Ford To Get $5.9 Billion Government Loans

Et Tu, Ford.. (And Tesla, and Nissan...Nissan?)

The U.S. automaker Ford is getting the government loans, after all. The loans are for upgrading factories to produce fuel-efficient cars.

AP source: Ford to get $5.9B in govt loans
(6/23/09 AP via Yahoo Finance)

In addition to Ford,

"Nissan was receiving $1.6 billion to retool their plant in Smyrna, Tenn., to build advanced vehicles and build a battery manufacturing facility. Tesla was receiving $465 million in loans to build electric vehicles and electric drive powertrains in California."

In case you forget, Nissan is a Japanese company. Who's next at the trough? Koreans? Chinese? Germans?

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Obama Admits "We're Out of Money"

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(Update 4:38pm PST) Here's the link to c-span interview.
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The president admits, but it doesn't seem to bother him much.

From the Drudge Report headline "We're Out of Money" (the link may disappear, as this is a news flash at the moment, but the following is an entire post on Drudge plus my grunting in bullet points):

"In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money." C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.

• "Probing"? Well let's see...

SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

• Mr. Scully, if the government budget incurs debt year after year, and the country has $11 trillion deficit, that means we ran out of money a very long time ago. The last budget surplus was under Clinton (although this is disputed by many people). For paying off the national debt, you have to go back to President Andrew Jackson .
  
  
• US 2008 GDP is $14 trillion. National Deficit is $11 trillion. (And that's excluding the private debt.) That's almost 80% of GDP. GDP is set to decrease this year, probably substantially. Do the math. No wonder traders were wondering "Will the US be the next (to be downgraded, after the UK)?" Or even worse: turning Japanese and have debt at 200% of GDP.

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades."

• Ummmm, health care? I'm sorry Mr. President, but increasing number of people are scrambling to come up with the money to pay for groceries, bills, mortgages. Health care reform doesn't come to mind as the most urgent thing we must do when the economy is tanking.


• Your budget director also talks about "health care" whenever he opens his mouth on any subject. So if you repeat often enough it becomes important?
  
  
• We are in deep deficits. And your proposal is to go even deeper. Only makes sense in this bizzarro world.

"So we've got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it's putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.

"So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit."

• Short-term or long-term, as you say, WE DON'T HAVE MONEY. Why should we do any of that? So far, the funding method seems to be to PRINT money, and to come up with more and more ways to extort, oh sorry, collect tax money, whether the taxpayers like it or not.

So, one option is just to do nothing. We say, well, it's too expensive for us to make some short-term investments in health care. We can't afford it. We've got this big deficit. Let's just keep the health care system that we've got now. Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything... "

• I am for doing nothing. It sure feels like a good time to hunker down and reduce debt, not incurring it. That's what businesses and individuals have been doing.
  
  
• Money grows on trees. Probably it grows in the new White House organic garden.

SCULLY: When you see GM though as “Government Motors,” you're reaction?
OBAMA: Well, you know – look we are trying to help an auto industry that is going through a combination of bad decision making over many years and an unprecedented crisis or at least a crisis we haven't seen since the 1930's. And you know the economy is going to bounce back and we want to get out of the business of helping auto companies as quickly as we can. I have got more enough to do without that. In the same way that I want to get out of the business of helping banks, but we have to make some strategic decisions about strategic industries... "

• So you want to get out of GM and Chrysler ASAP. Why did you get in to begin with? Was there some overwhelming support from the taxpayers? Your leaders at Auto Task Force are bankers and a hedge fund manager with no auto industry experience (other than having defaulted on the soon-to-be-ditched owner of Chrysler). How can they actually help? Oh I forgot; your auto czar was surely effective in "persuading" the "recalcitrant" hedge fund managers.
  
  
• Strategic decisions about strategic industries? Who decides what's "strategic"?

SCULLY: States like California in desperate financial situation, will you be forced to bail out the states?
OBAMA: No. I think that what you're seeing in states is that anytime you got a severe recession like this, as I said before, their demands on services are higher. So, they are sending more money out. At the same time, they're bringing less tax revenue in. And that's a painful adjustment, what we're going end up seeing is lot of states making very difficult choices there... "

• Sure the states will suffer. Your Treasury Secretary says he has to uphold the law so he is not going to give any TARP money to assist the states. The states may be better off that way after all, looking at what has happend to Chrysler and what is about to happen at GM.

SCULLY: William Howard Taft served on the court after his presidency, would you have any interest in being on the Supreme Court?
OBAMA: You know, I am not sure that I could get through Senate confirmation...

