(The world's biggest Chevrolet dealer group is closing, never to enjoy the 2010 Camaro convertible, seen here in concept form at a regular Saturday morning Southern California gathering of car nuts).
Three big events today involving the world of cars, politics and finance, both in the US and abroad.
First, Automotive News reports, “Automakers and suppliers soon should be able to seek $25 billion in low-interest federal loans to retool plants to build fuel-efficient vehicles and components. The House of Representatives today voted 370 to 58 to approve a broad spending bill that includes $7.5 billion to start the loan program.The Senate is expected to agree to the budget bill this week, and President Bush is expected to sign it. The bill's main purpose is to keep government running in the new fiscal year that begins Oct. 1.”
There was little doubt Detroit would be getting the $25 billion bailout, though they had started the public process by asking for twice as much. A bill signed last December cleared the way for the bailout, but none of the Detroit Three, at least publicly, thought they’d have to ask for the money this soon.
Suppliers are now mentioned in the same breath as the car-makers. Ford, GM and Chrysler have become,
as have most car-makers worldwide, giant assembly operations. In modern car-building, suppliers are located nearby factory assembly facilities. To cut down on large parts inventories, the factory and suppliers engage in “just in time” manufacturing (called “kanban” in Japan, where the technique was developed); when a part leaves the supplier and arrives at a factory delivery dock, it will become a part of a new car or truck within a matter of hours. Suppliers are as crucial as the car-makers themselves. How they might take advantage of the billions soon pouring into Michigan remains to be seen. (Today's car factories are really giant assembly plants; without suppliers, there are no parts to build a new car or truck).
Apparently, this announcement does answer one big question about the money: Loans or loan guarantees? Detroit will apparently borrow the money directly from the US government (as in, “us”) and that will allow them to repay the debt at the lowest possible interest rates (which is just one more reason it’s always nice to “have a friend” in the government; they’re the ones who actually print the money).
How low might those interest rates be? As low as 1 or 2 per cent.
Click below for more on today's three automotive stories which will affect us all.
Today’s second big automotive story is about a cross-Atlantic merger which was really a takeover, and that never bore fruit, anyway. (Dodge's 2008 Viper SRT10; the name, the car and its parts and dies and the entire brand are now for sale).
In May, 1998, Germany’s Daimler purchased Chrysler for more than $40 billion. Just nine years later, in May, 2007, Wall Street investment firm Cerberus Capital Management purchased Chrysler from Daimler for $7.4 billion, bringing the company “back home” to the US. Car enthusiasts, at least, were happy about that.
The clash of cultures between the German and Michigan-based companies were gigantic.
Chrysler’s reputation had been that of the “fun car-maker,” bringing out wild cars like the Dodge Viper (now for sale) and the Plymouth Prowler faux hot rod (Plymouth now gone the way of Oldsmobile; remember them?). It was a company with an almost devil-may-care attitude, the place Lee Iacocca saved by fighting and winning-over first Washington, then the entire country.
Daimler, on the other hand, was described to me by a Chrysler executive this way: “When they say, ‘casual lunch,’ that means you can take your suit jacket off while eating in the company cafeteria.”
Cerberus now wants to buy the remaining 19.9% interest in Chrysler which Daimler still owns. It remains unclear, according to industry reports, how much that remaining percentage could be worth. (Car maven George Barris with one of the many, many circa-1969 Dodge Charger "General Lee" cars from the Dukes of Hazzard TV show...Don't know if Barris ever really built any of them, but he'll be happy to take credit, anyway - Barris is appreciated by many in the car world for his non-stop promotion of the fun side of the business).
A buyout of Daimler’s stake could make it easier for Cerberus to sell Chrysler as a whole or enter into an alliance with another car-maker, some say, one almost certainly based overseas.
But the case can be made, following the approval of the bailout, that Ford or GM might want to take-on Chrysler as a partner. The $8.3 billion each of the three will be getting is a gift courtesy of the American people, while $16.6 billion is even sweeter. Such a merger could leave one of the Detroit Three as the odd-man-out, perhaps forced to look overseas for help.
Finally, there are 3,796 Chevrolet dealerships in the US (down from 4,063 a year ago), and yesterday the world's top-selling Chevy dealership group announced the closing of its 13 stores. (Chevy's 2008 Malibu and Malibu hybrid have been bright spots in GM's current fortunes).
Dealer Bill Heard Enterprises has been a target of the Georgia Governor's Office of Consumer Affairs.That
office was seeking more than $50 million in penalties for deceptive marketing and alleged signature forgery, but that suit will fall through if the company declares bankruptcy.
The closing affects about 2,700 employees at stores in Alabama, Florida, Georgia, Nevada, Tennessee and Texas. The group ranked No. 13 on the Automotive News list of the top 125 US dealership groups, with 2007 group revenue of $2.13 billion.
The company blamed the closings on high fuel prices, canceled floorplanning from GMAC Financial Services (floorplanning being the prime method dealerships use to finance their purchase of cars and trucks from a car-maker), a reliance on sales of pickups and SUVs, a soft national economy and struggles in local markets. In the end the company could not raise operating capital nor secure floorplan financing.
How important are truck sales to Detroit? Just for example, each Chevrolet dealer in the US sold, on average, 214 cars in 2007; however, each one also averaged 345 truck sales. Shows you where the money is … the net profit to the factory on a truck is much more than on the typical car sale. This is why Detroit has been fighting to hang-on to their truck and SUV sales.
(A 2003 Chevy Silverado SS model is representative of how Detroit's car-makers were able to make billions, literally, by taking their truck businesses directly to a marketplace of Americans who never would have thought about buying a truck - that is, before they were told, by the Detroit Three, that they really did want to buy them ...).
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