A rough road ahead for Chrysler's union with Fiat

Moments ago, President Obama announced that Chrysler will file for bankruptcy today in a New York federal court, then move toward a speedy union with Fiat. But in the rush for a shotgun marriage, there are plenty of hurdles Chrysler has to clear.

Punditry: The top five Fiats that Chrysler needs now

Fiat's recent offer to link up with Chrysler could be silver lining within the Carpocalypse's clouds of doom.

Under the proposed deal, Chrysler gets its cash-starved mitts on Fiat's la bella machinas. And Fiat grabs a minority stake in Chrysler and dibs on Chrysler's distributors and dealerships.

We would get a heaping helping of la dolce automobili, but which cars would head stateside? Presuming all goes well, here's my list of the five Fiats that would save Chrysler's bacon.

GM to Washington: Loan $25B now or lose $150B later

If General Motors fails, nearly three million jobs could be lost in 2009 as part of a cascading collapse of suppliers, shipping companies and ultimately dealers. So argues General Motors in a video released as the embattled automaker campaigns for immediate federal aid in the wake of a cash-flow crisis.



Released on Sunday, GM's four-minute video highlights the fact that American auto industry is one of the largest economic multipliers in the U.S. economy. GM employs more than 1.7 million people, either directly or through parts suppliers, subcontractors and dealers.

The key argument is that if either GM, Ford or Chrysler fails, the industry would be faced with an imminent collapse due to the impact on suppliers and the cascading effects of production lines being halted and workers laid off at every level of production.

All told, as many as three million jobs could be lost if one or more the Big Three automakers fail. GM argues that in such a scenario, with no cars being made or sold, as much as $156 billion in tax revenue would be lost between 2009 and 2011.

And the economic catastrophe wouldn't stop there.

Add in the cost of supporting 775,000 retirees currently drawing a GM pension. And the health care costs of 2 million people who would find themselves uninsured if GM were to fail.

A collapse of the U.S. auto industry would reduce personal incomes by $150.7 billion, the automaker warns. Over three years, the cost could grow to $398 billion in unemployment assistance, as people struggle to find new work.

By every measure, the damage from a collapsing US auto industry will reach far beyond the industry itself.

The nation's auto industry is a major contributor to our gross domestic product -- nearly four percent in total. According to the Center for Automotive Research, our current recession was fueled by three-tenths of a percent decline in GDP. If GM alone is left to fail, a sudden one percent loss in GDP could easily trigger panic, turning a recession into a depression.

[GM]

GM posts $4.2 billion Q3 loss; exits Chrysler merger talks

Over the last three months ending Sept 30, General Motors has lost $46 million each day.

Announcing its third quarter earnings today, General Motors posted a $4.2 billion dollar loss, its fifth straight losing quarter and in an amount far greater than analysts had expected. In response, GM shares fell 13 percent to close today at $4.16m amidst doubts about the company's cash reserves.

“The third quarter was especially challenging for the auto industry. Consumer spending, which represents close to 70 percent of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales,” said Rick Wagoner, GM Chairman and Chief Executive Officer in a statement.

Tight credit, rising unemployment, declining income, falling stock markets, and continuing deterioration in the housing market have all contributed to an abrupt halt in consumer spending. Many customers who still intended to buy or lease a car this summer were denied financing, or found the cost of financing prohibitive.

In response to today's earning report, the beleaguered automaker said it would cut white-collar jobs and slash next year's capital spending budget by $2.5 billion in attempt to cope with the troubled economy. Including job cuts made in July, more than 7,000 salaried and contract positions are being eliminated, trimming spending on salaries by $500 million.

This afternoon, Wagoner renewed his pleas for low-interest loans from the U.S. Treasury. “The U.S. government’s actions to help stabilize the credit markets and eventually ease the credit crunch are an essential first step to the economy’s and the auto industry’s recovery, but further strong action is required.”

The biggest problem confronting GM is a lack of cash to pay it's suppliers and operating costs. Most of the company's funds are tied up in factories or tooling; without an injection of capital, analysts predict that GM will run out of cash by the second quarter of 2009.

Finding new lenders will not be easy, either. In response to the $46 million per day cash burn, Standard & Poor's lowered GM's debt rating further into junk status, from B- down to CCC+. "We now believe GM will use much more cash this year than our previous estimate of as much as $16 billion in its global automotive operations," said Standard & Poor's credit analyst Robert Schulz in a statement.

The 'will-they, wont-they' romance is over: GM kills Chrysler merger talks
Without mentioning Chrysler verbatim, Wagoner confirmed the end of negotiations with Chrysler to Automotive News.

"We have recently explored the possibility of such an acquisition based on the analysis that it would strengthen our industry position in the long term," Wagoner said. "we are better off to put 100 percent of our efforts on the liquidity side. We've set aside such (acquisition) actions as a near term priority."