• I suppose that would depend on who becomes the president after him.

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Auto Companies News Collage

It's about time to go back to the favorite topic, the auto industry. Things are moving fast, although I'm not sure which direction. So I've collected some headlines for you, so you can judge which way we're going.

Obama to tap consumers for emission, mpg standards (AP, via Yahoo News):

" President Barack Obama plans to propose the first-ever national emission limits for cars and trucks as well as average mileage requirements of 35.5 miles per gallon by 2016 — all costing consumers an extra $1,300 per vehicle.

"The auto industry will be required to ramp up production of more fuel efficient vehicles on a much tighter timeline than originally envisioned. It will be costly; the Transportation Department last year estimated that requiring the industry to meet 31.6 mpg by 2015 would cost nearly $47 billion."

And the auto industry, which includes soon-to-be-government-owned Chrysler and GM, are grateful:

"But industry officials — many of whom are running companies on emergency taxpayer dollars — said Obama's plan would help them because they would not face multiple emissions requirements and would have more certainty as they develop their vehicles for the next decade."

They don't care, because the government (taxpayers) will pay for it anyway.

I can't afford a new car anyway, so regulate away. But if they think this will produce an attractive fuel-efficient car, think again, because....

Honda Insight 1.3 IMA SE Hybrid Review (Times London) is horrendous:

"Much has been written about the Insight, Honda’s new low-priced hybrid. We’ve been told how much carbon dioxide it produces, how its dashboard encourages frugal driving by glowing green when you’re easy on the throttle and how it is the dawn of all things. The beginning of days. "

But as a car,

"It’s terrible. Biblically terrible. Possibly the worst new car money can buy. It’s the first car I’ve ever considered crashing into a tree, on purpose, so I didn’t have to drive it any more."

Oh boy.

"Hondas feel as though they have been screwed together by eye surgeons. This one, however, feels as if it’s been made from steel so thin, you could read through it."

"But what about the eco-cost of building the car in the first place?...I cannot see how making a car with two motors costs the same in terms of resources as making a car with one... The nickel for the battery has to come from somewhere. It has to be shipped to Japan, not on a sailing boat... And then the finished car has to be shipped, not by Thor Heyerdahl, to Britain, where it can be transported, not by wind, to the home of a man with a beard who thinks he’s doing the world a favour.

"Why doesn’t he just buy a Range Rover, which is made from local components, just down the road?"

His conclusion:
"...hybrid cars are designed solely to milk the guilt genes of the smug and the foolish."

Volkswagen Cancels Porsche Merger Talks for Indefinite Time (Bloomberg):

After causing the short squeeze of historical proportion, Volkswagen cancelled talks of merger with Porsche. A bone of contention seems to be Porsche's increasing indebtedness:

"Volkswagen Supervisory Board Chairman Ferdinand Piech said last week that Porsche must trim debt before it can complete a merger with Volkswagen. Volkswagen “won’t solve” Porsche’s net debt, which tripled in six months to 9 billion euros ($12.2 billion) as of Jan. 31, Piech said. Porsche owns about 51 percent of Wolfsburg, Germany-based Volkswagen. "

In the meantime, GM and Chrysler dealers are fighting back.

Local Car Dealer to Fight Back (one of 1100 GM dealers who got letters of termination)
Dealers could toss wrench in automakers’ plans: Thousands could lose franchises as bankruptcy court trumps state laws

And
Report: GM to import Chinese cars; trickle in 2011 will turn to flood in 2014

Uggghhh... Haven't we had more than enough Chinese stuff in the past decade or two? And I thought this auto bailout stuff is about saving jobs, or keeping jobs in the US. (At least it has been sold as such, and also cited as the reason why the senior bond holders of Chrysler and GM had to be squeezed.) The exact opposite is happening. I must be dreaming. If only I wake up....

...while Fiat is laughing all the way to the bank...

Fiat's New Prospects Dazzle Italy: Formerly Struggling Automaker Aims to Be World's Third-Largest

"Under a chief executive with no prior experience in the car business, Fiat has stabilized its finances and is pursuing an ambition that most Italians would have laughed at only a few months ago: to become the third-largest manufacturer of automobiles in the world, behind only Toyota and Volkswagen and ahead of a fading GM."

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Fiat+Chrysler+GM=Fiat/Opel by end of May

From Financial Times: Fiat plans European car supergroup

Fiat is thinking big and moving fast. The tripartite deal by the end of May, and list shares of the new company by the end of the summer.

