Auto bailout may still be cheaper than bankruptcy

    FINANCING a bankruptcy by General Motors or Chrysler would cost at least twice as much as the automakers say they need in US government bailout loans, Chrysler and a restructuring expert said. 
    Chrysler, which said yesterday it hired the Jones Day law firm to review bankruptcy as an option it later rejected, would need $20 billion for bankruptcy financing — triple its $7 billion loan request — according to a company report to Congress. 
    A GM bankruptcy would cost $40 billion to $50 billion to finance, Edward Altman, a professor at New York University’s Stern School, told Congress yesterday. GM seeks $18 billion in bailout loans. 
    “Unfortunately, this traditional loan, even for $18 billion, is inadequate and is destined to fail in the current environment and will likely be followed by additional requests for more rescue funds or a bankruptcy petition,” said Altman. 
    He urged the government to push banks that received other bailout aid to provide needed bankruptcy loans for carmakers. 
    GM chief executive officer Rick Wagoner had the opposite view of bankruptcy, telling Congress that his company wasn’t pursuing that option to solve its cash crisis because it would scare away buyers and further siphon off revenue, forcing liquidation. Even a government-backed bankruptcy would be too difficult and risky, GM lead director George Fisher has said. 
    Tony Cervone, a GM spokesman, had no additional comment. GM did hire Weil, Gotshal & Manges, a New York law firm, to advise it on bankruptcy matters, a person familiar with the matter said, asking not to be named. Law firm spokesman Mike Ford didn’t respond to a message seeking comment on the hiring. 
    Chrysler expressed doubts that banks would fund any so-called debtor-in-possession loans for restructuring, arguing such costs would have to be borne by the government. 
    “Given the current adverse credit markets, we would not expect DIP financing of such size would be provided by Chrysler’s existing lenders or by any other private source, accordingly the DIP financing would have to be provided by the US government,” Chrysler said in documentation for its loan request. 
    Without the DIP funding, Chrysler would need to liquidate, closing 29 factories, firing 53,000 workers and cutting off $7 billion in payments to suppliers, the company said this week. 
    Chrysler hired Washington-based Jones Day and other outside advisers after Congress suggested last month that the industry further study if bankruptcy might be a better alternative than out-of-court restructuring, Chrysler said in a statement. 
    “The results of this evaluation determined the impact to the overall domestic automotive industry would be devastating,” the automaker said. 
    Getting $12 billion in government loans and a $6 billion line of credit is part of a GM plan to return to profit by 2011, Fisher said. — Bloomberg

Source: The Economic Times dated 8th Dec 2008

US auto slowdown to hit IT cos here

    THE slowdown in the US automobile industry is likely to impact the growth of select Indian IT companies. Some Indian companies such as Satyam Computer Services, TCS, Wipro and Infosys could be hit by delayed payments and a freeze in contracts as their major customers in the auto sector face threat of bankruptcy, according to analysts. 
    The top three US automakers — General Motors (GM), Ford Motor and Chrysler — are seeking a bailout from the US government. And, even if they succeed in getting the bailout, their IT expenditure could drop more than $1.5 billion a year, said analysts. Future contracts could come with demands for price cuts, which the IT majors will be pressurised to agree to. 
    “To cut costs, auto companies would shrink in size to trim their operations. Some of them will shut down a few plants. This means reduction in operational IT spends,” Gartner VP advisory service manufacturing group Thilo Koslowski told ET. The companies are also likely to axe expenditure on new IT initiatives often referred as discretionary spends. 
    Edelweiss Capital’s IT analyst Viju George said: “In case of a bailout, the US auto companies would cut their discretionary spend to stay afloat. As of now, about a third of their IT spends are of discretionary nature. This portion could get impacted going ahead.” 
    Analysts say the magnitude of the impact would be known in next 2-3 months, once auto players have a relook at their IT budgets. 
    Though the IT budgets of these auto companies are as small as 1-2% of their total revenue, in absolute terms, it is a sizeable amount given their huge toplines. GM ended 2007 with $181 billion in revenue. Ford and Chrysler reported sales of $172 billion and $58.6 billion, respectively. IT spends are likely to fall by at least half a per cent over the next years for each of these companies, said Mr Koslowski. This would mean the overall IT expenditure of the three US auto giants would fall by $1.5 billion. 
    Among the top-five Indian IT exporters, Satyam is likely to take the biggest hit as it provides IT services to GM and Ford. “Satyam is likely to be affected the most as it earns 5-6% of its revenue from the automobile sector,” said Mr George. According to him, impact on Wipro will be muted as its exposure to the auto sector is modest. GM is Wipro’s clients too. 
According to industry observers, exposure of TCS to the US auto sector is limited only to Chrysler and is likely to be less affected. “Infosys would get impacted as a good portion of incremental deals won by Infosys in the past 7-8 quarters are in manufacturing vertical,” said Religare Capital markets IT analyst Anurag Purohit. A senior official of the IT giant said clients had frozen talks on the new contracts that are currently on the anvil. Officials of Infosys, TCS, Wipro and Satyam were not available to respond to ET queries on this. 
    Gartner’s Koslowski said US auto clients, who earlier used to ask for a 3-5% price cut every year, are bound to pressurise their IT vendors for more at lesser costs. “They (IT companies) will have to be more flexible while approaching the auto companies,” he said. 

