The Financiapocalypse continues. We just received a copy of an e-mail that went out at GMAC, the lending arm jointly owned by GM and Cerberus, from Barbara Stokel, GMAC's EVP of North American Operations. Here's the most salient detail: you'll now need a minimum 700 credit bureau score to get a car loan at dealer invoice or below from GMAC. The full e-mail is below the jump to explain that news as well as the news they'll be restricting approval of contract terms beyond 60 months unless a buyer qualifies for GM-supported 72-month incentives. So what does this means to you? Well, unless you've got above average credit, it's going to become much more difficult to buy a new car. Frankly, that's probably a good thing for consumers. It's probably a bad thing for GM sales numbers.

GMAC Leaders and NAO Team:

In light of the disruption in the credit markets, GMAC NAO is announcing a temporary, more conservative purchase policy for retail auto contracts in the United States. In the short term, we will limit auto contracts to those consumers who have a minimum 700 credit bureau score, with an advance rate equal to or less than dealer invoice. This means that consumers will be required to make a down payment. In addition, we will restrict approval of contract terms beyond 60 months, except for those customers qualifying for GM-supported 72-month incentives currently advertised.

These are extraordinary times, and we must take these prudent steps to focus our resources on high quality retail contracts and critical areas such as dealer wholesale financing, until the credit markets are stabilized. To assist dealers, GM has enhanced its retail incentive programs in October to utilize more cash incentives. GM and GMAC will continue to work collaboratively through these challenging financial market conditions.

Barbara Stokel

Executive Vice President, North American Operations

Here's the most salient detail: you'll now need a minimum 700 credit bureau score to get a car loan at dealer invoice or below from GMAC.

GM now requires 700 FICO score for new car loans

Not surprisingly, United Auto Workers chief Ron Gettelfinger said today that he would oppose a potential merger between General Motors and Chrysler LLC on the grounds that it would inevitably mean job losses for both companies. Gettelfinger says he hasn’t had any formal discussions on the matter with anyone from GM or Chrysler, however.

“I personally would not want to see anything that would result in a consolidation. That would mean the elimination of additional jobs,” Gettelfinger said during a WWJ-AM political Webcast.

Gettelfinger also wasn’t happy about GM’s decision to end SUV production early in Janesville, Wisconsin, on December 23 - a move that affects more than 2,500 union workers.

“Any time we see a facility go down, we suffer with the people because we know the impact that it’s going to have on their lives,” he said.

NEW YORK (Fortune) -- GM certainly is keeping a close eye on its cash these days.

One supplier reports he is now getting paid 60 days after he presents an invoice - not the 30 days he was used to. Worse, the clock doesn't start ticking until after the bills get approved in Detroit - and then sent to Arizona for processing.

Next thing you know, GM will be inflating its float by cutting supplier checks on banks in Fiji that will take weeks to clear.

It is a measure of GM's desperation that it is reported to be considering a linkup with Chrysler to get access to Chrysler's cash so it can remain in business. The idea has provoked nearly universal skepticism among analysts and GM watchers.

With good reason; they have history on their side. The list of unsuccessful auto mergers stretches from the present day - Daimler (DAI) and Chrysler, BMW and Rover - all the way back to Studebaker-Packard and Nash-Hudson.

Buying Chrysler would only get GM (GM, Fortune 500) more of what it doesn't need: more brands, more models, more factories, more employees, more dealers. You have to wonder what makes GM think it could run Chrysler's operations more successfully than it has run its own. Like a second marriage, a GM/Chrysler merger would be a triumph of hope over experience.

So what's an ailing automotive giant to do?

GM has the wrong products to sell into a shrinking market and can offer little or nothing in the way of financing to its customers.

To remain liquid through next year, it needs to raise $10 billion to $15 billion through a combination of internal measures, borrowing and asset sales. That's next to impossible these days. With some of its bonds selling for less than 50 cents on the dollar, the cost of new debt would be prohibitive. Not even vulture investors are clamoring to buy shuttered parts or assembly plants. And Hummer, which GM is trying to shed, does not appear to be the next iconic American brand. Harley-Davidson it isn't.

Bailout or bust
So how about a government bailout? What's good for GM is good for the country, and vice versa. The federal government has promised more than $1 trillion to keep banks, insurance companies and other financial institutions afloat. Couldn't it find another $100 billion or so to invest in the Detroit Three on top of the $25 billion in loans already approved?

