No. 744,
April 23, 2014

About The Autoextremist

After a more than two decade career in automotive advertising, Peter M. De Lorenzo founded Autoextremist.com on June 1, 1999 as a weekly Internet magazine devoted to news, commentary and analysis of the auto industry and the business of motorsports. Since then the site has become a weekly "must read" for leading professionals within and outside the auto and motorsports industries, and De Lorenzo is considered to be one of the most influential voices commenting on the business today.

De Lorenzo's latest book is Witch Hunt (Octane Press  witchhuntbook.com). It is available on Amazon in both hardcover and Kindle formats, as well as on iBookstore. De Lorenzo is also the author of The United States of Toyota.

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The Autoextremist - Rants


Tuesday
Mar242009

THE AUTOEXTREMIST

March 25, 2009

 

SPECIAL AUTOEXTREMIST UPDATE, PART II (Monday, March 30, 2:30PM EDT)

March 30, 2009

Obama weighs in, telegraphs bankruptcy for GM. Fiat's "deal" with Cerberus and Chrysler? It's still a giant "wait and see."

By Peter M. De Lorenzo

Detroit.
President Obama made it very clear in his address to the nation this morning that he and his team had no intention of running GM and that they only had the best intentions in mind when it came to the future of the American automobile industry. He then went on to say, of course, that he had ordered the sacking of GM's Rick Wagoner and that a "quick rinse" bankruptcy could be the best way for GM to emerge a stronger and healthier company. Why he bothered to say that they had no intention of running GM while they in fact are running the company at this very moment is a little hard to understand, but the net-net of his message wasn't. And that is that he and his administration's brain trust are moving GM toward bankruptcy, but that it would be the "good" kind, meaning that the government would take the onus off of the word "bankruptcy" by guaranteeing people's warranties. He also made a pitch for how good current American cars are, which was all very interesting.

After arguing vehemently against bankruptcy for GM since last December, the President's speech this morning got me to shift my thinking. Why wait 60 days at all? Given that Obama and his crew are basically telegraphing the fact that they are going to move GM toward bankruptcy anyway, I recommend GM cut a deal with the Obama administration to go to bankruptcy immediately, with the following conditions: 1. Obama becomes "Car Salesman in Chief" and he and his wife participate in a one-hour infomercial that will tout American cars complete with proof points as to why they're worth buying. 2. The government guarantees warranties for all GM cars and trucks and makes sure every American knows it via "live" read advertisements at the end of Obama's weekly radio addresses. And 3. Offer $5,000 to every American who purchases a car assembled in North America (domestic or import).

Why screw around 60 days and miss the heart of the spring selling season? The Obama administration has made it very clear in that they will not rest until GM resembles exactly their vision for an American car company even though that beyond the usual smarmy platitudes, they haven't exactly been forthright in delineating what that is, but so be it. This way GM can go right down to two divisions - Cadillac and Chevrolet - with a couple of Buicks and GMC trucks thrown in for good measure, and we can get on with the future of the American automobile business, whatever form that takes, without the Obama administration hovering over GM's shoulder at every turn.

As for the Fiat-Chrysler-Cerberus deal, let's not carried away here, because there's a l-o-n-g way to go before we see a concrete plan emerge. I am quite certain of one thing, however, and that is that Chrysler is dead and buried one way or another, which is exactly what I've been saying for many months now, much to the chagrin of the Chrysler nostalgia buffs out there who equate me with being the anti-Christ. But the problems for this deal are deep and ugly. Chrysler is over-dealered by two-thirds, and that one issue alone is so fraught with peril that it could derail this deal right out of the blocks. Short of total capitulation - meaning an Obama-ized "clean" bankruptcy - Fiat-Chrysler doesn't have a snowball's chance in Hell of surviving, no matter how good the linguine tastes.

And so it goes.

Thanks for listening.

Publisher's Note: Now Chrysler is saying that there is no deal with Fiat, only a "framework" agreement according to Automotive News just a moment ago. In other words, Chrysler has exactly what it had with Fiat when the talks were anonnounced several weeks ago. Nothing. - PMD

 

SPECIAL AUTOEXTREMIST UPDATE (Sunday, March 29, 9:30PM EDT)

March 29, 2009

GM's Rick Wagoner is sent packing as President Obama opens a Pandora's Box of Not Good.

