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U.S. to buy huge stake in GMAC
$6-billion investment is part of plan to prop up U.S. auto industry

Get full story here or freep.com

By JUSTIN HYDE and TIM HIGGINS ● FREE PRESS WASHINGTON STAFF ● December 29, 2008

WASHINGTON – The U.S. Treasury will inject up to $6 billion into GMAC as part of a plan to shore up the finances of GM’s lending arm and the U.S. auto industry, the Bush administration said today.

Under the plan, the Treasury will buy $5 billion in preferred GMAC shares, paying an 8% annual dividend. It also will lend up to $1 billion to General Motors Corp. so that it too can buy additional equity in GMAC, which the Treasury could take on demand.

The Treasury said the money for the injection would come from the $700 billion financial industry bailout, and that GMAC would have to meet restrictions on executive pay as part of the deal.

The troubled lending arm won a key lifeline last week when the Federal Reserve said it could become a bank holding company, granting it access to the $700-billion financial industry bailout and other aid.

GMAC had pressured bondholders to convert 75% of their debt into equity, part of a plan to raise $30 billion in capital and stave off a possible bankruptcy of its own.

As of this evening, however, GMAC still had not announced the results from that debt exchange, which ended at midnight Friday.

“We are processing the results, and we will disclose the final tabulation here sometime soon,” said GMAC spokeswoman Toni Simonetti.

Click here for the complete story.

Read this scathing editorial on the website of Investors Business Daily here. or just read it below.

The UAW Reneges

By INVESTOR’S BUSINESS DAILY | Posted Wednesday, December 24, 2008 4:20 PM PT

Autos: The government gave the Big Three a $17.3 billion bailout based on the idea that both management and the unions would make concessions. Now the UAW says no thanks. Can we have our money back?

Last week’s deal was supposed to hold both the managers’ and unions’ feet to the fire. In handing out the taxpayer money, the White House insisted the auto union cut worker pay roughly to the levels of their successful competitors, Toyota, Honda and Nissan.

For $17 billion in emergency bailout cash and possibly much more later, it was a reasonable request. As President Bush said, “The time to make the hard decisions to become viable is now — or the only option will be bankruptcy.” He added that a deadline of March 31 for the industry to prove its “viability” and other limits “send a clear signal to everyone involved.”

Well, if so, the United Auto Workers didn’t get it.

Just days before Christmas, the UAW let it be known it’ll fight any concessions on wages and benefits. “An undue tax on the workers” is how union boss Ron Gettelfinger described it as the UAW reneged on the deal almost before the ink was dry.

This will go down as one of the most cynical acts of political manipulation ever. The UAW agreed to one thing with President Bush, knowing full well President-elect Barack Obama and congressional Democrats were big recipients of union largesse and would let them slide. They read the situation correctly.

Democratic Rep. Barney Frank this week called union concessions an “unfair assault on working men and women” — a not-accidental echo of Gettelfinger’s comments.

But the only real assault on “working men and women” here is the enormous cost this bailout will entail — a cost that all working taxpayers will have to bear and which some analysts think will ultimately total $75 billion to $125 billion.

And the UAW hopes you’ll pony it up and give them a free ride.

U.S. automakers are in trouble for two reasons. One, they have massive legacy costs on their books to take care of retired workers, and two, their labor costs are much higher than their competition.

Recent estimates put average UAW worker compensation at $55 an hour to $73 an hour, vs. $45 for the transplant automakers. So at a minimum, UAW workers are $10 an hour more expensive to hire than the 114,000 workers who toil at transplant auto plants situated mostly in the non-union South.

Simply put, unless the UAW makes concessions, a bailout can’t work. It will be a financial impossibility. The U.S. automakers’ high labor costs, coupled with the 2,000-plus pages of work rules and union requirements under the most recent labor deal, will keep them from achieving the productivity they need to compete.

The U.S. automakers are bleeding $6 billion a month. Better to pull the plug now and force them into bankruptcy, where radical restructuring — including cuts in union pay and benefits — wouldn’t be optional but mandatory. That’s the industry’s only hope.

The government of Kuwait and Dow Chemical had planned to join together
in a $17 Billion venture headquartered in Michigan.

The Associated Press is reporting that Kuwait has pulled the plug and
the venture is canceled due to the downturn in the international
economy.

Read the complete story here.

From the Detroit Free Press.  Full Story here.

By MARTIN CRUTSINGER • Associated Press • December 24, 2008

WASHINGTON — The Fed announced today that it had approved GMAC Financial Services’ request to become a bank holding company. That designation makes GMAC eligible to receive a portion of the bailout fund and get emergency loans directly from the Fed.

Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM’s own chances for survival. The Fed cited “emergency conditions” in justifying its decision.

The move to rescue an auto financing company was just the latest extension of the federal bailout program, which has designed to shore up ailing banks but has grown to include insurers and credit card companies.

GMAC provides financing for both GM dealers and customers as well as home mortgage loans through its Residential Capital LLC division. The company is 51 percent owned by Cerberus Capital Management LP, the investment fund that also owns Chrysler. GM owns the remaining 49 percent of the company.

