Automotive News - December 8, 2008 - 24

24 • DECEMBER 8, 2008 The incentive tables are at autonews.com/incentives SHOWDOWN IN CONGRESS STRINGS Detroit 3 CEOs hear plenty of demands continued from Page 1 Strings attached Congress could set tough bailout conditions. Here are some possibilities. Appoint a “car czar” to oversee automakers’ restructuring Force companies to file for bankruptcy if they don’t meet loan terms Require GM and Chrysler to merge Cut hourly workers’ compensation and scrap the UAW Jobs Bank Compel bondholders to accept a debt-for-equity swap Prevent companies from lobbying against states’ global warming initiatives Without such aid by year end, GM and Chrysler say they will be insolvent. requiring financial institutions that are getting federal aid from the $700 billion rescue package to make loans to automakers. A few even suggested a revival of merger talks between GM and Chrysler. Wagoner and Nardelli said they would consider that. Under that arrangement, Nardelli acknowledged, “The first job that would go would be mine.” Sen. Bob Corker, R-Tenn., has half from the Treasury Department’s rescue fund for banks. But Congress and the White House remain deeply divided over how to help the Detroit 3. GM CEO Rick Wagoner conceded that giving government an oversight role toward the companies could ease anxious markets and “help us vis-a-vis where we are today.” Putting a Cabinet officer in charge of the restructuring plans “would be fine with us,” he added. Wagoner, Ford CEO Alan Mulally and Chrysler LLC CEO Bob Nardelli returned to Capitol Hill last week to renew their pleas for federal help. emerged as one of the industry’s harshest critics. As mayor of Chattanooga, he helped lay the groundwork for a $1 billion Volkswagen AG assembly plant in the city. Last week, Corker proposed that if the Detroit 3 cannot meet federal loan conditions, the companies would file for bankruptcy by March 31. Big stick Such a deadline could give the Detroit 3 some of the leverage with creditors that it would get in a Chapter 11 filing without going bankrupt. “A big stick by the government in this case could actually cause your company — for the first time in modern history — to have the tools and the levers to do the things that will make you strong for the future,” Corker told Wagoner. The Democrats and Republicans each have their agendas, raising the More demands Lawmakers warn that any aid will come with tough new restrictions. “We’re not going to write a check for any amount of money without serious conditionality associated with it,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn. Some lawmakers floated the idea of prospects of a deadlock. For example, Republicans are demanding wage cuts and other concessions from the UAW. In an effort to mollify critics, the union agreed last week to suspend the Jobs Bank, which pays laid-off workers for as much as two years. Meanwhile, Democrats are demanding guarantees that the Detroit 3 won’t use bailout money to fight efforts by California and other states to regulate greenhouse gas emissions. And members of both parties want to put the federal government first in line when the Detroit 3 repays their debts. After the hearings last week, it was not clear whether a bailout would pass. Time is short, noted Dodd. “Nothing concentrates the mind like a death sentence,” he said. “And we’re looking at a death sentence if we don’t respond intelligently.” c Honda, Audi pull out of racing series James B. Treece jtreece@crain.com FORD Mulally: ‘We are on the right path’ continued from Page 1 Honda Motor Co. and Audi have pulled out of high-profile racing series, raising fears that tight budgets might lead others to drop out. Honda withdrew from Formula One racing to save more than $200 million a year. President Takeo Fukui wants to sell the team and won’t field a car when the season starts in March. “This difficult decision has been made in light of the quickly deteriorating operating environment,” Fukui said. Audi’s factory team, Audi Sport North America, won’t compete in the 2009 American Le Mans Series. The 350 engineers working on Honda’s Formula One project will be transferred to other duties, including the development of hybrid drivetrains, Fukui said. Max Mosley, president of Formula One’s governing body, warned that others may follow Honda if costs are not cut dramatically, autosport.com reported. Les Unger, a spokesman for Toyota Motor Sales U.S.A. Inc., said: “We’re looking at our budgets,” but added: “We fully intend to compete in the NASCAR series” next year. A GM spokesman said racing and all marketing efforts will be reviewed closely in light of GM’s problems. c LAT Honda exited Formula One racing to save money. Shown is Honda’s Formula One car in a race last month. SATURN Shedding dealers is a costly proposition continued from Page 1 Saturn: A different kind of franchise agreement Jamie LaReau jlareau@crain.com before. Nahas, owner of two Saturn stores in Alabama and Florida, owned an Oldsmobile dealership in 2000 when GM killed the brand. He says GM will have