By Peter M. De Lorenzo

Detroit.
Tomorrow morning President Obama is expected to announce that GM (and Chrysler) will get additional emergency funding, while giving each company more time to achieve additional cuts with, in GM's case, its bondholders and the UAW. The President will also seize the moment to chastise the American automobile industry yet again, as if that will somehow make up for the missed opportunity that blew right by him when he failed to take swift enough action on the AIG mess. (By Monday morning, Obama's plans were emerging. GM would get 60 days to get its situation in order, Chrysler would get just 30 days, but only if it makes a deal with Fiat. It's clear that the Obama administration is pushing for a "quick-rinse" bankruptcy with government protection for consumers who buy vehicles from these manufacturers as part of the package.)

And as part of his "shared sacrifice" mantra that he's so good at relentlessly pounding into the American public while framing the domestic automobile industry as some sort of national scourge, Obama demanded and received a body - in this case the body of GM chairman and and CEO Rick Wagoner - so he could hold it up to the American public on one of his administration's custom-built chrome-plated pitchforks and say, "See, I'm doing what I promised! I am slaying the evil dragons of American corporate greed! I will reshape America into a kindler, gentler nation of group hugs while creating a more realistic and caring set of common corporate goals!"

And not only was an ugly precedent set, but America's future has just been turned dark by the realization that our government will not hesitate to reach into every available orifice - corporate or otherwise - and put their stamp on it if it doesn't quite conform to the Obama Administration's Shiny Happy Vision of what this country is supposed to be.

Contrary to the horde of instant pundit-experts out there who don't have the first clue as to what this industry is all about - or what it's like to actually work in this industry - Rick Wagoner was by no means the evil architect of GM's current predicament. Yes, Wagoner made some mistakes, and I have documented them long before the "Rick Wagoner Must Go" train left the pundit station. The Fiat adventure was disastrous, and Wagoner's initial reluctance to wrestle with GM's bloated structure proved costly. But Mr. Wagoner's most glaring failing really wasn't his at all, but rather it was that he was a product of GM's long corroded and obsolete cultural ideal that the people who run the company should only come from the financial office. This is nothing new it should be pointed out, because it has been part of the GM raison d'etre since the Alfred Sloan era. But it was Rick Wagoner's - and GM's - reality.

But there was another side to Rick Wagoner's tenure that the instant pundits out there either refuse to acknowledge - out of their out and out hatred for anything to do with GM and Detroit - or that they simply couldn't fathom because of their abject lack of experience or what is probably closer to the truth, their complete lack of understanding of how this business actually operates. And that is that if Rick Wagoner hadn't taken the aggressively decisive actions that he did take, GM would have been out of business years ago.

Wagoner's move into the Chinese market (a continuation of the doctrine laid out by his predecessor, Jack Smith) proved to be pivotal in providing a road map for the company's future. And Wagoner's insistence on utilizing and exploiting the global capabilities of GM's far reaching corporate empire, with forays into Korea, Brazil, Mexico and Eastern Europe, laid the groundwork for a completely modernized and globally competitive endeavor.

But Wagoner's most impressive move during his tenure was to recognize his own limitations as a financially-oriented leader, while at the same time setting his own ego aside in order to bring Bob Lutz into the company. Wagoner handed Lutz the keys to GM's woefully moribund product development system and said "Fix it," while giving Lutz carte blanche to do it. And the results were magnificent. During Wagoner's tenure - while benefiting from the vision, passion and sheer will to succeed that Lutz brought to the table - GM saw its greatest design, engineering and product era since its glory days of the 60s.

Down the road, long after the lynch mob hysteria subsides - and this administration's pitchforks have been hopefully melted down into brand spanking new American-made automobiles - Rick Wagoner's tenure will be judged more fairly and with the proper perspective. But until that time it must be said that the economic catastrophe that overwhelmed this country conspired to bring an entire foundation American industry to its knees, and there was no leader - socially "approved" or otherwise - who could have prevented GM and the rest of the domestic automobile business from collapsing.

Rick Wagoner and I had our run-ins (he didn't take too kindly to my early writings in Autoextremist.com, to put it mildly), and we've never had more than a passing conversational relationship at the countless car events over the years, but he's far from the ogre that his critics make him out to be. On the contrary, he is an exceedingly bright, gifted and personable executive who has ended up taking a bullet for the company that he has been a part of since 1977. And he did it in order to appease the overlords in the Obama administration so that the company he loved would live to fight another day. That says a lot about the measure of the man, in my book.

