Chrysler Bankruptcy "Cruel" Result of Hedge Fund Greediness

DETROIT - A Fiat 500 built in Canada, Mexico or the United States may be the first product of the newly minted Chrysler LLC-Fiat Auto alliance. Fiat, the United Auto Workers, four major banks and the automaker’s own management developed a business plan for Chrysler LLC in the last 30 days that would save 30,000 jobs, save retiree pensions and cut Chrysler’s debt to 1/3 its current value, President Obama said Thursday morning. However. “Investment firms and hedge funds decided to wait for an unjustified government bailout,” Obama said. “Some demanded twice what others were getting.”

And so, with Chrysler’s 30-day extension, granted by the president and his automotive task force done, it will file for bankruptcy protection. Both political parties criticized those investment firms and hedge funds, Thursday. Rep. Thaddeus McCotter, Republican from Michigan, called the “forced bankruptcy” “cruel.”

 Obama’s hope is that Chrysler will emerge in 30- to 60-days a financially healthier company as it proceeds with a linkup with Fiat. Obama also complimented CEO Bob Nardelli for his role in the 30-day negotiations that resulted in:

• Fiat “contributing billions of dollars in advanced technology and intellectual property and offering Chrysler access to a global distribution network.”
• UAW concessions on wages, benefits and retiree health, four large creditors (including JP Morgan) taking $2-billion for their $6.9-billion in secured claims.
• Daimler giving up its 19.9 percent share of Chrysler.

Fiat gets 20 percent of Chrysler, initially, and can gain up to 35 percent in 5-point increments if it meets such performance metrics as introducing a Chrysler factory-produced vehicle that gets 40 mpg, provides Chrysler with distribution in various foreign markets and manufactures state-of-the-art, next-generation engines at a Chrysler factory. This is where the Fiat 500 would come in; a 40-mpg version would be likely.

Fiat also is working on a family of inline three-cylinder, gas direct-injection turbo engines that are very compact and make lots of low-end torque. It’s meant for models like the Grande Punto.

Earlier, Chrysler had considered importing the 500 as a Fiat in its North American dealers by next year, as a “showroom traffic-builder.”

“Related to the 500,” co-president Tom LaSorda said, “it is a product highly considered to be built in the NAFTA (North American Free Trade, or U.S., Canada and Mexico) region.”

There’s much speculation that Fiat Chairman Sergio Marchionne will replace Nardelli, serving as a Carlos Ghosn-like two-company chief. Marchionne can run an American automaker, goes the speculation, because he was trained — as an accountant — in Canada.

More details of the Chrysler agreement with U.S. Treasury and Fiat:

• Production of Fiats and Alfa Romeos in Chrysler factories will begin within 18 months.
• The company will continue under the name Chrysler, and while it will continue to cut and consolidate models, has no plans to cut any of its divisions, Chrysler, Dodge or Jeep.
• The 363 filing, a separation of “good” and “bad” assets, will affect the U.S. only, not Canada or Mexico.
• Chairman Bob Nardelli said he hopes the bankruptcy judge will support Chrysler continuing to meet payroll and pay suppliers during the 30- to 60-days.
• Chrysler will get a new board, with the Treasury department picking four directors and Fiat choosing three, one of them a Fiat employee.
• The Treasury department can pick up to four of the new board members, but “thereafter will not play a role in the governance or management” of New Chrysler.
• Bob Nardelli will leave without a compensation package from Chrysler after the bankruptcy is completed. However, he expects to remain a Cerberus employee (which has had a contract with him).
• Co-president Tom LaSorda will retire, probably before the bankruptcy process concludes. LaSorda said that Fiat chairman Sergio Marchionne asked him to stay on, but he wants to spend more time with his wife and kids.
• Co-president Jim Press had no comment on his future at Chrysler.
• Equity breakdown: 55 percent of the company to the UAW for its retiree benefit fund contribution, 20 percent to Fiat, 8 percent to the U.S. government, and 2 percent to the Canadian and Ontario governments. The remaining 15 percent goes to creditors.
• In addition to the $4 billion in federal loans it received at the beginning of the year, the U.S. will loan what it calls New Chrysler an additional $4.7 billion, of which $2.1 billion is due in 30 months and 50-percent of the rest in seven years, and the final $1.3 billion after eight years.
• Fiat cannot take majority stake in Chrysler until the federal loans are paid off.
• Nardelli, a NASCAR fan, said Chrysler’s contribution to NASCAR teams has been cut to contractual limits and it has cut the number of cars it sponsors in the stock car series.