A government loan wouldn't be about protecting well-compensated union jobs or keeping afloat inefficient suppliers in Michigan and Ohio. It could be directed toward advancing Detroit's and the country's strategic interests by speeding development of alternative fuel technologies that reduce our dependence on foreign oil as well as help limit the generation of greenhouse gases.

GM may have a decent shot at that in a Democratic administration. If not, there is bankruptcy. That's a horrible possibility, to be sure, and one that GM claims is not an option because it would destroy consumer confidence in its vehicles. Who is going to accept a three-year warrantee on a new car from a bankrupt company?

But hear me out. Bankruptcy would give GM a chance to negotiate further cost reductions with its union workers, work out its obligations with those suppliers that are still solvent, and help speed the rationalization of its dealer body.

Would GM then be stigmatized as the only bankrupt auto company? No way. Ford (F, Fortune 500) and Chrysler would immediately find that they have been made uncompetitive by GM's actions and quickly follow it into Chapter 11.

Flying one bankrupt airline felt a little awkward, but by the time half a dozen were in the same condition, it seemed perfectly natural. That would apply to the Detroit Three. There is still an appetite out there in America's heartland for Detroit iron, and in the end bankruptcy may be the best way to continue to satisfy it.

10/17/2008, 8:54 AM
Chrysler News
Chrysler-GM merger could happen by month’s end, Chrysler breakup still possible

Rumors of a Chrysler-General Motors merger surfaced just days ago, but a new report indicates Cerberus Capital Management – Chrysler’s majority stake holder – is ramping up efforts to sell the Detroit-area automaker, whether in parts or as a whole entity.

And a deal with GM could be hammered out sooner than first thought. According to The Wall Street Journal, GM wants to finalize a deal with Cerberus by the end of the month. However, the two sides are still a long way from signing the dotted line, with plenty of details left to be sorted out.

But there is plenty of support for the deal from inside GM as well as from outside business interests. According to Automotive News, GM estimates a Chrysler merger could result in a $10 billion savings and also give GM access to Chrysler $11 billion in cash. Several banks have also been supportive of the merger, including J.P. Morgan & Chase Co. – a major banker for both automakers.

Despite the support for a Chrysler-GM merger, Cerberus is still considering breaking up Chrysler for individual sale. If Cerberus were to go down that path, Renault would join GM in the buying picture. It remains unclear exactly what assets Renault would target in that situation, but it is reported that GM would take over Chrysler’s minivan business and its Mexico truck operations.

A breakup would also likely see Cerberus selling off Mopar – Chrysler’s parts division — and Chrysler Financial.

With so many scenarios and details flying around, it seems like there is plenty left to sort out before a ‘Sold’ sign can be hung on Chrysler’s front door. But with sales dwindling by the day, the urgency of the merger has been increased by all parties involved.

By Robert Farago
October 17, 2008


The auto news biz is abuzz with rumors of Chrysler’s endgame. Even a quick scan reveals that there are more potential scenarios and pitfalls than Operation Eagle Claw, America’s ill-fated attempt to rescue its hostages from Iran. Cerberus trades Chrysler to GM for GM’s remaining share of GMAC. Chrysler sells Jeep to Renault and the rest to GM. Chrysler parts out the company and THEN declares Chapter 11. But no matter how this plays out, foot soldiers will be sacrificed, the American auto industry will remain bound and gagged and the generals will get off Scott free.

Let’s start with what we know. Cerberus never intended to run Chrysler as an automaker. As Ken Elias pointed-out in his GM Death Watch, right from the git-go, the automaker’s most recent owners have starved Chrysler of all the investment necessary to run Chrysler as a going concern. In that sense, they lied to union workers, white collar employees, suppliers, dealers and customers. And the media bought their lies like a teenager purchasing a pack of condom with a knowing cock tease by his side. Hey baby, are you into EVs?

Now that Cerberus has been unmasked by the rest of the media (TTAC called the finance company’s play a strip and flip even before the sale was complete), we also know that Cerberus wants the Hell out of Chrysler, and soon. When Chrysler CEO Bob Nardelli famously pronounced that his employer was “operationally bankrupt,” he wasn’t kidding. The automaker’s truck business is dead, their car business is deader and the finance part of the program is the deaderer (apologies to Andrew). There is no there, there; and the red ink won’t stop spurting until Chrysler bleeds out.

