Detroit Automakers’ Bailout Plans and Prospects
Senate Banking Committee Chairman Christopher Dodd opened yesterday’s Detroit Bailout hearing, irritated that Treasury Secretary Paulson and Federal Reserve Chairman Bernanke declined his invitation to attend. Apparently the Treasury Secretary preferred being lectured in Beijing by Zhou Xiaochuan, the governor of the Chinese central bank, who told Paulson that the US should raise its savings ratio as “over consumption and a high reliance on credit is the cause of the US financial crisis.”
It’s doubtful the Committee and the “Big Three” chief executives would really have wanted to hear what Paulson and Bernanke would say about the merits of a bailout for Detroit’s automakers. Bernanke would likely tell them they have inadequate collateral to dump at the discount window. Paulson would say that bailing out the Big Three is not an investment, but a huge burden to taxpayers. For all the griping by some of the Senators over the Fed and Treasury’s use of the TARP, Congress only has themselves to blame for giving these guys such a broad piece of legislation to essentially do as they please.
My post on “Detroit Automakers Return to Washington with New Rhetoric But No Real Changes,” examined how SUVs and EZ credit hurt more than helped. In “Detroit Automakers Did Not Learn The Lesson Of The 1979 Chrysler Bailout,” I explained how planetary cycles are reactivating the energies from that time. Now let’s take a brief look at each of the Big Three’s plans and their planetary prospects.
“Chrysler’s Plan for Short-Term and Long-Term Viability”
Chrysler is owned by private equity firm Cerberus Capital Management who paid $7.2 billion in 2007 to buy 80.1% of Chrysler from Daimler. Cerberus has been in talks with Daimler to buy the remaining 19.9% of Chrysler in a deal that has turned ugly after Cerberus demanded Daimler pay them over $7 billion in losses the private equity firm has suffered since it bought Chrysler last August. Cerberus wants to own 100% of Chrysler to make the automaker more viable to sell. With no takers, Chrysler is seeking a $7 billion bridge loan from the government, (an amount that is “coincidentally” close to what Cerberus paid for their stake) by December 31 that it will begin to repay in 2012. Chrysler’s plan states that it “continues to aggressively pursue strategic alliances and partnerships. Further partnership, restructuring and consolidation is required for the industry to be viable in the long-run.” Chrysler also requests $6 billion out of the $25 billion approved by Congress sitting at the Department of Energy towards producing fuel efficient vehicles.
Sen. Corker grilled CEO Nardelli about that at Thursday’s hearing commenting, “you’re looking for a marriage partner.” Corker said he spoke with a Cerberus Board member the night before who told him that Cerberus has the cash to put money into Chrysler but doesn’t want to.
Chrysler was founded in Detroit by Walter P. Chrysler on June 6, 1925. Automobiles are ruled by Mercury, the planetary energy of movement, and Chrysler’s Sun (self-identity) is appropriately in Mercury-ruled Gemini. The December 5, 2008 First Quarter Moon challenges Chrysler’s Sun, reflecting the crisis level of action the company is taking to get government assistance.
As described in my previous post, Chrysler traveled down this road one Saturn cycle ago when the automaker secured a $1.5 billion loan from the government that Chrysler likes to emphasize was paid back seven years early at a profit to taxpayers. Chrysler’s natal Pluto in Cancer conjoins the USA’s natal Sun, reflecting that the USA had to come to their rescue to avoid bankruptcy in 1979. The first time Chrysler sought government assistance, Mars in Gemini was conjoining its natal Sun, and Saturn in Virgo challenged Chrysler’s natal Venus reflecting the company’s financial constraints. Demand for Chrysler’s larger cars, vans and recreational vehicles had “been dropping like a rock” according to then president Lee Iacocca, since the gas crisis started.
Chrysler revealed yesterday it hired law firm Jones Day several weeks ago to serve as bankruptcy counsel. In January, Mercury turns retrograde and the Aquarius Solar Eclipse challenges Chrysler’s natal Saturn in Scorpio. Transits in May and September 2009 from Saturn in Virgo and Uranus in Pisces affecting Chrysler’s Sun, Venus and Uranus reflect continued contraction and financial difficulties greater than projected for the automaker. If private equity isn’t willing to risk their $24 billion in assets to give Chrysler a lifeline, why should the government?