Source: The Economic Times dated 8th Dec 2008

Nov auto sales in US shrink to worst since ’82

    US AUTO sales plunged 37% in November to their worst level in more than 26 years, dashing expectations that this dismal year for vehicle demand had found a bottom, and adding more ammunition to the Detroit automakers’ case for a congressional lifeline. 
    “Our industry is in a much more severe situation than the rest of the economy,” said Mike DiGiovanni, General Motors Corp.’s executive director of global market and industry analysis. “We cannot continue at these levels or else the entire industry is going to go down.” 
    US auto sales in November fell to 746,789, according to Autodata Corp. On a seasonally adjusted basis, automakers reported an annual sales rate of 10.2 million units, the lowest level since October 1982. 
    Automakers and analysts blamed the crumbling US economy, less access to vehicle financing, and a wait-and-see approach among American consumers more preoccupied with the value of their homes and the fate of their jobs than the lure of a new car. 
    “Consumers (are) not showing up at the dealerships _ regardless of the deals they’re being offered and regardless of how low the gas prices go,” said Jesse Toprak, executive director of industry analysis for the automotive Web site Edmunds.com. 
    Every major automaker reported a year-over-year sales decline of more than 30% when they released their results Tuesday. The Detroit carmakers were among the worst hit, with GM’s US sales falling 41% and Chrysler LLC’s dropping 47%. 
    Their overseas rivals posted abysmal results as well. Toyota’s sales tumbled 34%, while Nissan’s dropped 42% and Honda’s fell 32%. The dreary reports came the same day the Detroit Three sent reports to Congress detailing why they are worthy of billions of dollars in emergency loans. 
    GM said it needs $4 billion this month and a total of $12 billion by late March to keep operating, while Chrysler is asking for $7 billion by year’s end. Ford Motor Co. wants a $9 billion standby line of credit, though it has said it has enough cash to get through 2009 and may not have to touch the government’s money. 
    Few analysts expected November’s sales numbers to be quite so low, predicting lower gas prices and higher incentive spending by automakers eager to make deals put a floor under sales. Incentive spending rose 15.2% from last November, according to Edmunds, while gas prices have plunged by more than half from their hall-time highs this summer.

Source: The Economic Times dted 4th Dec 2008

Terror-breaker for cars

Auto Cos And Real Estate Firms Are Hoping For Lower Interest Rates But Mumbai Attack Means More Trouble For Them