Chrysler issued its own statement separately, saying the company would continue to work on returning to profitability. "As an independent company we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid our return to profitability."

Majority shareholder, Cerberus Capital Management declined to comment.

So what's next for GM?
In short, a fire sale.

The automaker has already killed the next generation of its full-size sport-utes and is ramping up efforts to sell the ailing HUMMER brand. Today, GM said it would put its ACDelco aftermarket parts business up for sale, a move the company expects will raise another $2-$4 billion.

Wagoner reiterated today that bankruptcy is not an option and that the company "will take whatever actions we can to avoid it."

But Wagoner's pledge will be hard to uphold given the state of the economy. Ford Motor Co. posted a $3 billion after-tax operating loss for the third quarter today, and said it too would cut costs further to preserve cash.

Both automakers said that U.S. sales will worsen next year. GM forecast its 2009 U.S. sales at 11.7 million units; if true, next year will be the company's slowest since 1982. In 2010, GM predicts US sales will rise to 12.7 million unit -- over 4 million less than the automaker's 10-year average ending last year.

[GM,AN]

GM, Chrysler lead horrific month as October sales plunge

Falling gas prices and rising inventories weren't enough to offset a tight credit market, leading to another awful month of sales for all automakers.

On average, October sales were down 32 percent from a year ago, with General Motors hit the hardest. Not only did GM's HUMMER brand lead the industry with sales off by 64 percent, but the rest of the GM portfolio followed closely behind.

Cadillac and Saturn sales fell about 55 percent, GMC trucks were down 52 percent, followed by Pontiac, Buick and Chevrolet, which were all down by at least 40 percent.

The decline is largely due to tighter lending policies adopted by GMAC Auto Finance. With GM's in-house lending unit refusing loans to buyers with credit scores below 700, a large percentage of prospective customers were unable to qualify for a loan.

Possibly the worst month since World War II
"If you adjust for population growth, this is probably the worst industry sales month in the post-WWII era," said Mark LaNeve, GM's vice president for sales and marketing, speaking with Automotive News. "Until the credit markets open up and consumer confidence improves, the entire U.S. economy, and any industry like autos that relies on financing, will suffer."

To spur sales, GM said today it will start its annual Red Tag Sale early this year. The event - which normally runs from Thanksgiving weekend to January 5, will instead start tomorrow, with some GM vehicles carrying up to $7,250 in cash incentives.

Chrysler sales fell 50 percent, trailed by Jeep and Dodge, down 32 and 27 percent respectively. Ford sales were off 28 percent from a year ago.

So far only two automakers have reported monthly sales increases this year: Toyota in April and GM in January. This month, Toyota's decline was lead by its Lexus unit, down 35 percent. The Toyota brand retained its position as the nation's best-selling brand, ahead of Ford and Chevrolet.

MINI posts gain, Audi bucks the downward spiral
Among the few to post gains were BMW's MINI brand, up 56 percent. Audi, whose sales were up by less than one percent were weighed by parent company Volkswagen AG, whose sales fell by nearly 8 percent.

"This is the toughest economy we've seen in a long time," Mark Barnes, COO of VW Group of America, said in a statement.
[AN]

[Photo: Flickr.com; Original by Broken Wing Productions. Post-processing by David Moll.]

Treasury says no cash for GM, Chrysler merger talks stalled, Renault hookup rumors persist

The tumultuous storyline of the GM - Chrysler merger reads like a script fit for Hollywood. Both need each other to survive.
Neither can make it alone.

But parties on both sides have a lot to lose.

And with today's news from the Treasury, the White House — and even Renault — the story gets messier by the minute.

Will they? Won't they?
Read on..



Yesterday, it seemed a forgone conclusion that General Motors and Chrysler LLC would merge within the next month, despite the consequences for nearly all Chrysler's models.

Now, the US Treasury and the Bush administration are adamant, saying they will not broker a merger deal or heed GM CEO Rick Wagoner's request for more money. Speaking with Reuters, a Bush administration official said that the "Treasury is not negotiating with the automakers, the administration is working to get the $25 billion Congress already authorized to the industry."

Instead, the Bush administration and the Treasury will speed the distribution of $25 billion in federally-backed, low-interest loans, drawn from an aid package approved by Congress last month.

Automotive News reports that both GMAC and Chrysler Financial - finance agencies owned jointly by GM and Chrysler's owner, Cerberus Capital Management — would qualify to sell their distressed assets to the Treasury under the $700 billion Troubled Asset Relief Program.

"An unmanageable disaster" for Rust Belt states
While the sale of troubled debt will help GM's overall cashflow, it doesn't help the underlying problem that drove GM to seek Chrysler in the first place: a lack of financing. Without new borrowing or asset sales, GM is in danger of running dangerously low on cash in 2009, analysts have said.