“We note that Ford is in a different situation from our competitors, in that we believe our Company has the necessary liquidity to weather this current economic downturn – assuming it is of limited duration. If the downturn is longer and deeper than we now anticipate, however, access to government financing would be important to help us be able to continue to implement our Plan and benefit when the economic recovery inevitably arrives. While we hope we do not have to access the loans, we believe it is critically important that loans are available to us and the domestic auto industry.” – “Ford Motor Company Business Plan”
After reporting a third quarter loss of $129 million and burning $7.7 billion in cash, Ford hopes to break even or be profitable in 2011. Ford had the foresight to raise $23.5 billion in equity in 2006 and $3 billion in new equity earlier this year. Ford sold Aston Martin, Jaguar, Land Rover, and the majority of its stake in Mazda after going on a brand buying binge a few years ago. Ford is trying to sell Volvo for $6 billion after paying $6.5 billion for the Swedish automaker in 1999. Industry analysts estimate Ford will be lucky to get $2 billion.
Ford mortgaged just about everything it owns to raise the money it has, so coming up with sufficient collateral for the $9 billion “stand-by" ten year line of credit it is requesting could be a problem, as the government cannot be number two on the list of creditors in the event Ford defaulted. Even if Ford never accessed government financing, the company should have to pay the government a fee to secure the credit line. Ford also seeks $5 billion from the $25 billion at the Department of Energy. Additionally, Ford requests that an economic stimulus bill “include incentives for consumers to trade in older vehicles and move to more fuel-efficient vehicles.” (Ha! I drive a seven year old midsize Japanese sedan that gets better mileage then their competing model.)
Founded on June 16, 1903 in Dearborn, Michigan, Ford also has the Sun in Mercury-ruled Gemini which is particularly fitting since the company has a Mercury division of vehicles. From a planetary perspective, Ford’s chart is also being challenged by Mercury retrograde and the January 26 Solar Eclipse conjoining the company’s natal Saturn in Aquarius. Challenging transits from Saturn, Uranus, and Pluto in Capricorn in February/March and September 2009 seem to indicate that Ford is not in as good a financial position as the company is projecting.
“It is no secret that GM, like all domestic automobile manufacturers, has increasingly struggled over the last several years due to increased competition from foreign manufacturers with lower wage, healthcare and benefit costs(in part, due to having far fewer retirees to support in the U.S., and national healthcare structures in their home countries). GM has spent $103 billion over the last 15 years alone on these legacy costs, constraining investment in more advanced manufacturing and product technologies and significantly weakening the company’s balance sheet.” – “General Motors Corporation Restructuring Plan for Long-Term Viability” (bolded emphasis mine)
GM CEO Rick Wagoner returned to Washington this week, requesting $6 billion more than he asked Congress for just two weeks ago. GM wants a $12 billion loan ($4 billion by December 31, $4 billion for January, $2 billion for February/March, and another $2 billion before the end of 2009). The company also wants a $6 billion line of credit, bringing GM’s total request to $18 billion which the company states it would begin repaying in 2012. Like Ford, GM wants the government to offer incentives for purchasing fuel efficient vehicles and tax credits for scrapping older vehicles.
GM celebrated its 100th anniversary on September 16, 2008. GM’s Sun is in Mercury-ruled Virgo. GM’s natal Mercury in indecisive, consensus seeking Libra forms challenging planetary alignments to Saturn (bureaucracy), Uranus (innovation/electric vehicles), and Neptune (vision). GM is its own worst enemy in that the company has the ability to create desirable products that could be cutting edge in design and technology, but are blocked from reaching their full potential by GM’s bean counter bureaucracy that will seek to save 50 cents and be mediocre rather than endeavor to be the best. When a new GM model becomes popular, GM will jack up the price so high the vehicle is no longer desired by the public. Like Ford, GM’s chart has several planetary connections to the USA chart which is why these two automakers are a part of American life. “Baseball and hot dogs, apple pie, and Chevrolet” describes GM’s Sun aligned with the USA natal Neptune in Virgo (“the American dream”/USA’s ideals and fairy tale illusions). Challenging transits from Saturn, Uranus, and Pluto (ruler of debt and bankruptcy) occur in January, March, May, and August/September 2009.
In my last post I wrote that a prepackaged bankruptcy with a short and certain timeframe would be the only way that GM could free itself from the burden of excess brands and models (they should just have Cadillac and Chevrolet), legacy costs, and dealerships. GM should lower vehicle prices below their competitors’ models and provide free OnStar service for all vehicles for life. Government support can come through backstopping bankruptcy financing and vehicle warranties for consumers, firing the current Board and management, providing stringent oversight of the turnaround plan, and providing universal healthcare for all Americans so all US businesses can be more competitive on the global stage.