No Wonder Bob Corker’s Trying to Play Politics with Spring Hill

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Bob Corker attacked the US automakers for months, arguing they had a failed business model. But as soon as bankruptcy looked likely, Corker suddenly remembered many of his constituents–the GM workers at Tennessee’s Spring Hill plant–work for one of those "failed" automakers. Since then, he’s been pitching the relative merits of Spring Hill. He has gone so far as to suggest that if anything were to happen to Spring Hill, it could only be because of politics.

With sweeping new power the White House will be deciding which plants will survive and which won’t, so in essence, this administration has decided they know better than our courts and our free market process how to deal with these companies.

It’s been a long time since Washington has seen the kind of kowtowing that’s about to occur among members of Congress trying to curry favor with the administration to keep plants in their states open, and it will be interesting to see if the administration makes these decisions based on a red state and blue state strategy or based on efficiency and capable, skilled workers at each plant. If they use the latter, our GM plant in Spring Hill, Tennessee should do very well.

It’s a nice narrative for Corker, one that absolves him of  any responsibility for talking the company into bankruptcy. Yet there’s a detail Corker doesn’t want you to know. 

It’s that the Spring Hill facilities have already been mortgaged away as collateral to secure credit.

Note that GM has approximately $29 Billion in debt; $7 Billion of which is secured by Saturn assets (including Spring Hill, TN plant). The government’s $13.4 Billion loan to GM is also considered secured debt, with a vast amount of assets up as collateral. [my emphasis]

In other words, politics will have nothing to do with the decision on whether or not to close Spring Hill (not that any of you would believe a word Corker says, anyway). That decision will be left entirely up to whatever buyer comes along and buys it, because it will be the first thing liquidated in bankruptcy.

I guess Corker should have thought of that before he joined the plantation caucus, huh?

China’s Number One!

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Number one auto market, that is.

Sales of vehicles in China hit a record last month, underlining the country’s rise in the market as carmakers in the US scramble to avoid bankruptcy.

Chinese people eager to leave behind the age of the bicycle bought 1.10 million vehicles in March, up some five per cent from the previous record of 1.06 million in March last year, data from the China Association of Automobile Manufacturers showed.

The number cemented China in its position as the world’s largest car market, outstripping even the US.

And meanwhile, those crummy US automakers?

Ford Motor expects to grow faster than the overall China market this year, banking in part on policy support to lift sales of its new Fiesta small car rolled out last month.

Regardless of its miseries back home, General Motors said it sold 137,004 vehicles in China in March, up 24.6 percent from a year earlier. Its minivehicle joint venture, SAIC-GM-Wuling, saw sales surge 38 percent to 90,784 vehicles. Kevin Wale, president and managing director of the GM China Group, attributed the strong showing to a wide product lineup, and forecast that the company will double its sales, to more than 2 million a year, by 2014.

We’ll see whether the predictions actually bear out. Chinese "policy support" has a way of waxing and waning, IMO. 

The GM minivehicle, btw, is a Chevy Spark, with which GM is doing fairly well in developing countries. 

Debt Negotiations: JP Morgan Chase and Friends Claim They Found a Pony!

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I’ll say this for the Administration. They’re driving a harder bargain on behalf of Chrysler and GM than Hank and Timmeh bargained with AIG (a cynic might say that’s to push both companies towards bankruptcy).

But I’m fascinated by the claims the creditors are making in the case of Chrysler. Where Chrysler estimated its secured creditors could get 25 cents on the dollar (around $1.7 billion; it picked the 25 cents out of the 11 to 43 cent range), and the Administration is offering them the 15 cents on the dollar they can currently get in the market (around $1 billion), the creditors claim they believe they can get 70 cents on the dollar (around $4.75 billion).

Some senior lenders believe they would get more than 70 cents for each dollar of their secured loans if Chrysler is broken up and sold, said people familiar with the talks. Other lenders don’t have an exact number nailed down and are awaiting detailed figures from the auto maker on its assets.

All of the 40-plus lenders and investors are nonetheless incensed by the last Treasury offer: that they accept about 15 cents per dollar of face value of their loans, or roughly $1 billion of the $6.9 billion owed them.

[snip]

But some of the senior secured lenders think that is a low-ball estimate and say recoveries could reach 70 cents on the dollar in liquidation, said another person familiar with the talks.