Hoping to draw attention to the dire need for capital, the governors of Michigan, New York, Ohio, Kentucky, Delaware and South Dakota wrote the Bush administration in a plea for further assistance. Facing pressure from a surge of unemployment claims and a decline in state tax revenue, the "economic crisis" facing automakers "threatens to create an unmanageable disaster at the state level," the letter said.

Michigan's congressional delegation — lead by Energy and Commerce Committee chair John Dingell — has also lobbied the Bush administration to free up funds for the Big Three.

Ford joins the bailout fray, seeking "degree of parity"
And just when this couldn't get more complicated, here comes Ford. Reuters reports that FoMoCo has been angling for their own piece of the financial aid pie. If the government provides a direct injection of capital into either GM or Chrysler, Ford want their fair share as well.

Speaking with reporters, Mark Fields, Ford's president of the Americas said the company wants to "make sure that whatever happens, there is a degree of parity."

But for now, any aid — or merger negotiations — will be delayed until after Election Day.

So what happens now?
With the GM-Chrysler talks stalled, Renault pops back into the picture. As NMM reported two weeks ago, French automaker Renault has expressed interest in buying Chrysler's Jeep division outright from Cerberus.

Recently, Renault has backed away from the table, playing down rumors of a three-way partnership between Chrysler, Renault and it's Japanese partner Nissan Motor Corporation.

Nonetheless, the lack of progress with General Motors opens the door to new talks between Cerberus and Renault. Sources close to the early discussion said that Cerberus has considered a deal with Renault and Nissan as a favorable alternative to a full buyout of Chrysler by GM.

The sources declined to be named as they were not authorized to discuss the private talks. General Motors and Cerberus both declined to comment.

[RTS, AN]

Report: GM-Chrysler merger likely to decimate Chrysler lineup, trigger more layoffs

The fallout from a merger between General Motors and Chrysler LLC will lead to the closure of many as half of Chrysler's factories and the elimination of nearly all Chrysler models, according to a report released by consulting firm Grant Thornton LLP.

The report comes a day after General Motors canceled a $2 billion program to replace its trio of aging full-size SUVs and Chrysler culled its two full-size hybrid SUVs after only three months of production.

Merger and more layoffs seem inevitable
Despite the gloomy forecast, a GM / Chrysler merger seems highly likely at this point. Reuters reports that GM and Chrysler have resolved the major issues in a merger agreement and that the final form of a deal will depend on financing and federal support.

The New York Times reports that the Department of Energy was working to release $5 billion in government-backed low-interest loans to GM so it could complete a deal with Cerberus Capital Management, the majority shareholder of Chrysler LLC. The $5 billion in loans would come directly from a $25 billion pool of funds approved last month by Congress in an effort help Detroit retool as a maker of more fuel-efficient cars.

And while a merger may save the two embattled automakers, it most certainly will not save all their employees.

Speaking with Automotive News, Kimberly Rodriguez, principal of Grant Thornton's automotive practice said that a deal also could result in a loss of 100,000 to 200,000 jobs at the two automakers, their suppliers and other industry shareholders.

According to the report, the majority of job cuts would come as most of Chrysler model lineup is phased out. Chrysler's sedans have failed to outsell their domestic competitors and both the Dodge and Jeep division are heavily invested in SUVs and light trucks.

Massive consolidation of models, factories
Currently, Chrysler operates 14 factories, with two of them scheduled to close at year's end. During the summer, Chrysler has offered its Viper model lineup for sale, along with the Detroit plant where they are made.

In the report, Grant Thornton says that four more factories could close in the aftermath of a merger with GM. Those on the hit list produce the Chrysler Sebring and the Dodge Avenger in Michigan, the Jeep Liberty and Dodge Nitro in Toledo, Ohio, the Dodge Ram in St.Louis, Mo. and Dodge's heavy-duty truck plant in Saltillo, Mexico.

As production of these models wound down, a second wave of layoffs would then hit the third-party suppliers that provide transmissions, windows, dashboard assemblies — all of the primary components unique to each Chrysler, Dodge and Jeep model.

All told, the lost work to these suppliers would put hundreds of companies at risk. Up to 50,000 additional non-Chrysler jobs could be lost if Chrysler were to close the plants Grant Thornton expects.

Timing is critical; contraction is inevitable
If a GM-Chrysler merger is completed, it may take years to phase out all of the models listed in the Grant Thornton report. Some platforms may be eliminated through attrition; left in production until they cease to turn a profit. Some plants could be closed as early as the holiday shutdown and others could take years to close, said Rodriguez.

It is, in your humble author's opinion, a "damned if you do, if you don't" scenario.