to pay off Saturn dealers if it wants to drop the brand. “If they want to get rid of me, I can show them how,” he says. “I used some of that Oldsmobile money to get a Saturn franchise, and I traded the devil for the witch.” Nahas adds that GM may already have damaged Saturn: “When the public hears something like this, their tendency is to not come into your showrooms. (GM) needs to tell us what they are going to do here posthaste!” DETROIT — Saturn’s franchise agreement is different from those of General Motors’ other brands. The Saturn agreement required dealers to sign the Federal Trade Commission’s Franchise Disclosure document, says Mark Johnson, president of financial advisory and brokerage firm MD Johnson near Seattle. “Nobody at any car store since the beginning of time has ever signed one of those except Saturn dealers,” Johnson says. “The whole document tells you how you could po- tentially lose all of your investment through debt and losses through this franchise.” Saturn confirms the unique agreement. Saturn spokesman Steve Janisse says, “Everything was done differently with Saturn, and this was one of those things.” Janisse says Saturn has a different legal structure from other GM brands. Saturn has a Franchise Operations Team, which has a limited say in brand operations. The FTC document favors the manufacturer, Johnson says, “so GM is in a much better position to terminate Saturn than any other manufacturer with any other brand.” In the late 1980s, GM cherrypicked the best dealers for the new dealer network. The dealers have heavily influenced the company. Janisse says GM’s seven other brands operate under a Dealer Sales and Service Agreement, a personal service agreement between the dealer and GM. For dealers, Johnson says, the good news is that state franchise laws probably would trump any signed documents in a court of law. c Costly closing Factor a Saturn death in with GM’s plan to cut its total dealer count from the current 6,450 to 4,700 by 2012, and the cost would be billions. Dealer broker Mark Johnson estimates that GM would have to pay $3 million to $5 million to buy out the average GM dealer. So Saturn’s dealer network alone could cost upward of $1 billion to shut down. At Johnson’s projected cost, taking out the 1,750 stores GM-wide could cost more than $5 billion. Many of those closings would come from the endangered Hummer and Saab brands, along with 41 stand-alone Pontiac dealers. GM plans to make Pontiac a “niche” brand within the current Buick-Pontiac-GMC network. Johnson, president of financial advisory and brokerage firm MD John- son near Seattle, says his estimate factors in a 40 percent drop in a dealer’s real estate values and other financial challenges in laying off dealership employees and closing up shop. Those figures don’t include the possibility of lawsuits from Saturn dealers if GM does terminate that brand, Johnson says. John Pitre, general manager of Motor City Auto Center in Bakersfield, Calif., says cutting off Saturn product would be legally shaky. “I think they’d be at risk on every franchise agreement that would expire, on the virtue that they say they’re not going to build cars anymore,” Pitre says. “State franchise laws would override the right that would allow them to walk away. They’re either going to have to sell it or continue to operate.” Michael Martin, owner of Saturn of Manassas in Manassas, Va., says Saturn dealers are worried about GM’s shifting product and marketing money to the other four channels. “The Saturn retailers are more concerned with product flow coming down the line and marketing money behind it, because those are the keys to our profitability,” says Martin, who is a National Automobile Dealers Association director and GM line chair for industry relations. New business model Through November, Saturn’s sales are down 20.9 percent to 175,434 compared with the year-ago period. Saturn’s three cars — the Aura, Astra and Sky — sold a combined 76,191 units through November, while the Chevrolet Impala alone sold 244,692 units. Since Saturn began production in 1990, it has been “break-even to slightly profitable” only in 1993 when it had just its original small coupe and sedan, says a Saturn spokesman. Saturn’s U.S. sales peaked in 1994 at 286,003 units. GM’s appeal for $18 billion in federal loans makes its need for profits from Saturn urgent. When asked how long GM could afford to wait for Saturn to be profitable before getting rid of it, LaNeve said: “We want to begin repaying the loans in 2011. So we have to work quickly to put a business model in place that we’re confident is a plan that will be profitable fast.” Some Saturn dealers sympathize with GM’s plight. Ed Williamson owns three Saturn stores in southern Florida. His store near Miami sold 12 new cars last month, when it normally sells 60 to 70, he says. He’d be sad to see it go, but he also owns Cadillac sto

http://www.autonews.com/incentives http://www.autosport.com

Automotive News - December 8, 2008

Table of Contents for the Digital Edition of Automotive News - December 8, 2008