Randomly Noted

U.S. auto sales surged in August compared with last year – but sales of General Motors and Chrysler vehicles fell. Is it a coincidence that GM and Chrysler got federal financial bailouts whereas Ford, which avoided the government dole, experienced a robust jump in August car sales? Are American buyers shunning GM and Chrysler because they dislike a) the UAW and its clout with the Obama administration; b) they dislike the Obama administration; or c) they disapprove of the bailouts? Some internet denizens seem to think so, but the facts show that August’s car-sales increase reflects 1) the government’s Cash for Clunkers program which spurred owners of crummy cars to trade them in; 2) the allure of  Toyota and Honda vehicles; 3) Ford’s excellent auto line-up; and 4) a lack of inventory – at just the wrong time – hurting such auto makers as Chrysler. All this said, even GM, with its so-so vehicle lineup and inventory issues, benefited from Cash for Clunkers; its auto sales increased from July to August, albeit falling substantially from a year earlier. But it’s Ford and Toyota which deserve the most attention today: Ford’s Focus and Escape hit sales records for August and were up 56% and 49% respectively from a year earlier, according to DJN colleagues Jeff Bennett and John Kell. They were two of the top eight vehicles bought by Clunker participants. Interestingly, Ford was helped by an increase in light truck sales – possibly a sign that constructoin workers and others who need pickups are finding work. As for Toyota, beyond doing well in August, it’s now considering raising its forecast for 2010 U.S. auto sales; this means it thinks the entire industry may sell more vehicles than expected next year, and today’s positive economic data would seem to support this optimism. Toyota surely stands to benefit from an industry revival, thanks to its own strong line-up of fail-safe cars and light trucks. Indeed, the Toyota Corolla and Camry – and the Honda Civic – were the three most popular vehicles bought under the Clunkers program. Fully 19% of sales within the program were Toyota’s, the Japanese auto maker says. Significantly, Hyundai turned in a rip-roaring August performance – it’s a sign of things to come as the Korean manufacturer continues improving its vehicle line-up. Ever drive a Sonata? It’s a good, practical, affordable sedan. Even Ford should take note.

GM has just announced it will give dealers cash advances to cover “cash for clunkers” rebates while dealers wait for the government to process them.  It’s a smart move in support of a dumb government program. As I’ve written before, cash for clunkers amounts to the federal government extending yet another hand to the auto industry to provide a short-term sales fillip at a time when what the sector needs isn’t artificial stimulus but normalcy. The industry needs to regroup after the horrific collapse and government-aided rebirth of General Motors and Chrysler. Now that it’s become clear Washington, D.C., was ill-prepared to administer the clunkers program – and as dealers complain they’re taking clunkers but not getting money owed by Uncle Sam – GM has no choice but to extend its own helping hand, the irony being that GM’s aid-to-dealers in support of the clunkers scheme comes largely from Uncle Sam (GM’s 61% owner)  himself. UPDATE: We’re now reporting Chrysler will also give advances to dealers to cover cash for clunkers rebates. Also just out from DJN’s Josh Mitchell: the government’s cash for clunkers program will end Aug. 24 at 8 p.m.  This, after a taxpayer expenditure of $3 billion.

The U.S. government, and that means ultimately tax payers, have a lot of skin at risk in the auto industry. Two major car companies went bankrupt and are owned by the government. And a major auto-mortgage finance company, GMAC, that was at one time wholly-owned by GM can now call the U.S. one of its biggest shareholders.This investment may well turn out to be one of the most difficult for the government.

We’ve heard a lot about the investment banks and commercial banks that borrowed from the government last fall to gut it out during the credit crisis – and how some of those have paid back what they borrowed and with it, billions in interest payments. A net plus for the taxpayer. GMAC has a long way to go and could becosting taxpayers money for some time.