New Delhi: As Mumbai is the second-biggest car market in India after Delhi, the terror attacks have dampened the hope of any revival of car sales, which have been witnessing a slowdown. “There will certainly be a drop in sale in Mumbai as people will not venture out for buying cars,” Pawan Goenka, president of automotive sector at Mahindra & Mahindra, told TOI. He said companies who were relying on the Mumbai market for boosting sales in the normally-sluggish year-end period would see a significant negative impact. 
    “It will be certainly slower than what it is in November. And going forward, December is never a big month for auto sales,” he said. 
    P Balendran, V-P for General Motors, also said that sales would be impacted in Mumbai. “The sentiment was already down for car sales. Now whatever little was to happen would also be hit,” Balendran said. 
    With Diwali and other festivals falling in October, November was in any case expected to be a weak month. December is always slow for auto sales as people prefer to buy new vehicles in the new year as it slightly increases the re-sale value. 
    A senior official with Honda said the company’s sales in Mumbai would be definitely impacted. “Mumbai is a very important city for us and the sentiment has certainly run low after the terror attacks. Thus sales would be affected,” the official said. 
    For Honda, attacks mean a blow to business as company has just started deliveries of its new City model. Shekar Viswanathan, wholetime director at Toyota Kirloskar, also said that the business confidence would remain low for some time. “The sentiment has nosedived following these attacks and sale prospects remain low for the next three months, particularly in Maharashtra and Gujarat,” Viswanathan said. Low sentiment would even offset any gains that would have come when the interest rates on car financing came down, he added.

Source: The Times of India dated 28th November 2008

Fiat-Tata Motors combo gets Linea rolling

Adil Jal Darukhanawala(The author is editor-in-chief, Times ZigWheels. For more information, log on to http://www.zigwheels.com)

The new Linea will be the first all new Fiat model to be launched in India in seven years! It will come powered by either the famed 1248cc 16-valve multijet diesel (already powering the Tata Indica Vista) or the 1368cc, 16-valve FIRE petrol engine. Three trim versions would be on offer from day one and the Linea is expected to be launched nationally in mid-December.

November 21 marked a milestone in the history of Italian car maker Fiat for two very significant reasons. To most, it was the day for the new Linea to roll off the spanking new assembly line at Fiat's Ranjangaon plant near Pune. But it was the second reason which was of far greater import. The day marked probably the third start for the Italian car maker in India in the last decade-anda-half and possibly the last chance it has to carve out a foothold in this country.
Going by what it has done since 2006, with its JV partner Tata Motors, Fiat could mark out its latest attempt as third time lucky. It is a complete reversal of the way Fiat has gone into the business this time around. No half measures in any way marks out the Italian giant's commitment to India: A modern high tech green field unit capable of making 200,000 cars per annum (present installed capacity being 1,35,000 units though) along with an adjoining facility to manufacture 300,000 drivetrains (engine plus transmission) per annum. And very importantly all new models should keep the product range fresh and appealing, a very critical thing this in today's tough market scenario.
While the Ranjangaon facility has been making the Palio Stile for the last 6-7 months, plus also a few units of the first generation Tata Indica on a smaller line, the new manufacturing and assembly facility is ultra modern and highly flexible. Job 1 for this line came with Fiat's C-segment sedan the Linea being rolled out today and this would be the company's main offering till it is joined by two other models from the Fiat-Tata Motors fold in the next few months. It is expected that the Fiat Grande Punto as well as the next generation Tata Indigo would also roll off this very line shortly.
The Ranjangaon facility is equipped with a full fledged state-of-the-art body shop and a very modern assembly line with highly automated stations for ease of assembly by the line workers. This is in addition to a modern paint shop that will be commissioned soon, plus of course the adjoining drivetrain plant mentioned above. All versions of the Linea sedan and the Grande Punto large hatchback are to be made entirely in house at Ranjangaon.