Why Shouldn’t Good Pontiacs Become Good Chevrolets?

Monday’s General Motors reorganization update confirmed that no current Pontiac model will find its way into the Chevrolet lineup. This is a mistake. There are two, perhaps three, Pontiac models that I believe would live good lives as Chevys.

The first and most obvious is the G8. I say nix the current Impala SS: As a transverse V-8 front-driver with a yestertech four-speed automatic trans, it isn’t and will never be the muscle sedan America wants. But if they recooked the 415-horse G8 GXP as the Impala SS, they’d really have something to attract musclecar and sport sedan types.

The standard, V-8-powered G8 GT becomes the Impala GT. This again gives Chevy a model that can be sold for law-enforcement use. When Ford phases out the Crown Victoria (probably in 2010), the Dodge Charger will have that market all to itself (GM abandoned it years ago). Ford sells approximately 60,000 Crown Vics a year for police use, and if GM could pick up 30,000-40,000 of those sales, it would ease the post-Pontiac pain, and support GM’s Holden division, which builds the cars and will be hurt by the Pontiac void. There’s probably not enough room in the lineup for the G8 V-6, as it might bump heads with V-6 editions of the Malibu and Impala.

What would be wrong with offering the Solstice as a Chevy? It’s not perfect, but it’s cool, attractive, relatively affordable, and gets good mileage (which could help on the CAFE front). And there’s a wide variety of Pontiac, Saturn, and Opel body and interior bits to pick from, so they could mix and match and make it look different than the current (outgoing) models. As my buddy Kirk (with whom I spend a lot of time BS-ing and solving all the automotive industry’s problems) says, “It wouldn’t hurt Corvette sales one bit.” Use one of the old Corvair names, like Monza or Spyder. 

Finally, why not the Vibe? It’s different enough from the Cobalt and upcoming Cruze sedan, and a big step up from the Aveo. Strip it down, offer just one model to keep it simple, and make it irresistible in terms of versatility, mileage, and value. It would also serve as another CAFE-off-setter, which would help allow the sale of the G8 GXPs, er, Impala SSs mentioned above. 

GM says Chevrolet is one of the four core brands that will define its future in America. Chevy is also destined to continue as the company’s volume player. Why not give it a few more unique models? Chevified versions of the G8, Solstice, and Vibe will no longer have competition among other GM brands, so nobody can point the “badge-engineering” finger at these moves. 

The G8 and Solstice ride on two of the newest and best chassis architectures in General Motors’ global arsenal, and the Vibe has Toyota-level quality. Why dump them now?

Cruze in control: Chevy’s next compact is a huge step in the right direction:

How ironic that General Motors is launching the excellent Chevrolet Cruze compact sedan just as the parent company faces the question of its very survival.

Hurst your Hemi: Muscle-car icon makes a modern muscle car:

It doesn’t get pushed out of shape and it’s pretty easy to steer, but you can still get rubber in the first three or four gears.

Pontiac: Soon Gone, Never to be Forgotten

Everyone has their opinion about the loss of Pontiac, announced today.  In case you missed it, Pontiac will phase out several models at the end of 2009 model production, and the rest — including the brand itself — will fold tent and bug out by the end of 2010.  The exact timing is still being finalized, but The Excitement Division is soon to meet up with Oldsmobile, Plymouth, American Motors, Tucker, and DeSoto.

I get it, but I’m sad at the same time.  GM has finally been forced to undertake the rightsizing that has been needed for decades.  Brands and models must go (not to mention the massive cultural change that is needed).  I don’t know; maybe there is no place for Pontiac any more, or going forward.  But as a lover of automotive history and a performance car enthusiast, it still stings.

