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Hyundia Innovates Again - Could It Backfire This Time?

2009_hyundai_elantra Hyundai is building a reputation as an innovator… from offering a 100,000-mile warranty to allowing customers to return their cars if they lose a job.

Now the company is even defying the U.S. government’s rules by getting a jump-start on the cash-for-clunkers program. Slated to start on July 23, Hyundai dealerships will allow customers to bring in clunkers right now to take advantage of up to $4,500 off the purchase price of a qualifying new car.

It’s a bold move, considering the government could potentially pull the plug on the program or make a sudden change as to which cars qualify. Hyundai is playing the odds, though, letting people bring in their ‘94 Explorers and giving them $4,500 off a $14,000 Elantra.

According to a Hyundai study, 11 percent of car buyers were waiting until the government’s program took effect to buy a new car. It could be a brilliant move, capturing customers who might otherwise shop for other brands when they all begin offering the program.

John Krafcik, president and CEO of Hyundai Motor America, said,

We appreciate what Washington has done getting the program completed, but it’s clear that the wait has left many potential car-buyers on the sidelines. We thought it was imperative to get funding to our dealers so that they could implement the program right away and satisfy the demand they’ve been hearing from consumers.

Don’t get too excited, though, if you have a 20-year old Toyota clunker that is rated at 25 miles per gallon; you won’t qualify. Congress has taken an otherwise good idea and put so many restrictions on it that many interested people won’t have cars that qualify.

If you have an old American-built SUV with a seized transmission, though, you’re in luck, because Hyundai will probably give you $4,500 for it today.

Have a question about whether your car qualifies? Let us know and we’ll get you an answer!

-tgriffith

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Will You Get Free Stock in General Motors?

gm-stock-prices As taxpayers, you and I bailed out General Motors and Chrysler. What are we getting in return? As of right now, nothing but the warm feeling in our chests of knowing we contributed to saving a couple of poor, helpless, and starving corporations.

Feels good, doesn’t it?

I don’t know about you, but I’d much rather have the government choose where my charitable donations go than trying to sort through the endless array of worthy charities that save starving children or house hurricane victims.

Seeing bloated auto executives on the street would break my heart, and since we didn’t let that happen, Republicans have proposed a way to give back to us: They want to give us stock in return for our investments in GM and Chrysler.

Hallelujah! The U.S. government has given $50 billion to General Motors alone. There are 120 million Americans who submitted tax returns for 2008. By my calculations, that should translate to about $417 in GM stock for each of us.

It makes sense to me for the people who paid the tab to gain ownership. Sen. Lamar Alexander, R-Tenn., the proposal’s author, said,

This is the fastest way to get the stock out of the hands of Washington and back into the hands of the American people who paid for it.

Let me give a virtual chest bump to Lamar - good thinking, bro! General Motors stock last closed at around 75 cents per share, so I figure we’re all entitled to 556 shares.

Maybe if the company recovers, we’ll all be able to cash in and go buy a new Toyota.

Would you be for a plan that transfers ownership of GM and Chrysler to the American people?

-tgriffith

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The Death Watch Continues

GM's Cars of Tomorrow To nobody’s surprise, bondholders said no to GM’s magnanimous final offer of a 10-percent share in the reorganized company. It’s now virtually certain that the courts will take over in the next few days. Said Bloomberg,

The exchange offer was opposed by both institutional and individual investors, who said they’ve been treated worse than a union retiree-medical fund.

My God, worse than a retiree-medical fund run by a union? What could be more demeaning than that? Still, the outcome of the swap offer last night clearly demonstrated that investors felt they were being, shall we say, shortchanged. They were in no position to buck the government—already lending GM $19.4 billion and promising at least $30 billion more. Canada is also in for $9 billion.

As we reported earlier, GM’s bankruptcy route will likely be similar to Chrysler’s, though the issues are a good deal more complex. In Germany, Opel and Vauxhall assets are being pooled and segregated from the parent company to prepare for sale to Fiat or Magna, along with some government loan guarantees.

What the implications are, long- and short-term, of two-government ownership is hard to say. We can say it will be a rocky ride.

With the U.S. government owning about 70 percent of GM, you know who will be calling the shots, though they claim a hands-off approach. Can they call the right ones? Tell us what you think.

