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Episode 129 – GM Takes 9-Week Shutdown, Chrysler Banks Get New Offer, Toyota Still Number One

April 23rd, 2009 at 12:09pm

Runtime 6:29

GM is going to close most of its plants in the U.S. for 9 weeks this summer. Chrysler’s banks get a counteroffer which would give them more money and stock. Toyota maintains its spot as the number one automaker in the world in the first quarter. All that and more, plus we uncover an important loophole in California’s CO2 legislation.

Transcript and Story Links after the jump . . .

Here are today’s top headlines. GM sends another signal about bankruptcy. Chrysler’s banks get a counteroffer. And we uncover an important loophole about CO2 legislation.

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

This is Autoline Daily for Thursday, April 23, 2009. And now, the news.

Yesterday, GM let it be known that it’s going to close most of its plants in the U.S. for 9 weeks this summer. Normally, the company takes a two week shut down in July. According to Ward’s, GM had 122 day’s worth of inventory at the end of March (subscription required), which is high, but a lot lower than the 147 days it had in February. So why close down for 9 weeks? Here’s what I think is going on. This is a sign GM is preparing to go into bankruptcy, and GM knows its car sales will collapse when it does. GM hopes to get through any bankruptcy in two months, so why not close the plants for two months?

Yesterday we reported that the banks rejected the U.S. Treasury’s offer on what they’ll get for Chrysler. Today the Wall Street Journal reports the Treasury has a new offer (subscription required), which would give the banks more money and more stock. That brings both sides close, but they’re still $3 billion apart, and the deadline for any deal is one week from today.

While Fiat’s deal with Chrysler is still up in the air, its being reported that the Italian automaker is interested in Opel. According to German magazine Spiegel, Fiat will sign a letter of intent to buy a majority share in Opel next week. The magazine also said Magna Steyr was in constructive talks with GM over Opel. All three companies declined comment. GM must find a buyer for Opel for the company to receive aid from the German government.

Like other European countries, the UK is initiating a scrappage plan to stimulate new car sales. Autoblog reports that the program offers a £2,000 incentive to new vehicle buyers if they trade-in a car that’s at least 10 years old. Half of the roughly $3,000 discount is paid by the government and the other half by automakers. A similar program in Germany boosted sales by nearly 40 percent last month. Hopefully it will work in the British Isles. Tally ho!

Yesterday was earth day, and Chrysler used the occasion to unveil a green minivan. The company will provide the U.S. postal service with a fleet of 250 lithium-ion-powered vans for use around the country. Surprisingly, they WILL NOT have a range extender. This means they’re electric only and have no internal combustion engine to recharge the batteries if they run low. This shouldn’t be a problem though, because fixed postal routes are typically only 18 to 20 miles long. You know, maybe there’s more to the Chrysler’s EV program than meets the eye.

Last week we reported that it looked like Volkswagen would outsell Toyota in the first quarter this year. However, according to the AFP, the Japanese automaker was able to maintain its spot as the number one automaker in the world, despite suffering a 27 percent drop in sales. Toyota sold almost 1.8 million vehicles to VW’s 1.3 million in the first quarter.

Coming up next, some very interesting insight into California’s CO2 legislation. We’ve uncovered a major loophole. We’ll be back right after this.

Two days ago I interviewed Tom Cackette, the deputy director of the California Air Resources Board via webcam. He made a fascinating point about how fuel economy is calculated. After the EPA tests a car, it lowers the fuel economy by 20 percent to put a number on the label that reflects real world fuel economy. But for CO2 regulatory purposes, the California Air Resources Board uses the higher number that is not on the label.

We’ll be posting the full interview with Tom Cackette from the California Air Resources Board in the near future.

Hey, join me tonight for Autoline After Hours at 7 p.m. eastern. ‘Renzo and Vines are going to be there, and Matt DeLorenzo, the Editor-in-Chief of Road & Track magazine will be there. We’ll be rating Toyota’s brands, talking about the future of auto shows, and whether General Motors should change its name.

And that’s it for today’s show. Thanks for watching, we’ll see you tonight and tomorrow.

13 Comments to “Episode 129 – GM Takes 9-Week Shutdown, Chrysler Banks Get New Offer, Toyota Still Number One”

  1. Bill Says:

    Hey John…Do you think Fritz can get us through a structured bankruptcy in 9 weeks? All this talk about to many units on the ground could be smoke and mirrors.

  2. Tom Geauvreau Says:

    If Fiat signs that letter of intent to buy a majority share of Opel that would probably eliminate any chance of Fiat pouring any major amount of money into Chrysler…if any.
    I realize Fiat has said right from the start that they wouldn’t throw money at Chrysler and the banks have been insisting that it should, I think to the tune of $2 billion if I remember correctly…but if Fiat’s cash is tied up in purchasing Opel, the cash well will be running a little dry.

