GM Mexican Plants Expand as Carmaker Seeks Funds for Rescue


By Thomas Black
Dec. 17 (Bloomberg) -- General Motors Corp., the biggest automaker in the U.S. and Mexico, increased production of $12,625 Chevrolet Aveos south of the border while seeking a bailout to keep domestic plants from closing.

The Detroit-based company and competitors such as Ford Motor Co. shifted more manufacturing to Mexico this year to capitalize on wages less than an eighth of those in the U.S. and factories that make fuel-efficient models. Through November, Mexican plants turned out 5 percent more vehicles than a year earlier, versus an estimated decline of 30 percent in the U.S.

Mexico is so far weathering the collapse of the global auto industry better than its North American neighbors. Even with a projected decrease in production of as much as 20 percent in 2009, the world’s 10th-largest maker of light vehicles will still suffer less than the U.S. or Canada,
according to Eduardo Solis, president of the Mexican Automobile Industry Association.

“The type of vehicle that’s produced in Mexico for the cost that it’s produced and the proximity to the U.S. are factors helping us fare better than other countries,” said Emilio Mosso, a deputy director at the Mexican Economy Ministry.

Thanks to investments by most of the major producers, Mexico has developed a high quality, low-cost manufacturing base. Assembly-line technology is now sophisticated enough to let the nation expand into aerospace, with Bombardier Inc., Safran SA and Honeywell International Inc. investing in operations in recent months.

“The number of errors produced in Mexico is relatively lower than in other countries,” Adolfo Albo, an economist in Mexico City with Spain’s Banco Bilbao Vizcaya Argentaria SA said in a telephone interview. “Plants are newer and the training processes are more effective.”

Small-Car Production

Output there also favors small and mid-size vehicles, which make up almost three-quarters of those manufactured. Other models produced in Mexico include the Pontiac G3, Ford Fusion, Volkswagen Beetle and Dodge Journey, a new car-based, sport- utility vehicle.

The product mix positions the industry to grab market share in coming years as consumers seek out fuel efficiency, Mosso said. Through November, Mexico had gained a percentage point to 26 percent of U.S. imports this year, even though close to 30,000 fewer cars from there were sold in the states than in the same period of 2007.

That said, Mexico won’t be immune to the global drop-off in vehicle sales. More than 70 percent of its cars end up in the U.S. where sales in November fell to the lowest annual rate in 26 years, according to Autodata Corp.

Export Decline

Exports to the U.S. slipped 2.6 percent to 1.1 million autos and light trucks through November versus the same period last year. That compares with an 11 percent drop for South Korea, a 9.8 percent decline for Germany and a 7.4 percent slide for Japan, the auto industry association said.

The drop was offset by increased shipments to Europe and South America in the first 11 months. Sales of Mexican exports were up 4 percent through November.

“It’s a world automobile industry crisis that we haven’t yet felt because of those export markets, which next year simply won’t be there,” Solis said.

Still, the “pothole” the industry hit won’t last forever, said Gustavo Cespedes, 46, vehicle manufacturing director for GM North America, who is slated to become chief of the company’s San Luis Potosi plant in January.

“Here in Mexico, I believe we’re in a favorable position.”

Labor Costs

Lower labor costs are the biggest advantage. At around $3 an hour, the average Mexican wage is less than one-eighth of those in the U.S.’s $25.34 and one-seventh of Canada’s $21.38, according to Sergio Ornelas, the president of industrial park operator Intermex, which provides real estate services to auto and car-parts producers. Ornelas cited information compiled from the Boston Consulting Group, the U.S. Department of Labor and The Economist Intelligence Unit during a recent conference in San Luis Potosi.

Auto companies contribute to a government-run health system and mandated individual retirement accounts for each worker, which keep health and pension-benefit costs low compared with the U.S., Ornelas said.

The push into Mexico by U.S. car companies could be slowed by restrictions put on GM and Chrysler LLC for accepting Troubled Asset Relief Program funds, said George Magliano, senior auto analyst at Global Insight Inc. in an interview at the San Luis Potosi conference.

“This money is going to come with a tremendous amount of strings,” he said. “If they give you $25 billion and you start closing all your U.S. industry, that could be an issue.”

Bankruptcy Impact

If GM and Chrysler are forced to declare bankruptcy, it may speed up the transfer of production to Mexico as carmakers seek to slash expenses, said Nick Criss, executive director of industrial services in the nation for real estate broker Cushman & Wakefield Inc.

“Mexico tends to be the core manufacturer for many companies because it’s a low-cost center,” Criss said.

GM, for instance, has invested $3.6 billion in Mexico in the last three years. Its auto and light truck production there rose 28 percent in November, the national car industry association said on Dec. 9.