Under the Fed’s order, Cerberus and GM, whose businesses are mainly outside banking, would both have to significantly reduce their ownership stakes in GMAC. GM has committed to reducing its ownership in GMAC to less than 10 percent. Cerberus was ordered to reduce its stake to 33 percent of total equity in the company.

A GMAC bankruptcy filing would have cut off financing to the roughly 85 percent of GM’s North American dealers it does business with.

The future of Chrysler Financial, Chrysler’s financing arm, is also uncertain. Earlier this month, Chrysler Financial, which provides financing for 75 percent of Chrysler dealers, said it could be forced to temporarily suspend funding for dealer vehicle inventories if dealers keep pulling large amounts of their money out of an account used to fund those loans.

The Fed’s decision was announced after the close of a shortened trading day on Wall Street. GM shares closed up more than 8% earlier today.

Detroit Free Press
December 23, 2008

American auto crisis would reach far beyond the northern border

by Jayson Myers and Richard Blouse

A lot of ink, air time and space on the Web have been dedicated to
discussing the economic fallout that would be felt throughout the U.S.
if one or more of the American auto companies failed. The cascading
effect through the entire U.S. economy would be devastating at a time
when an already weak economy could not afford another blow.

What is not as widely known is the negative impact that would be felt
in Canada. The Ontario Manufacturing Council recently commissioned a
study – similar to one completed by the American Center for Automotive
Research on the impact in this country – to get a better idea of what
the failure of American carmakers would mean to Canada. The Canadian
losses could quickly reach a million jobs under a worse-case scenario.

The studies are clear evidence of the fact that the U.S. and Canadian
economies are inextricably connected. Our two nations are each other’s
largest trading partners. The auto industry is a big part of this
equation.

Last year, the U.S. purchased $53 billion in automotive goods from
Canada. Canada was, in turn, the customer for $50 billion worth of
automotive products from U.S. manufacturers. Vehicles and parts flow
seamlessly across the Northern Border in an integrated supply chain
because the American and Canadian auto industries operate as one. And in
many ways, they are integrated into a much larger global economy.

The magnitude of job losses in Canada would further undermine many
other sectors of the U.S. economy that depend on exports to America’s
largest trading partner, just as the struggling American auto companies
are affecting the Canadian economy. This is a vicious cycle that only
hurts both nations.

We commend the Bush administration for providing $13.4 billion in
immediate federal loans as an interim plan to give the American
automakers time to restructure. The Canadian government is to be
applauded too for committing $2.8 billion in credit to the industry. We
stand ready to support the auto companies as they develop plans for
long-term viability, which is in the best interests of both nations.

Jayson Myers is president of the Canadian Manufactures & Exporters
Association and vice-chair of the Ontario Manufacturing Council and
Richard Blouse is president and CEO of the Detroit Regional Chamber.

On Friday, December 19, 2008  the Michigan legislature passed House Bill 6611 which provides for a bunch of different kinds of credits and tax incentives for battery manufacturing and assembly in Michigan. It’s a pretty complicated law, but the bottom line is the this new law will help us find a way to get some battery production going in MI.

Coincidentally, the Wall Street Journal published an article about this just last Thursday (only a day before the bill passed).

The state, auto companies and economic developers should be aggressively pursuing this industry since we now can offer a company a package of tax incentives that coordinate with $7 Billion in federal incentives specifically targeted to battery manufacturing in the US.

 Fourteen companies just announced new national battery consortium called the “National Alliance for Advanced Transportation Battery Cell Manufacture”.  Their founding members are:

3M, ActaCell, All Cell Technologies, Altair Nanotechnologies, Dontech Global, EaglePicher Corporation, EnerSys, Envia Systems, FMC, MicroSun Technologies, Mobius Power, SiLyte, Superior Graphite, and Townsend Advanced Energy.

The founding members anticipate other battery developers and materials suppliers will join the Alliance. Argonne Lab in Chicago has been active in encouraging the Alliance and will continue to serve in an advisory role as the Alliance begins operations.

 According to the Wall Street Journal:

 ”…the consortium faces obstacles. Several national labs and U.S. companies including 3M and General Electric Co. have been pursuing advanced battery technology for years. But researchers have been dismayed that the technology and processes they develop appear to be migrating largely outside the U.S. Battery manufacturing has moved to Asia for many reasons, among them a better-developed supply chain and lower labor costs.

Most of the batteries used in today’s hybrid vehicles, including Toyota Motor Corp.’s Prius and some of GM’s hybrid models, come from Asian makers.”

Freep.com has compiled a convenient list of reactions by other newspapers from around the world.  Click here to check it out.

“The only assurance the taxpayer has is that these companies will be back for more money soon.” … Sen. Shelby, 12/19/2008

Shelby continues to attempt to force U.S. automakers to file bankruptcy.

“Instead … the president chose to stick the taxpayer with the tab as he walks out the door,” said Shelby, calling the loans “a shameful attempt by the president to protect his own legacy.”

Send Sen. Sheby and email and let him know how important General Motors and Chrysler are to the future of the U.S. economy:

http://tinyurl.com/ypfr2m