$73 an Hour

The question is whether he's worth as much as 200 employees. I've spent a lot of time at American Axle over the years, and I've never seen any evidence of it.

-- Ed Huntress

Yea but they want Skilled labor,, or at least employees that can be taught how to do a job, without help or constant supervision.

--------- some follow-up on my first response.

In many cases the public accounting/auditing firms shares responsibility for this problem. When the books of a publicly traded corporation are reviewed by the outside auditors, they are expected to give an opinion of the business as a going concern, which has been interpreted in the US as the likelihood of bankruptcy in the next year. While not all bankruptcies can be forecast, there was an increasingly high likelihood of bankruptcy and the inability to continue as a going concern for all three Detroit car companies over the last several years. Ford was the only one to draw the logical conclusions, undertake the required reorganizations/restructuring on a crash basis, and accumulate the cash required.

AFAIK, none of the auditors [Chrysler is not a publicly owned company and has not been externally audited since its purchase by Cerberus] ever issued a qualified (that is negative) "going concern opinion." for some insight see

see many more google on

Note that very few of these sites are US.

For an example of how a "qualified going concern opinion" is addressed in Japan see

The accounting for pensions in Japan was also much more strict, particularly after their financial implosion and "lost decade" (now approaching a lost generation). For a summary of their actions click on google on for more info and note the scarcity of US sites.

It is clear that the dangers of the *NON* "going concerns" to the pension plans [among other things] are well known/documented to the accountants and actuaries. In the US and many other industrial countries these dangers are simply ignored, when the businesses (and the fees) are large.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

The banks, Accounting firms, stock traders, automotive management, and UAW share quite evenly the blame for the collapse of the north american auto industry (and north american manufacturing on the whole).

And GM has been standing with one foot in the grave and the other on a bannana peal since about 1973.

Hey, George, I was thinking about you last night at a Christmas party we attended, held by a guy who's one of the few people who was working for Cantor Fitzgerald on 9/11 and who didn't die. It was full of Wall Street types and you can guess what we were talking about. They're all six-figure guys but I don't any of them are the seven-figure variety.

I spent an hour talking to an old friend who's a bond analyst at Citigroup -- one of the lucky ones who still has a job there. He used to be a risk analyst at Moody's.

These are middle-aged guys who remember when it was an honest business, and they're appalled at what's happening. You would probably still be there, having fun. d8-)

-- Ed Huntress

IF you are ever at the airport in Nassau, Bahamas and want a good lunch you have to go to where the employees eat around the back of the main terminal, much better food and lower prices. Something like Creole cooking.

John

I hope one of them took a couple of seconds to explain the negative yield fiasco to you Ed. It's a perfect example of the incompetence I've come to expect from the Bush administration.

JC

------------------ Indeed, but the thrust of what I was posting was to identify the people directly responsible, i.e. that had both the authority and responsibility [accountability] to prevent this catastrophe.

#1 of course is the management/directors, as this is what they are paid the big bucks for, not to be "statesmen" of industry and/or "feather their own nests."

#2 were the regulators at all levels. There were enough "red flags" for a May Day parade showing at every level. Every financial regulatory agency both those directly involved with the companies such as the SEC, and those indirectly involved through the lending institutions such as the FDIC, FRB, Comptroller of the Currency, etc. were industry lap dogs, not watch dogs.

When you run/expand a business by continually expanding the debt with no intention/hope of repayment it is called a Ponzi scheme and it is illegal. [Only the Federal government is allowed to do this.] This can lapse over into another fraud called "fraudulent conveyance" or "bust-out scam" where goods/services are obtained on credit, with no intention of payment, sold at a discount for quick cash, and the company files for bankruptcy or blows town. This is generally a shorter term/smaller grift, although the later stages of the Ponzi scheme may involve elements of this when the vendors are stiffed.

#3 the last line of defense was the independent outside auditors, who, as their reason for existence and the big bucks they earn, are expected to vet the companies for dodgy book keeping, excessively creative accounting, and as indicated issue an annual "going concern opinion."

