Breaking News! MI Legislators’ Constituents Donate to Those Legislators!

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CBS has what it thinks is a big (!) scoop (!) about the bailout today: that Carl Levin and John Dingell and Joe Knollenberg (who has less than a month to cast a vote on any auto bridge loans) have received donations from people associated with the auto industry.

Wow. Michigan’s citizens had the audacity to donate money to their members of Congress.

And people tied to the auto industry gave another $15 million in campaign contributions, CBS News investigative correspondent Sharyl Attkisson reports.

[snip]

Take Sen. Carl Levin, who received $438,304 from the automotive industry. And in the House, Rep. Joe Knollenberg received $879,327. Rep. John Dingell got nearly a million from the industry. All have enjoyed generous support from the auto industry over their careers, with GM and Ford as their two top contributors. All support a bailout. 

That’s a scandal of epic proportions. 

Note, Attkisson does admit that this is to be expected–that Michigan’s residents and industries might donate to their legislators.

It’s not surprising that a lot of that money went to members of Congress from Michigan, where the auto industry is the biggest employer and politicians are passionate advocates for their constituents. 

And she does focus on John Dingell’s extensive personal ties, through his wife Debbie, to GM. (I wonder if she was similarly scandalized when Bill Frist worked on healthcare issues? Or Dianne Feinstein worked on any of the issues that pertained to her husband’s business interests? Or any of the other legislators with similar family ties to industry? Or John Tester’s or John Salazar’s ties to agriculture?)

But her reporting on automotive donations to Knollenberg, Dingell, and Levin is laughable. That’s true, first of all, because she provides figures for lobbying in the last year ($50 million) yet then provides "lifetime" political donations, without advising her readers that she has changed her time frame. When you’re talking about the lifetime donations of Dingell (53 years in the House), Knollenberg (15 years in the House), and Levin (29 years in the Senate), you might want to make clear that you’re talking lifetime, not just one year or one political cycle. (Actually, she’s talking about "lifetime" donations as far back as OpenSecrets database goes back–that is, to 1989.) Read more →

Auto Hearings, House Version

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Two and a Half and their UAW dude are back on the Hill. Here’s a link. Spencer Bachus has already deemed that, because UAW workers make more than other American citizens, the Big 2.5 can’t get a bailout.

He neglected to explain, of course, why he had given a bailout to all the people making billions on Wall Street. 

Sigh.

Congressman Ackerman: You’re responsible for the state of the auto industry. (Um, except that two out of four people in front of you–Nardelli and Mulally–weren’t IN the auto industry when its problems were caused.)

Ron Klein: Suggests a Manhattan Project to develop the best automotive technologies. Nardelli jumps on it (not least bc Chrysler has the least in the pipeline on technologies). Wagoner agrees–notes that other countries do this. "If we want to move this country to leadership, this kind of collaboration is going to be a basic aspect."

Gwen Moore: Ding ding ding!! We need a national health care plan. Why did you stop short of saying that this kind of initiative would help our industry?

Damn. Barney just interrupted Wagoner in the middle of explaining how, if Congress raised gas taxes, then the Big 2.5 could make more efficient cars. 

Barney points out that since the UAW has forestalled payment on the VEBA, it opens up the opportunity to solve national health care and avoid that payment. Raises the lower costs in Canada, as compared to Detroit. Scolds them for not helping Clinton on national healthcare.

Shelly Capito says her dad used to drive a Chrysler station wagon called the "Chick Wagon." Barney says he doesn’t mind her mentioning it, but that he would never want to drive it. 

The New Poll Porn: Automotive Sales Aren’t What You Think They Are

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Perhaps it’s a residual appreciation left over from this election’s polling data (which by and large had much better news to offer), but I have been absolutely entranced with these data from November’s car sales. Frankly, it would be a mistake for anyone to take any general lessons from the data–they speak to the volatility of the market, distorted both by huge swings in gas prices and supply issues, not to any trends. But that, in itself, is a worthy lesson. 

