I kinda feel bad for Wagoner.  I wonder if he — like me — thought all that “you’ll get more money if you meet target X” stuff attached to the previous bailouts were just for voter consumption, and not to be taken seriously.

But apparently Obama was for reals, no fooling, and Wagoner has now been shown the door in the dignified coat-covering-the-handcuffs manner reserved for the wine and cheese crowd.

More about Wagoner’s ride into the sunset can be found at Mish’s site.  I think the knowledge that Wagoner was ousted and Obama’s administration was behind it is all that really matters.  Mish goes into a bit more detail about his replacement, as well as the popularity (or lack of) of the chronically bailed out domestic auto industry.

Bad week for Rick Wagoner.  This just adds insult (getting a dignified shitcanning years too late to matter) to injury (mighty Duke getting blown out by Villanova last week).

The rest of the execs at GM, Chrysler, and the companies themselves have made it to the Elite Eight but things don’t look promising for them either, as they have had their “funding denied” and “plans rejected”.  I had “financial industry” winning it all over “taxpayers” on my bracket, so I’m still looking pretty good.

… and the cow goes moo

I’ve been wanting to (but not quite meaning to) do something similar to what this intrepid Naked Capitalism reader has done for a while, but was a bit intimidated by the work involved (just going down the list of GM’s models would be a chore).  And then sourcing them to their production facilities?

Thank God some people are more industrious than I.

Key quote (please read the post for details):

“Eyeballing it, it looks as we can expect GM to shut down 3/4 of their plants in the US.

That is massive hurt to suppliers, dealers, etc.

Remove the Pickups, and it is even worse.”

Yves Smith, of course, also has her own invaluable contribution to make:

“… With that as context, the proponents of Chapter 11 focus on the potential (in their view) upside, mainly gutting UAW contracts, but also dealer agreements and (in theory) cramming down bondholders. But the flip side is that once a company files, the process is irreversible. And if things do not work out as expected, there is no way to go back.”

If the automakers are not bailed out, they will declare bankruptcy and still require substantial Federal support for debtor-in-possession financing if they declare chapter 11 and continue operating, as opposed to liquidate through chapter 7.  And there is a reasonable chance that the Big Three will come out of their various filings broken up and damaged to the point that they are no longer international players.  Or perhaps a few years away from disappearing entirely.

If they are bailed out, we would be looking at perhaps $5 billion per month in costs for all three (just an estimate based on the early talk of a $14 billion bailout to get them through until March, though I repeatedly see the estimate that GM is bleeding $2b per year), totaling perhaps $60 billion per year that would go towards salaries, pensions, health insurance coverage, and building cars that some consumers still might buy.

And if, over a year’s time (or perhaps more), it becomes clear that negotiations cannot be conducted to make the US automakers more competitive and more environmentally-conscious, then bankruptcy is still an option.  The $5 billion per month would not have been pissed away: most of it would have been injected back into the US economy (and, as the NYT article quoted by Yves Smith notes, “both G.M. and the Ford Motor Company were profitable in Europe last year and in the first half of 2008″, so they might be bringing in some money to America as well).  Consider it a stimulus package.  And, should the ‘trial’ last long enough, the timing would certainly be better to absorb the loss of one (or all) of the Big Three than now.  If we’re dead-set on further stimulus packages and public works projects as the Bush administration and the incoming Obama administration claim to be, why not do so in a manner that also mitigates one potentially disastrous catastrophe or at least delays it for a time when we can better control and estimate it’s fallout?

And, for those committed to this goal, the UAW can still be humbled with the threat of a bankruptcy filing should negotiations not bring the US automakers to a competitive position with the foreign automakers.

Now is not the time to be setting off economic bombs, and there is very little reason to count our pennies (okay, hundreds of billions of pennies) if the economic stimulus chatter is already tossing around the big one-tee.

And if that doesn’t work, we’ll have a post-recession (depression?) liquidation of the automakers.  Is that so much worse than allowing GM to declare bankruptcy at the start of 2009, with Chrysler following shortly after and (I would bet) a Ford bankruptcy by the end of next year?