Neither GM or Chrysler can survive alone in this market. While Chrysler has more cash on its books, they are in the worst position to capitalize on high gas prices. Worse yet, they lack the resources to improve their CAFE rating without aid. And while GM has a more fuel-efficient lineup, they are burning through their cash on hand at an alarming rate.

If either fails, far more jobs could be lost than those through the merger of these two former titans.

For more punditry on this unholy mess:
NYT: Views on a GM-Chrysler merger

[AN]

As a merger draws near, GM and Chrysler cull the SUV herd

In cattle ranching parlance, culling the herd is a process of selective slaughter. It is a metered and carefully planned elimination of the weak and unfit, done to protect the rest of the herd either from disease or in hard times, from starvation.

General Motors and Chrysler both sharpened their fiscal axes today and took drastic steps to ensure their continued survival. Upon unanimous approval by the board of directors, GM announced it has cancelled Project CXX, a $2 billion program to replace the aging Cadillac Escalade, GMC Yukon and Chevrolet Suburban sport-utility vehicles.

“It would have been very difficult in today’s environment to spend a couple of billion dollars to do a replacement,” said Bob Lutz, GM’s vice chairman and head of product development in a statement.

All three full-size sport utes — which a decade ago were icons of a resurgent GM — are now living on borrowed time. With the recent truck plant closures in Ohio and Wisconsin, the current generation of sport-utes will only be built for as long as sales volume remains self-sustaining.

Sales of sport-utility vehicles have steadily waned since 2004. As the highly profitable market shrank, losses continued to mount at all of the Big Three. And after posting a $18.8 billion loss in the second quarter of 2008, GM is reported to be in the final stages of a merger with embattled Chrysler LLC. While 2008 hasn't been kind to any domestic automaker, GM will likely suffer the worst in the coming months; its passenger cars were often sold as loss-makers and the company staked it's continued success on its line of sport-utes.

Layoffs at GM plants are set to continue, with Janesville, the firm's oldest and most reliant on sport-ute production, set to close by Christmas. If the Chrysler merger goes through, further layoffs are expected.

Chrysler pulls plug on Aspen & Durango hybrids
Earlier this week, Chrysler announced it would close its Newark, Del. plant nearly a year ahead of schedule. As a result, the Dodge Durango and Chrysler Aspen Hybrid sport-utes will be culled before they complete their first full model year.

Production of the two full-size hybrid sport-utes began two months ago, just in time to be scorched in September, the worst month of U.S. auto sales in 15 years.

Speaking with Automotive News, Chrysler spokesman Todd Goyer said the company had no plans to move the Aspen and Durango hybrids elsewhere. "Keeping the plant open for the hybrid versions isn't a sound business decision," he said.

1,000 Chrysler employees will be laid off when the final shift is completed on Dec. 31, 2008.

The Detroit News reports there are no signs that Chrysler will commit to another body-on-frame full-size sport-ute. Ford has already committed to a unibody layout for the next Ford Explorer, following the lead established by Honda with their Pilot sport-ute and Ridgeline pickup truck.

Unibody layouts used stamped steel sections that are welded together to form the structure of an automobile. Commonly used to build passenger cars, unibody designs are typically 10 to 20 percent lighter — and hence, can be more fuel-efficient — than a similarly sized body-on-frame vehicle.

[ NYT, AN, DTN]

Friday, Bloody Friday: Chrysler to cut 25 percent of salaried workforce

Not to oversell the situation, but we may very well be witnessing the end times for Chrysler as an automaker.

One in four salaried workers at Chrysler will be out of a job by year's end, according to a statement released by Chrysler this morning.

The statement did not identify how many jobs the automaker will eliminate but spokesman Michael Palese said the cuts will total 25 percent of the company's salaried workforce.

According its own figures, Chrysler employs nearly 17,300 salaried workers. So today's cuts may total more than 4,300 jobs.
The first round of job cuts will come with voluntary retirement and employee buyout offers, according to the statement. Even still, layoffs are expected to come before the end of the year.

Discretionary spending and operating overhead will also be cut to the bone as Chrysler's owner, Cerberus Capital Management negotiates for a potential sale to General Motors. As reported earlier, Cerberus is also courting Renault for a potential sale of the Jeep division.

A hailstorm of pink slips
Today's news comes a month after Chrysler cut 1,000 salaried jobs and a day after the announcement that it would close its plant in Newark, Del., and cut a full shift from the Toledo, Ohio Jeep plant, trimming 1,825 more jobs in the process.

Since February 2007, Chrysler has eliminated 35,000 jobs. GM is also rumored to announce another round of salaried job cuts by the end of the year.

Speaking with Bloomberg, Dennis Virag, president of Michigan-based Automotive Consulting Group said Chrysler and General Motors have to do all they can to stem the outflow of cash from the organization.