The other groups such as the stock traders and UAW simply went along for the ride, and in the case of the UAW members stand to lose considerable amounts money that were promised for labor done in the 1960-1990s that is now due for pensions/medical benefits.

The UAW members were stiffed again when agreement was reached on the so-called VEBA to allow the automotive companies to get the health-care and pensions off their books, but as with most Detroit promises, when it came time to pay management said "we don't have the money right now -- can you come back in 2011?"

FWIW - both the blue and white collar retirees have already been "stiffed" on their medical benies, which have just been dumped on the taxpayers via medicare, albeit with much reduced coverage and higher co pays.

FWIW #2 -- standard Detroit vendor terms are now payment in 45 days after receipt of invoice. This means that the vendor has

*AT LEAST* 15% of their yearly *GROSS* income from that product at risk, effectively making a zero interest, zero collateral loan. Blogger information indicates that the payment times have been gradually increasing above the 45 day standard, leading to the assumption of a final "bust out scam" on top of the long-term Ponzi scheme. [Why leave any money on the table?]

GM and Chrysler are unique in that their grift has lasted so long and reached such size relative to the economy.

They are also unique for a private company for the wide verity of "investors" they managed to rope in, from their stock holders, their secured and unsecured lenders, their employees (who were paid in part with worthless promises of pensions and health care), and their vendors (who are about to be stuck with huge amounts of worthless "accounts receivable" and special tooling/equipment) to their dealers who they are about to stick with worthless franchises and huge amounts of "distressed" inventory.

Look for a GM and/or Chrysler B/K filing just before Xmas late on a Sunday as this will eliminate the need for holiday pay for the hourly employees. Probable electronic filing date is 11:45 PM Sunday Dec 21st.

It was to avoid a abrupt "stealth" B/K, ala Lehman Brothers, that the interim funding was so important. The additional 90-120 days would have allowed a more in-depth analysis/evaluation and more orderly liquidation, e.g. a GM consisting only of Chevrolet and a Chrysler consisting only of Jeep. When this grift is allowed to blow uncontrolled in the middle of the night look for "nuclear winter" with extensive "collateral damage" to result and few survivors with any major connection to the domestic auto industry.

I hope the major states involved such as Michigan have made contingency plans to process the huge spike in unemployment claims and other requests for social services that is sure to result.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Michigan and the rest are certainly going to have a lot of claims to process regardless. GM and Chrysler will be getting bridge financing next week George. That will make you and I their largest single creditor I think. Then, after Jan 20th, we'll force BK while simultaneously providing an arranged for credit facility. GM will have to produce a bussiness plan that the court can approve and they are working on it even as I type this. Chrysler will just be sold.

JC

I wish I could have been at Ed's party. I am sure the ethical bankers and brokers were as p****d-off as everyone else at the ruin of their industry/profession for the sake of the short-run quick buck and EZ-money. It turned out that finance was just another "cash cow" to be milked as hard as possible until she went dry and then sent to the slaughter house.

While I missed the party, the global fiscal/economic environment is now so far from normal that the usual considerations such as the "return *ON* my investment" are now trumped by considerations such as the "return *OF* my investment." [Nod to Will Rogers here]

There are very few places where Dollar denominated funds in the range 10s of millions into the billions can be parked quickly in safety other than short term US government securities. (5 basis points is still cheaper than renting a vault and paying guards to store cash, even if that much paper money was available....)

The capital flight from the commercial banks to US government securities is a disaster for not only the commercial banks but the economy as a whole because each dollar placed in governmental securities is a 10 dollar [or more] reduction in available credit due to the nature of fractional reserve banking.

There is also the velocity factor in that the money placed in governmental securities is not circulating.

While the FRB has their "magic money machine" operating at warp speed, the contraction in the "perceived" money supply from not only the fall in stock prices [e.g DJ 14,300 to DJ 8,500] but more importantly, on a volume/dollar basis, the huge write down of commercial bonds to 10 -20 cents on the dollar, with a fall in rating from AAA [investment] to Ccc- [junk] is far out pacing their attempt to re inflate the money supply. The same thing is occurring in most major economies, e.g. UK, EEC, Japan.

