Optimism Reigns at Traverse City Auto Conference

The Detroit News

After five years of gloom and doom, the 45th annual meeting of auto executives, analysts and reporters in northern Michigan that opens Monday has something to cheer about.

Actually, a lot to be happy about.

The Ann Arbor-based Center for Automotive Research holds an annual Management Briefing Seminars in Traverse City, drawing CEOs, union leaders, politicians, Wall Street analysts and dozens of reporters.

Over the last five years, the mood has mostly been grim. Last year, 54 auto suppliers filed for bankruptcy -- and early on it was unclear if two U.S. automakers would survive.

This year, auto sales have risen -- and are on pace to be about 11.5 million vehicles this year, above last year's dismal 10.4 million sales, which were the lowest tally recorded in 27 years. That figure was boosted by the government's $3 billion "Cash for Clunkers" program that helped sell 677,000 vehicles.

Detroit's Big Three, which collectively lost more than $100 billion between 2005 and 2009 and shed more than 200,000 jobs, each recorded operating profits in the first quarter of this year -- the first time that's happened since 2004.

While last year Gov. Jennifer Granholm and others were pleading with at least $1 billion in federal aid to keep suppliers alive, the boost in production has largely stabilized the industry -- and few companies have sought bankruptcy protection this year.

The auto industry has added 55,000 jobs in the last 12 months -- after shedding 334,000 in the previous 12 months. Domestic automakers are adding jobs, shifts and keeping some plants opened that were once slated to be closed.

On Friday, Chrysler Group LLC reversed course and said it would keep open Sterling Heights Assembly Plant, which was slated to close in 2012, and add 900 new jobs.

Last year, attendance at the Traverse City event plummeted as auto sales had sharply declined and two U.S. automakers -- General Motors Co. and Chrysler had exited bankruptcy only weeks earlier -- the mood was grim.

About 650 registered for last year's annual conference of seminars, down from 900 to 1,000 in recent years. This year, attendance is up and revenue is up by more than 25 percent, said David Cole, chairman of the Center for Automotive Research. "The gloom is gone," Cole said. "The storm has finally passed." The conference has been shrunk from five days to four days this year.

"Clearly, the automotive industry is exiting one of the most difficult and challenging times in modern history. The restructuring has been massive and the emerging new industry is far more lean, flexible, and efficient -- poised to see unprecedented profitability in the years ahead," Cole said.

Lisa Hart, a spokeswoman for the Center for Automotive Research, said Saturday that about 800 people have registered to attend this year, but the final number could rise because people still were registering.

Ford Motor Co. has earned $4.7 billion in profits in the first half of 2010 -- its largest tally since 1998. But the company still is working to shed debt. It pared its debt back from $34 billion to $27.3 billion in the second quarter of the year. GM is set to report a second quarter profit early this month and Chrysler will report an operating profit on Aug. 9 -- though it isn't clear if Chrysler will report a net profit.

Automakers still have a long way to go. GM, which got a $50 billion bailout from U.S. taxpayers, is 61 percent owned by the Treasury Department. It plans to file the paperwork in the middle of August and hopes to have its public offering by year's end. Chrysler won't go public until 2011 at the earliest.

Ford Americas chief Mark Fields will speak, as will GM chairman and CEO Edward Whitacre Jr. and the new United Auto Workers president Bob King.

The session also includes John Krafcik of Hyundai, Jim O'Donnell of BMW North America and Tim Manganello of auto supplier BorgWarner.

Toyota Motor Corp. will bring the company's quality chief to the event: Steve St. Angelo of Toyota. Toyota has recalled more than 5 million vehicles this year in more than a dozen campaigns and paid a $16.4 million federal penalty for delaying a recall.

Much has changed in recent years.

At the 2006 seminars, The Detroit News reported the "good-old days are over and they're not coming back," adding "Every company must adapt to this new reality or die trying." Then-GM chairman and CEO Rick Wagoner lashed out at the failure of Washington politicians to address major issues like health care costs.

"I do know the world is changing," he said, "and fast."

Cole said then the industry was facing pain and needed to accelerate its internet presence and search engine optimization efforts.

"The entire domestic industry is fighting for its life," he told The Detroit News in 2006. "They had to be scared."

