Three Reasons, Three Nos

The following is the audio transcript from “Wall Street Automotive” – WTBQ - NY Radio 1110AM / 99.1 FM – show dated December 13, 2008.

Following a debate on loan guarantees for the big three:

VO: Robb

“As we all remember, in 1979-1980, Chrysler requested $1.5 billion in Federal loan guarantees. The structure of these Federal loan guarantees was underscored to provide "Chapter 11" type restructuring opportunities without its filling. [there was strings attached] Congress required Chrysler to obtain private financing for the $1.5 billion they were seeking (the government was co-signing the note, not printing the money) and Chrysler was also required to obtain another $2 billion in "commitments or concessions" for the financing of its operations. In essence most of Chrysler’s suppliers, union workers and contractors were forced to re-negotiate with Chrysler in order to assure their own viability. Some of Chrysler's suppliers accepted ten cents on each dollar rather than to loose Chrysler as a client.

Lee Iacocca stated openly "equality of sacrifice" and most Americans bought into his sales-man-ship, after all Mr. Iacocca spoke not of a pending doom, rather he talked to the opportunities to lead and how each and every American can participate in his turn-around. The loan was paid, the K-Car and the Mini-Van was created and Chrysler was on a roll again and Mr. Iacocca was an American hero.

Today (concerning) Chrysler

81% of Chrysler is owned by Cerberus Capital LLC, a privately owned company with over 100 billion dollars in assets. If you go to Cerberus' web page and read their mission statement its clear they are experts in turning under performing companies around, this is what they do, this is why they purchased Chrysler in the first place. It’s clear from Congressional hearings Chrysler's CEO Bob Nardelli has made no effort to tap into Cerberus capital quoting “loaning money to Chrysler would represent a conflict of interest with other Cerberus investments”.

Back in July 2008, when the price of oil started to escalate, Chrysler had over 71% of its production focused on trucks and SUV type vehicles, Chrysler's only objective was to make fast money, paying less attention to customer driven products, quality and its own future.

Giving Chrysler federal government money without the parent company participating, flat out no.

(concerning) General Motors:

This is easier, let’s just outline the following brands: Pontiac, Buick, Saturn, Hummer, and GMC. GM may be illustrating different brands representing different social milieus, however the truth is GM’s real reasons for its many brands was focused on the rewards of critical mass, shared platforms, common components - looking ahead only to increase its operating margins. GM’s critical mass approach became obvious to most consumers back in the mid 1970's and became chronic in the 1990's as overlapping carlines between its brands became more and more obvious.

Sometime during the early 2000's GM tried to turn this around, however most consumers simply got tired of waiting and found Honda's, Toyota's and other Asian brands most welcome to fill their automotive needs.

The loss of consumer brand loyalty between GM's divisions was rapid, and continues to this day.

Giving General Motors federal government money without a clean sheet business plan, flat out no.

(concerning) Ford Motor Company:

Without going into too much detail here, I have the most faith in Alan Mulally, an outsider to the auto industry. Ford has capital today only because it borrowed some money last year. Ford is a smaller "ocean liner" in the automotive sea and can maneuver faster even during these turbulent times.

Ford appears stronger; however their appearance is more about their financial condition rather than their products or consumer demand. So short term Ford looks like it has some viability, however the next 24 months future car launches will prove their real strength. The most successful, efficient and modern automotive assembly plant is owned by Ford in Brazil, look for this trend to continue.

Additionally, I anticipate Ford will sell Volvo within 60 days, this will raise $3 - $4 billion dollars to the balance sheet, at the same time anticipate a more robust common stock as well, as GM share holders flee to more stable ownerships.

Giving Ford federal government money when they haven't really asked for it, flat out no.

So there it is, three reasons, three nos.

Without loans anticipate Chrysler being the first to go Chapter 11, Cerberus shows least sincerity and care and Bob Nardelli (the same person that almost drove Home-depot to the ground) is (in my opinion) a terrible leader.

GM will survive - Chevy is GM's Honda if managed properly. GM will be smaller, leaner, more global than ever before, it may take some time and some relocation of assembly plants, but I'm confident GM will be around for another 100 years.

As discussed Ford appears to have already taken some measures on a turn around, suppliers and UAW negotiations will hang on Chrysler and GM's fate”.