Episode 117 – Chrysler Trouble With Banks, GM Bondholders Insure Bonds, Auto Show Unveils

April 6th, 2009 at 12:00pm

Runtime 6:39

Chrysler is struggling to get its banks to accept stock instead of cash. A number of GM bondholders took out insurance policies on their bonds with insurance company AIG. A couple of new products from a couple of auto shows. All that and more, plus we talk with Jim O’Sullivan, the CEO of Mazda North America about what’s going on at the company.

Transcript and Story Links after the jump . . .

Here are today’s top headlines. Chrysler runs into problems with its banks. AIG could bailout GM bondholders. And a couple of new products from a couple of auto shows.

Coming up next, we’ll be back with the news behind the headlines.

This is Autoline Daily for Monday, April 6, 2009. And now, the news.

Chrysler is struggling to get its banks to accept stock instead of getting $5 billion in cash, the Associated Press reports. Chrysler is also having problems getting its bondholders and the UAW to accept stock instead of the cash that they’re owed. But the banks own Chrysler assets like factories and equipment. So if they company goes bankrupt, they’d be able to sell those assets and get cash, which means the banks would be better off to see the company go bankrupt.

Meanwhile, at General Motors, a number of GM bondholders took out insurance policies on their bonds, what are called credit default swaps. They bought those swaps from insurance company AIG, the same AIG that just got $160 billion from the U.S. government. If GM goes bankrupt, AIG will have to pay those bondholders 100 percent of what they’re owed in cash. Those bondholders will actually profit if GM goes into bankruptcy. Congressman Thaddeus McCotter from Michigan is demanding that the Obama Administration prevent this from happening.

Saab says it has 20 potential buyers and plans to complete a sale by June. According to the AP, the company went sinessinto bankruptcy in February and was just given an extension in bankruptcy court after creditors agreed to continue the reconstruction process. The company still could collapse because GM and the Swedish government are unlikely to provide Saab with enough money to become a free-standing business.

Korean automaker Kia has unveiled its redesigned Sorrento SUV at the Seoul Motor Show. It offers fresh styling inside and out, but the biggest news about this twenty-ten model is what you can’t see. The company has switched from traditional, body-on-frame construction to a more carlike unibody platform. This should give the Sorrento more interior room, better driving dynamics and improved fuel economy.

In other product news, GMC revealed its brand-new Terrain crossover (subscription required) at the New York International Auto Show. This five-passenger 2010 model shares its architecture with the Chevrolet Equinox. It offers buyers a host of technology features like remote start and a standard rear-view camera. The company is offering two engines, both of which have direct fuel injection and are matched with a six-speed automatic transmission. A 2.4-liter four cylinder is standard and gets an estimated 30 miles per gallon on the highway. A 3.0-liter V6 is optional and should deliver 264 horsepower. Look for the 2010 GMC Terrain on dealer lots late this summer.

Ford just unveiled a concept based on its Transit Connect van, called the Transit Connect Family One. As you can guess from the name, the vehicle was designed with the family in mind. Not only does it provide a spacious interior and plenty of cargo area to get the family around, it has features like built-in hand sanitizer and sunscreen dispensers, walkie-talkie radios that charge when docked, an integrated first-aid kit and cargo door-mounted scooters. The seat covers can also be removed and washed. The concept is equipped with a 2.0-liter, four-cylinder engine.

Coming up next, we talk with Jim O’Sullivan, the CEO of Mazda North America about what’s going on at the zoom-zoom company.

Mazda introduced its refreshed Mazda 3 to the American media last week and we asked Jim O’Sullivan, the CEO of Mazda North America to talk to us about the importance of this car to the Mazda brand.

If you’d like to hear the entire interview with Jim O’Sullivan, we’ll be posting that on the John’s Journal section of our website later today.

And don’t forget to join us this Thursday evening at 7:00 PM eastern, or 2400 hours GMT for Autoline After Hours. Joining us this week for the discussion is Maryann Keller one of the best-known automotive analysts in the business. 30 years ago she was the first analyst to predict Chrysler would need a government bailout. You won’t want to miss what she has to say today. Join me, Jason Vines and Peter DeLorenzo for the inside story of what’s really happening in this industry.

And that’s it for today’s top news in the global automotive industry. Thanks for watching, we’ll see you tomorrow.

15 Comments to “Episode 117 – Chrysler Trouble With Banks, GM Bondholders Insure Bonds, Auto Show Unveils”

  1. pedro Fernandez Says:

    That Ford van looks interesting and very practical, but what’s with the blue doors, did they run out of white paint? It reminds me of an old car that someone put doors of a different color from a junkyard.