The company said total output in North America, including Mexico, fell 32 percent for the same month to 249,000 vehicles. GM declined to break out its Mexican production.

Ford spent $1.2 billion in 2005 to increase output in Hermosillo of its mid-size Fusion sedan. Production in Mexico from January to November rose 1.5 percent, while it fell 26 percent in the U.S. and 9 percent in Canada, it said.

Investment Increases

Chrysler is building a $570 million factory near Saltillo, Coahuila, that will produce 440,000 engines a year, said Manuel Duarte, a Mexico City-based spokesman. It has canceled one of its two work shifts at a light truck plant there, Duarte said.

China FAW Group Corp. has announced plans to build a car factory in Michoacan on the Pacific coast that will begin operation in 2010. Other Asian companies, including Hyundai Motor Co., South Korea’s biggest automaker, and Tata Motors Ltd., the Mumbai-based maker of Jaguar and Land Rover vehicles, are looking to invest for the first time, Mosso said. Toyota Motor Corp. increased capacity last year at a plant in Tijuana to 50,000 Tacoma trucks.

The wave of investment helped Mexico expand its production to more than 2 million cars in 2007 from 1.54 million in 2003. Mexican car output is forecast to rise to 3 million units by 2015, Magliano said.
U.S. in Reverse

Over the same period, the U.S. industry has gone in reverse, dropping 12 percent to 10.54 million vehicles last year from 11.92 million in 2003, according to CSM Worldwide. The seasonally adjusted annual rate through November plummeted to 8.71 million cars and light trucks, CSM Worldwide said in a Dec. 15 statement.

Mexico also has 12 free-trade pacts, including ones with Japan, the European Union, Chile, Colombia and Israel, and preferential tariff access with 44 other countries, Mosso said.

“We have intrinsic advantages in Mexico that nobody can take away,” GM’s Cespedes said.

To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at tblack@bloomberg.net.

Bush Working on "Orderly" Auto Bankruptcy
 

Bush Working on "Orderly" Auto Bankruptcy



<STYLE></STYLE>Apparently the President has heard the voices of his own party, earlier this week Republicans from both houses of Congress sent Bush letters about his plan to bail out the "weak three" Detroit auto-makers. The letters urged him not to make a deal without a reorganization of the Auto Companies, their obligations to their suppliers and the Union Contract. A deal to this effect was almost completed by Senator Corker, but the UAW bowed out at the last minute because they didn't want to commit to a date. At the time the rumor was that the UAW was certain that the President would intervene more gently than the Senate.

Now today the President is working on Pre-planned bankruptcy for the GM and Chrysler that would safeguard against a chaotic reorganization:

Bush Working on "Orderly" Auto Bankruptcy


WASHINGTON – The Bush administration is seriously considering "orderly" bankruptcy as a way of dealing with the desperately ailing U.S. auto industry.


White House press secretary Dana Perino said Thursday, "There's an orderly way to do bankruptcies that provides for more of a soft landing. I think that's what we would be talking about."


President George W. Bush, asked about an auto rescue plan during an appearance before a private group, said he hadn't decided what he would do.


But he, like Perino, spoke of the idea of bankruptcies organized by the federal government as a possible way to go.


"Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring," he said during a speech and question-and-answer session at the American Enterprise Institute, a conservative Washington think tank. "These aren't normal circumstances. That's the problem."


The comments came a day after Chrysler LLC announced it was closing all its North American manufacturing plants for at least a month as it, General Motors Corp. and Ford Motor Co. await word on government action. General Motors also has been closing plants, and it and Chrysler have said they might not have enough money to pay their bills in a matter of weeks.


Prices of GM and Ford stocks were down substantially after the White House comments Thursday. Though Ford, unlike General Motors and Chrysler, is not seeking billions of dollars in federal bailout loans, a major collapse of the other two would be expected to badly damage Ford as well.


Bush said the auto industry is "obviously very fragile" and he is worried about what an out-and-out collapse without Washington involvement "would do to the psychology" of the markets.


"There still is a lot of uncertainty," he said.


At the same time, the president said anew that he is worried about "putting good money after bad," meaning taxpayer dollars shouldn't be used to prop up companies that can't survive the long term.


He revealed one other consideration — that Barack Obama will become president in just over a month.


"I thought about what it would be like for me to become president during this period. I believe that good policy is not to dump him a major catastrophe on his first day in office," Bush said.


At the White House, Perino said, "The president is not going to allow a disorderly collapse of the companies. A disorderly collapse would be something very chaotic that is a shock to the system."


She said the White House was close to a decision and emphasized there were still several possible approaches to assisting the automakers, such as short-term loans out of a $700 billion Wall Street rescue fund. Bush has resisted this approach before, and it is adamantly opposed by many Republicans.