As I have indicated before, this attempt to re inflate the currency bubble is having minimal to negative effect because this is not a liquidity crisis but a solvency crisis where many [possibly most] of the major players are operationally/functionally bankrupt, and no one in their right mind would lend them any money expecting it to be returned w/interest.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Don't forget how tooling and such get held out for PPAP approval and all the other games to stretch payment. I have a feeling many vendors aging report go at least 60 days.

Wes

---------------- Indeed, and there are all sorts of "quality games" that are paid to gouge the vendor for even lower prices and stretch payments, as in "I know it's to the print, but you should have known that wasn't what we wanted."

One example [which seems to have been resolved] was Ford's problems with their diesel engine supplier [Navistar]. Amazing how the engine quality improved when Navistar stopped deliveries because of undocumented warrenty/quality charge backs.

Much of the reported "quality problems" seem to trace back to an attempt by Ford to break a contract to buy engines from Navistar so they could build their own diesel engine. Same thing occurred in the 60s with Ford/Holley, and GM/Carter, when the car companies decided to get into the carburetor business.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Actually, the tooling and part suppliers don't get paid until the tool produces vehicles for sale. Test shots/parts and pre-production test-vehicles don't count. In other words, vendor's tooling and parts made to-date for say the 2010 vehicles won't get paid until at least September 2009, when the 2010 models go on sale. One of the little repercussions of this is that if a "model line" is now cut to reduce the Big3's style offerings, say Chrysler cuts the Grand Caravan mini-van, the supplier of (again..for instance) the front clip, may very well have a real problem/no recourse to collect anything. Ever!! If the tooling for the clip was worth say $200,000 for that one part, that may well sink the tool builder and the part supplier. That's two businesses that will be gone, and they probably have had to arrange similar financing terms and arrangements with either their suppliers or their bank, or both, to float that money to start with, so they will also take hits. And what if they made 5 tools for Chrysler, only

2 of which were for the Grand Caravan, on a deal of some sort, and now they go out of business because they can't get paid for the one part, so there will be extra troubles for Chrysler because they won't have supplier for the other parts now.

There must be millions of little unthinkables about to happen, even WITH any government (US all levels + Canadian Feds & Ontario provincial) bail-out monies or assistance. I can see a Humpty-Dumpty tumble-down (not a trickle-down) about to happen no matter what, as these rules change or are forced upon the industry. Some good and well run businesses that had no causal interests in this collapse are going to be hurt severely or killed, no matter what happens now. And before anybody jumps in with the standard cries of how it's their own damn fault ..most are skilled non-union, if that influences anything.

Merry Christmas,,,,riiiiggghhhhtttt

Brian Lawson, Bothwell, Ontario.

--------------------- This just in -- possibly the start of a cascade of B/K Detroit automotive vendors. =====================

6:12 p.m., Dec. 12, 2008 Precision Parts files for Chapter 11 bankruptcy By Ryan Beene

Rochester Hills-based auto supplier Precision Parts International L.L.C. filed for Chapter 11 bankruptcy protection late Friday in Delaware.

The company said in a motion filed with U.S. Bankruptcy Court in Wilmington, Del. that falling sales to domestic automotive and non-automotive manufacturers, increasing steel prices and other factors have combined to cut revenues and cash flow and impaired the company?s ability to pay its debts.

A list of creditors filed with the court shows that Precision Parts owes the Detroit 3 more than $4.6 million for steel acquired through the automakers? steel repurchasing program ? a system for steel purchasing where automakers buy steel for its suppliers to get a better price on larger orders, which the supplier pays for after the fact.

--------------------

======================

11:26 a.m., Dec. 12, 2008 Credit firm puts auto suppliers on watch By Ryan Beene

Six local auto suppliers were placed on review late Thursday for a possible ratings downgrade on fears of a potential bankruptcy at General Motors Corp.

Wall Street credit ratings firm Fitch Ratings placed the suppliers? Issuer Default Ratings, which grade a company?s ability to meet financial obligations, on watch late Thursday. The companies were:

--Detroit-based American Axle & Manufacturing Holdings Inc. (NYSE: AXL)

--Troy-based ArvinMeritor Inc. (NYSE: ARM).