… and the cow goes moo

I have been trying to follow the effects of the Detroit failure / near-failure (I believe those are the two remaining options) this past week or so (most recent post on the matter here).

Thankfully, the New York Times has been dioing their part to try to quantify the impact the closure of thousands of automotive dealerships in the coming year or so, and the impact that will have on the income of organizations that have grown to rely on these small businesses (as I have posted on previously).  The article provides a fairly broad listing of likely side-effects from the coming dealership closures, and much more information on the conditions that these dealerships will face that make them particularly vulnerable:

“With a bailout moving through Capitol Hill, “we have a chance of being hung with a softer rope,” said Mr. Fitzpatrick, chairman of the California New Car Dealers Association.

…

Virtually every state has stringent laws that make it difficult for manufacturers to alter dealer contracts, even when they abandon brands…

But this time, many analysts say the sheer scale of the economic downturn is reducing the likelihood that many dealers will fight to stay in what has become a money-losing business.

…

The economic decline among the dealers is undermining their legendary political clout. Their powerful lobbying organizations secured the franchise laws in virtually every state, which protected them from efforts to winnow their numbers in the past. Now it is possible that Congress will try to suspend or otherwise override those laws as part of a reorganization plan, something dealers have begun to lobby against.”

It seems like this was a battle of attrition.  With automotive sales falling year-over-year between 30% and 40% for many of these dealership, they may no longer resist their closure much.

Though from my personal experience and some indirect anecdotal evidence, I have heard very little true suffering coming from dealer principals.  I believe they tend to make out very well, at least until recently.  I won’t weep too much for them.  But everyone south of the GMs deserve some compassion.

… and the cow goes moo

I had posted about the effect on dealerships here.  I posted shortly on how the loss of dealerships would effect already troubled local and state government balance sheets here.

Yet another area is likely to suffer dramatically with the closing of a large percentage (20%?) of auto dealerships in the coming 13 months (Bloomberg article, found at Naked Capitalism):

“Local television stations get 25 percent or more of their advertising from automakers, dealers, and dealer associations…”

And how about the already-in-decline print media (Sam Zell’s recently-bankrupted Tribune Co. would be one good example of an early casualty perhaps, though Tribune owns local other media outlets beyond print)?  Can we expect smaller papers and even some larger ones, like Tribune’s LA Times, to survive with a major decline in automotive industry advertising?

Will tomorrow’s auto bailout announcement attempt to reconcile the impossible demands of making the Detroit Three self-sufficient as well as saving their employees and affiliated businesses…  and their contribution to the economy?

Regardless, the consequences of this bailout will shape out over the coming year and things will not be anything like the way they are now.  Those in the automotive industry (and I know and have worked with some of you):  You might want to consider taking time to prepare yourself for a painful occupational transition.

… and the cow goes moo

From a China View article (I know, odd source) found at Some Assembly Required:

“Sales of new and used cars, as well as parts and service, are the single largest source of sales tax revenue for almost every state, county and local government, but those figures were down substantially these days, according to a Los Angeles Times report Monday.

…

The reduced auto sales tax revenue this year contributed to the huge shortfall in [California's] budget, prompting Governor Arnold Schwarzenegger to propose a sales tax hike and spending cuts.”

I believe this LA Times article is the one being referred to by China View.

Any bailout isn’t likely to restore sales at the dealership level much (unless it takes the form of a consumer automotive purchase rebate package as proposed in the comments in this post) so even if a Detroit bailout comes to pass, this lost revenue stream for local governments will not be restored.

Lost government revenue from property taxes, real estate transactions,  income tax, and now a significant portion of sales taxes (beyond the reduction in consumption in general).  Governments will soon be needing bailouts far more than the automakers already do.  California is merely the leading edge of a massive wave of government budgetary failures.

I wonder if the Treasury and Federal Reserve will be as forthcoming in bailing out local governments as they have been about bailing out the financial sector?  Governments may have a lot more in common with the so-far-shirked automakers than they do with the financial industry: Governments and automakers are staffed almost entirely by the lower and middle classes and both represent some of the least favorite things (unions and regulators) of those most supportive of free markets.