"It's in the spectrum of options and there are a lot of options," Perino said.


She said one of the factors delaying an announcement on an auto rescue plan is the continuing discussion between the administration and the various sides that would have to sign on to a managed bankruptcy — entities such as labor unions and equity holders in addition to the companies themselves.


"In any scenario that comes forward after this decision-making process, all those stakeholders are going to have to make tough decisions," she said.


The presidential spokeswoman would not put a timetable on when an announcement would come, and suggested it may not happen this week. But something must be done, she said.


"If you thought that our economy today could handle the collapse of the American auto industry, then you might come to the conclusion that doing nothing was an option," Perino said. "We're going to do something."

http://yidwithlid.blogspot.com/2008/...ankruptcy.html

Just a piece... address below to read it all
 

GM ONLY
Restructuring Plan:

1. Repayment of the Loan Amount and any other financing extended by the Government under all applicable terms and conditions;

2. Ability of the Company and its subsidiaries to (x) comply with applicable Federal fuel efficiency and emissions requirements, and (y) commence domestic manufacturing of advanced technology vehicles, as described in section 136 of the Energy Independence and Security Act of 2007 (Public Law 110-140; 42 U.S.C. 17013);

3. Achievement by the Company and its subsidiaries of a positive net present value, using reasonable assumptions and taking into account all existing and projected future costs, including repayment of the Loan Amount and any other financing extended by the Government;

4. Rationalization of costs, capitalization, and capacity with respect to the manufacturing workforce, suppliers and dealerships of the Company and its subsidiaries; and

5. A product mix and cost structur that is competitive in the United States marketplace.

The Restructuring Plan shall extend through 2010 monthly and annually through 2014 and shall include detailed historical and projected financial statements with supporting schedules and additional information as may be requested by the President’s Designee.

Restructuring

Targets:

1. Reduction of their outstanding unsecured public indebtedness (other than with respect to pension and employee benefits obligations) by not less than two-thirds through conversion of existing public debt into equity or debt (a “

2. Reduction of the total amount of compensation, including wages and benefits, paid to their U.S. employees so that, by no later than December 31, 2009, the average of such total amount, per hour and per person, is an amount that is equal to the average total amount of such compensation, as certified by the Secretary of Labor, paid per hour and per person to employees of with Nissan Motor Company, Toyota Motor Corporation, or 6 American Honda Motor Company whose site of employment is in the United

States (the “

3. Elimination of the payment of any compensation or benefits to U.S. employees of the Company or any subsidiary who have been fired, laid-off, furloughed, or idled, other than customary severance pay (the “

4. Application of the work rules to their U.S. employees, beginning not later than December 31, 2009, in a manner that is competitive with Nissan Motor Company, Toyota Motor Corporation, or American Honda Motor Company whose site of employment is in the United States (the “

Term Sheet

Requirements:

1. A term sheet signed on behalf of the Company and the leadership of each major U.S. labor organization that represents the employees of the Company and its subsidiaries (collectively, the “

2. A term sheet signed on behalf of the Company and representatives of the VEBA providing for the VEBA Modifications; and

3. A term sheet signed on behalf of the Company and representatives of holders of the Company’s public debt providing for the Bond Exchange.

Restructuring Plan

Report:

1. Approval of the Labor Modifications by the members of the Unions;

2. Receipt of all necessary approvals of the VEBA Modifications other than regulatory and judicial approvals, provided that the Company must have filed and be diligently prosecuting applications for any necessary regulatory and judicial approvals; and

3. The commencement of an exchange offer to implement the Bond Exchange.

http://www.treas.gov/press/releases/...20appendix.pdf

CHRYSLER ONLY


http://www.treas.gov/press/releases/...20appendix.pdf

I don’t oppose a loan situation that has specific and enforceable criteria. But jasus, neophytes that grab the bull by the horns are likely to get gored. There is no possible way to drag the UAW out of the 1930’s and bring them into the here and now reality, isn’t’ going to happen. Union shop floor enforcement goons and totally obsolete shop floor work rules is the manna, milk and honey the UAW parasites thrive from. There is no reasonable expectation that the UAW is going to give up their hooks and defect rich manufacturing processes. Like who is kidding whom? Customer alienation is a big player in the equation and no amount of UAW propaganda can cover customer dissatisfaction with over-priced mediocrity. Management that gave shop and process control to a 3rd party adversary must be a mob of eunuchs just clipping pricy coupons.

Bottom line; there is no way a broom stick and sock kids hobby horse can be run through those lines without significant up-front payment to the UAW and then the absorption enforcement goon costs, grievance costs, who does what costs, work rules enforcement costs, rework costs. So then at the end of the process, were going to pay well over $3K for a broom stick ‘n sock hobby horse that probably has defects.