Chrysler CEO Bob Nardelli released a statement attributing the latest job cuts to the fastest contraction ever in auto industry sales. "These are truly unimaginable times for our industry," said Nardelli in the statement. "We continue to be in the most difficult economic period most of us can remember."

Doubts emerge over Renault deal
Meanwhile, Reuters has reported that Renault is downplaying rumors of a potential partnership between Chrysler, Renault and its Japanese partner Nissan. Renault had recently expressed interest in purchasing Chrysler's Jeep division; the reaction by Renault may be a sign that the French automaker is no longer interested in the Jeep lineup.

Speaking with Reuters, UBS analyst Tatsuo Yoshida said Nissan and Renault have little incentive to spend the human and fiscal resources needed to aid the ailing American automaker.

[Chrysler, AN]

Dodge Challenger SRT10 Concept may hint at post-Viper halo car

While the 2010 Chevrolet Camaro has been crowned the official car for this year's SEMA show in Las Vegas, Nevada, a plethora of modified 2009 Dodge Challengers are headed to the gala as well.

Leading the pack is the Dodge's own Challenger SRT10 Concept.

A creation of Chrysler's in-house tuning division, the one-off concept based on the new 2009 Dodge Challenger SRT8 ditches the stock 6.2-liter 425 horsepower V-8 for the 8.4-liter V-10 normally found under the hood of the Viper SRT10 ACR club racer.

With the swap comes 600 horsepower and 560 pound-feet of torque. Consequently, the Challenger SRT10 needs little provocation to convert tire rubber into thunderhead clouds of smoke.

Accompanying the motor swap, the SRT10 Concept has received a thorough suspension and brake overhaul. Bilstein shocks and stiffer springs have been installed at all four corners. The stock 14.2 and 13.9-inch diameter rotors and 4-piston calipers have been replaced as well, likely using calipers and rotors taken from the Dodge Viper SRT10 ACR.

The rest of the tuning package is a retro-modder's visual feast, composed of Tornado Red paint and a healthy dose of carbon-fiber for the shaker hood, front splitter and trunklid. The red-orange paint is reminiscent of the classic Hemi Orange worn by the 1970 HEMI Cuda. The interior features a host of carbon fiber accents, as well as a set of custom sports seats.

All together, it's an impressive presentation. But the bigger question is whether Dodge intends to put a V-10 Challenger into production.

About a month ago, Dodge's parent company Chrysler LLC was angling to sell the Dodge Viper off to a third party. At the time, Autoblog.com posited that aftermarket tuners Saleen and Roush were among those interested in buying the Viper roadster and coupe.

While those talks seem to have cooled, the Viper remains an endangered species.

Currently, there are no production plans for the Viper beyond 2011. If the Viper is not replaced or given a stay of execution, the Challenger SRT10 concept may take over as Dodge's halo car -- and as Dodge's competitor to the 540 horsepower Shelby Mustang GT500KR.

[Chrysler]

Cerberus courting all bidders, may break up Chrysler, Jeep divisions

Just weeks after Chrysler's EV dog and pony show, majority stakeholder Cerberus Capital Management is courting a deal an effort to sell their stake in Chrysler LLC to General Motors, according to the Wall Street Journal and Reuters.

According to the Wall Street Journal, GM execs are receptive to the notion of a buyout and want to close the deal by the end of the month. Meanwhile, Reuters is reporting that French automaker Renault S.A is pursuing their own deal to purchase Chrysler's Jeep division, widely regarded as the single most valuable asset in Chrysler's portfolio.

Both Reuters and the Wall Street Journal report bankers are encouraging a GM-Chrysler deal. J.P. Morgan is the largest holder of Chrysler debt and is also a major banker for GM.

But here's where things get complicated.

Cerberus is not interested in exiting the auto business. Cerberus wants to continue to own a stake in a future Chrysler - GM conglomerate. This has become a point of contention for some board members at GM who have as yet gone unnamed.

Plan B? Sell Chrysler a la carte
Reuters has reported that if a full buyout cannot be agreed upon, GM may instead choose to pick at the bones of the Chrysler portfolio. GM has expressed interest in buying Chrysler's minivan line — a niche Chrysler pioneered some 25 years ago and one where GM has had trouble competing ever since.

GM may also buy Chrysler's truck manufacturing plant in Coahuila, Mexico – a purchase that seems at odds with the GM's decision in July to idle the Oshawa, Ontario truck plant.

Other potential sales and mergers include spinning off Chrysler Financial to merge with GMAC, General Motor's captive finance unit. Cerberus currently owns a controlling 51 percent stake. Alternatively, Cerberus may buy out GM's remaining 49 percent share to sweeten a struggling buyout deal.