“You should have seen the plan they were thinking of” an unnamed GM insider whispered to me.  “They wanted to turn us into a little niche brand that sold toasters.  Believe me, this is a mercy killing.”  Pontiac has been a performance-oriented brand (on and off, but mostly on) since the Wide Track days of the early 60s.  Just last weekend, Pontiac posted wins in both Grand-American Road Racing series classes. 

There were times when it was more about mullets, leisure suits, and plastic cladding for Pontiac, but there was a lot of beef, a lot of horsepower, and a lot of style served over the last nearly five decades too.  Pontiac was often an innovator too.  Sometimes, the execution was good, sometimes not.  But this is the brand where different things were tried with little fear of failure.  Here are a just a few notable steps a long the Pontiac trail. 

Transaxle Tempest - In the early 60s, Pontiac experimented with rear-mounted transaxles, in the name of better weight balance.  Power from the engine up front was transferred rearward by a small driveshaft contained inside a torque tube.  The street version of this automatic transaxle had only two forward ratios, but the racing box was a four-speed.  A rear-mounted transaxle is every day business now, but pretty heady stuff for mainstream production cars back then.

1964 GTO - Everyone knows that Pontiac invented the mid-sized musclecar, so we won’t retell the entire story.  The formula of stuffing a big-motor into a mid-sized car wasn’t new at the time, but John Delorean, Jim Wangers, and a few other horsepower hungry car execs perfected the formula with the original GTO.  I believe, as I’ve written before, that the reborn 2004-06 version is a great piece as well, and will ultimately become collectible.

1968 GTO - Motor Trend’s Car of the Year in 1968, the Coke-bottle GTO of 1968-69 is my personal fave.  Just the right size, coupe or convertible, stick or auto, optional Ram Air IV, and the birth of the oh-so-60s Judge model.  I still want one.

1973-74 Firebird Trans-Am SD-455 - The last real high performance second gen Camaro was the ‘71 Z-28.  But Pontiac saved its best F-Body for last.  While everyone else was worrying about how to deal with big-bumpers, Pontiac gave us the Super-Duty 455-powered Trans-Am.  These things thundered, and were certainly among the quickest runners of the original muscle/ponycar era.  I still want one of these too.

1984-88 Fiero - Innovative plastic body panels over a super structure.  Mid-engine design.  A standalone model not cloned from another GM division.  These are attributes of the only mid-engined Pontiac ever produced.  Sure, the early, four-cylinder powered cars were slugs and caught fire like Matchlight, but once the V-6 model came along, things improved.  The ‘88 GT fastback is the best of the bunch, but in typical GM fashion, the Fiero was killed just about the time it got good.

Aztek - Pontiac’s absolute low point.  About two years prior to the Aztek’s introduction, I quizzed the project manager about the vehicle’s performance.  He said “we’re just going to run the small V-6.  With looks like this, we feel we can get by on image along.”  It was that kind of thinking that spelled the beginning of the end.

Don’t waste any more time reading this.  You need to get out there and order a new 415-horse G8 GXP sport sedan, perhaps the best Pontiac ever (I prefer the 6M, but the automatic is OK too).  Because, unfortunately, you won’t have that opportunity for long.

What’s your favorite — or most disliked — Pontiac of all time?

Dai’s Driving Academy

PUMA Releases Speed Cat 2.0 Mid Gumball 3000 Edition Shoe

Pontiac Gone, Buick to Grow, Government Offered 50-percent of GM

DETROIT - General Motors CEO and President Fritz Henderson confirmed the automaker will scrub the Pontiac division by the end of 2010, with the G8 going out of production by the end of this year, and the Vibe possibly running through next year. GM will end Saturn, Saab and Hummer production by the end of this year, accelerating Saturn’s demise by two years.

Henderson still holds out hope the automaker can sell the Hummer brand. And its final restructuring plan due to the Treasury department June 1 includes exchange offers in which half of GM’s outstanding debt to the federal government is exchanged for “at least” 50-percent of common stock.