So, assuming Cerberus hates carmaking and wants out now, what to do, what to do? There are three likely scenarios.

First, sell it to a sucker. I break with Mr. Elias’ view that GM will “absorb” Chrysler to ensure a prime position at the federal bailout trough. As PCH101 points out, GM is already too big to fail. In terms of public perception, the idea that GM is “healthy enough” to buy Chrysler (a dumbing-down of the concept, but there you go) would undermine its claims against the public purse. So who else? Renault? No. A Chinese automaker? Nope. In this market, no one. So fuhgeddaboutit.

Second option: Cerberus toughs it out. It keeps Chrysler until the industry shakes out and picks-up, and then sells it to whoever is left for whatever it can get. At this point, Chrysler would need federal “assistance” to stay in the game. The fact that ChryCo offered the media some cod-electric vehicles– pitching for part of the existing $25b federal loan program– shows that the company is ready, able and willing to steal borrow money from Uncle Sam.

I also disagree with Ken’s contention that the feds couldn’t loan bailout billions to Chrysler because it’s a private equity firm. If AIG execs can receive federal “intervention,” spend $1m on company pedicures and not be strung-up from a light pole, why should the fact that a guy who skis in Gstaad owns Chrysler make any difference to bailout boosters? As twisted as it sounds, a Chrysler bailout also sounds fair. If we give a loan to GM, why NOT Chrysler? Chrysler’s got history. “We made the feds a PROFIT the last time ‘round. And, lest we forget, Cerberus has plenty of good friends down in D.C.

If, however, Cerberus needs or wants a right now solution to their problems, bankruptcy is it. Or Chapter 7. Either way, option three is the fastest, cleanest and, possibly, cheapest option.

I know: I predicted a ChryCo C11 for late July. But unlike GM’s point-of-view, bankruptcy protection is ALWAYS on the table for Cerberus. Cerberus bought a controlling stake in Houston-based mortgage lender in 1998. Aegis ceased operations in August 2007. When Mervyn’s department-store chain (part-owned by Cerberus) hit the skids this summer, Cerberus pulled the plug and filed for C11. This very day, Mervyn’s filed for Chapter 7.

So which option is Cerberus pursuing? I reckon it’s all three at the same time. The big news here: Reuters reports that Cerberus is negotiating with Daimler to buy back the German automaker’s share of the American company. ALL of these exit strategies depend on Cerberus owning 100 percent of Chrysler.

No matter how you look at it, Chrysler is attempting to kill itself. Of course, there are some big winners in all this: JPMorgan and Citigroup (representing Cerberus) and Morgan Stanley and Evercore Partners (representing GM). The fees involved in keeping Cerberus’ options open must be astro-friggin’-nomical (and the meter’s already running). Another winner: the transplants. Chrysler’s slow bleed lets them gradually increase their share of the American without anyone noticing. How sad is that?

10/21/2008, 3:17 PM
A GM-Chrysler Merger?

Rumors of General Motors’s acquisition of Chrysler popped up all over the news wire earlier this month, without a whole lot in the form of cold hard facts to back up the claim. But as the rumored October 31st deadline quickly approaches for the Detroit tie-up, new evidence has come to light that seems to support the Michigan merger.

Chrysler had been working on a new range of world-class V6 engines – dubbed Phoenix – but the Michigan automaker has suddenly put the brakes on the project, according to Allpar. The new Phoenix engines were slated to feature variable-valve technology, direct-injection system and cylinder deactivation – all traits that would have pushed the Phoenix family of engines to the forefront of engine technology and fuel-economy.

Just last week, Chrysler cancelled its contract with Getrag to supply Chrysler’s North American operation with a dual-clutch automatic transmission, which would have been a major milestone for Chrysler.

The cancellation of both projects leads to just one question: Why? Although there is no official word from Chrysler, it would seem the most logical answer would be that Cerberus – Chrysler’s parent company – is preparing to sell Chrysler to GM.

GM already has a solid direct-injection V6, which would make Chrysler’s Phoenix engine range redundant after the merger. GM has also just finished developing a new six-speed automatic transmission, making Getrag’s system less than necessary. Although nothing is final, it appears as though the Big Three will soon become the Big Two.