… and the cow goes moo

According to the New York Times:

“… [the U.A.W.] would make major concessions in its contracts with the three Detroit auto companies to help them lobby Congress for $34 billion in federal aid.

The surprising move by the U.A.W. could be a critical factor in the automakers’ bid not only to get government assistance, but also to become competitive with the cost structure of nonunion plants operated by foreign automakers in the United States.”

I believe much of the criticism of union contracts was fair (though I don’t think it is reasonable to expect for unions to aim for goals far below what they can get to insure they don’t put too much pressure on their employers.  It is supposed to be a reconciliation process between opposing forces, for the most part.  I’m not sure I would personally pass up additional benefits simply because I suspected my employer might not be able to afford them many years down the road).  This act does show they are more alert and diligent than perhaps their counterparts in the executive offices.  These concessions seem fairly late coming, but their very existence with minimal prodding by the public exceeds my expectations.

Of course, it still doesn’t look very promising for the automakers.  Having the CEOs acting like huge assholes tends to result in lost points with the taxpayers.

“Democratic Congressional leaders have said that they want to help the automakers and that they were heartened by the gesture of contrition that the executives made by driving to Washington — rather than flying on corporate jets, as they did two weeks ago — and by the more comprehensive plans submitted by the companies.

But the political climate on Capitol Hill is still doubtful for the automakers, and only seemed to worsen on Wednesday with a new CNN poll showing a majority of Americans opposing a taxpayer rescue.”

Oh, right.  The private planes and the “I won’t take a paycut but please give me billions of dollars” thing.  The taxpayers still remember that?

… and the cow goes moo

I thought I followed car news (and electric car/hybrid news fairly closely) but this caught me totally by surprise.

Auto123.com:

“Nissan’s vision is to provide the general public with zero-emission vehicles by 2012. And already, thanks to ongoing research on lithium-ion batteries undertaken in 1992, Nissan says it has almost found the solution…

“The vehicles provided to the two States in question have an operating range of 160 kilometres, recharge to 80 % capacity in less than 26 minutes and cost less than 70 cents per full tank of gas. This is a viable solution that we could establish if the recharging installations were available. We still have a lot of research ahead of us, but we are the leaders in this field,” says [Mark Perry, director of environmental product planning for Nissan].”

Did anyone know about this?  I only vaguely recall some hybrid Altimas about a year ago that didn’t seem to sell at all.

And the most fascinating comment that really shows Nissan’s (or at least Mr. Perry’s) understanding of the situation and their willingness to face hard truths:

“”If all the developing countries counted on individual cars as much as North Americans, we would need 11 extra planets to provide the necessary resources. Some things absolutely must change, and that’s what we’re doing,” concludes Perry.”

Amen, brother.

This is coming from a motorcycle and car owner who loves cars and motorcycles, but takes the bus to work and back every day (though I could easily drive or, weather permitting, ride).

… and the cow goes moo

A lot of noise was made two months ago when a study revealed the dire makret situation facing the small-business owners of the automotive industry in 2009.

Reuters:

“With U.S. light vehicle sales predicted to drop to the 13.7-million-unit range in 2009, the study said that about 18 percent of the total number of U.S. car dealerships would need to close to maintain sales per dealer at last year’s level of about 750 units.”

What has escaped mention until now is the much greater impact this will have on automotive dealership employees (beyond sales staff; think mechanics, administrative staff, and accountants).

The New York Times:

“In October alone, 20,000 employees of auto dealerships lost their jobs nationwide, more than half of those who were newly unemployed in the retail trade, according to the Labor Department.

The auto dealers association estimates that new-car dealers produce a $54 billion annual payroll for 1.1 million workers and nearly 20 percent of the retail sales and sales taxes in small and large communities alike.

…

In this small town outside Tallahassee, Mr. Thomas had 50 employees only two years ago when his two dealerships sold an average of 24 new vehicles a month. But now Mr. Thomas is lucky if he sells three new vehicles a week, and he has had to dismiss 10 of his remaining 40 employees in recent days.