--Northville-based Hayes-Lemmerz International Inc. (NASDAQ: HAYZ).

--Livonia-based TRW Automotive Holdings Corp. (NYSE: TRW)

--Van Buren Township-based Visteon Corp. (NYSE: VC)

--Milwaukee-based Johnson Controls Inc. (NYSE: JCI). Johnson Controls? automotive operations are based in Plymouth.

The companies were placed on review because of the impact of a possible Ch.11 bankruptcy at General Motors, and Fitch?s view that Ford Motor Co. would also fall into Ch. 11 if GM sought court protection, according to a Fitch memo.

----------------

==================== December 12, 2008, 10:57 am As Goes GM, So Go Auto Suppliers; Savings And The Consumer Posted by Bob O'Brien

FITCH WARNS OF IMPENDING DOWNGRADES IF GM GOES

If General Motors (GM) were to find itself with no recourse but to declare bankruptcy, a host of auto supplier could - not surprisingly - follow suit. At the very least, the rest of the automotive food chain, including suppliers of parts, components and systems, would face widespread default on credit obligations, and find themselves facing an increasingly adversarial creditor base.

Fitch ratings service said that it may cut the credit ratings on seven auto suppliers because of concerns over the prospect of a GM bankruptcy filing. It said such a move would result in ?contraction of auto production, supply chain, trade credit, and capital access, and cause widespread slowdowns and bankruptcies throughout the supply chain.? At the very least, a GM bankruptcy would spark violations of loan-covenant agreements ?across a majority of (parts) suppliers.?

The firm said it considered American Axle (AXL) to have the greatest risk of a downgrade; if it changed the rating on the company, which is currently rated five steps below investment grade, it would fall to the extremely speculative rating of ?CC?. Hayes Lemmerz (HAYZ) and ArvinMeritor (ARM) are also currently graded five steps below investment grade. Within the group, Visteon (VC) - eight steps from investment grade - carries the most-speculative rating; Johnson Control (JCI) is the only name in the sector with an investment-grade rating.

Tenneco (TEN) and TRW (TRW), whose current investment ratings have them within two steps of investment grade, are regarded as the healthiest names in the sector, in terms of credit-worthiness. But even they would likely have to renegotiate their current debt covenants with lenders.

-------------------

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

MANY small tool and die shops have already been put out of business by the "automotive downturn" in southwestern ontario due to the failure of parts suppliers who have not been able to provide parts at the price GM, Ford and Chrysler are demanding (and able to get from offshore) and are therefore unable to pay for the tooling provided to them to do the job. Then there are the parts manufacturers who have used off-shore tool and die shops to make their tooling and due to faulty tooling have not been able to meet the quality requirements on time to maintain parts supply contracts to the big 3. So they are gone already too. MAny of these were small non-union shops - and in the case of one tool and die shop had been in existance for well over 50 years. The ownerjust closed shop and retired while he still had some money left.

---------------- Thanks for the insight/info.

The further I look into this, the "stinkier," the whose thing becomes.

To mangle the metaphor, we don't allow the construction of 10 story wooden building without sprinklers and adequate fire escapes. Why them were these types of "fire trap" jurry-rigged corporations allowed to evolve with no emergency exists, no sprinklers, no fire walls, no nothing, with pennies behind every fuse? It is clear now that the building is on fire that this was a disaster waiting to happen for at least the last decade.

Most unfortunately, it appears that Detroit is unique in this regard only in being first.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

The good thing about a negative-yield curve is that it means investors still have a sense of humor. d8-)

(I'm being facetious.)

-- Ed Huntress

I hope I remember that if it should come to pass. It's funny you should mention that, because I once ate in a little restaurant next to the Christiansted airport, one that was frequented by the locals, and had the best goat stew I ever ate in the Caribbean.

If the damned little goats weren't bleating around right out back, and if they didn't look so cute (these are very small goats, black-and-white), I could have enjoyed it more.

-- Ed Huntress

I'll keep it in mind. I was good on the foredeck when I was in my

20s....'could go right up the mast in a bosun's chair, too. Now, I'd be happy to consult and advise. d8-)

-- Ed Huntress