Automotive News - November 24, 2008 - (Page 4) 4 • NOVEMBER 24, 2008 BAILOUT BATTLE CEO offers a rare glimpse at private company’s finances David Barkholz and Bradford Wernle dbarkholz@crain.com @ See autonews.com/bailout for all of our stories on the Detroit 3 rescue efforts Nardelli: Chrysler is running on fumes Cash crunch The grim numbers at Chrysler Cash on hand needed to operate: $5 billion Cash on hand on Sept. 30: $6.1 billion Reduction in cash in 3rd quarter: $3 billion Source: Chrysler LLC With federal bailout money on the line, Chrysler CEO Bob Nardelli last week gave the world a peek at his private company’s finances. The picture behind the veil wasn’t pretty. Chrysler is running on fumes and may run out of cash by year end. The company’s cash fell $5 billion in the first three quarters of this year, including $3 billion in the third quarter. Chrysler needs at least $5 billion on hand to pay its monthly bills, Nardelli said. On Sept. 30, Chrysler had $6.1 billion in cash, down from $11.7 billion in June, he said. Chrysler, which is owned by the private equity firm Cerberus Capital Management LP, isn’t required to reveal financial information. Nardelli said the company exceeded its financial goals early in the year, but its finances deteriorated rapidly thereafter when credit markets collapsed and sales plummeted. In the first 10 months of this year, KEVIN LAMARQUE/REUTERS Chrysler CEO Bob Nardelli, center, says the company’s cash fell $5 billion in the first three quarters. the company sold 1,278,049 vehicles in the United States, down 25.9 percent from the same period last year. The company has a $20 billion annual health care obligation, $2 billion in annual pension fund payments and $7 billion in current accounts payable to suppliers, Nardelli said. The company’s annual payroll for 56,600 employees is $6 billion. Nardelli asked for $7 billion of the proposed $25 billion bailout package that Congress was debating for the Detroit 3. He also said Chrysler continues to pursue alliances with other automakers, but talks with General Motors and Renault-Nissan are stalled. The sooner Chrysler’s situation is resolved, the better, says Kimberly Rodriguez, principal with Grant Thornton LLP in suburban Detroit. “The danger of kind of hanging out there until January 20 causes a phenomenal amount of stress” to suppliers, dealers and other Chrysler stakeholders, she says. President-elect Barack Obama takes office on Jan. 20. “Chrysler has been facing all these unknowns in terms of the future, and the bailout is making the vendor base more and more restless and is requiring quicker pay — possibly even hostage payments,” in which suppliers require up-front payments before delivering parts. c Off with their heads! (But whose?) GMAC on brink Tying aid to new Detroit 3 leadership would create thorny calls for Congress Lindsay Chappell lchappell@crain.com ‘Outside’ help? Critics such as former presidential candidate Mitt Romney last week called for “outsiders” to run Detroit’s automakers. That has already happened at 2 of the 3. Ford’s Alan Mulally: Took over in September 2006 after 37 years with Boeing Chrysler’s Bob Nardelli: Joined in August 2007 after running Home Depot and holding top roles at General Electric GM’s Rick Wagoner: 31 years at GM, including 8 as CEO If Congress demands new management in exchange for financial aid to the Detroit 3, lawmakers may have a tough time figuring out which executives must go. Two of the Detroit 3 already are steered by the type of manager who some critics say Detroit needs most: leaders with track records outside the auto industry. Ford Motor Co. CEO Alan Mulally and Chrysler LLC CEO Bob Nardelli were recruited from outside Detroit to restructure the money-losing automakers. And each has lured high-ranking managers from Toyota, the automaker whose success often is held up as a model for the U.S. companies. In their appearances on Capitol Hill last week, Mulally, Nardelli and General Motors CEO Rick Wagoner appeared to win little legislative and public support in their appeal for $25 billion in federal loans. “These leaders have been failures, and they need to go,” Sen. Richard Shelby, RAla., told CBS News’ “The Early Show” a day after leading the Senate Banking Committee hearing. “I don’t think they have immediate plans to change their model, which is a model of failure.” ufacturing efficiency. In a Nov. 10 interview with Automotive News, Wagoner said stepping down would be “counterproductive.” “What the industry needs now is the most competent, most experienced, most capable leadership