A pity I can't say the same for Mr. Obama and his posse. When I say that an ugly precedent has been set by the administration's blatant and meddlesome actions into corporate America - resulting in an executive actually losing his job - that is the understatement of this or any other year.

President Obama and the overlords in his administration have opened a Pandora's Box of Not Good by this action.

And by far the ugliest part about it?

No one has even the remotest of clues as to where or when it will stop.

Thanks for listening.

(3/25/09)

State of the Motor City Nation: The “Polishing of the Pitchforks” Edition.

By Peter M. De Lorenzo

Detroit. Given the fact that President Obama finds it funny that “the only thing less popular than putting money in banks is putting money into the auto industry” as he told 60 Minutes last Sunday, and the anti-Detroit furor in Washington is such that there are still custom built chrome-plated pitchforks lurking under the desks in the Senate and House reserved for Detroit that can be mustered at a moment’s notice, it’s no wonder that the mood around the Motor City leading up to the March 31st deadline for further payments to GM and Chrysler can only be described as grim.

As we emerge from a particularly brutal winter with hopes that a warm and soothing spring will somehow lift the somberness around here, instead the region is faced with an unspoken reality that GM and Chrysler have already been written off by two-thirds of the media, two-thirds of the American public and two-thirds of Washington, for an Ultimate Trifecta of Not Good. And that even with a substantial additional infusion of money, it will be a long and tedious road to a “recovery” that will amount to half of what the domestic automobile industry once was.

It hasn’t helped matters, of course, that “Minimum Bob” Nardelli has all but hastened the demise of Chrysler with his constant bleating about how great things are and how Fiat will be the savior and the future product lifeblood of the company. It has been distressing to see some less-than-stellar members of the automotive media picking up on the whole Fiat-Chrysler linkup idea and running it into the ground before even stopping to carefully listen to what Sergio Marchionne, the CEO of Fiat, was actually saying, which was basically something like “we’ll see what happens with the government loans, but thanks for giving us 30 percent of the company in the interim.”

In other words, you can speculate about how bella the Fiat-infused product lineup will be and how it will transform Chrysler all you want, but the reality is that Fiat is doing a giant “let’s wait and see” and everyone else is booking a few favorable comments as gospel. Not exactly what you want to base the future of a company on, especially one as busted flat by the side of the road as Chrysler is.

The wheels came off of Nardelli’s glorified “bait and switch” act with a resounding thud last week when Chrysler insisted that Fiat was all good with taking on Chrysler’s debt, followed by an empathic response from Italy suggesting that it was not only never a consideration but that that it was notgonnahappen.com, (insert an Italian accent for emphasis). Needless to say, the timing couldn’t have been worse for something like this to come out, and I can assure you that the moment that little tidbit was exposed, the polishing of the pitchforks commenced in Washington.

It’s no secret that Chrysler has been teetering on the brink for months, even though they’ve been insisting all along that they’re in better shape than GM (which flat-out isn’t true, by the way). Add to this the fact that the Cerberus corporate bylaws won’t allow the company to sink anymore money into Chrysler (what, they can’t change the rules, or is the reality that they will do anything to get out from under this mess without spending one more dime closer to the High-Octane Truth?) - the worst financial play in the company’s entire history – and pretty much nothing associated with the Auburn Hills bunch is sitting too well with anyone in Washington these days.

Which brings me back to Nardelli. Remember, this is the guy who stated upon being tapped to run Chrysler that “the New Chrysler has the opportunity to prove that private business models can thrive in this industry.” How is that working out for you and the Cerberus brain trust so far, Bob? I’ll answer that for you: Not so much.

Nardelli brought his “don’t let the screen door hit you in the ass on your way out” exit strategy from Home Depot with him to Detroit, the only problem is that no one at Cerberus bothered to do due diligence to see if he was equipped for the job or not. (Not that anyone at Cerberus actually had the first clue about running a car company to begin with.) And guess what? He wasn’t. And there’s no amount of Jack Welch/GE-tinged business school mumbojumbo bullshit on the planet that can cover that fact up. The wayward Welch acolytes at Cerberus weren’t just ill-equipped for the task at hand; they had no business even going near it. And it has been such an unmitigated disaster of incalculable scope that even Jim Press’s once-golden reputation has been destroyed in the process.

If Chrysler gets any money next week it will only be in preparation for a Chapter 11 bankruptcy that will quickly become Chapter 7 liquidation by summer. And then we’ll see if Sergio or Carlos or whoever make deals to pick over the carcass of what was once - at least at certain moments intermittently sprinkled throughout automotive history - a pretty damn good car company...