Scamp

Bailout Black Hole
 

Bailout Black Hole

Posted on January 23rd, 2009 by Stephen Kruiser
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The never ending auto industry bailout has become such a needy, ravenous pig that it has now reached financial black hole status. With all three components of the Democratic power triumvirate now legally in place, the bailout’s logic is collapsing upon itself and creating a force so strong that no federal dollars will be able to escape it.

Money is crack in Washington, D.C. The federal government is the dealer and the failing industries are its newest and biggest junkie customers. You and I are the suppliers of the drug to the government. Unfortunately, we’re stuck in a non-traditional arrangement where we don’t get much, if anything, in return.

What we do get is the privilege of being the only players in this sad little dance who have any accountability.

The government and the auto makers have been lying to us about how much money is needed or will be spent from the beginning. Not wrong. Not unclear. Lying.

There have been so many upward revisions of this hellish price tag since that first private jet “F-you!” the auto execs gave to us that only two conclusions are possible: these people are either monumentally stupid or they’ve been jerking us around from the beginning.

Since I think that it takes some brain power to run a multi-billion dollar corporation (even into the ground), I have to go with the initial lack of veracity.

Now the federal government is firmly in the grip of people who sincerely believe that it not only can, but should, help. “Help” in Fedspeak means “Spend More”, never “Spend Wisely”.

The staunchest U.S. auto industry supporters in Congress on Friday asked President Barack Obama to support another $25 billion in federal loans to help the industry make more fuel efficient cars.

We offered them $25 billion last year. Maybe they think that’s their allowance now.

In a letter to Obama on economic stimulus priorities, the Michigan congressional delegation also sought more than $4 billion in grants and loan guarantees for development of advanced batteries and battery systems.

Two paragraphs into this article and they already want another $29 billion.

Feeling the “help”, people? No? Bend over a little more…

Four billion bucks to develop battery technology that has yet to show up despite federal mandates and isn’t guaranteed to be found with more mandates and/or cash.

So, they might be able to build a souped-up golf cart in a few years that will make eco-fetish types in Berkeley, Santa Monica and Manhattan happy. Or they might not.

That’s going to save the auto industry.

Keeeep bending. Almost there.

“We are coming to the game late and must build capability quickly to keep up,” said the letter signed by both senators, Democrats Carl Levin and Debbie Stabenow, and the state’s 15 members of the House of Representatives.

By now everyone should be familiar with the now standard “Daddy I want an Oompa-Loompa man and I want him NOW” bailout refrain. The bailout junkies antics have the distinction of making global warming hysteria look calm and rational.

What’s that, you say you’ve been bending over for a long time already?

U.S. government spending on advanced batteries jumped from $24 million in 2006 to $56 million last year. The amount is considered inadequate for helping Detroit manufacturers make the transition to more efficient vehicles in a timeframe that satisfies consumer demand and helps them recover financially.

Federal crack logic truism: if spending more money didn’t work the first time, spend, spend again!

(Cue “Einstein’s Definition of Insanity”)

House Democrats proposed $2 billion for battery technology loan guarantees in their stimulus bill earlier this month.

The auto bailout and the stimulus package used to be two separate things. That was SO George Bush ago!

Quick question: when are you going to tell these bastards you’ve bent over as far as you can?


http://www.stephenkruiser.com/?p=619

Arrivederci, Chrysler
 

...

Then there’s the money. Fiat has a bit more than Chrysler, but in major automaker terms, it’s a degree of poverty. The Italian company has its own history of fortune turning to famine and while it’s currently turning a small reported profit, Fiat’s debt has jumped to three times its recent forecast to $8 billion. So to make this union work, we (you and I) have to loan Chrysler another $3 billion so Fiat can own 35% of Chrysler.
:zzz:

...

http://pajamasmedia.com/blog/arrivederci-chrysler/

Chrysler Restructuring Plan for Long-Term Viability
 

Chrysler Restructuring Plan for Long-Term Viability

February 17, 2009

Page 81
Restructuring Plan With Preferred Strategic Alliance

In return, Fiat would gain a 35% equity position in Chrysler.

http://www.treasury.gov/initiatives/eesa/agreements/auto-reports/ChryslerRestructuringPlan.pdf

One thing to keep in mind. FORD is not in this bailout, Just GM and Chrysler.
Something you may want to consider with you next purchase.

Ron

Ron
 

That's interesting. Deb just said the other day....I won't buy from any company that took bail-out money. I agreed that our next 2 vehicles will either be Fords or foreign. I have always bought American but will be looking elsewhere, except for Ford, whom I will look at closely. But...that's 3 years away. We decided no car payments until the house is paid for.

Pack