"Sergio Marchionne, Fiat chief executive, is on Monday due to outline plans to transform the global automotive landscape by spinning off Fiat’s core cars division, joining it with Chrysler and General Motors Europe, and creating a new publicly traded European car company.

"Mr Marchionne wants Italy’s largest industrial group to separate Fiat Auto from its other divisions, join them with Opel / Vauxhall, Saab, and GM’s other European operations, and Fiat’s stake in Chrysler to create a company with about €80bn ($106bn) of revenues and sales of 6m-7m vehicles a year – second to Toyota, more than Renault / Nissan or Ford Motor, or GM itself, and roughly as many as Volkswagen."

Fiat is taking full advantage of this worsening global resession and government intervention and subsidy that has grown with it. If he can pull it off, Mr. Marchionne's company will be a big force in three continents: Europe, North America, and Latin America.

It sure seems to me that the US government is selling Chrysler and GM short in the long run.

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Alert: It's a Deal, and it's a Bankruptcy, too

Chrysler and Fiat are expected to enter into a partnership, and Chrysler will file for Chapter 11 bankruptcy with the bankruptcy court in Manhattan.

According to the president at today's noon press conference, the bankruptcy is to last 30-60 days, the remaining unresolved issue being the hedge funds holding out for more money for their debt holding.

He assured us that the bankruptcy is not the sign of weakness. ???? Equity holders will be wiped out and debt holders are getting 30 cents on a dollar. It's weakness, and nothing wrong at this point with being weak. They are bankrupt.

He also took a swipe at those hedge funds who didn't "do the right thing". It's business, Mr. President. Trying to get more for their money. It will be interesting to see how the bankruptcy court judge handles the hedge funds' claims, particularly if they also have CDS on the debt.

One very positive thing .. actually two: Chrysler CEO Nardelli (of wrecking Home Depot fame) will be gone, and Cerberus (of wrecking many small-town businesses fame) will be reduced to a minority stakeholder. [update: Cerberus will be completely out. 4/30/08] (Oh by the way did you know the former US vice president Dan Quayle runs one of their units?)

I do believe Chrysler, with the partnership with Fiat, will have a chance of success, though not the kind of success that the government is talking about. More on that later.

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Fighting chance? Chrysler & Fiat Alliance

AP sources: Fiat to sign partnership with Chrysler
Wall Street Journal: UAW to get 55% Stake in Chrysler for Concessions
LA Times: Chrysler, Fiat appear near a deal

Deal as soon as Thursday, according to one source. Regardless of whether Chrysler files for Chapter 11 or not, Fiat (F.MI) would be a partner and the US government would finance the restructuring.

Chrysler's lenders are yet to agree to forgive $6.9 billion in secured debt in exchange for $2 billion cash now [I would prefer money at hand; I would take $2 billion today]. Four large banks that control 70% of the debt (JP Morgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), and Citigroup (C)) already agreed, but 42 hedge funds who hold 30% of the debt were still holding out.

If they don't agree, Chrysler would file for Chapter 11 to restructure. If they do agree, the company would restructure out of court.

Under the deal,

• United Auto Workers union will hold 55% equity stake;
• Fiat will get 20% equity stake in exchange for its small car and engine technology (valued at $8 to 10 billion) , which could be increased to 35%;
• Daimler's $19.9% stake will be turned over to Chrysler's parent company, Cerberus Capital Management LP.

According to Wall Street Journal,

"The latest concessions would bring the UAW contract at Chrysler closer to the pay and benefits earned by workers at nonunion auto factories operated by rivals Honda Motor Co. and Toyota Corp."

Deal or no deal? We will find out soon enough.

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Goldman Sachs upgrades auto makers

Goldman Sachs upgraded US and Japanese auto makers on Wednesday (4/22):

Ford Motor Company (F) : from Neutral to Buy
Honda Motor (HMC, 7267.T) : from Neutral to Buy
Nissan Motor (NSANY, 7201.T) : from Sell to Neutral
Toyota Motor (TM, 7203.T) : from Neutral to Buy

F went to $1.01 on November 21. (Currently trading at $4.38)
HMC went to $17.35 on December 5. (Currently trading at $28.13)
NSANY went to $5.59 on February 23. (Currently trading at $10.60)

TM went to $55.41 on December 5. (Currently trading at $79.47)

Are easy trades on these stocks over? I wonder...with chatter about GM and Chrysler Chapter 11 bankruptcy getting louder by the day.

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