  2. Tom Martin Says:

    Mazda may not have got the memo. After building smaller, lighter cars than their competitors, Mazda now gives us heavier Mazda 3 and 6.

    Nissan, on the other hand, has recently given us smaller Altimas, Maximas, and 370Zs.

  3. Tom Martin Says:

    If AIG approved/approves the bond holder insurance for GM bond holders in the past year, anyone supporting or approving the deal at AIG should be immediately fired!

  4. Gary P Says:

    Before anyone gets up in arms about AIG insuring GM bonds they ought to know the whole story. Bond default insurance isn’t free. AIG has collected premiums from bond holders for the insurance. The current premium for GM bonds can be as much as 87% of the bond’s face value, depending on the maturity date!

  5. Ron Says:

    I’ve owned a Mazda Protege for almost 8 years and think it is a fine car. Other than routine maintenance, tires & battery, I haven’t had to spend any money on it and it runs like a Swiss clock and is still fun to drive.

    The new Mazda 3 looks as though it is grinning at you and doesn’t have any teeth. Although I’m keeping my eyes open for a new car, I’ll have to pass on the 3 until they do something with that front end.

  6. craigerzgt Says:

    @ pedro:

    In Europe, the Ford Transit quite often has different coloured doors on it. The reason to this is unknown to me and is likely a Wiki away, but it’s likely why the concept maintains that same image.

    @ Tom Martin:

    It may be true that releasing a heavier vehicle isn’t the best thing that Mazda could do, but really, a slightly heavier Mazda is still likely lighter than the competition, or marginally more.

    @ Ron:

    The new 3 actually doesn’t look as bad in person. Actually in that red colour, it looks quite brilliant. The cartoon face will grow on you.

  7. G.A.Branigan Says:

    Good old Chrysler,trying to pass off near worthless stock is kinda like knowingly writing a bad check.I would normally axe if the banks are going to be stupid enough to take em….but we are talking about banks and they have proven their way of doing business isn’t to awful smart either.GM and AIG….why shouldn’t AIG insure them…after all….it’s OUR money.Weird world.

  8. John Says:

    If you don’t know the name Meredith Whitney you should.

    Meredith called the banking crisis before it happened and she sees more problems ahead.

    This has a HUGE impact on the consumer and the auto industry.

    Here is a good interview:

    http://www.forbes.com/2009/04/05/meredith-whitney-transcript-intelligent-investing-credit.html

    http://en.wikipedia.org/wiki/Meredith_Whitney

    http://www.meredithwhitneyllc.com/

  9. JIm Thykeson Says:

    John, are those bond-holders dumb-asses or what! AIG don’t pay off on those ‘swap’ deals. They should realize the insurer industry is the biggest rip of all. They just take your money, then don’t pay when you need them! ‘Credit-default-swaps’, you gotta be a ass to buy anything with a name like that!

  10. Salvador G. Says:

    Finally, Ford will introduce a car people actually buy (in Europe), a good car none the less; now its all up to the market (good advertising) whether it sells (for the right price).

  11. pedro Fernandez Says:

    John: Do you suppose in today’s environment, An Iacocca-type fix for Chrysler would work?, I mean: to make a whole lineup of vehicles based on one platform which except for the minivan, the rest were pretty crappy. I personally don’t think that would work today.

  12. William A Dayton Says:

    I am a Chrysler retiree (12-31-88) and am currently living off my pension from that company.

    My wife and I are very concerned about our future IF Chrysler goes under.

    I worked in the Design Office when Mr. Iacocca launched the K-Car. The strategy worked then, but I doubt that it would work in todays much more sophisticated market..

  13. William A Dayton Says:

    See my statement Item #12 above

  14. julius lambert Says:

    Just think someone at AIG got a big fat BONEASS for pulling off this TAX PAYER SCREWING.What part of THIS do you not understand by now?

  15. Bob A. Says:

    In response to Ron’s comment & that of craigerzgt’s about the Mazda 3;

    Ron is right about the front facia. The Japanese & Korean automaker’s designs copy off of one another and are Just Plain Ugly.Proof is that a lot of North American consumers are now into buying econo-boxes with plenty of cupholders/gagdets.The purist’s critia is American or European Styling,Performance & Handling/Comfort.That is why when people are looking for their car today in a large parking lot; the only way to find their car is with their remote key fob because these econo-boxes all look alike.

    Thanks for the opportunity to leave this comment.