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With only a few marques left, the slimmed-down, resurrected General Motors needs to make sure they have enough zing and zest to attract an understandably skeptical customer base. GM’s decision to put youthful automotive designer Bryan Nesbitt atop its legendary Cadillac brand is a good sign. While at Chrysler several years ago, the precocious Nesbitt gave birth to the stylish PT Cruiser.  Cars had become so generically boring-looking by then that the Cruiser’s muscular retro flair turned heads. It was refreshing! What does Caddy need from Nesbitt, who has spent his GM career in Europe and then with Chevrolet? Youthful elegance, and relevance. Speaking of which, I remember being told by Cadillac execs back in1995 that they were making a big effort to appeal to women customers – Caddy was notoriously a guy’s buy. I was preparing a feature article for the WSJ and eagerly asked for examples of this new outreach to people of my gender. Well, one chap said, “We know that many women have long fingernails. So, when we designed the car’s interior we attached paperclips to our fingers so we’d know what it was like for such women to manipulate the knobs and buttons.” I was very touched, but also taken aback: The Cadillac folks were trying so hard – almost too hard – to diversify their customer base, but the affluent, youthful females they needed to attract didn’t really fit into a manicure-maintenance stereotype. Their priorities were, and are, elsewhere. Maybe Nesbitt knows where. Relatedly, this article from the Detroit News online lays out where Cadillac is right now – and has good things to say about the youthful 2009 CTS – and where it’s heading.

Avenue Capital Management owns some of Six Flags bonds and it went to bankruptcy court the other day to seek restrictions on how Six Flags spends its money. It seems some other bondholders were striking a deal or deals with Six Flags regarding a restructuring and Avenue Capital felt left out and wanted spending put on hold for the time being.

Yesterday, a judge ruled Six Flags can spend some money.

Today, Six Flags spent some money – on a press release announcing extention of a corporate alliance with Chrysler that allows the just-emerged bankrupt company to say it sports the Official Vehicles of Six Flags.

Huh?

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Members of the Obama administration keep saying the right things about the U.S. government’s significant role in the nation’s business: that it was necessary, unwanted and that it will be temporary.

But every day we get new evidence of  the conflicts inherent in this politics-business mix.

National Economic Council Director Larry Summers said today federal government involvement in the private sector should be “temporary, based on market principles, and minimally intrusive,” Dow Jones Newswires reported.

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Let’s start with two quotes.

“What we are not doing – what I have no interest in doing – is running GM. When a difficult decision has to be made on matters like where to open a new plant or what type of new car to make, the new GM, not the United States government, will make that decision.”

“I honestly don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, with no real notice, with no real help.”

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The U.S. Republicans sense an opening in the massive investment and ownership stake in General Motors taken on by the United States government.

It’s an understandable gambit. Railing against GM aid won’t be a game changer in any lasting political sense, but the GOP will be able to tap some real political anger across the country.

The round numbers show $50 billion in aid and a presumed 60% equity stake when GM eventually emerges from bankruptcy protection, according to a report by Josh Mitchell of Dow Jones Newswires. That’s no AIG, but AIG isn’t yet the standard for citizen outrage. When something has to get bigger than the AIG mess to get people stirred up, the trouble will be deep.

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Steve Rattner is worth at least $188 million and as much as $608 million, the WSJ reports, citing disclosure documents Obama’s auto czar submitted prior to his appointment. The former New York Times reporter turned uber-financier was allowed to give a range rather than specify his precise value. Rattner also owned as much as $1 million worth of shares in Cerberus Institutional Partners LP Series 2, which is managed by Chrysler owner Cerberus Capital Partners. He sold his shares shortly after joining the Treasury Department in February, the WSJ’s Neil King Jr. writes. ”Rattner is a key player in the administration’s bid to rescue Chrysler through a Chapter 11 bankruptcy reorganization that will wipe out the value of Cerberus’s shares.”

Ford Motor is complaining about Germany’s scramble to help GM’s Opel unit, according to the FT - and with good reason. Its competitors are getting government help while arguably better-managed auto makers are left to fend for themselves. As the FT reports, Ford’s John Fleming contends government aid will help Opel compete more fiercely against Ford’s own European business. http://www.ft.com/cms/s/0/4ab6cc5a-4639-11de-803f-00144feabdc0.html Fleming, who runs Ford in Europe, is also “very concerned” about France’s state aid to PSA Peugeot Citroen and Renault, the FT quotes him as saying. Fleming calls on the European Union to keep an eye on government bailouts. Good luck with that! The FT story includes this remark from Fleming: “Ford believes it is vital that a level playing field is enforced to ensure a fair and equitable distibution of any assistance being offered, and that competition is not distorted.” The FT goes on to say that in the U.S., Ford has taken a different tack, welcoming bailout loans for rivals GM and Chrysler, and notes Ford itself obtained an emergency credit line. I wonder if in fact Ford is reading the politics differently in the U.S. versus Europe, and feels it has to go along with what’s happening in America.

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