…

“We have never seen anything like this,” said Denny Fitzpatrick, owner of a Chevrolet-Hummer dealership outside Oakland and chairman of the California New Car Dealers Association. Having already dismissed 56 of his 114 employees, Mr. Fitzpatrick added, “You lay awake at night trying to figure out how to keep these doors open.””

Perhaps 20% of dealerships will close in 2009.  Is it unrealistic to expect the remaining 80% to have cut their workforce in half by then?  This is far beyond decimation: 60% of automotive dealership workforce could be eliminated by some time next year.  That would be over 600,000 jobs in the new-car industry.  And this looks likely to occur even if there is a massive automaker bailout that doesn’t compel consumers to buy cars (or lenders to backstop consumers buying cars).

As someone who has worked at an automotive dealership in the past, out of a love for cars, my condolences go out to those who are having their salaries (and commissions) squeezed now and may lose their jobs entirely.

… and the cow goes moo

See article snip (from the NYT) and Ritholtz’s comment at The NEW The Big Picture.

So what’s Tesla’s argument?  Low gas prices have destroyed demand for their electric sports car?  Their investor-class clientele (that can afford a 6-figure sports car) has taken such a big hit with the Dow Jones drop that demand has dried up?

I’ll assume the lack of investors and lending facilities for business is the cause for Tesla’s request.  Or they just know a good thing when they see one.  Why WOULDN’T you request a low-interest loan from the government?  Why would you even seek capital elsewhere?

Ritzholtz make a great (short) point about public funding for technology start-ups and innovation in general.  It’s a rarely-acknowledged fact that many of the game-changing technologies that we enjoy now had their origins in public R&D (NASA’s Jet Propulsion Laboratories’ role in the invention of the digital camera being one example; and if you like a supporting reference in quotation form: “”Virtually every aspect of information technology upon which we rely today bears the stamp of federally sponsored university research,” said Ed Lazowska, a computer scientist at the University of Washington”).

As it relates to the automotive industry… Right now, Congress is trying to accelerate the issuing of a $25 billion loan to the automotive industry purportedly to help them build fuel efficient vehicles.  One of the reason’s this is essential to the public interest is, as Wesley Clark recently argued, the potential military value of such vehicles.

If this technology is essential to the public interest, why not fund it publicly?  By providing money to the Big Three in hopes they will apply it to electric propulsion technology seems like a wasteful route, relying on and enriching a notoriously poor management team.

And if we HAVE to bailout the auto industry, why do it with loans?  Why not get something for it instead by contracting GM, Ford, and Chrysler in a joint project with DARPA to develop an electric Humvee?  At least that way we’ll get something out of it.

… and the cow goes moo

GM, you smoove bastid:

BusinessWeek:

“General Motors today said it reduced its fleet of corporate jets from five to three. The struggling automaker drew fire this week from Congress when the CEOs of all three U.S. automakers flew in private jets to Washington DC to ask for tax-payer funded loans to help them avoid bankruptcy.

…

GM spokesman Tom Wilkinson said the reduction in the fleet was planned before this week’s Congressional hearings. Several members of Congress chided the CEOs for not sacrificing fat-cat perqs at a time when their companies are losing big money and are asking the public to help bail them out.”

Did you know “perk” is actually short for “perquisite“?  Anyways…

Talk about too little, too late.  These hapless retards had it planned ahead of time (so they say) and still managed to lose a $25 billion handout largely because they couldn’t leave the planes in the hangar for one day?

Though, to be honest, flying a commercial flight for Wagoner, Mulally, or Nardelli might be pretty unsafe at the moment.  Considering that one in ten (or so I’ve heard) Americans are employed directly or indirectly by the automotive industry, any passenger plane could easily have about 25 people who want to kill them.

[For more bailout-blowing stupidity, see my previous post here and Naked Capitalism's pessimistic assessment of the CEOs here.  The issue of debtor-in-possession financing is a very interest twist that I've been following at NC for a couple of weeks now.  Would a DIP loan straight from the Federal government be construed any differently than a bailout?  I imagine the dollar values would be fairly similar, considering the quotes that GM needs about $14 billion or so to continue normal operations]

… and the cow goes moo