Bailout Blunder

“This is about much more than just Detroit. It’s about saving the U.S. economy from a catastrophic collapse.”

These were the words out of Rick Wagoner’s mouth when addressing the Senate Banking Committee (SBC) tonight. It was based on this thought that my initial [ignorant] stance was to give these guys the money with some conditions primarily to preserve jobs that would otherwise be eliminated if these companies go down the drain. After listening to about 2 hours of this hearing, I was reminded of how companies tend to dance around pressing and pertinent issues. When asking for $25 billion, it’s probably a good idea to have some answers.

These companies are bleeding money. That was plainly evident after hearing about the billions of dollars per month (about $3B or so if I heard correctly) spent by each of these companies. And when the executive panel was questioned about the seemingly arbitrary $25 BILLION need, the responses were less then erudite. One of the SBC members (I forget which) immediately jumped on that by reminding the execs of their position in the company suggesting they should know these things…how they arrived at that figure. In defense of the executive panel, there were definitely a few questions posed by the SBC that were a little too detail-oriented.

Finally, Christopher Dodd (D-SEN) brought up executive compensation and accountability. And that sucked the remaining wind out of the auto execs’ sails. At that point, it almost didn’t matter if they offered to work for free. The SBC as a whole was quite skeptical toward the strategy of the companies suggesting they’d be back for more money. But after something like 4 hours of questioning, the execs were on the defensive.

What about the alternative? Yesterday in the New York Times, Andrew Ross Sorkin recounted prepackaged bankruptcy, which provide some (for the lack of a better word) tactless options for the automakers.

Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.

Tactless. But probably necessary.

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Chrysler’s reGenesis Means Fewer Models & Dealerships

Jeep needs a turnover as well

Former “big three” cohort Chrysler will try to dodge (pun intended) disaster by carving out about half of its models as well as decrease its network of dealerships.

Shrinking the number of dealers will be difficult, however, because of laws in all the states protecting those businesses, analysts said. If Chrysler, with about 3,600 dealers, wants to move quickly, it likely will have to offer financial incentives.

Over the years, the automaker and its U.S. rivals, General Motors Corp (NYSE: GM) and Ford Motor Co (NYSE: F), have tried to shrink their dealer numbers, often facing great resistance. However, analysts said some dealers may be more receptive now, given the weak U.S. economy, if the offers are generous.

Reuters

Forbes recently crowned five Chrysler cars as “Automotive Turkeys” on its list of 10 Poorest Performing Cars for 2007. Those models included Chrysler Sebring, Dodge Nitro, Jeep Liberty, Dodge Caliber, and Dodge Magnum. Factors included number of recalls, high depreciation, and NHTSA ratings below four stars. Not to mention they’re all ugly, so…um…that’s probably why also. In addition to the elimination of models — some of which are ineffectually duplicated and rebadged models — Project Genesis calls for the introduction of new, competitive models. The dealerships will likely be consolidated to include all three nameplates under one roof.

If I was a betting man, I’d go all in on the idea that Kirk Kerkorian and Carlos Ghosn will both be involved in preparing a gameplan that includes Chrysler LLC.

Large popcorn please…no butter.

A “fire sale” may not be enough.

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