Auto Testimony Today

A couple more reactions on the auto bailout and the testimony by the big 3 today:

• In contrast to the TARP hearings, I have been impressed with the line of questioning by the Senators except for maybe Dodd. Maybe it's because I am not as close to the auto industry and know a bit less about what's going on but some of these questions seemed tough, logical, and at least somewhat well thought out. So with that qualifier, I thought these guys did a great job.
• The cash burn rates in the last quarter and even in the last year were staggering. I think it's a safe assumption that one or more of these companies is going to run out of cash well before the inauguration. I don't have a belief that you are going to see a rebound until at least Q3 in terms of auto sales activity. At there present burn rates they roughly had a few months before I am sure they will burn through some covenents and the debt will get called. If Cerberus has not written this to a negative number because of liability issues, let alone zero I think that's agressive. Given how bad those cash burn numbers are, I'd be surprised if something isn't done in some form even though supposedly there are not enough votes.
  
• The Senators made the point how after the Clinton administration, the auto makers abandoned fuel economy standards and started cranking out SUVs with much lower fuel economy standards than their competitors and fought Congress tooth and nail to do so.
• Cerberus made the "generous" offer that it would forfeit any gains from the bailout to its shares. That one gave me a chuckle...you've got to be kidding me. If these guys don't take a major loss on that deal I am gonna be an upset little camper. If I were valuing it as a private equity deal I'd put it somewhere south of zero given the labor liability issues.
  
• The testimony illustrated that the foreign car companies are over 7 years ahead of US car companies in terms of fuel technology. I wish we would could look on this as an opportunity to consolidate this industry into a technology leader. There is no reason we couldn't create an industry powerhouse here if we got rid of legacy issues and deployed new technologies.
  
• Please please no tax rebates for people buying cars and homes. We don't want to encourage consumption at this point...we need to start living within our means.
  
• Nardelli at Chrysler seems like he's done a bit more on cost cutting. It's probably reasonable to assume he misses Home Depot at this point. That said its interesting that it just hasn't been enough. No matter what he did at Home Depot, my view of the guy he's a fairly tough customer. I know an execution oriented manager when I see one but he looks relatively beaten here. There is probably something interesting to be learned from him coming from a totally different industry and the roadblocks he ran into. I'd grab the guy in a private room and find out how to really reform this.
  
• The UAW also testified and these guys are desperately trying to get this money. They see a bankruptcy coming and realize they will lose quite a few golden gooses.
• I was least impressed with Wagoner from GM. It's the company that's probably got the most bloat and this guy had steadfastly refused to consider resigning. I remember when one car company came to Columbia shipped in a car to have it assembled inside the business school and nobody even showed for the presentation. The vibe this guy gave off is just one of the reasons why.
• There was an insightful discussion of "natural run rate" in terms of the # of autos consumed in the United States without the fake credit bubble. Is it 14, 11, or something even lower?
  
• Paul Morrisey from UMD should have talked more. I loved what he said and wish we saw more of it. He pretty much pointed out that given the natural rate is much lower than what it is now.
• Menendez--this Democrat was fantastic.
  
• The key question for me is what's the delta between the negotiated Union concessions vs what would happen in a prepackaged bankruptcy with a Federal bankruptcy. Would the delta be large enough to warrant the risk? What about the dealer costs (too many dealers for the amount of cars sold)? Are the labor restrictions and buyouts so large at this point? My gut would be a prepackaged bankruptcy with a Federal backstop as the only real way to get rid of the legacy costs but hopefully someone will do the math there.