Automotive News - December 1, 2008 - (Page 1) autonews.com ® DECEMBER 1, 2008 Entire contents © 2008 Crain Communications Inc. All rights reserved. $155/YEAR; $5/COPY In the cross-hairs: UAW contract GOP will demand workers’ sacrifice: End of Jobs Bank? Harry Stoffer hstoffer@crain.com What Detroit 3 will say in D.C. ➤ 8 Sen. Kit Bond: “Management, workers and investors are going to have to make sacrifices.” hoping to help Detroit, told Automotive News the UAW will have to join auto executives in making sacrifices. Likely to be targeted by Bond and other Republicans: the Jobs Bank — the UAW equivalent, in the public’s mind, of corporate jets. “Management, workers and investors are going to have to make sacrifices if they truly want to turn around their companies enough to earn taxpayer help,” Bond told Automotive News last week in an e-mail message. The Jobs Bank requires the Detroit Before voting on aid to ailing automakers, Republicans in the Senate will take aim at the UAW and some benefits that many Americans find excessive. Sen. Kit Bond, R-Mo., a moderate 3 to pay nearly full wages to hourly workers who have been laid off. Although the number of workers in the Jobs Bank has dwindled, the concept has become a powerful symbol of auto industry excess. General Motors is likely to propose its elimination, says a source familiar with the company’s thinking. Last week Bond did not spell out precisely which concessions he exNEWSCOM see BAILOUT, Page 49 Marketing budgets collapse Cash-starved companies slash ads, events and other spending Lindsay Chappell and Mary Connelly lchappell@crain.com GM: Suppliers support us ➤ 40 The glitz is gone From auto shows to TV advertising, marketing budgets are getting chopped. GM has parted with Tiger Woods, top left. Nissan pulled out of the Detroit auto show, so we won’t see design chief Shiro Nakamura introducing an Infiniti concept as he did in 2006, bottom left. And GM won’t buy spots for the Super Bowl, top right, or the Oscars. New GM worry: What if suppliers want faster pay? Robert Sherefkin rsherefkin@crain.com An autopsy: How the Bill Heard empire crumbled and fell People didn’t walk away from a Bill Heard dealership. They drove — often in a big SUV or pickup with a whopping loan approved on a dubious credit score. Everything about the Heard empire was big: the stores, the volume — and, eventually, the problems, when the two cornerstones of the business plan — subprime loans and big trucks — hit the skids at the same time. An indepth look at how things fell apart. | PAGE 50 | Automakers are whacking TV commercials, events and other spending as they urgently cut marketing costs to conserve cash. “We are looking at a distressed industry,” said Andrew Capone, senior vice president at New York’s NCC, which sells spots on cable TV nationwide. Fourth-quarter spending is “very weak,” Capone reported. Next year, he predicted, spending cuts could be in double-digit percentages. Massive budget cuts violate traditional marketing wisdom, which holds that advertising during slumps lays the foundation for gains later. “The brands that don’t keep advertising will be forgotten,” warned Stephanie Brinley, senior manager of product analysis at AutoPacific Inc. in suburban Detroit. “People will not think about you when they do decide to buy. “The domestics, particularly GM and Ford, have to work on eroding the perception that foreign automakers automatically have better quality and fuel economy,” Brinley said. Last week, Nissan North America said it will withdraw from the Detroit auto show in January and the Chicago Auto Show in February to save an undisclosed amount. Also forgoing the 2009 Detroit show will be Mitsubishi, Suzuki, Land Rover, Rolls-Royce and Ferrari. American Honda Motor Co. said it will DETROIT — General Motors purchasing chief Bo Andersson frets about his suppliers’ loss of an obscure form of insurance — a loss that threatens GM’s precarious cash flow. GM pays suppliers 35 to 45 days after parts are delivered. In effect, that’s a short-term loan from suppliers. In any given month, GM owes suppliers $3 billion to $7 billion, according to calculations by Automotive News. As GM’s cash cushion shrinks, suppliers who are nervous about GM’s ability to pay rely on trade credit insurance — a policy that guarantees suppliers will be paid for delivered parts if their customer, the automaker, defaults. And that coverage is being withdrawn by nervous underwriters as the risk of industry failures grows. LUCY NICHOLSON/REUTERS There’s a new cheap-car champ The Hyundai Accent has leapfrogged the Nissan Versa in the race to the bottom of the price heap. Both will get ad buzz in these tough times by squeezing under the $10,000 barrier (if you don’t count shipping). | PAGE 6 | Hundreds of suppliers “It’s hard to tell” how many suppliers have lost coverage in the past couple of months, Andersson, GM group vice president for purchasing and supply chain, told Automotive News, “but it’s in the hundreds.” Why does he care? If a supplier’s shipments aren’t covered by trade credit insurance, it might seek shorter payment terms or even cash on delivery from the Detroit 3, says John Groustra, partner with the suburban Detroit turnaround firm Conway MacKenzie & Dunleavy. If suppliers do that, they could intensify the rate of GM’s cash burn and push GM into bankruptcy. If nervous suppliers demand cash on delivery, GM’s payments for parts could drop the automaker’s operating cash below the $11 billion to $14 billion level that it says is necessary to run the business day to day. see RISK, Page 49 JOHN GRESS/REUTERS On the Web This week at www.autonews.com: Tuesday: Deadline for Detroit 3 to submit detailed business plans to Congress Wednesday: U.S. Senate Banking Committee hearing to discuss aid to the auto industry Thursday: Hayes-Lemmerz International releases thirdquarter financial report Friday: The U.S. House Financial Services Committee hearing on aid to the auto industry maintain only a token presence at the Detroit show. Cash-strapped General Motors is chopping its marketing budget as it prepares to ask Congress again this NEWSPAPER week for multibillion-dollar loans to survive the sales and credit crunch. Last week GM dropped pro golfer Tiger Woods as a pitchman for Buick after eight years of a nine-year deal. The deal has been paying Woods $7 million a year. Woods’ cancellation is part of GM’s drive to cut its total marketing budget next year by a reported 20 percent. The automaker, for example, won’t pay for expensive commercials during the Super see MARKETING, Page 49 http://www.autonews.com http://www.autonews.com
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