Gosh. Cerberus has been trying for two years to sell Chrysler, much of that time before the crash drove down the value of Chrysler and wiped out the ability of many potential buyers to do so. Yet these banksters think they’re going to get $4.75 billion off Chrysler’s remains now that the market is really abysmal?

Who knew Chrysler has secretly been a shiny pony all this time?

Or perhaps the creditors are using the 70 cent number for a different reason, and not just to drive an equally hard bargain in response to the Administration. Perhaps that’s what at least some of the creditors know they’ll get in bankruptcy, once you take what they’ll get to sell Chrysler’s pieces parts and get the payoffs of the credit default swaps and other hedges they’ve got on Chrysler. 

Are JP Morgan Chase and friends suggesting they’ve placed a $3 billion bet against American industry?

17,600 New Hybrids by June

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fsn10_pg_005_ext_lg.thumbnail.jpgSomeone got a hold of the White House credit card and is going on a hybrid buying spree.

Today, President Barack Obama announced that the General Services Administration (GSA) will accelerate its purchase of new cars for the government fleet by investing funds from the American Recovery and Reinvestment Act to buy about 17,600 new, fuel efficient vehicles produced by American auto companies by June 1, 2009.

On March 30, President Obama directed his administration to speed up the purchase of these vehicles to increase demand for American auto companies during these difficult economic times. The GSA moved faster than any time in its history to launch this aggressive fleet purchase strategy. By purchasing fuel efficient vehicles from American automakers over the next two months, this move will help stimulate the economy, support the auto industry, and achieve energy-efficiency goals.

President Obama said, "The problems that caused this economic crisis weren’t created in a day, and it will take time and hard work to get our economy back on track. But I am 100 percent committed to a strong American auto industry, and we will stand with America’s auto workers and their families during these difficult times. As a part of our commitment to the American auto industry, I charged my administration with using Recovery Act funds to purchase a new fleet of fuel efficient government vehicles to increase demand for our American auto companies and stimulate the economy. I am pleased to announce today that my team has moved swiftly to accelerate this purchase and give our American auto industry and our economy a boost. This is only a first step, but I will continue to ensure that we are working to support the American auto industry during this difficult period of restructuring."

Well, there’s some good news from Detroit, for a change. 

Will Alabama Join Michigan in Boycotting Chase?

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Turns out Michiganders aren’t the only ones fed up with JP Morgan Chase. JP Morgan Chase is even preying on Richard Shelby’s constituents. [h/t scribe]

The Alabama state school construction authority has declined to make a payment due to JP Morgan under a derivatives deal until a federal court rules on a state lawsuit seeking to have the contract thrown out. Alabama finance director has said he won’t make or accept any payment under the swap deal: the first contractual payment is due May 1.

[snip]

In October a lawsuit was filed in Montgomery, AL district court saying that a sale of a swaption (option on an interest-rate swap) wasn’t allowed under state law. The deal had been executed in connection with bonds sold by the Alabama Public School and College Authority.

As Zero Hedge asks, "what the hell are Alabama residents doing trading swaptions?"

How about it, Richard Shelby? Ready to close your Chase account in solidarity? Want to sign our petition? Join our Facebook group?

Granholm to JP Morgan Chase and Friends: You Got Your Help, Now Give Chrysler Theirs

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Governor Granholm sounds a lot like someone who has been wandering around these parts–calling on JP Morgan and the other banks that got bailout funds to return the favor to Chrysler.

Gov. Jennifer Granholm said this morning that any banks that received rescue money from the federal government should be open to concessions on the Chrysler debts they hold so the automaker can reach a deal with Italian carmaker Fiat necessary for its survival.

The White House last week suggested that Chrysler could be pushed into bankruptcy if it doesn’t find a partner in 30 days’ time.

Part of what stands in the way of a deal with Fiat is restructuring Chrysler’s debts and Granholm said following a panel discussion this morning that any of those debt holders who received backing from the government’s Troubled Asset Relief Program, or TARP, “should be willing to take a haircut.” Or, in other words, write down the value of that debt.

Nice work, Governor. Now, do you have any Chase cards you’d like to cut up?

How JP Morgan Chase Plans to Profit Off the 300,000 People It’s Forcing to Lose Their Jobs

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picture-96.thumbnail.pngAs I pointed out Saturday and yesterday, JP Morgan Chase is reportedly pushing Chrysler into bankruptcy. And as I explained yesterday, that will mean 300,000 people will lose their jobs.