team they could have at each of the companies,” he said. of bankruptcy, S&P warns Jim Henry autonews@crain.com The outsiders Mulally, 63, took the reins at Ford in 2006 just as the automaker was about to undertake its third restructuring in five years. He came from Boeing Co., where he is credited with reviving the company’s sagging commercial aviation unit and winning back market share from rival Airbus S.A.S. Mulally’s marketing chief, Jim Farley, was hired 13 months ago from Toyota, where he had been general manager of Lexus. Still, Ford hasn’t posted a monthly sales gain in the United States in 12 months. Private equity firm Cerberus Capital Management LP hired Nardelli in August 2007 as it took over Chrysler, ending nine years under Germany’s Daimler AG. Within a month, Chrysler had lured two of Toyota’s top North American executives, co-President Jim Press and marketing chief Deborah Meyer. Chrysler hasn’t delivered a sales gain since last December, and it continues to pare its model line, cut jobs and close factories. c Glare on Wagoner Mitt Romney, a former Massachusetts governor and presidential candidate, also weighed in. “Management as-is must go,” he wrote in a New York Times column. “New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations,” said Romney, whose father, George, was a governor of Michigan and chief of American Motors in the 1950s and early ’60s. In the mid-1990s, GM hired dozens of “brand managers,’’ many from consumer product companies such as Procter & Gamble. Most have since left GM. The immediate focus appears to be on Wagoner, whose company hasn’t posted an annual profit since 2004 and is running out of cash. In the past 13 months, the value of GM’s stock has plummeted from $42 a share to less than $3. Sen. Carl Levin, D-Mich., is among those who said last week that a GM management change may be the price for U.S. aid. “The public is asking for it, and Congress will have no choice but to ask for it,” said John Wolkonowicz, an industry analyst for IHC Global Insight in Lexington, Mass., who defends the GM chief’s performance. “Wagoner could be the sacrificial lamb.” While Wagoner, 55, has suffered setbacks in his eight years as CEO, he is credited with making gains on challenges that have plagued GM. Among them: cutting labor costs and boosting vehicle quality and man- GMAC Financial Services could end up in bankruptcy court if it fails to get government bailout money, says Standard & Poor’s, the credit rating agency. But a GMAC spokesman said the possibility of bankruptcy is “pure speculation.” The possibility of a Chapter 11 bankruptcy filing is another worrisome development for dealers who depend on GMAC for consumer and floorplanning loans. GMAC has severely restricted its auto lending this year. On Thursday, Nov. 20, GMAC filed an application to become a bank holding company. If approved, the lender could become eligible for much-needed capital in the federal government’s $700 billion pool of bailout money. As part of its effort to become a bank holding company, GMAC announced an offer to exchange $38 billion of its existing debt for new debt or cash, to raise capital and liquidity, and to reduce debt. Downgrade But S&P is taking a hard look at the debt exchange. The agency calls it a “distressed debt exchange” because GMAC is offering investors less than face value for some of the existing debt. Technically, that amounts to a default, even if GMAC executes the exchange offer, says Robert Schulz, an S&P analyst. “It’s a default as far as we’re concerned,” he says. “They’re paying the bondholders less than they promised.” On Friday, Beth Coggins, a spokesman for GMAC, said S&P’s definition of default is “a technical term see GMAC, Page 26 What makes Wagoner tick? He’s on the hottest of hot seats. So how does Rick Wagoner operate when the pressure is on? For Editorial Director Peter Brown’s in-depth profile of the GM CEO, visit autonews.com/wagoner100 http://www.autonews.com/bailout http://www.autonews.com/wagoner100