For example, let’s look at a list of which manufacturers did better than the industry wide average decline fo 36.7% and which did worse:

-47.1% Chrysler
-42.2% Nissan
-41.3% GM
-39.7% Hyundai
-37.2% Kia
-36.7% Industry Average
 -33.9% Toyota
-31.6% Honda
-30.5% Ford
-26.7% BMW
-21.5% Volkswagen

A couple of points. GM revealed that buyers are shying away from GM (and therefore, presumably, Chrysler) because they’re worried about buying a car from a manufacturer in bankruptcy. Yet Nissan actually lost more sales compared to last year than GM.  And Richard Shelby would have you believe that only those manufacturers heavy with UAW contracts are doing poorly!

picture-62.pngAnd did you notice that Ford–one of the three manufacturers getting grilled by Richard Shelby today–did better last month than the manufacturers in his state: Hyundai, Toyota, and Honda (though Mercedes did great; they were off just 8.6%)? Shelby would have you believe the US manufacturers are doing worse in this crisis than the transplants–but he’d be lying.

And notice who is doing best, compared to last year? Volkswagen and BMW. Not, mind you, because of their vehicle lines. But presumably because of favorable exchange rates. 

And how about individual models?

Notice the model that is doing worst as compared to its sales last year?

The Toyota Prius.

Let me repeat that: the Toyota Prius is doing worst among the 16 best selling vehicles as compared to its sales last November. There are probably very good reasons for it: that Toyota sold so many Priuses in the summer, when gas prices were at record highs, that it’s trying to catch up on production numbers; that it might be a harder car to finance than others; that there are increasing numbers of efficient cars on the market. The point is, in this market, where supply and demand swings wildly from month to month, there are not easy equations about what will sell well.

And note that Ford F-Series and Chevy Silverado lead the list.

Still.

Mind you, truck sales are still down more than cars on the year, but trucks–American trucks–are still the most popular cars in America, and sales are off less than average from last year (though this likely reflects the greater discounting for trucks, plus the new F150 model). 

Read more →

Did Bob Corker Just Cause GM to Lose 10% of Its Value on Inaccurate Information?

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picture-61.pngBob Corker is very busy trying to force the Big Two and a Half into bankruptcy so he can bust the UAW. He’s using all the regular methods–arguing about GM’s failed business model, arguing that they haven’t changed their business plan.

But he went over the line, earlier, when he stated that the Department of Energy had rejected all the Big Two and a Half’s applications for DOE funds to retool their factories to produce more efficient cars. Basically, he took the opportunity of the hearing to announce, publicly, that the companies weren’t going to get $3 to $7 billion they were counting on to turn around their business. He even suggested that the applications were rejected because they weren’t viable companies.

Only, he was wrong.

Funny thing is, though, the stock market didn’t wait until Sherrod Brown came in and corrected Corker–by noting that the DOE had not rejected the applications, but had simply asked for more information. And it didn’t wait until Corker himself–having been called by the guy awarding those loans–admitted that he was wrong. (Though, dead-ender that he is, Corker still tried to insinuate that they applications were rejected, rather than sent back for more clarification.)

Not long after Corker made those remarks, GM’s stock price dropped from $4.44 to $4.27. And then it dropped again, from $4.27 to $4.02. $.42 altogether, all shortly after Corker insinuated false things about government decisions in a widely and closely watched hearing.

I know that $.42 might not be much to you, Bob Corker. I know you’re working hard to bankrupt these companies.

But it really is rather bad form to take out 10% of a company’s stock price just so you can make an ideological point.

Senate Auto Hearing: “Russian Roulette with the Economy”

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The auto execs are before Senate Banking today–go here for the hearing.

Dodd is up, arguing that not helping the Big Two and a Half is like playing Russian Roulette with the American economy. He’s also beating up on Paulson for his irresponsibility with our TARP funds.

In my view of we’re going to insist on reforms from the auto industry, we ought to also require reforms from the finance industry.

Also note, they’ve got representatives from both the suppliers (the head of Johnson Controls) and the dealers (the President of CT’s auto dealers). The House hearing last time had such representatives, and it really made the hearings more valuable for the executives.

Shelby up. Took him 2.6 seconds to talk about labor.

Gene Dadaro, from the GAO, up. He’s talking about what past bailouts have involved. I’m curious whether he was consulted on TARP? He’s also demanding a board with real oversight. Again. Was he consulted on TARP?

Dick Shelby seems to believe he’s an expert on the auto industry. Still pressing for bankruptcy.

Dadaro states clearly that he believes Treasury has the ability to intervene. Shelby’s pushing to get Treasury to do this.

Bob Bennett has an interesting idea: you give TARP money to the auto companies’ creditors, in exchange for equity in the auto companies. That would change the cash shortage of the auto companies, while watering down stock.

Jack Reed, clarifies that we should expect concessions from suppliers and dealers as well as the UAW. Finally! Someone who notices that the Big 2.5 have contracts with more than just the UAW!