Chrysler sale talks including JPMorgan Chase

A group of banks led by mega bank JPMorgan Chase have joined the discussions between General Motors and Cerberus Capital Management over the sale of Chrysler LLC. JPMorgan Chase holds about $10 billion in Chrysler debt and is apparently eager to help General Motors acquire the beleaguered, privately-held automaker.

“While a GM-Chrysler tie-up would clearly be a high risk transaction from an operational perspective, such a transaction may give GM leverage over two key stakeholders: the UAW and banks,” JPMorgan auto industry analyst Himanshu Patel wrote in a research note provided to journalists yesterday. “By saving Chrysler from a liquidity event, GM may also be able to get itself much needed secured bank financing from the same banks that are currently holding Chrysler debt.”

GM would also gain access to Chrysler’s $11 billion in cash, though the combined group would ultimately shed up to 30,000 jobs, according to those close to the discussions. The job cuts would, naturally, be devastating to the Michigan economy, as well as Chrysler employees at plants, dealerships and regional offices throughout the United States.

Ann Arbor, Michigan-based David Cole, chairman of the Center for Automotive Research, said that the GM-Chrysler deal is “90 percent certainty” during an interview with the Detroit News.

“The cost of a cleanup would be a lot of more than preventative measures,” he told the paper. “The banks are pushing hard. They want to see a consolidation. A combined GM-Chrysler becomes too big to fail from a policy standpoint.”

Nissan proposes acquiring 20 percent of Chrysler
Cerberus Capital Management LC now has a second serious offer to consider for divesting itself of Chrysler LLC. The Renault-Nissan alliance headed by CEO Carlos Ghosn has proposed to acquire 20 percent of Chrysler using Nissan’s cash on hand, likely between $10 and $12 billion. Ghosn’s proposal would keep the Chrysler, Dodge and Jeep brands alive - unlike what most analysts predict would happen should General Motors acquire Chrysler LLC.

Japan-based Nissan would actually own 20 percent of Chrysler under the deal because it has the money reserves to make the purchase. Once cash-flush Renault is now about $5 billion in debt, though despite turmoil in the industry, things are generally looking up for the French automaker.

Renault-Nissan says that Chrysler would serve as a partner in the alliance with minimal job losses. The French-Japanese partnership says that it would retain Chrysler’s three brands in North America as it looks to expand purchasing, joint vehicle development and distribution.

Many Nissan investors opposed the 2006 plan to acquire a stake in General Motors and it’s unclear how they’ll feel about Nissan getting involved with Chrysler. Ever since Ghosn - a former Renault executive - was sent to Japan to turn around Nissan, he has expressed interest in a full partnership with a Detroit automaker. It appears that now that Ghosn may be Chrysler’s last chance for survival.

Nissan and Chrysler are no strangers. The two automakers are working on several joint projects, including a plan for small Nissan-developed, Chrysler-badged cars and a Dodge-developed, Nissan-badged Titan pickup replacement.

Chrysler and Renault are hardly strangers, either, given that Chrysler purchased American Motors Corporation (including Jeep) from a Renault-AMC partnership in 1987.

Cerberus CEO Stephen Feinberg is said to still be in favor of turning over full control of Chrysler to GM, however. According to the Detroit News, Feinberg thinks it would be the best solution overall for the auto industry. Still, it’s impossible to ignore that full GM control would release Cerberus from Chrysler LLC entirely - a major benefit for Feinberg but not for Chrysler employees whose jobs would be cut or the historic brands.

Or, in the eyes of many analysts, for General Motors, which is coping with its own struggles to downsize.

Reports surfaced earlier this week that Chrysler had cancelled its Phoenix V6 program due to a pending sale to General Motors, but a top Chrysler exec says the engine program is still on. The Phoenix family of engines was designed to give Chrysler a world-class V6 that could compete with the best for power and fuel economy.

Chrysler began its Phoenix engine program in 2007, and says it has no plans to put the brakes of the plan now. “The Phoenix engine program is going forward full steam,” Chrysler President Jim Press told Reuters. “It’s a great engine. We’re driving the prototypes today.”

So far, Chrysler has invested about $3 billion in the project.

Despite Chrysler’s public support of the Phoenix engine, it still remains possible that the engine might never see the light of day. Chrysler’s two biggest possible suitors — GM and Renault/Nissan – have world-class V6 engines of their own, rendering the Phoenix engine range redundant.