As for General Motors, the media firestorm that has been unrelenting since last December’s Washington fiasco has decimated the company’s sales, in spite of the slew of fine vehicles on the ground at its dealerships across the country. And GM’s new “let’s get everything on the table” posture has talked the consumer right out of the brands it said it would phase out in time – Saturn, Saab, Hummer and to a lesser extent, Pontiac – and that has just killed showroom traffic - and its dealers - too.

GM’s too “many models, too many divisions, too many dealers” conundrum that I began writing about in the very first issue of this publication ten years ago has finally collapsed under the strain of an economy that’s in unprecedented freefall. To exacerbate matters, GM's bondholders are being uncooperative in reconfiguring its debt out of fear the company’s projections about a turnaround in the economy – and how a newly downsized GM will be ready to take advantage of it - are too bullish and unrealistic. And let’s not forget the pitchforks waiting for muster in Washington - where certain dimwitted Senators are ready to bless us all with their stupendous stupidity again - and in California, too, where the environmental lobby is poised to pounce on even the idea of a viable GM, because it means the prolonging of an industry that they want dead, buried and forgotten.

How bad is it? It’s bad enough that the Winds of Not Good are blowing so strongly around GM’s tubular spires hard by the Detroit River that you don’t want to leave your overly full coffee cup unattended on the upper floors out of fear the liquid caffeine might just slosh out in waves.

Did GM make a convincing case with the instant auto “experts” in Washington? I believe they did, but only if it were that simple. Even with Saturn, Hummer and Saab on the way out GM still has too many product mouths to feed. Pontiac will go away simply because GM can’t afford to do it justice, and if that’s the case, then I’m all for letting it slumber.

As for the rest of GM, if it’s going to still be around in North America by 2012, then I see the company configured this way:

Chevrolet: Mini car (Spark), compact (Cruze), mainstream sedans (Malibu, Volt and TBD), crossovers (Traverse and Equinox), sports (Corvette) and sporty cars (Camaro, along with other performance variations of the lineup), pickup trucks.

Cadillac: CTS lineup (coupe, sedan, sport wagon) as well as high-performance V-Series versions, a crossover (SRX), an eventual full-sized sedan and one larger SUV (Escalade).

Those two divisions - Chevrolet and Cadillac - will be the primary focus and future of GM. Buick will be reduced to one sedan (LaCrosse) and a crossover (Enclave) sold at Buick-GMC dealers, while GMC will retain larger SUVs only. (GMC will no longer be in the pickup truck business in favor of Chevrolet.)

That all sounds well and good, but there are far too many question marks floating around to count on anything, exactly to the bondholders’ point, by the way. When will the economy turn the corner? And will it happen soon enough for GM to pull itself off of the mat? How quickly will GM’s dealer count get reduced? And will the newly downsized GM be able to survive at a 15 percent market share in the U.S. market? Because that could very well be the number down the road, even though no one wants to think about it. And when will the Green Posse acknowledge that GM (and Ford) actually have some very competitive green entries with more on the way, instead of dismissing everything Detroit has to offer as “yester-tech” - ?

And on and on and on.

Will GM get the money? Yes. Will it be enough? See those questions above. Will Chrysler get the money? Yes, but it won’t be for ultimate survival, but rather to ease the process of winding down.

And what about Ford?

Except for the clear and unmistakable signs that the emergence of Ford as America’s car company ascending is real and something to be cautiously optimistic about, the winter of Detroit’s discontent has turned into a gut-wrenching, pothole-infested, cold and gloomy spring.

Not really much to go on - especially when the fate of an industry and an entire region is in Washington’s hands - but at the moment it’s all we’ve got.

Thanks for listening.

 

See a special live webcast event hosted by Autoline Detroit's John McElroy with The Autoextremist himself, Peter De Lorenzo, along with auto industry veteran Jason Vines this Thursday evening, April 2, at 7:00PM EDT at www.autolinedetroit.tv. Tune in to see "the bare-knuckled, unvarnished, high-octane truth" and expect a no-holds-barred discussion about what's going on in the industry right now, along with anything else that pops up in our minds. You can chat with us "live" too. Again, that's Autoline Live this Thursday evening, April 2, at 7:00PM EDT at www.autolinedetroit.tv. Click here for a preview!