Schumer: UAW made concessions yesterday, but where are the dealers? Where are the bondholders? 

Menendez suggests requiring a dollar for dollar concession from stake-holders in any bailout. Also raising the possibility that a bailout includes prohibitions on a foreign maker buyout of Chrysler.

Evan Bayh, as the first auto state Senator up: Isn’t it true that there’s too much uncertainty to allow these companies to go bankrupt right now?

Sherrod Brown, on differences between 1979 and now: UAW already made concessions, the Big 2.5 have already restructured significantly. 

James Fleming: The ripple on effect is a tsunami on the dealers who employ people in your home states. If you do not pass this bill, the effect on your consitutents will be enormous. Consider the human side on what’s going on–go into those dealerships. It’s tough work, they’re writing the paychecks out, they do not have massive staffs. Read more →

Supplier Shock: Explained in Simple Terms for Matt Yglesias

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Big Media Matt has apparently no more hung out around the auto industry than he has tasted a quality turkey. He’s struggling to understand why Ford would lobby Congress to help its competitor GM stay in business.

The key–as we’ve discussed here–is that if GM went under, it would bankrupt some suppliers. And the supply chain for automobile manufacturing in the US is so intertwined, this would create supply problems for the other manufacturers–not just Ford, but also the international manufacturers.

Here’s how the Center for Automotive Research (a wonky organization of the sort Matt likes that is cited in just about every article on the crisis) describes what would happen if all three manufacturers had a major contraction.

We assume that domestic production by international automakers in the United States would be seriously affected by a major contraction of the Detroit Three automakers for at least a period of one year due to the high likelihood of many U.S. supplier company insolvencies. In fact, we assume in our 100 percent contraction scenario that not only does domestic production by the Detroit companies fall to zero in the first year, but that domestic production (in the U.S.) by the international producers also falls to zero. That is because we expect a major wave in supplier bankruptcies or a "supplier shock." The collapse of a domestic market for suppliers coupled with the reality that few auto suppliers serve export markets would result in manufacturing utilization rates below 50 percent, forcing suppliers to restructure or liquidate. The scale of the contraction of the Detroit Three would overwhelm any attempt by the international producers to keep their existing suppliers in business or to find alternative suppliers, here or elsewhere. U.S. consumers would be forced to rely on only imported vehicles as a source of new vehicle purchases in the first year. [my emphasis]

In other words, Big Two and a Half bankruptcies would also bankrupt suppliers that got roughly 50% of their business from the Big Two and a Half. And if the foreign manufacturers relied on any one of those suppliers, they would start running out of parts and have to idle their assembly plants.

Now, that’s the most extreme scenario, in which Ford goes under with GM and Chrysler. Read more →

GM Financed 50% of Car Purchases Last Year; Can Only Finance 6% Now

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Jeebus. This gives you a sense of why GM’s in such dire straits:

GM‘s financing arm, GMAC, cannot effectively access the secondary markets today. With each passing day, it is less able to finance the sale of GM vehicles, either for dealers or for the public. One year ago, GMAC was able to provide either installment or lease financing for nearly half of GM retail sales. That number has fallen to 6% today. In addition, GMAC is no longer able to buy contracts for customers with a credit score under 700, which excludes roughly half the buying population. All of this has been especially toxic to GM sales in the past two months, with sales running about 40% behind year-ago levels. [my emphasis]

Just by way of comparison, Chrysler says that they give credit to 50% of Chrysler customers (though it doesn’t say whether it has been able to maintain those numbers), and Ford says it gives credit to 4 million consumers last year, though doesn’t say what percentage of sales its credit arm supports.

Imagine, though, that 100 customers walk in your door–and whereas last year, you would have been able to offer 50 of them credit, but can only offer 6 of them credit this year. That’s gonna cut into your business–dramatically.

Incidentally, Ford talks in much more abstract terms about how the credit crunch is affecting its business.

The present credit environment also has severely limited the ability of the automotive finance companies like Ford Motor Credit Company to access the public debt and securitization markets, and is significantly impairing our ability to support dealer and consumer financing needs. Banks and investors are exhibiting an aversion to risk and a willingness to invest in only the highest-quality financing instruments, and preferably in government instruments or government guaranteed debt. This risk aversion has expanded to a level where it is challenging to find financial counterparties to transact even simple interest rate and currency swaps, further contributing to a significant slowing of U.S. economic activity. These issues have further constrained the cash available from Ford’s normally profitable automotive finance company to support our automotive business.