So who will be left to bank with Chase in Michigan, you might ask, after JP Morgan Chase forces so many people out of work?

Well, as klynn pointed out, JP Morgan Chase has figured out a way to profit off all the unemployed people it is creating in Michigan. Chase, you see, provides Michigan’s unemployment insurance debit cards. 

And the services can end up being pretty expensive for beneficiaries. Here’s what Chase charges (and will be able to charge those that it causes to lose their job) for use of their debit card.

More than two withdrawals in a 2-week pay period: $1.50 each

Non-Chase withdrawals: $1.50 each

More than one bank teller withdrawal in a pay period:  $4.00 each

Transaction denied for insufficient funds at POS, ATM, or teller: $1.50 each

More than one ATM balance inquiry in a pay period: $1.00 for each

Statement delivered by regular mail: 95¢ per statement

Granted, if an unemployed person manages their meager finances well and has Internet access (those inquiries are free), they probably can get by on one weekly withdrawal. But if someone loses track of their spending or doesn’t have Internet access or likes dealing with human beings, these fees are going to start to take a huge bite out of what little they get.

Though debit card users can spend all they want in stores. As with Chase customers normally, Chase loves when you use your debit card at stores, because they get a bigger fee from merchants (back in the day when we still banked at Chase, that’s what the Chase guy told me) than if you use a credit card.  They’re profiting coming and going.

Now granted, for a company that already has gotten $25 billion from taxpayers (or $83 dollars from every man, woman, and child in this country), even $5 a month in fees from the 300,000 people JP Morgan Chase is pushing into unemployment is chump change–a mere $18 million a year. 

But don’t imagine for a minute that JP Morgan Chase hasn’t already lined up a way to profit from the unemployment it is causing in Michigan. 

Save American Jobs: Close Your Chase Account

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It’s time we started pressuring the banksters in the only language they understand: their pocket-books. If they begin to lose customers who refuse to let their money be used to gamble away American jobs and taxpayer money, then they might start thinking about the good of the country for a change.

So mr. emptywheel and I took that step today. We closed our Chase accounts (which, because mr. ew recently took a buy-out, was a not-insignificant amount) and put that money into a credit union that’s supporting Michigan, not trying to bankrupt it. 

Here’s how I explained to the Chase people why we were closing our accounts.

I’m closing my Chase accounts because JP Morgan Chase has placed its corporate interests above the jobs and health care of the people of my community, unlike other banks that continue to invest in rebuilding Michigan.

JP Morgan Chase insists on putting Chrysler into bankruptcy

On Saturday, the Wall Street Journal reported that JP Morgan is “resisting government pressure to swap” its Chrysler debt for equity in a restructured Chrysler. But if JP Morgan refuses this swap, then Chrysler will be forced into bankruptcy within a month.

According to the Wall Street Journal, JP Morgan prefers bankruptcy because, “billions of dollars of government debt and the UAW retiree health-care obligation [would] be wiped out before the secured lenders [JP Morgan and other big banks] lose anything.” In other words, JP Morgan wants to force Chrysler into bankruptcy so it would get repaid before all other creditors—including Chrysler retirees and US taxpayers.

JP Morgan Chase has already gotten billions from US taxpayers

Such cynical economic considerations might be understandable coming from other banks.  But JP Morgan Chase has already received $25 billion in TARP funds from American taxpayers. And the taxpayer bailout of AIG ensured JP Morgan Chase got $1.2 .4 billion [corrected] in its AIG deals paid off at full value.

With all that taxpayers have already given to JP Morgan Chase, isn’t it time JP Morgan Chase started to give back to the communities it serves?

JP Morgan Chase’s actions will mean hundreds of thousands lose their jobs and healthcare

Instead, JP Morgan Chase’s corporate single-mindedness threatens to put 40,000 Chrysler workers in Michigan out of a job, along with 150,000 Chrysler dealer employees and tens of thousand workers at Chrysler’s suppliers.

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Chrysler’s Two Options: What JP Morgan’s Insistence on Bankruptcy Will Mean

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Yesterday, I pointed to a WSJ report that JP Morgan wants to force Chrysler into bankruptcy rather than make the concessions necessary for a Fiat merger.

