Automotive News - November 10, 2008 - (Page 8) TIMES GMAC: We’re nobody’s captive ARE TOUGH. Donna Harris dharris@crain.com Cash and cash equivalents, billions of dollars 8 • NOVEMBER 10, 2008 RELYING ON YOUR AD AGENCY SHOULDN’T BE. In a time when the auto industry is in crisis, you need an advertising agency that understands and has real experience in driving next day sales, even when your ad budgets are at their lowest point ever. That’s what Zimmerman is all about. We have over 25 years of skill, knowledge and experience when you need it most. We measure our success by the numbers on your balance sheet, not ours. This guiding principal of true partnership is what motivates us to bring you the best advertising and marketing strategy. It really is about being there for you 24/7, seriously. GMAC Financial Services is edging away from the basic business strategy it has pursued since it began in 1919: helping General Motors sell vehicles by providing GM dealers and customers with credit. Last week, company CFO Robert Hull said GMAC no longer considers itself to be GM’s captive finance unit. Instead, Hull said, the company plans to “shift GMAC from its captive roots to an independent depositfunded lender and servicer.” To that end, Hull said, GMAC seeks a federal charter to become a bank holding company. That move would enable GMAC to qualify for a portion of the government’s $700 billion bailout fund for financial institutions. GMAC’s decision would force GM to divest much of its remaining 49 percent ownership share of GMAC. Under federal rules, if GM owned more than 33 percent of the GMAC bank holding company, GM could be subject to banking regulations. In 2006, Cerberus Capital Management bought the controlling 51 percent. GMAC denies claims by GM dealers that it no longer wants their business. GMAC executives say the company will continue to lend money to GM dealers to finance their vehicle inventories and make loans to creditworthy customers. But Hull warned that GMAC would keep cutting loan and lease volumes if necessary to maintain liquidity. Because it is struggling to get credit amid the global financial meltdown, GMAC has raised interest rates on dealership floorplan accounts, has virtually stopped writing leases and is approving auto loans only for consumers with bulletproof credit. Brian Johnson, an analyst with Barclays Capital, said GM sales suffered last month because the automaker “wasn’t able to use GMAC financing to close the deal with its prospective buyers.” Dealers agree that those policies are stifling sales. “I have felt quite betrayed,” said Carroll Smith, a Chevrolet dealer in Pasadena, Texas, and a director of the National Automobile Dealers Association. Smith cited a rumor circulating among GM dealers that GMAC is preparing to pull lines of floorplan credit from the one-third of its dealer clients with the lowest credit ratings. see GMAC, Page 40 GMAC attack Over the past year, GMAC Financial Services has burned through more than half its cash. $30 25 20 15 10 5 0 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Source: GMAC Financial Services Cash burn rates threaten GM, Ford Jamie LaReau and Amy Wilson jlareau@crain.com 3rd-quarter woes GM 3RD QTR. ’08 3RD QTR. ’07 These are some of the marketing solutions we offer to our partners: Advertising DETROIT — Painful as they were, last week’s earnings reports from General Motors and Ford Motor Co. made a case for quick federal action to bail out domestic automakers. Both companies reported multibillion-dollar operating losses in the third quarter. But it was the companies’ cash burn that cast doubt on their ability to fund operations next year. In the third quarter, GM burned $6.9 billion in cash. For the rest of 2008, the company acknowledged, cash reserves “will approach the minimum amount necessary to operate its business.” And in the first six months of 2009, GM admitted, it “will fall significantly short of that amount” unless the automaker replenishes its cash reserves. GM has said it needs $11 billion to $14 billion in cash to pay for operations. As of Sept. 30, the company had $16.2 billion in cash and other liquid assets, down from $21.0 billion on June 30. GM CEO Rick Wagoner said the domestic automakers need federal sup- Revenue Adjusted income Net income Ford Motor Co. $37.9 billion –$4.2 billion –$2.5 billion $43.7 billion –$1.6 billion –$42.5 billion GM’s Wagoner: Ford’s Mulally: Stressing liquidity Sticking to plan with access to an additional $10.7 billion in available credit lines. Analysts have estimated Ford’s minimum cash requirement at $9 billion to $10 billion. If the third-quarter burn rate continued, Ford would near its minimum level by mid-2009. But CEO Alan Mulally said Ford’s cash burn rate will diminish for the rest of 2009. In an interview Friday, Mulally said that, even with projections of a poor sales year in 2009, “we feel comfortable with our liquidity plan.” Asked whether Ford’s cushion could evaporate if conditions worsen, Mulally said: “Absolutely. And that’s why it’s so important to talk about this now because the industry is so important to the economic recovery of the United States.” c 3RD QTR. ’08 3RD QTR. ’07 Revenue Operating income* Net income $32.1 billion –$3.0 billion –$129 million $41.1 billion –$24 million –$380 million *Ford’s operating income is after-tax, excluding special items Source: Company earnings reports port beyond the $25 billion in federal loans earmarked for fuel-efficient technology. That program doesn’t cover “a liquidity crisis coming from the financial markets that has rolled into Main Street,” Wagoner said. He echoed the concern of industry observers that a GM bankruptcy filing would destabilize suppliers and other automakers. “We’re convinced that the consequences of bankruptcy could be dire and beyond just General Motors,” Wagoner said. “We will take whatever actions we can to avoid it.” GM said it has found ways to improve its liquidity by an additional $5 billion by the end of next year. That is in addition to its July announcement that it would whittle $15 billion from its costs. Some of the $5 billion in savings is coming from delays in products, elimination of jobs and cuts in salaries. Ford’s cash burn totaled $7.7 billion in the third quarter. The company said it has $18.9 billion in cash, As losses mount, suppliers risk cash-flow crunch Chrissie Thompson cethompson@crain.com call tracking system advertising 1-888-878-ZADV email us: or visit: zauto@zadv.com www.zadv.com Suppliers’ cash-flow woes are going from bad to worse, analysts warn. Nearly every major North American supplier that has reported thirdquarter results lost money. With automakers cutting fourth-quarter production and sales expected to lag until 2010, industrywide losses will become the norm, analysts say. Suppliers’ overseas operations no longer will offset North American woes. And the meltdown on Wall Street means some will have to rebuild their pension funds. Many suppliers’ fourth quarter losses may be less severe because they took one-time charges for cost reductions in the third quarter, said Fitch Ratings analyst Mark Oline. The third quarter was ugly. For example, Magna International Inc., the largest supplier in North America, reported its first quarterly Big N.A. suppliers head into the red In the third quarter, profits evaporated at suppliers. As a group, the nine largest North American suppliers lost $1.52 billion, compared with a net profit of $624.7 million a year earlier. Here’s where the number comes from: Take the top 25 suppliers to automakers in North America. Eliminate those that aren’t publicly traded, sell mainly to heavy-duty truckmakers, or have not yet reported results. Then eliminate those headquartered outside of North America because they get most of their profits from overseas. That leaves nine companies: Magna International Inc., Johnson Controls Inc., Lear Corp., Dana Holding Corp., TRW Automotive Inc., Visteon Corp., American Axle & Manufacturing Holdings Inc., Tenneco Inc. and BorgWarner Inc. Only one of them made money last quarter: Johnson Controls. — James B. Treece net loss in 17 years. The Aurora, Ontario, company lost $215.0 million, vs. a year-earlier profit of $155.0 million. Even BorgWarner Inc., whose turbochargers are in high demand as automakers push to raise fuel efficiency, swung to a net loss of $130.4 million. A year earlier, BorgWarner earned $83.2 million. Suppliers today are more diversified, but collapsing U.S. output hurt, Oline said. “And it certainly looks like the steep decline in U.S. production will be replicated in Europe and across the rest of the world.” Suppliers also must brace for increases in required pension contributions because many pension assets took a hit in the market slide, he said. Most companies invest two-thirds of their pensions in equities, Oline said. Goldman Sachs analyst Patrick Archambault said the suppliers in the worst shape have high leverage and high exposure to the Detroit 3. He pointed to Magna, which depends on the Detroit 3 for 53 percent of its sales. Interiors supplier Lear Corp., which lost $98.2 million in the latest quarter, has above-average leverage and sells 56 percent of its products to the Detroit 3, he said. Suppliers cannot survive the downturn indefinitely, said Efraim Levy, a Standard & Poor’s equity analyst. Continued cost-cutting and reorganization efforts will help, he said, but “if demand keeps deteriorating below expectations, all bets are off.” c http://www.zadv.com http://www.zadv.com
Table of Contents Feed for the Digital Edition of Automotive News - November 10, 2008 Life at 11 million: Slash, rethink The options: Bailout or disaster Can Toyota reheat the frozen Tundra? Chrysler dealers cheer halt to merger talk VW will unveil roadster at Detroit auto show BMW boosts dealers' year-end ad money Mercedes' $220 million flagship Mercedes hit hard in Northeast, once a sales stronghold Mercedes will kill CLK, add larger coupe, convertible Mitsubishi reclaims its finance business Toyota's Esmond to speak at congress Loss is more: Europe snatches bigger share of U.S. market Cash burn rates threaten GM, Ford GMAC: We're nobody's captive As losses mount, suppliers risk cash-flow crunch Tata: Yes to Jaguar XF derivative, no to SUV U.S. aid is needed now, but not to help Cerberus They are too big to fail Why should we help GM and Chrysler? First and foremost, you must be flexible U.S. trade policy gives it all away To the Editor: A rough ride is nothing new for autos Dealer's politics were pertinent Chrysler's 1st electric: Probably a cargo van Auto meltdown forces Mercedes to scrap prediction of sales record Boosting mpg will bump up stickers, too Adding up the tab for fuel economy Camaro Black: Eye-catching, affordable and available Honda sees green in Civic HFP's street performance Honda offers peek at future Fit Ford F-150 Raptor flies off-road Souped-up, tricked-out â and headed for the showroom Report: Toyota plans $5,000 car Amid gloom, Mazda chief sees revival