स्त्रोत्र : दी टाईम्स ऑफ़ इंडिया, २२ नवम्बर 2008

US Big 3 auto chiefs fail to get bailout package

Washington: The chief executives of Detroit's Big Three automakers departed Washington empty-handed on Wednesday night after two days of pleading for a financial lifeline on Capitol Hill. As the public hearings and intense behind-the-scenes negotiations appeared to come to naught, the Senate majority leader, Harry Reid of Nevada, went to the floor seeking to bring up the Democrats plan to provide $25 billion in aid from the $700 billion financial bailout program. The Republicans objected, effectively killing the plan.
Senator Christopher S Bond, Republican of Missouri, then requested that the Senate consider a compromise measure that would speed access to $25 billion in federally subsidized loans that have been signed into law by President Bush. Those loans, however, were meant to help the auto companies retool their plants to make fuel-efficient vehicles, so Reid objected to that.
In an interview on Wednesday evening in his Washington office, Rick Wagoner, the chief executive of General Motors, the most imperiled of the auto companies, struggled to remain upbeat after two days of grueling testimony. Lawmakers had criticized Wagoner and the two other chief executives for failing long ago to build better cars or to revamp their operations. They were even attacked for traveling to Washington in corporate jets, which some lawmakers mocked as hardly a sign of frugality.
"This is all part of what we signed up for when we made this request," Wagoner said, seeming drained and uncertain of what would come next. "We knew we needed to testify and come down and tell our story, and we know the congress needs to decide if it's going to act and how its going to act. We don't think realistically one should have expected an answer tonight, and I still remain hopeful." But, with the House set to adjourn at the end of Thursday, the automakers were left with only the dimmest of hopes that congress would provide any assistance this year.
And though Reid did not completely close the door to a deal, House speaker Nancy Pelosi has repeatedly expressed strong opposition to the core of Bond's proposal. In a sign of the pessimism among congressional Democrats, the majority leader, Steny H Hoyer of Maryland, said to lawmakers on Wednesday evening that no House votes were expected on Thursday, meaning the Senate was not expected to send over any legislation for approval.
Wagoner met with congressional leaders late Wednesday before leaving for Detroit, and while he declined to say if he expected some lastminute aid package, he said,
Wagoner met with congressional leaders late Wednesday before leaving for Detroit, and while he declined to say if he expected some last-minute aid package, he said, "GM would welcome any form of assistance." "I think it best we leave what's the best way to do this to the congressional leaders and to the administration to sort out," he said. "We'd be happy to work under any of the scenarios Ive been told about." Wagoner testified on Wednesday that GM had not prepared a contingency plan for a bankruptcy filing if federal aid is not forthcoming. He said that GM's advisers had concluded that it could not obtain credit to operate in a bankruptcy, and instead would have to consider liquidating its assets.
The auto industry's immediate future may now lie with the Bush administration, which has staunchly opposed using the treasury department's $700 billion financial bailout program to aid Detroit. In testimony on Wednesday before the House Financial Services Committee, Wagoner and his counterpart at Chrysler, Robert L Nardelli, said it was unlikely that their companies could survive much longer without emergency assistance. The chief executive of Ford Motor, Alan R Mulally, said his company had enough cash to last through 2009 but that a failure by GM or Chrysler could have catastrophic effects on the industry.

Source: The Times of India dated 21st November 2008

Maruti woos PSU banks

Kolkata: Maruti Suzuki is changing partners. After a decade-long marriage with private finance firms when easy availability of auto finance put the sector on the fast lane, Maruti Suzuki is wooing public sector (PSU) banks in a big way with promises of longterm commitment.
The move is a bid to overcome the sales slump that hit the automobile industry after private car finance companies slammed the brakes.
Though tie-ups with private banks — HDFC Bank, ICICI Bank, Axis, Kotak Mahindra — and non-banking finance companies like Sundaram, Magma, Chola Mandalam, Mahindra, Reliance, Sriram have not been severed, Maruti Suzuki officials said the company would go the whole hog to promote finance schemes by PSU banks.
While Maruti Suzuki had entered into a tie-up with SBI and its seven associate companies a year ago, it has since joined hands with PNB, United Bank of India (UBI) and Bank of Maharashtra.
In the past couple of months, the profile of companies financing Maruti Suzuki cars has changed markedly with PSU banks now offering loans to 60% customers opting for finance against 50% a couple of months ago.
Following the liquidity crisis, private banks like ICICI Bank and HDFC Bank have reduced their exposure to car finance. The biggest player ICICI Bank that financed 13 out of every 100 Maruti Suzuki cars sold till two months ago, now finances only 5% cars. Silimarly, HDFC Bank’s exposure is down from 9% to 5%. Some NBFCs like Mahindra have stopped financing Maruti Suzuki cars altogether.

Source: The Times of India dated 21st November 2008