Automaker Antics

Abraham Lincoln once said, “Better to remain silent and be thought a fool, than to speak and remove all doubt.”

It’s become painfully obvious that no one at either Chrysler or General Motors is familiar with that particular pearl of wisdom. Either that, or they have already laid off the person whose job it was to prevent them from looking like fools in public.

First, Chrysler: Even as it plans to strip healthcare benefits from thousands of retired white-collar workers and force hundreds of dealers out of business, adding thousands of people to the unemployment rolls, the company announces it has found a way around the federal caps on executive compensation. What a public relations coup! Surely, nobody will view that as anything but good news.

Of course, as a member of the Obama auto task force told a representative for the retirees, Chrysler has only a moral obligation to provide healthcare to them. What’s a career’s worth of promises when you can pay your executives more money?

The $500,000 cap and other reductions in compensation for the company’s top 25 executives were a government-imposed condition on the billions of dollars in taxpayer-backed loans the company received at its own request. Admittedly, a half-million dollars per year is a far cry from the bloated levels of pay lavished on many American executives, but it’s a lot more than thousands of the people they have laid off are making and it’s seventeen times the $29,120 annual base pay for the new hires allowed under recent union contracts.

All Chrysler had to do to get out from under the government’s conditions was repay the loans. But even that’s too much: It’s fairly well accepted now that Chrysler won’t be repaying the initial loan it received from the Bush Administration and probably won’t be repaying the money it’s getting from the Obama Administration to fund its trip through bankruptcy. The plan now is for the company to repay the next pile of money the feds will give it when it emerges from bankruptcy as a new company. (In other words, the company is going to walk on two loans, but it promises to repay the third. You probably shouldn’t try this at your bank.)

So Chrysler has a nifty scheme to get around those pesky limits: it’s going to pretend senior Chrysler executives are really Fiat employees “on loan” to Chrysler. Fiat will pay the salaries (nudge, nudge, wink, wink) and the Chrysler brass won’t even have to learn Italian.

Ebeneezer Scrooge must be green with envy.

General Motors, on the other hand, is warning of the dangers of government involvement in its business. This is the company that has already received $15.4 billion in government loans and wants another $11.6 billion real soon. And maybe some more later. In return for our national generosity, GM’s own reorganization plan calls for giving the government a large stake in the “reformed” company in lieu of paying off the loans with actual money.

In a recent government filing, GM said that, as a majority owner, the U.S. government could make it difficult to compete and have a negative effect on its stock price.

In its report to the SEC, GM said it may “become subject to new and additional government regulations regarding various aspects of our business as a result of the U.S. government’s ownership in (and financing of) our business. These regulations could make it more difficult for us to compete with other companies that are not subject to similar regulations.”

While I know the government doesn’t exactly have a sterling record in the business world, it’s a bit hard to imagine it doing much worse than the gang currently occupying the Renaissance Center.

Is GM afraid the government will make it lose $82 billion in a matter of a few years? Will the feds use their controlling interest to demand another Pontiac Aztek? Perhaps they worry that President Obama will require them to try brand management again. Or any of the other blunders GM’s own management has made.

GM also said the government’s interests might conflict with those of other stakeholders. Would those other stakeholders be the United Auto Workers? Or the banks holding $27 billion in GM debt? Or the actual owners of GM’s current stock who will get to see their 610.5 million shares turn into one percent of the new company?

It’s difficult to comprehend the sheer arrogance of a corporation that argues against government involvement because the government might do to GM what GM already has done to itself. And they still want billions of additional dollars from the Treasury.

I wonder if they giggled when they sent the filing in?

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Will Navistar buy Jeep?

Before I can be accused of pulling a Leinert, the answer is “probably not.”

Jeep would be hard to pull away from Chrysler without one or the other being seriously wounded, but it’s not impossible. The Nitro would be dropped, the next-generation Durango either dropped or licensed or somehow dealt with, the engines licensed until Jeep could buy something new. Engineers could be reassigned or computer files sent over to other engineers who could spend some time trying to figure everything out. It wouldn’t be ideal, it wouldn’t necessarily make sense, but it could happen.

On the other hand, does Navistar actually have the money to make it happen? And is Jeep worth that much in its current state?

Plenty of other companies have 4×4 cred now. Toyota, Ford, and Mahindra have all made names for themselves, Toyota and Mahindra through actual street machines, and Ford through marketing and sponsorships. Just having off-road cred isn’t enough anyway; Hummer is being sold off and presumably could out-Jeep Jeep.

Based on the numbers, any buyer for Jeep would have to put a few hundred million into the acquisition itself, a few hundred million into bringing products to market, and then provide something to the creditors. Does Navistar even have the money?

Navistar had a gross profit for 2007, 2008 ($2.8 billion), and Q1 2009 ($647 million). Their net loss in 2007 was $120 million; in 2008 they made $134 million; in Q1 2009 they made $234 million. Still, their total liabilities were, in January, $11 billion, with $9.6 billion in assets.  They are losing cash, and I don’t figure this will be a good year for them. (Q1 2009 for them ended January 2009 so it doesn’t fully reflect current events, but net change in cash was -$364 million.) This year has been bad for the commercial-truck market; Sterling was shut down and the company formerly known as Freightliner has experienced the revenge of Daimler.

I don’t see Navistar as being able to keep Jeep going as a mass market company anyway. Perhaps they could keep it running like Kaiser or even AMC did, but the cost of playing the game has shot up dramatically and they have real competitors now. They just aren’t big enough and they don’t really have the kind of assets needed for the typical Jeeps: gas-powered Wranglers, Libertys, and Grand Cherokees. The enthusiasts would buy diesel Wranglers, but how many are there? Really? Compared with the hordes who used to buy Libertys, Cherokees, and Grand Cherokees?

As for other Jeep buyers, I don’t see any. Mahindra isn’t sized to buy Jeep, and has already turned it down; Toyota is but has no need for it, and doesn’t usually buy other companies (especially non-Japanese companies). Ford could use it but has no cash; ditto GM which can’t even keep its Pontiac brand alive, or hold onto Opel. Honda and BMW both have leaders who are smart enough to know what they do well, and stick to it. Who is left that has money? Only the Chinese brands, and apparently they’ve already turned down Jeep (though, apparently, not Hummer.)

Time will tell; strange things have indeed happened, and the public statements from some of the parties have been shown to be unreliable. But Navistar… I would not bet on it.