Henderson said none of the Pontiacs not already sold as Chevrolets — the Solstice, Vibe or G8 — will move to the Chevrolet division. So the G8, which was part of GM-Holden’s rear-drive Commodore business plan in Australia, began with the 2008 model and ends with the ‘09. “We’re just not able to put the marketing behind it,” Henderson said.

The Kappa rear-drive sports car platform, for the Solstice and Saturn Sky, ends production this year and the Pontiac Vibe looks like it will soldier on into the ‘10 model year in Buick-GMC dealerships.

North America President Troy Clarke said GM will add models to the Buick brand, but did not give any details. Henderson said Pontiac will be the last of GM’s North American brands to be cut, as GM heads toward its June 1 revitalization plan deadline with the Treasury department.

“I, like you, read lots of press about Buick and GMC … it’s disconcerting to me, because it doesn’t make business sense, actually,” Henderson said. He reiterated that the two brands are “highly profitable.”

If GM sells majority interest in Opel, doesn’t that put the company in the same predicament as Chrysler LLC, which has very minor presence in Western Europe? Henderson said that if GM sells a majority stake in Opel, GM would have a similar relationship to the German brand as it has to Daewoo in South Korea. GM and Opel would continue to develop models together. Chevrolet, which Henderson described as the fastest-growing brand in Europe (thanks to success in Eastern Europe and Russia), would continue to be built as GM’s popular-priced brand there, with Opel its mid-priced brand and Saab at the top. Henderson didn’t expand on that, but that indicates that GM expects a continued relationship with the brand even under new majority ownership.

Henderson also said a GM bankruptcy on or near June 1 now is more likely than it was when the automaker presented its interim plan to the Treasury department on February 17. The company is still trying to avoid that, and now it comes down to the stock-for-debt exchange offers. GM is offering 225 shares of common stock in exchange for each U.S.$1000 equivalent of principal. Bondholders would get stock plus accrued interest in cash in exchange for $27 billion of outstanding public debt, which would reduce GM’s debt by at least $44 billion.

If GM avoids bankruptcy, the government will hold 50 percent of GM, the United Auto Workers would take 39 percent of the company, in exchange for funding promised to the Voluntary Employee Benefit Association. Bondholders would hold about 10 percent. Notice that this reduces current shareholders’ share to about 1 percent.

Another key is GM’s accelerated plan to cut dealers. In February, then-Chairman/CEO Rick Wagoner said the company would cut dealers from 6248 at the end of ‘08 to 4700 by 2012 and 4100 by ‘14. Monday, Henderson said that would be accelerated — a key element Treasury’s Automotive Task Force wanted sped up — down to 3605 dealers by the end of 2010. That’s ambitious: Saturn, Saab and Hummer dealers account for about 800, and there are just 35 standalone Pontiac dealerships.

The four core U.S. brands will sell 34 nameplates, 13 fewer than the prior plan.

GM will cut 21,000 factory jobs next year. Last week, it cut 1600 white-collar employees. This reduces fixed labor costs from $7.6-billion in ‘08 to $4.5 billion, or $405-million less than the previous plan.

The upshot is that Henderson says GM will be able to break even when annual U.S. sales reaches just 10-million units, a number we still could maintain this year. “This rate is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 through 2007.”

These are deep cuts and huge structural changes, more than we might have expected from current management. With GM truly on the ropes, we’re now starting to see the kinds of changes that should have occurred in the last 20-30 years. “Big is only good if you use it to your advantage,” Henderson said Monday. “Our results just have not been acceptable.”

Prius? No Thanks. I’ll Take the Mini Cooper D

All wrong people have all the cheap oil. The polar ice cap is melting. CAFE’s killing the affordable V-8 performance car. Politicians — Democrat and Republican — want us to drive hybrids and electric cars. Hell, even Arnie Schwarzenegger’s traded his Hummer.