Chrysler's MOPAR parts division is rumored to be for sale. So too is Chrysler's engineering division, which recently unveiled a plug-and-play electric-gasoline drivetrain the company says will be on the road by 2010.

All of these deals — and the future of Chrysler as an automaker — hinge on whether Cerberus decides to sell the company off piecemeal and whether GM, Renault and other bidders can secure financing to complete their acquisitions.

Shortly after this blog was launched, I expressed my doubts that Cerberus would treat Chrysler as a long-term investment and whether Chrysler itself could survive. That was before the near total seizure of inter-bank lending and the worst month of retail car sales in 15 years.

While the ink has yet to dry on any of these deals, the decision by Cerberus to start shopping now speaks volumes. If Chrysler has any future at all, it will likely be one far removed from it's Hemi-powered days of glory. Which — to nostalgic old salts like me — is an awful thought to consider.

[RTS,WSJ]

September sales hit 15-year low as credit crunch hits car dealers

When it comes to our nation's economic future, I am reticent to join the chorus of hyperventilating worrywarts wringing their hands at the approach of fiscal Armageddon. But one thing is clear -- the impact of a shell-shocked credit market hit car dealerships in full force this September with predictably grim results.

On average, sales for September were off by over 27 percent from a year prior. Overall sales volume for September totaled 965,160 units - the first month in 15 years to sell fewer than one million units industry-wide.

Ford Motor Company posted their 10th straight month of declining sales as its three domestic divisions dropped 34 percent. Chrysler LLC sales fell 33 percent and General Motors was down 16 percent.

European and Asian automakers also suffered. Porsche sales were off by nearly 45 percent from a year ago. BMW Group sales fell nearly 26 percent. Suzuki and Mitsubishi sales fell 47 and 39 percent respectively, trailed closely by Mazda, Nissan and Toyota.

No automaker posted an increase. Only German automakers Volkswagen AG and Daimler AG were able to limit their declines to less than 10 percent.

Sales results were released today as the Senate prepared to vote tonight on a revise $700 billion bailout plan to rejuvenate lending by purchasing the toxic mortgage-related securities left behind by the collapse of the sub-prime mortgage industry.

Credit crunch hampers dealer financing
As the drama on Capitol Hill and Wall Street has played out, buyers have postponed big purchases. And dealers say buyers with good credit ratings are being denied loans more often.

"In the past, we were accustomed to financing 70 to 80 percent of our cars sold," Jim Weisbecker, general manager for Belle Glade Chevrolet in Florida, told Automotive News on Tuesday, Sept. 30. "Now we finance about 20 percent, if that. It has been a drastic turnaround."

Jim Fosche, sales manager at Buddy Foster Chevrolet in Zephyrhills, Fla., said volume at his store plunged 50 percent last month. He blamed the credit crunch and job worries.

Future remains grim as Big Three attempt to restructure
For the faltering domestic automakers, weak sales and tight credit couldn't come a worse time.

Combined, the Big Three have cut tens of thousands of jobs since 2006. Many GM and Chrysler plants have been idled for weeks at a time this year to slow production of slow-selling pickup trucks and sport utility vehicles.

Compounding the problem, billions of dollars in cash reserves are being spent to finance new products as well. General Motors lost $15.5 billion in the second quarter of 2008; Ford lost $7.8 billion.

[AN]
[Photo: Flickr.com; Original by Broken Wing Productions. Post-processing by David Moll.]

Auto News Wrapup: F-bombs, tax bills and buyouts

Cerberus in talks to buy out Daimler AG stake in Chrysler

A day after the company's bold assertion to enter the EV market in less than three years, Chrysler may soon be owned wholly by current majority shareholder Cerberus Capital Management.

This afternoon, officials from both companies confirmed the talks regarding the sale of the 19.9 percent stake Daimler currently holds in Chrysler LLC. A spokesman for Cerberus Capital Management also said that the current supplier agreements between Daimler and Chrysler would continue after a potential sale.

The private-equity firm Cerberus bought 80.1 percent of Chrysler from Daimler AG in August 2007 for $7.4 billion. Chrysler Holding encompasses Chrysler LLC, the automaker, and DaimlerChrysler Financial Services Americas LLC, known to the market as Chrysler Financial.

"It's still very early to tell why this is happening," Aaron Bragman, auto analyst at Global Insight, told Reuters. Bragman posited that the full purchase of Chrysler may be a prelude to selling the automaker whole to a third party.

House approves $25 billion in auto industry loans; Senate passes $7,500 tax credit for plug-in hybrids

As the mortgage bailout dog and pony show continues on Capitol Hill today, the House of Representatives voted 370 to 58 in favor of a $25 billion aid package for American automakers and suppliers. The bill sponsors the issuance of low-interest government-backed mortgages that would allow automakers to retool factories and expedite the production of more fuel-efficient vehicles.