  3. pedro Fernandez Says:

    John: I’m surprised to see VW almost catching up to Toyota in sales, I guess reliability is not as important as I thought it was.

  4. Chris Hail Says:

    So CARB doesn’t take the real world into account when setting regulations. Why doesn’t that surprise me?

  5. pedro Fernandez Says:

    The use of electric vehicles in delivery applications is a no-brainer. They need to be shut off between stops and their routes are not very long at all. I think it’s a great idea and a way to see how electric works in the real world.

  6. craigerzgt Says:

    @ pedro:

    The mindset that Toyota is a superior brand than VW in terms of quality is a myth. Really, it’s only the VWs that were made in Mexico at the start of this decade that were the real let-downers (ie: MKIV Golf/Jetta, City Golf/Jetta, etc). Otherwise, it entirely depends on the model.

    I love the fact that Chrysler could be done for in a week’s time and they’re concerning themselves with releasing product, rather than full-focus on getting the debt worked out and an agreement with FIAT. Gold Jerry, gold.

    Looking forward to the chat tonight John!

  7. pedro Fernandez Says:

    Craig: you don’t put any credence in either JD Powers or Consumer Reports? For years they ‘ve been saying that even though some VW products DO rate higher than the Toyota counterparts, they can’t recommend them due to the reliability issue, There’s no doubt in my mind that the Jetta is better than the Corolla and the Passat is superior to the Camry in most aspects except in their reliability.

  8. Dave E. Says:

    I agree with pedro, I’ve owned VW’s and known many people that have owned them (Passats included) and they were very unrealiable and expensive to fix. It also seams like VW’s are too expensive in their catagories compared to their competitors, its hard to believe that they would out sell toyota. They must be more popular outside of the US.

  9. Andy Says:

    I also have owned VW’s and Honda’s.

    The VW’s were more fun to drive, much more involving. A nice driving machine. But, a lot of the functions of the car were not reliable and the material quality was not first rate. The new VW’s, however, seem to have a very nice interior.
    In contrast, the Honda’s were much more reliable and had higher quality materials…..but they were kind of boring to drive.

  10. Ivan Says:

    John, I think GM is readying for bankruptcy, but it remains uncertain that GM will go through bankruptcy. Go back in time, and you will find that GM took nearly all of it’s plants down for 6 to 12 weeks each summer for maintenance and new product introductions. Then came just in time and zero down week model introductions. Also, if GM is to get profitable, they need to clear out inventory. Meanwhile, the other things you note are out there as well.

    Finally, most of the knowledgeable components are stating very openly that a GM bankruptcy simply cannot be done in today’s legal environment. So Congress would have to pass laws first to enable such a thing. Ultimately, time will tell, but your comments are purely speculative – even if they prove true!

  11. pedro Fernandez Says:

    This is like the Lexus vs BMW vs Benz argument, I have spoken to people that have owned Lexus and either of the German machines and they always say the same: for handling and road feel, its one of the Germans. For plushness and long distance comfort+reliability it’s the Lexus hands down.

  12. Alex Kovnat Says:

    Regarding California’s neurotic CAFE rules, we read:

    >After the EPA tests a car, it lowers
    >the fuel economy by 20 percent to put
    >a number on the label that reflects
    >real world fuel economy. But for CO2
    >regulatory purposes, the California
    >Air Resources Board uses the higher
    >number that is not on the label.

    I’m not surprized. Years ago, sedans (i.e., “cars” as opposed to pickup trucks or SUV’s) were downsized to the point where families with 3 children had to buy SUV’s, because the sedans available weren’t big enough.

    But then everybody was happy, right? The advocates of draconian fuel economy laws were spared the blow to their egos that would have occurred if the 27.5 MPG CAFE law was repealed, while our nation was spared a nervous breakdown via the SUV loophole.

  13. Sean Says:

    CAFE has always used unadjusted (i.e. not ‘real world’) values, so it’s not like this is a change. So an X% increase in CAFE is proportionally equivalent to ‘real world’ fuel economy (i.e. label values). However, the formula for adjusting the CAFE numbers for the label changed recently (5 cycles taken into account, set to a 25th percentile driver such that 75% are expected to beat the value), so comparing today’s label values to several years ago isn’t an apples-to-apples comparison. But you want to keep the procedure and cycle the same for CAFE so you can appropriately increase the standard. Meeting Federal fuel economy standards (CAFE), and soon California standards (CO2 regulation), is one thing, selling vehicles to the customer (label values) is another thing…