But if Toyota’s worthy-but-dull Prius is the savior of the automobile, count me out. Look, there’s nothing wrong with a Prius if you just want family transportation that makes less of a dent on the eco-system than a Tahoe. But that’s all a Prius is to me — transportation. The whiz-bang technology under the hood is clever and smart, but in terms of driver appeal, it’s about as stimulating as an overdose of Novacaine.

So what’s a car-guy to do?

There is hope. While in England couple of weeks ago to look at the new McLaren P11 supercar, I cruised in motorway fast lanes at 80-85 mph; attacked winding two lanes like a rally racer; and sprinted through take-no-prisoners London traffic. I drove the living daylights out of a car for more than 900 miles, having just about as much fun as I’ve ever had on four wheels. And I averaged better than 43 mpg (that’s miles per U.S. gallon, too, not the supersized English ones) the whole way.

Meet the Mini Cooper D, the car guy’s eco-car.

The Cooper D is just like the Mini Coopers sold here in the States, with one important exception — under the hood is a 1.6L four cylinder turbodiesel engine that develops 110 hp and 177 lb-ft of torque from 1750 to 2000 rpm. Regular readers will know I’m a diesel fan. But with the possible exception of the BMW 335d — a recent addition to our long term test fleet — this is the most entertaining diesel I’ve ever driven. I kept stepping out of the thing with an ear-to-ear grin.

No, the Mini Cooper D is not a rumbling, rip-snorting muscle machine with oodles of easy horsepower. You have to work at it, using the slick-shifting six speed manual to keep the baby diesel spinning between 2000 rpm and 3500 rpm to ensure crisp throttle response. But the Mini’s razor-sharp steering and buttoned-down chassis allow you to get the most out of the powertrain. It’s a driver’s car, in the true sense of the term, and the harder you drive it, the more it rewards you.

The Cooper D’s not perfect. My tester came with optional 17-in. wheels, 205/45 tires, and a very firm ride that was borderline harsh on London’s acned city streets. Personally, I would be prepared to live with the ride in return for the car’s lightning-fast turn-in response, but I can see a lot of folks might prefer the standard 15-in. wheels and higher profile rubber to soak up some of the harshness. The tires were noisy, too, roaring intrusively on coarse grained blacktop, and occasionally setting up a sympathetic buzz from somewhere in the dash.

But if the alternative’s the snooze-a-mile Prius, I’ll take a Cooper D any day.

Not only is it cooler looking and much more entertaining to drive — truly alive in your hands — it’s way faster on any road, any time, with no penalty at the pump. Claimed top speed is 121 mph, with the 0-60 mph sprint taking 9.9 sec, seven tenths of a second less than a Prius. Mini claims the Cooper D will get up to 67 mpg (again, that’s miles per U.S. gallon) on the freeway.

I saw a best of 61.7 mpg on the trip computer over a stint that included sluggish motorway traffic that was sometimes stopped, sometimes rolling at 20-40 mph, and sometimes cruising at 60 mph — in other words, a typical American freeway rush hour traffic pattern. Even if you factor in the 11 percent discrepancy I noticed between the trip computer’s claimed fuel economy number and the actual economy observed over two fills (admittedly, the tank was difficult to top off, so I may not have brimmed it)  that’s still 55 mpg. Cruising at 60-70 mph on a constant throttle should easily see the Cooper D return north of 60 mpg.

Stop-start London traffic didn’t make as much of a dent in the Mini’s mileage as expected thanks to the engine’s auto-stop/start feature. Shift into neutral at the lights, and the engine stops: touch the clutch pedal, and it fires right up again, ready to go, even as you’re shifting into gear. The stop/start feature was a little disconcerting at first — I kept thinking I had stalled the car, and there’s a distinct shudder as the high-compression oiler comes to a halt. But you don’t waste fuel — or pump emissions into the atmosphere –while stuck in traffic, going nowhere. Mini claims the Cooper D will get 50 mpg around town. I got 42 mpg zipping though the heart of London.