The Senate is expected to vote on the budget bill by week's end; President Bush is likely to sign it. When signed, the new loan program will set a new precedent in government involvement within the auto industry, far exceeding the 1979 bill which provided loan guarantees to Chrysler Corporation.

Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce Committee, said in a statement:

"Some critics will call this loan package a bailout. It is not. These loans amount to a little more than 1 percent of the real bailout -- the one that the Bush administration wants for Wall Street at a cost of $700 billion to taxpayers.

"The loans to the automakers will cost about $7 billion and will be repaid to the taxpayer at a profit," Dingell said. "The auto direct-loan package is a good deal for auto workers and a good deal for taxpayers."

Rep. Jerry Lewis, R-Calif., ranking member on the House Appropriations Committee, complained that the bill was put together by a handful of Democratic leaders and the vote was taken before it was properly reviewed in session.

Chevy Volt to qualify for maximum plug-in hybrid tax credit

Meanwhile in the Senate, General Motors is one step closer to their wish of a $7500 tax credit to help jump-start sales of the Chevrolet Volt. In a wide-ranging and intricate tax bill, a small provision creating a new tax credit for buyers of plug-in electric vehicles was passed today.

The credit would start at $2,500 and rise to as much as $7,500 for a light-duty vehicle, depending on battery capacity. As currently written, the Chevrolet Volt qualifies for the maximum tax credit. The measure would begin to phase out tax credits for plug-in electrics after 250,000 units have sold — a marked contrast to the 2005 tax bill that began to phase out after only 60,000 units.

The complex tax bill ricocheted through the various subcommittees for months, but when the votes was taken, the bill passed by 93-to-2. The House must still act on the bill, but with the upcoming recess for the election, a vote is expected by week's end. The White House dropped objections to some provisions unrelated to the plug-in hybrid tax credit.

As of a few days ago, Toyota officials complained that the 2011 plug-in hybrid Prius would be excluded from the tax credit. It's unclear how far the Senate moved to meet Toyota's objections, but it appears the issue has been resolved.

Dropping "F" Bombs: Ford family heir sells 1M shares of company stock

And in our last news item of the night: Bill Ford, chairman of Ford Motor Company and grandson of founder Henry Ford, dumped one million shares of common stock on Sept. 19 — in part to pay off debt incurred by exercising stock options in 2004 and 2005.

Ford sold the shares at an average weighted sale price of $5.05 on Thursday and continues to hold more than 5.3 million shares of common stock in the automaker, according to a filing on Friday with the U.S. Securities and Exchange Commission.

Ford bought over 1.4 million common shares in the company since March 2004 and another 1.5 million in March 2005 after exercising options granted over the years, according to SEC filings. Share prices fell in the immediate aftermath of Friday's sale before rebounding to close at $5.03 tonight.

[AN, Reuters]

Chrysler unveils 3 EV prototypes, will enter EV market by 2010

A few weeks after this blog set sail, I wrote at length about the difficulties Chrysler would face and the cause for concern that majority owner Cerberus Capital Management would simply dismantle the company and sell it off piecemeal.

While the storm clouds have yet to fully part, today's announcement is precisely the type of good news the market has waited months to hear.

After a brief preview on CNBC yesterday, Chrysler LLC unveiled a trio of electric vehicle prototypes this morning.

* The Dodge EV, an all-electric sports car developed with British automaker Lotus.
* The Chrysler EV, an extended-range electric vehicle based on the Chrysler Town & Country minivan.
* The Jeep EV, an extended-range electric vehicle based on the Jeep Wrangler Unlimited.


Chrysler said it would bring one of the three prototypes to market in 2010 -- precisely when Chevrolet will start selling the Volt plug-in electric sedan.

The Dodge EV sports coupe — based off the Lotus Europa — takes direct aim at the Tesla roadster, relying on a 26 killowatt-hour lithium-ion battery pack to power the car's electric drivetrain. Chrysler claims a driving range of 150 to 200 miles and a 0-60 time under 5 seconds.

The Chrysler EV and Jeep EV both use a drivetrain similar in concept to that of the Volt. Electric power drives the wheels at all speeds. When the on-board battery is depleted, a small gasoline engine drives a generator to simultaneously recharge the battery pack and power the vehicle's electric motor. An AC-to-DC converter is included to allow overnight charging via a 110 or 220-volt power outlet.

Chrysler chose the Town & Country minivan as the benchmark vehicle for developing a front-wheel-drive setup, while the Jeep Wrangler was used to explore use of an electric drivetrain in a body-on-frame SUV.

And lest the idea of an electric-powered trail-blazing SUV sound preposterous, think for a moment of the advantages. Instant torque at zero rpm from an engine that doesn't mind which way it's oriented. No noise for your spotter to shout instructions over.

