GM will likely file bankruptcy in the next 48 hours
By Brendan Moore
GM has been trying to get bondholders to participate in a debt-to-equity swap, and those efforts were pronounced a failure late yesterday. GM hoped that 90% of the bondholders would forgive debt in exchange for a 10% ownership in the restructured company. Reports indicate that interest in the plan among the target population was approximately 8% of all the bondholders.
A resounding defeat, but it’s worth noting that no one thought that GM’s plan would succeed. It is obvious that GM was merely going through the motions of introducing the exchange offer and then recording the results so that they could get on with Plan B.
GM did reach an agreement with the UAW today that greatly reduced the company’s labor and pension/healthcare costs. Which, just as a heads-up, is exactly what happened immediately before Chrysler filed bankruptcy. In addition, and perhaps more importantly, the new agreement restructured GM’s payments to the trust fund which funds retiree health care.
The UAW did not really have much choice. They certainly didn’t hold back in their assessment of GM.
“GM today stands at the very brink of bankruptcy,” the union stated in a handout distributed to GM workers that was designed to inform members of the new terms of the labor agreement and the trust fund payments.
The GM shareholders that have remained were treated even worse in the GM offer – their outstanding shares would be a mere 1% of the proposed new company. If GM declares bankruptcy, their shares will have no value.
There is some good news for GM’s secured lenders, however. According to the Wall Street Journal, the bankruptcy plan that is being finalized as I type this grants the secured lenders a full recovery of their various loan amounts.
The plan also calls for GM to emerge from bankruptcy with approximately $11 billion USD in debt. GM currently has around $88 billion USD of debt.
By Brendan Moore
Roger Penske has met with Renault-Nissan Carlos Ghosn and other Renault executives in Paris to discuss selling Renault-Samsung vehicles through the Saturn dealer network.
Renault-Samsungs are built in Korea using Nissan platforms and a combination of mostly Nissan and Renault parts. Renault owns 80.1% of the company and Samsung Card, the credit card division of Samsung, is the minority owner with 19.9%.
Penske is interested in selling some or all of Renault-Samsung’s four vehicles branded as Saturns in the United States. There is talk that Penske is also pushing for new models from Renault-Samsung that would be more focused on the American market.
Penske also has the Smart Car distribution rights in the United States.
Penske recently picked up former Chrysler head Tom LaSorda as a consultant to the proposed Saurn acquisition. Penske has also added two megadealers from Michigan; Joe Serra and David Fischer.
According to the usual anonymous sources, Penske has determined that he will only need around 250 dealers to retail the new Saturns, and the Saturn dealer network currently stands at 384 retail stores. It is expected that many of the surviving stores will be on the East and West Coast, with large metro areas in the rest of the country making the cut. Which, in a unusual coincidence, just happens to look a lot like the Smart dealer footprint.
Exactly what the proposed legal relationship between Penske and Renault-Nissan (or Renault-Samsung) will be is murky at this point. It is not known if Penske will do this alone as an exclusive distributor, or, be part owner of a new Renault-Nissan company set up to sell vehicles in the US.
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Odds and Ends about Cars and the Car Business
By Brendan Moore
The Washington Post is reporting that the U.S. Treasury Department, the Obama Administration’s proxy in the current auto restructuring efforts, is getting ready to nudge General Motors into bankruptcy early next week. The paper is quoting a source as saying that GM would get approximately $30 billion USD in federal aid in order to steer itself (with a great deal of government help, of course) through bankruptcy, which would bring the total amount of federal aid to GM up to a breathtaking $45 billion. The US government plans to own 50% of GM and retain the right to name board members.
Speaking of GM, Mark McNabb, the head of Cadillac, has quit, and will take a powder on June 1. He was in that position only 13 months. When McNabb was hired, he was tasked to lead Cadillac, Hummer and Saab, but events have eclipsed that goal, with Hummer and Saab up for sale by a battered and punch-drunk GM. McNabb stated that he resigned in order to pursue other opportunities. Stephen J. Hill will be in charge of Cadillac. I spoke to McNabb for a moment at the Detroit Auto Show this year, and asked him about Saab and Hummer and whether GM had buyers for either brand. He gave me the corporate answer; the one printed in all the papers, and delivered it with a wan smile. He didn’t look unhappy, but he seemed a bit played out. We then started talking about the new Cadillac Sport Wagon, and he brightened up considerably.
The “Committee of Chrysler Affected Dealers,” which says it represents almost 300 dealers in 45 states, has filed legal documents that ask Chrysler’s bankruptcy court to delay hearings that would approve the quick sale of the bankrupt company and allow Chrysler to void 789 of its dealership franchise agreements, which is approximately 25 percent of its overall U.S. dealer network. The committee says it is the legal representation for almost 300 of the affected Chrysler dealers and wants the delay in order to do more investigation as well as to adequately prepare their defense. The smart money says that the committee will not be granted the delay, but bankruptcy judges are not entirely predictable.
The new rules match California’s desired requirements and will make for a nationwide standard, but our writer asks, “Wouldn’t an increased gas tax do the trick a lot more efficiently?”
By Brendan Moore
Most, if not all of you are aware that this increase will be announced today; you know because it was leaked by the Obama administration everywhere yesterday, and it was front-page news in all the major newspapers, internet sites and on television.
And the internet sites of newspapers and auto blogs are filled with comments about the plan to increase the mileage and emissions requirements, with a wide spectrum of viewpoints. There are people that say global warming doesn’t exist, people that say that we have plenty of oil, there are people that say, yes, there is global warming but this will wreck the economy, there are people that say, yes, force those auto companies to make those fuel-efficient cars, it’s about time, there are people espousing their belief that the fabled 100 mpg carburetor or special engine or special fuel injection has existed for years and the auto companies have simply withheld it from the public because they’re in cahoots with the oil companies, etc.
Don’t you just love the public?
Just to refresh your memory, the new plan calls for average fuel standards for all new passenger vehicles would rise by 10 miles a gallon over today’s performance to 35.5 miles per gallon between the years of 2012 and 2016. That’s cars and trucks together. But, the new required fuel mileage for trucks is only 24.1 mpg, which is a mere 2.2 mpg over the current standard. The new standard for cars is anywhere from 39 mpg to 41 mpg (depending on whose numbers to believe) – the old standard was 30.2 mpg.
The future vehicles are also expected to put out a combined 30% fewer emissions.
Quickly, what does having two very different mpg standards, one for light trucks and one for cars, mean in the real world?
By Brendan Moore
As the old adage goes, there’s a silver lining to every dark cloud, and that adage is going to be proven by low pricing for new cars over the next 18 months, as dealers close, whether it’s from their brand going under, or, their franchise not being renewed by either Chrysler or General Motors.
Yes, your local dealer’s financial Armageddon is going to be very good news for the astute new-car buyer. The dealers that get a death sentence from GM or Chrysler will be forced to liquidate their new-car inventory, and as their date with death gets nearer, the retail pricing at their lots is going to get lower and lower.
If those dealers are selling invoice or below because they have to make that inventory go away before they close up, that will put competitive pricing pressure on all dealerships selling the same product, resulting in a great deal of margin compression nationwide. So, even if you don’t have any dealers going under in your burg, the retail pricing is still going to drop because of this nationwide price deterioration.
There is also another major factor is this downward pricing, and that is the retail incentives that GM and Chrysler are expected to offer on discontinued models/brands. These incentives, paired with the desire by the dropped dealers to minimize their inventory losses, should make for an extremely potent combination vis-à-vis lower consumer pricing.
Wait, there’s more!