GM’s Beg: The Waiting Is Making It Worse

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I just got done listening to Diane Rehm’s show on the auto begs (it was terrible, frankly); there was a great deal of skepticism whether the auto companies would get any government help this month.

Aside from the fact that GM is asking for $4 billion for operations through the end of the month and an additional $4 billion for January, there’s another reason a bridge loan can’t wait.

According to very recent market research (conducted by CNW Marketing Research), more than 30% of consumers who considered a GM vehicle and purchased a competitive product instead cited the possibility of GM bankruptcy as the top reason for not buying a GM product. This is more than double the percentage of the next highest reason.

To highlight this point, both the Baseline and Downside Scenarios outlined in this submission assume that consumers will consider GM products and services on their merits, and without regard to concerns relating to the company’s viability. If this assumption is not true, and concerns regarding the company’s viability continue to weigh on purchase decisions (as they clearly did in November 2008), the company expects to that first-quarter 2009 cash outflows would be materially worse than even the Downside Scenario. As such, clarity and prompt action adds real value to the company and to consumers.

GM’s sales dropped 41% from last November’s numbers; Chrysler’s sales dropped 47% (the industry as a whole dropped 37%, with Ford having one of the smallest drops). In other words, all this discussion of whether or not to let GM or Chrysler go bankrupt is making it more likely that they’ll go bankrupt, because they’re not even keeping pace with the industry’s severely contracted sales numbers.

That doesn’t mean Congress will get something passed right away. But it does raise the stakes for this week’s hearings.

Chrysler: DIPs versus Begs

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I’m slowly working my way through the Begs to Congress of the Big Two and a Half. And I’m struck by the way the Chrysler beg basically argues that it’ll be cheaper for the government to give a loan now.

Chrysler doesn’t say so explicitly, but it is seeking money to carry it until such a time as some other company will buy it.

Chrysler remains focused on developing partnerships, strategic alliances or a consolidation as a fundamental element of its restructuring to expand its product portfolio, generate incremental revenue, and create additional operational synergies related to manufacturing, purchasing and distribution.

[snip]

Further partnership, restructuring and consolidation is required for the industry to be viable in the long-run.

Thus, even though it does present its reorganization plan to prove it is making necessary changes, it never really claims it–Chrysler, as a free-standing entity–will return to viability by itself (in fact, it spends a few sentences bitching about the Daimler takeover). 

So it needs to present a case for why the government should bridge it to the point where it can be purchased, rather than let it go into bankruptcy. Again, without saying so explicitly, it suggests the money it would get from the government–$6 billion from the DOE funds intended to retool for more efficient cars, and a $7 billion loan here, for a total of $13 billion–would serve the same bridging function as a Debtor-in-Possession loan that it would need for bankruptcy.

Chrysler believes that the amount of DIP financing that it would need to remain viable even during a relatively short bankruptcy (just one year) would approximate $12 to $15 billion. And, even that estimate presumes that financing remains available for the company’s dealers and customers, which cannot be counted on given current market conditions.

If financing for its dealers is unavailable from traditional sources during the Chapter 11 process (as Chrysler must assume would be the case), then Chrysler would need at least $5 billion of additional DIP financing just to support its dealers, pushing the expected total size of the year-one DIP financing need approximately $17 to $20 billion.

The enormous size of the DIP financing facility that Chrysler would require is due to many factors, including (i) the likelihood that many consumers will shun purchasing vehicles made by a manufacturer that is in chapter 11, thereby starving the company of revenue while it attempts to reorganize; Read more →

Fredo’s Fredo and Ford

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I’m going to steal this catch from MadDog shamelessly. He notes that the author of the Ford "beg" is David Leitch:

An interesting bit of trivia – Based on the document’s properties, I’m guessing the author of the Ford Beg document is: David G. Leitch, group vice president and general counsel for Ford Motor Company

Leave it to a lawyer to plea-bargain with Washington. *g*

Ah, but it’s not trivia at all. You see, David Leitch is Fredo’s Fredo–or rather, the top deputy to Alberto Gonzales when he was White House Counsel.

Prior to joining Ford as general counsel in April 2005, Leitch served in the White House as Deputy Counsel to President George W. Bush. In that capacity, he advised the President and his staff on a variety of legal issues, including issues involving the war on terror, judicial nominations, legislative proposals and ethics.

Another example of Ford’s tin ear, I guess. You really ought to hide that detail before you hand over a document to a Democratic Congress.