And the fuel savings are substantial. Chrysler claims that with approximately eight gallons of gasoline, both EVs have a range of 400 miles, including 40 miles of zero fuel-consumption, zero-emissions, all-electric operation.

The end goal of Chrysler's EV program is to build a "plug-n-play" electric-gasoline drivetrain that can be offered across the entire Chrysler range.

To that end, Chrysler has launched a new web site to spread the word on the company's electric and extended range electric vehicle development programs. Seeing as how Chrysler is ostensibly betting the company's future on electric power, we'll be keeping a close eye on future developments.

[Sources: Chrysler LLC, CNBC, AN, AO, MT]

EDITORIAL: Will this be Chrysler's last dance?

Sales figures are in for the first half of the year and suffice to say, 2008 is shaping up to be the worst year for US auto sales in nearly two decades.

Judging by the headlines, Chrysler seems to be most at risk of running aground in the turbulent economic tide. Sales at the Pentastar brand are down 23 percent from a year ago, despite a blitz of sales incentives geared toward consumers spooked by soaring gas prices.

Chrysler's leasing arm has shut down and Chase — one of the nation's largest underwriters of auto loans — has followed suit, refusing to cover loans for Chrysler products. Analysts have responded with muted skepticism, noting that any benefit from fewer loan delinquencies will be offset by slower sales.

So the fundamental question remains. In a market that couldn't be more hostile, is Cerberus Capital Management willing to invest in Chrysler for the long haul? Or are they angling to sell the brand for scrap value?

In many ways, it's an impossible question to answer without having all the facts.
But as one reads between the lines, the outlook grows bleak.

Despite loudly trumpeting gross earnings of $1.1 billion in the first half of 2008, CCM did not disclose their net income for the same period, nor are they obligated to. Daimler AG, which owns the remaining 19.9 percent of Chrysler, provides some insight into the real health of the company.

In their own quarterly report released last month, Daimler noted that Chrysler lost about $500 million in the first quarter of 2008. JPMorgan auto analyst Himanshu Patel estimated that Chrysler will burn through nearly $4 billion by years end.

Adding to the gloomy forecast. Chrysler renewed only $24 billion of its $30 billion credit line for the next 12 months. With reduced access to credit, the company's ability to purchase from suppliers and provide loans to dealers will suffer.

In the absence of good news, silence speaks louder than words. With every day that passes without full disclosure of their assets and liabilities, Chrysler draws closer to the day where their credit will no longer be accepted.

When suppliers demand payment in full for wheels, dashboards, computers and belts, the end will be swift and merciless. With no parts to build cars, dealers will stop placing orders. Within weeks, the money dries up and it's all over.

In the second half of 2008, Chrysler will face an intense and exceptionally brutal fight for its life. Compared to their Japanese competitors (who are still having a rough time of it), the Chrysler, Jeep and Dodge brands are ill equipped to sell on fuel economy.

Their corporate average fuel economy of 28.6 miles-per-gallon is weighed down by an abundance of SUVs, luxury sedans and light trucks. By comparison, Honda's average fuel economy topped the list last year at 33.7 miles per gallon.

Honda's class leading economy is in part buoyed by the success of the 45 mile-per-gallon Civic Hybrid. Chrysler has no direct competitor, nor the funds to build one.

In short, Chrysler needs a miracle in a market never known for charity. Or, for that matter, patience.

[Sources: AP, Cars.com, Chicago Tribune]

Chase terminates Chrysler leasing program; GMAC rates rise for high-risk borrowers

Unwilling to get stuck with a glut of depreciated and difficult to sell lease returns, Chase Auto Finance announced today that they will no longer finance leases for Chrysler vehicles. This news comes on the heels of Friday's announcement that Chrysler's own financing arm will exit the leasing business on August 1st.

In the announcement, Chase cited concerns about the residual value of Chrysler's current products. Since lease payments are calculated based on the anticipated residual value, any further depreciation beyond what is factored into the lease agreement would become the lender's liability.

[Source]

GMAC revises lending guidelines; finance rates to rise for high-risk borrowers

In other news, General Motors' financing company GMAC has rewritten their lending policies, placing new restrictions on high-risk borrowers with poor credit ratings.

The move is part of an ongoing process to curtail loan delinquencies.

"In general terms, GMAC is not a subprime credit company," said spokeswoman Sue Mallino in an interview with Automotive News Daily. "About 80 percent to 90 percent of our credit is in the prime arena for auto financing in the U.S."

Mallino denied a report that the company would halting all leases to high risk borrowers. Instead, GMAC will ask borrowers with poor credit scores to produce a larger down payment or in some cases, move to less expensive vehicles in the GM lineup.

[Source]