There was some uncertainty about what those two different scenarios really mean–and therefore what the impact of JP Morgan’s intransigence might be. So this is an attempt to lay out what those scenarios are. Details on these two scenarios come from the viability plan Chrysler submitted on February 17, though some of its assumptions are optimistic and both the VEBA numbers and the secured debt numbers are out-of-date. 

The bottom line, though, is this: If Chrysler goes into bankruptcy, it will likely mean 210,000 extra lost jobs and the loss of healthcare for up to 700,000 UAW retirees.

Fiat-Chrysler

Before it will provide $6 billion additional funding to support the Fiat-Chrysler merger, the Obama Administration has demanded:

  • Cerberus and Daimler to write off their stake in Chrysler
  • Fiat to take a 20% stake in the company
  • UAW to accept half of the VEBA payment Chrysler owes–$4.4 billion dollars–to come in the form of equity in the new Fiat-Chrysler (along with some additional concessions)
  • Chrysler’s secured creditors (JP Morgan, Citibank, Morgan Stanley, Goldman Sachs, and others) to accept equity in exchange for over $5 billion in debt
  • Additional $6 billion in government funding

Now, Chrysler doesn’t describe in detail what would happen If the Fiat deal were to go through, so the following is a guesstimate on my part. 

The quickest change would be that Chrysler dealers throughout North America would have Fiats to sell–primarily the small A and B platform cars with which it is competitive in Europe (including its 500, which just won car of the year in Europe).  It would take at least a year and a half to do this, though, and Fiat will face some trouble assembling them cheaply in the US (in Europe 500s are assembled in Poland). Still, if it were able to pull almost inhumanly quick adjustments to the North American market in the next 2.5 years, Fiat (and with it, Chrysler), might be instantly competitive in the A and B segments and with that, dealers might be much more viable. But it remains to be seen whether that would be profitable.

The single biggest problem with the Fiat deal, IMO, is that gas prices are going to be volatile for the foreseeable future, which means being competitive in the A and B segments could either be a godsend (if gas goes up to $5/gallon again) or a blip on the radar (if gas remains cheap).

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Bailed Out Bank, JP Morgan, Dooming Chrysler

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the end of Chrysler

photo courtesy of S and C

The WSJ confirms what we’ve all probably suspected: the creditors that are forcing Chrysler into bankruptcy are the same banks that have been surviving only with the help of the federal government. And of course, they are refusing to offer the same generosity to Chrysler.

Banks that loaned Chrysler LLC $6.8 billion are resisting government pressure to swap more than $5 billion of that for stock to slash the car maker’s debt, according to people familiar with the matter, hindering Chrysler’s effort to restructure outside of bankruptcy court.

[snip]

The lenders, which include J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley, hold great influence in moving the process along. As holders of secured debt, they have the right to take control of Chrysler plants, brands and other assets, which were pledged as collateral for the loans, if the company files for bankruptcy protection.

As a result, Chrysler may be worth more to the lenders in a bankruptcy liquidation than if they agree to restructure the debt, and the government has less leverage to force the banks to make concessions.

The negotiations show how the government’s involvement in both banks and industrial companies is creating uncomfortable circumstances: The U.S. has given aid to some of the very banks that are demanding tough terms from Chrysler, also a recipient of government loans.

[snip]

The Treasury Department began talking with the banks on Wednesday. The bailout money these banks took from the Troubled Asset Relief Program "hasn’t been mentioned, but everyone is aware that issue is there," said a person familiar with the talks.

[snip]

The J.P. Morgan position, said these people, is that concessions by Chrysler’s creditors should be treated as they would be in a normal bankruptcy — meaning the billions of dollars of government debt and the UAW retiree health-care obligation should be wiped out before the secured lenders lose anything on their $6.8 billion.

JP Morgan has been the recipient of bailout love in many forms: direct receipt of TARP funds, the Fed’s honoring of huge loans JP Morgan made, AIG counter-party funds, and low-risk sweet-heart deals for JP Morgan to "rescue" other banksters–for a total of somewhere between $27 billion and $300 billion. And of course, JP Morgan has already been using its TARP funds for acquisitions, not loans. 

But it is unwilling to take a haircut on loans of $2.5 billion that represent a miniscule percentage of all the welfare it has gotten from the Federal government.

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