Now I’ve never met a horsepower I didn’t like, and there’s something about the muscular rumble of a V-8 that will forever raise the hairs on the back of my neck. But if I am going to have to drive an eco-car, it’s nice to know they don’t all have to be like the snooze-a-rama Prius.

My friends at Britain’s Autocar tell me BMW is considering stuffing a 150 hp version of its 2.0L turbodiesel from the 1 Series under the Mini’s stubby hood next year, and that it may even use the twin turbodiesel from the 123d to create a diesel-powered John Cooper Works Mini with more than 200 hp.

Where do I sign?

Cutting Pontiac, Chrysler Debt and Other Tales for the Week That Was, Coming Up

 DETROIT - The week we’ve all been waiting for is coming up. Chrysler either will complete a deal with Fiat Auto, or will implode and take probably everything but American Motors survivor Jeep with it. Metro Detroit has been waiting for this moment for at least a quarter-century.

Will the wealthy suburbs finally join the city of Detroit’s decay as the economy irreversibly leaves the U.S. auto industry for dead? Will Chrysler LLC and General Motors get new leases on life, holding themselves afloat until we can get a new, greener, more efficient kind of economy going in the next couple of years? Will Chevy Volts and Dodge Circuits quietly cruise rebuilt Woodward and Jefferson Avenues by the end of the current administration?

This past week began with an insider telling me Chrysler had no better than a 50-percent chance of making it past the end of the month and ending with a voicemail recording at the number of a veteran GM PR executive that informed us that the automaker no longer employs that person. GM laid off 1600 white-collar workers, from public relations managers to designers to engineers in the week just ended. These are the harsh realities of an auto industry on the skids, and a GM and Chrysler early in their latest rebuilding schemes having been caught some $24-billion short of Ford Motor Company’s line of credit. Ford’s Alan Mulally planned early for a possible downturn, and still, the healthiest automaker in intensive care lost $14.6 billion in the first quarter of the year. If GM and Chrysler go down and take the supplier base with it, Ford will be next.

Then there’s the rumor about Pontiac, first reported Friday on NPR. It’s gone, NPR says. No, we haven’t “announced any changes to (our) long-term viability plan or to the future status of any of (our) brands,” a Pontiac spokesman said in a short release. Never mind rumors that GM will announce new changes to its plans as early as Monday. The government’s Automotive Task Force has told GM it needs to speed up marketing cuts, and while CEO Fritz Henderson has officially taken that to mean, “cut your number of dealerships more quickly,” ending the fading Pontiac division is an easy bargaining chip for the automaker.

Despite what any of you think of the Pontiac G8 (which is a very good car for the money), the division is having trouble ridding itself of the overly cladded image of the early ’00s. The main character in AMC’s excellent “Breaking Bad” drives an Aztek on the show every week, not a G8 or even a G5. This is the bouffant or mullet hair, kitch division, some still believe. Fake hood scoops on the Holden-supplied G8 and the body kit on the G6 GXP don’t help. And GM doesn’t sell any Pontiacs in China (Canada is another matter). It would be too easy a decision.

Meanwhile, GM has taken another $2-billion draw on its federal loan guarantees, bringing the total to $15.4 billion and has scheduled nine-week shutdowns (encompassing the traditional two-week summer vacation shutdowns) at 13 North American assembly plants. The shutdowns cut calendar year production by 190,000 units. Still, keep in mind that even with larger sales losses than the competition, GM is holding on to nearly 20-percent market share of a pitiful market. When it settles down to 18 percent, it will be in-line with Volkswagen AG’s share in Western Europe.

Over in Auburn Hills, Chrysler has negotiated with bondholders to cut key secured debt from $6.9 billion down to $3.75 billion, in return for 40 percent of the reorganized company. And it has reached a tentative agreement for a more favorable labor contract with the Canadian Auto Workers (it produces the Chrysler 300, Dodge Charger and Challenger, and other models in Canada) in lieu of the government-mandated restructuring.

While I figure Chrysler’s future, even under Fiat management to be similar to what Chrysler did with the pickings of American Motors in the late ’80s, this is some good news for a town that desperately needs it. Wish us luck.