—jgoods

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Wake Up, Folks, We’re Going to Have an Auto Industry

My compadre tgriffith got all steamed last week about the chintzy buyouts GM and Chrysler have offered their workers. For $20,000, much less than one year’s pay, and $25,000 toward an already-depreciated, devalued car, GM workers sign over their rights to receive all retirement and health care benefits.

The company wants to shrink the number of its long-term employees, since it pays far less for new ones. Well, would you take that offer if you knew there might be a bailout coming? And why would you take it anyway?

One year ago, GM was offering its entire hourly workforce buyouts of $140,000 for those with 10 years of service or more, $70,000 for those with less. Buyout offers have been a fact of life in the car industry for years.

A Little History, Please
Those who commented on tgriffith’s post, with the exception of Randy, have no idea how the auto industry works, much less the UAW. They don’t know that both company and union are carrying $47 billion in retiree health care costs, and that is the biggest obstacle to an agreement right now, the union having given way on most issues since 2007. New workers at the Big Three and the transplants are paid roughly the same.

Detroit has a 70-year history with its workers, whereas the transplants in this country virtually just arrived. In better times, the UAW and the Detroit companies made expensive and expansive deals each is having trouble living up to now.

The larger point is that everyone knows President Obama is committed to having a viable auto industry, and he has created a task force of his top economic advisors to bring that about. Messrs. Geithner, Summers, Bloom & company will have their hands full, but they aren’t stupid people.

Through bankruptcy, formal or informal, the companies will get remade and restarted. Wagoner, Nardelli, and their top brass will go, many jobs will be lost, and you and I will pay for it. Why? Because the alternative is much worse.

Four Big Potholes Ahead
I see four very big economic problems that will have to be solved. If not, you’ll see the much worse alternative. I’m not even looking at the energy side, which may or may not give us the new cars we all like to write about.

U.S. automakers and their dealers are swimming in inventory, and the problem will get worse. With sales tanking and factories still producing, though at a lower rate, inventories will grow this year. Nobody sees demand increasing enough to catch up for a long time. Prices will continue to drop, including those for hybrids.

Health care costs are at the root of much of the cost problem for the industry and the nation. With retiree benefits cut, unions have assumed more and more of the health care burden. With fewer employees, they will have less clout and may even cease to exist. We desperately need a national health care policy that will spread the risk, cut the costs, and reduce the advantage the imports have.

Finally, there are two other predicaments we have often written about here: one, the expensive and inefficient dealer network and other structural problems in the industry, like its enormous fixed costs; and, two, the supplier network which serves all car manufacturers. A cascading failure of suppliers could well bring down all the companies, foreign and domestic. And another million jobs would be lost.

So, we’re looking to the feds and Mr. Obama’s people to come up with brilliant (or at least workable) solutions. To solve these massive problems, there will have to be fundamental reform in the industry, and that means a kind of bankruptcy or “reorganization.” The costs may not all be borne by taxpayers. There has been recent talk about other financing options, maybe the banks, maybe foreign companies. One China firm was reportedly talking to Chrysler, though the firm denies it.

Bottom line: Let’s start thinking about how to help the industry survive. Worker buyouts aren’t the answer. (If they were, why didn’t more folks take them?) Besides, we may all be getting a very nice discount voucher on a new car soon.

Would a $10,000 discount on a $30,000 U.S.-made car or truck tempt you?

—jgoods

Update

We just got word that Ford signed a deal with the UAW permitting the company to substitute its stock for up to half the payments owing into the health retiree fund (VEBA), subject to member and court ratification. For Ford, that comes to $13.2 billion.

This effectively means that GM and Chrysler will follow suit—something they had been hoping to achieve in their talks. I think Ford beat them to the punch simply because they are in better financial shape. The union would be crazy to offer this deal to their competitors, who are edging ever closer to bankruptcy. It’s like buying health insurance from a firm that’s sure to go under.

But they will probably make this final concession in order to get a deal from the Feds.

What should happen, as I said above, is universal health care, but that’s impossible in the urgency that faces the industry now. Maybe the government will backstop the union, as it seems to be doing for the banks, so as to take the health care burden off their back when and if times improve.

As some wag said in a comment on the NY Times story, “I wonder if the Ford stockholders, management and board would ever accept a deal similar to this for their families’ future?”

GM shares rose from their lowest since the Great Depression to $1.84 today.

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