in 2009-10 Report: Past-due subprime loans jump Toyota aims to win loyalty with credit card Study: Car buyers turn green for different reasons Thanks, buddy Hyundai helps Dealers Metaldyne offers pennies to bondholders Obituaries Personnel As expected, Oct. sales sank Another Chinese automaker plans Mexico factory Honda backs off U.S. clean diesels Industry pal, foe vie for key post in Congress Industry expects more activism from D.C. N.A. output falls 19.9% Toyota moves in striking distance of GM's U.S. sales crown Going, going . . . An ex-GM exec's view: It's going to get nasty Sex, Nazis, chicken and BMW: A scandal that puts fiction writers to shame Recession rips up roadster market Toyota takes heat for 'the herpes of the advertising world' Want to boost mpg? Turn up the heat on AC Cutting energy loss: A nibble here, a nibble there ... Carbon slashes weight, but it's still too pricey Carmakers shift to gears in search of mpg gains Natural gas draws interest as alternative fuel Friction? Ay, there's the rub Electric for a week Automotive News - November 10, 2008 Automotive News - November 10, 2008 - (Page Intro) Automotive News - November 10, 2008 - (Page Bellyband1) Automotive News - November 10, 2008 - (Page Bellyband2) Automotive News - November 10, 2008 - The options: Bailout or disaster (Page 1) Automotive News - November 10, 2008 - The options: Bailout or disaster (Page 2) Automotive News - November 10, 2008 - VW will unveil roadster at Detroit auto show (Page 3) Automotive News - November 10, 2008 - Mercedes hit hard in Northeast, once a sales stronghold (Page 4) Automotive News - November 10, 2008 - Mercedes hit hard in Northeast, once a sales stronghold (Page 5) Automotive News - November 10, 2008 - Loss is more: Europe snatches bigger share of U.S. market (Page 6) Automotive News - November 10, 2008 - Loss is more: Europe snatches bigger share of U.S. market (Page 7) Automotive News - November 10, 2008 - As losses mount, suppliers risk cash-flow crunch (Page 8) Automotive News - November 10, 2008 - As losses mount, suppliers risk cash-flow crunch (Page 9) Automotive News - November 10, 2008 - Tata: Yes to Jaguar XF derivative, no to SUV (Page 10) Automotive News - November 10, 2008 - Tata: Yes to Jaguar XF derivative, no to SUV (Page 11) Automotive News - November 10, 2008 - First and foremost, you must be flexible (Page 12) Automotive News - November 10, 2008 - First and foremost, you must be flexible (Page 13) Automotive News - November 10, 2008 - Dealer's politics were pertinent (Page 14) Automotive News - November 10, 2008 - Dealer's politics were pertinent (Page 15) Automotive News - November 10, 2008 - Auto meltdown forces Mercedes to scrap prediction of sales record (Page 16) Automotive News - November 10, 2008 - Boosting mpg will bump up stickers, too (Page 17) Automotive News - November 10, 2008 - Boosting mpg will bump up stickers, too (Page 18) Automotive News - November 10, 2008 - Boosting mpg will bump up stickers, too (Page 19) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 20) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 21) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22a) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22b) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22c) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22d) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22e) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22f) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22g) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22h) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22i) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22j) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22k) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 22l) Automotive News - November 10, 2008 - Adding up the tab for fuel economy (Page 23) Automotive News - November 10, 2008 - Souped-up, tricked-out â and headed for the showroom (Page 24) Automotive News - November 10, 2008 - Amid gloom, Mazda chief sees revival in 2009-10 (Page 25) Automotive News - November 10, 2008 - Toyota aims to win loyalty with credit card (Page 26) Automotive News - November 10, 2008 - Hyundai helps (Page 27) Automotive News - November 10, 2008 - Dealers (Page 28) Automotive News - November 10, 2008 - Personnel (Page 29) Automotive News - November 10, 2008 - Personnel (Page 30) Automotive News - November 10, 2008 - Personnel (Page 31) Automotive News - November 10, 2008 - Personnel (Page 32) Automotive News - November 10, 2008 - Personnel (Page 33) Automotive News - November 10, 2008 - Personnel (Page 34) Automotive News - November 10, 2008 - Personnel (Page 35) Automotive News - November 10, 2008 - Personnel (Page 36) Automotive News - November 10, 2008 - As expected, Oct. sales sank (Page 37) Automotive News - November 10, 2008 - Honda backs off U.S. clean diesels (Page 38) Automotive News - November 10, 2008 - Industry expects more activism from D.C. (Page 39) Automotive News - November 10, 2008 - Industry expects more activism from D.C. (Page 40) Automotive News - November 10, 2008 - N.A. output falls 19.9% (Page 41) Automotive News - November 10, 2008 - Toyota takes heat for 'the herpes of the advertising world' (Page 42) Automotive News - November 10, 2008 - Toyota takes heat for 'the herpes of the advertising world' (Page 43) Automotive News - November 10, 2008 - Toyota takes heat for 'the herpes of the advertising world' (Page 44)
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