto industry:

The United States government is poised to buy the best assets of failed GM, a sale that will include the Buick, GMC, Chevrolet, and Cadillac brands.

The old General Motors will dissolve in bankruptcy court while a brand new company, owned largely by the United States and Canadian governments, will emerge under the same GM name.

GM CEO Fritz Henderson said on his blog,

We expect the sale to close as soon as possible…and for the new GM to be operational and fully competitive, with an exciting line of new products, a smaller and more focused brand portfolio, and a clear mission to put the customer first in everything we do…. This has been an especially challenging period, and we’ve had to make very difficult decisions to address some of the issues that have plagued our business for decades.

Some of the issues? Pardon me, Mr. Henderson, but perhaps you should address all of the issues that have plagued your business. Putting customers first will make us all feel good for a while, but if there’s not a fundamental change in how you operate the business, we won’t stick around.

Let’s just hope the Obama administration guides you in solving all of GM’s issues… not just the ones that are easy to publicly address.

Heck, I’m sure the readers of this blog would have some great suggestions for change.

Readers: What do you hope GM will do differently in its second life?

-tgriffith

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Green Is the Color of Money

Finally, Ford gets rewarded for staying out of bankruptcy. Today it got a $5.9 billion loan from the Department of Energy to develop more fuel-efficient cars. Nissan got $1.6 billion, and Tesla (yes, Tesla) got $465 million—all coming out of a $25 billion pot to help car companies retool and get green.

GM and Chrysler got nothing, as they were not “financially viable,” per the terms of the loans.

Reportedly, Ford will use its money to “upgrade factories in five Midwest states to produce 13 fuel-efficient vehicles.” Nissan will build a new battery facility and advanced vehicles in Smyrna, Tennessee. Tesla will build electric vehicles (presumably the new Model S, below) and powertrains in Silicon Valley.

Interesting coincidence: $5.9 billion is the same amount Ford reported losing in its fourth-quarter 2008 report. GM lost that amount in its first quarter of this year. This activity is what the media calls “burning through cash,” and you’ll note that nobody rounds up to $6 billion.

Did these firms deserve it? Should other, smaller firms have gotten a piece of the pie? Give us your opinion, please.

—jgoods

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The Bailout Collapse: Getting Partisan

The Senate, house of political intrigue, punts on the auto bailout bill and here we are, now looking to the White House to solve the industry’s cash flow problems. Imagine what Jon Stewart and Jay Leno will have to say on this tonight. In fact, leave us your comments on that!

As we’ve said before in this blog, there has to be an element (or appearance) of fairness in these matters. Yet we should have learned a long time ago that politics has to do with advantage, not fairness. The Democrats put themselves at a big disadvantage by offering up a bill with so many flaws and so little to enforce a restructuring. Republicans seized the moment by piling on to the UAW which, whatever its past sins, had been the only stakeholder to come to the table.

In a news conference, UAW Chief Ron Gettelfinger “felt the union was being asked to make immediate sacrifices that other ‘stakeholders’—bondholders, executives, retirees, and others—were not. . . . The GOP caucus was insisting that the restructuring had to be done on the back of workers and retirees rather than having all stakeholders come to the table.”

Said Sen. Jim DeMint (R-S.C.), “It sounds like UAW blew up the deal.” Sen. John Ensign (R-Nev.) agreed. Really?

Given the fact that labor cost, as we reported, is only about 10% of vehicle cost, that does seem a mite unfair. Josh Marshall in TPM today thought so too and offered three Republican motives:

“Finally, this issue now goes well beyond the fate of the American automakers. Senate Republicans are following this course for three key reasons—first is payback against a major industrial union; second is payback against states like Michigan and Ohio who have been moving away from the GOP; third is the desire to advantage Japanese auto manufacturers who disproportionately do business in their southern states.”

With all this leveraging for political position and jockeying for power, maybe the best course is bankruptcy after all. Jospeh Stiglitz, Nobel Prize-winner and one of our most insightful economists, has this to say in the Financial Times:

“The debate about whether or not to bail out the Big Three carmakers has been mischaracterised. It has been described as a package to help the undeserving dinosaurs of Detroit. In fact, a plan to bail out the carmakers would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.”

The problem was created, says Stiglitz, by the industry’s mismanagement and the financial markets “which failed in their oversight” and allowed the companys’ shortsighted, short-term focus on profits to continue.

“As the bail-outs continue, numbers that once looked huge are starting to seem almost normal. Hundreds of billons are being given to banks and insurance companies. AIG got $150bn. Compared with that $34bn, or even $125bn, for the automotive industry seems a modest request. Even so, we should not forget that a few months ago, President George W. Bush said there was not enough money for health insurance for poor children although it cost just a few billion dollars.”

If Stiglitz is right, then a prepackaged bankruptcy finally may be the best and only real option. I urge you to read the article.

Let us know how badly you think the government has fumbled this bailout question. Is Stiglitz right?

–jgoods

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