Table of Contents Feed for the Digital Edition of Automotive News - November 24, 2008 Iacocca tip: 'Equality of sacrifice' Ch. 11 would hit dealers hard â fast Detroit 3: Bankruptcy = doom Down the road and a continent away Used-vehicle demand shrivels O'Neill will lead Power GM tweaks production plan Mitsubishi: No to Detroit Ford will cut more output Nardelli: Chrysler is running on fumes GMAC on brink of bankruptcy, S&P warns Off with their heads! (But whose?) In defense (kind of) of Detroit Bailout Motors? Britain went down that road CEOs could have pre-empted the grilling Ford: We still want Mazda expertise Imports clog ports as sales plunge Volvo's N.A. boss will resume leases to boost volume Nissan expects Chrysler pickup deal will survive Toyota: Venza is a trendsetter, not a crossover It's time to put partisanship aside; Detroit needs help What GM needs is GMAC.2 'Buy American' talk won't help industry Readers weigh in on auto industy woes No one bailed out Oldsmobile It's time to move to mass transport We still need manufacturing Bankruptcy is a bet Let's get wages under control Will America be better off? First step: Bring the jobs home America owes it to GM to help The answer is simple: Leasing What about dealerships? Detroit 3 CEOs must offer to quit Oct. truck sales fall 17.4% Honda plant adds parts center They're sold on Camaro Drawn to Ferrari Japan poised to control key batteries Europe's worst month hits all automakers Dealers BMW: Diesel 7 series could come to U.S. Honda's FC Sport mixes green and go Infiniti G37's hard top retracts in 30 seconds Redesign of Lexus RX series hard to see Mini electric: Jolt comes from sticker Ford hybrid sedans aim at Camry After only 3 years, Ford revamps Fusion Hyundai plans new crossover, turbo engine Restyled Mustang: More refinement, horsepower Honda: Don't count on CR-Z gasoline variant '09 Nissan Z delivers more of what fans like Mazda3 gets new look, powertrains Nissan Cube joins the box brigade Infiniti upgrades powertrains Lincoln MKZ gets a makeover Porsche won't stall Panamera 2010 GLK priced below rival Bentley's Azure T gets 500 hp Detroit 3 squeezed by credit, cash â politics Waxman could mean trouble for Detroit GM formulates a 'Plan B' if it doesn't get federal loan Infiniti replaces Igo Sharks vs. Jets, D.C.-style What's good for â uh, how'd that go again? Mazda deal imperils Ford training ground More like Toyota, Honda? Careful what you wish for Maybe he's Buck-a-year Bob now Romney: Bankruptcy, not bailout Automotive News - November 24, 2008 Automotive News - November 24, 2008 - (Page Intro) Automotive News - November 24, 2008 - Detroit 3: Bankruptcy = doom (Page 1) Automotive News - November 24, 2008 - Detroit 3: Bankruptcy = doom (Page 2) Automotive News - November 24, 2008 - Ford will cut more output (Page 3) Automotive News - November 24, 2008 - Off with their heads! (But whose?) (Page 4) Automotive News - November 24, 2008 - Off with their heads! (But whose?) (Page 5) Automotive News - November 24, 2008 - CEOs could have pre-empted the grilling (Page 6) Automotive News - November 24, 2008 - CEOs could have pre-empted the grilling (Page 7) Automotive News - November 24, 2008 - Volvo's N.A. boss will resume leases to boost volume (Page 8) Automotive News - November 24, 2008 - Volvo's N.A. boss will resume leases to boost volume (Page 9) Automotive News - November 24, 2008 - Toyota: Venza is a trendsetter, not a crossover (Page 10) Automotive News - November 24, 2008 - Toyota: Venza is a trendsetter, not a crossover (Page 11) Automotive News - November 24, 2008 - 'Buy American' talk won't help industry (Page 12) Automotive News - November 24, 2008 - 'Buy American' talk won't help industry (Page 13) Automotive News - November 24, 2008 - Detroit 3 CEOs must offer to quit (Page 14) Automotive News - November 24, 2008 - Drawn to Ferrari (Page 15) Automotive News - November 24, 2008 - Japan poised to control key batteries (Page 16) Automotive News - November 24, 2008 - Dealers (Page 17) Automotive News - November 24, 2008 - Dealers (Page 18) Automotive News - November 24, 2008 - Dealers (Page 19) Automotive News - November 24, 2008 - Dealers (Page 20) Automotive News - November 24, 2008 - Dealers (Page 21) Automotive News - November 24, 2008 - Dealers (Page 22) Automotive News - November 24, 2008 - Mini electric: Jolt comes from sticker (Page 23) Automotive News - November 24, 2008 - Restyled Mustang: More refinement, horsepower (Page 24) Automotive News - November 24, 2008 - Bentley's Azure T gets 500 hp (Page 25) Automotive News - November 24, 2008 - Bentley's Azure T gets 500 hp (Page 26) Automotive News - November 24, 2008 - GM formulates a 'Plan B' if it doesn't get federal loan (Page 27) Automotive News - November 24, 2008 - Infiniti replaces Igo (Page 28) Automotive News - November 24, 2008 - Infiniti replaces Igo (Page 29) Automotive News - November 24, 2008 - Romney: Bankruptcy, not bailout (Page 30) Automotive News - November 24, 2008 - Romney: Bankruptcy, not bailout (Page 31) Automotive News - November 24, 2008 - Romney: Bankruptcy, not bailout (Page 32)
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