Moving On Down the Line: Auto Parts Makers Follow Auto Makers To Government Trough

Original Story Posted in The Wall Street Journal.

Beleaguered auto-parts suppliers are following the lead of Detroit's Big Three in seeking aid from the federal government.

In a request dated Monday to the Treasury Department, an industry group representing 400 parts makers asks for $25.5 billion in aid and guarantees.

"Without immediate assistance to suppliers, the country will face massive job losses and the eventual breakdown of the entire automotive sector in the United States," says the 11-page request from the Motor & Equipment Manufacturers Association.

The document says more than 40 car-industry suppliers filed for Chapter 11 bankruptcy protection in 2008.

The request signals a potentially significant broadening of the government's auto-industry bailout efforts. Congress already has provided $17.4 billion to General Motors Corp. and Chrysler LLC, and an additional $7.5 billion to the finance companies associated with the two auto makers.

The request surfaced as U.S. House Speaker Nancy Pelosi and other Democratic leaders met Wednesday with the Michigan delegation to discuss the deteriorating U.S. car industry.

On Tuesday, GM and Chrysler reported steep declines in U.S. vehicle sales in January -- GM's fell 49%; Chrysler's declined 55%. The sales reports caused alarm in Washington, where officials in President Obama's administration are awaiting "viability" reports from GM and Chrysler by Feb. 1.

"I think there definitely is a growing sense of urgency" in Congress, said an aide to a Democratic auto-industry ally. "With so much focus on the [economic] stimulus and all of these other issues, there hasn't been as much focus on [the car industry] as there was perhaps last year. But the news from yesterday, headlines today, is starting to refocus people," the aide said.

A spokesman for Ms. Pelosi declined to comment.

The suppliers are seeking $7 billion in federal funds to create a "quick pay program" to funnel money to auto makers so they can pay suppliers within 10 days of receiving parts, instead of the 45 days or more they typically take to pay.

The group also seeks $10.5 billion to guarantee receivables of suppliers whose customers have taken federal loans, which means GM and Chrysler. The guarantee would provide a backstop to commercial-lending losses on loans to suppliers.

Lastly, the suppliers want $8 billion in direct access to federal loans.

Ann Wilson, spokeswoman for the car-parts association, had no comment.

A failure of a parts supplier could cause trouble at car-assembly plants across the country since many parts arrive just hours before they are needed on the assembly line.

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U.S. Auto Makers Look to Federal Sales Incentives

As executives from the Big Three auto makers prepare to make a second pitch for a federal bailout, concern is rising in Detroit that it will be difficult to show lawmakers how they can return to profitability with sales at their current depressed level.

Their solution: Get Washington to help them sell more cars.

General Motors Corp., Ford Motor Co. and Chrysler LLC may go back to Washington and urge Congress to take measures to spur consumer demand, in addition to providing the $25 billion in loans the auto companies seek.

"There is no way any car company can make money at the current demand level," said a key executive at a Big Three auto maker. "The government has to get credit flowing so that the market goes back to at least 14 million to 15 million [vehicles].... We can figure out how to survive at that level."

On Monday, Sen. Charles Schumer (D., N.Y.) plans to send a letter urging the Federal Reserve to make financing available for the auto companies' lending arms, which would allow them to offer more auto loans, a spokesman for the senator said. The letter will also ask the Treasury to speed approval of GMAC LLC's request to become a bank holding company.

Vehicle sales are tracking at such a low level right now that most or all auto makers are losing money in North America. Globally, Toyota Motor Corp., Chinese car makers and even Europe's normally recession-proof luxury auto makers are struggling to stanch losses, the executive of the Big Three firm said.

In October, auto sales were running at an annualized rate of about 11 million vehicles a year, well below the level of 16 million the industry considers healthy.

Congress last week rebuffed the pleas from GM, Ford and Chrysler for a bailout, telling them to return by Dec. 2 with credible blueprints showing how they would use taxpayer dollars to become "viable." Top-level auto executives worry they will have a tough time doing that.

As part of its push to Washington next week, GM is working to renegotiate some of its financial obligations, including terms of debt and money it owes to the United Auto Workers union, according to a person familiar with the plan. GM's board, which is open to considering all options for GM's survival, will be meeting several times this week to review the company's pitch to Washington, this person said.

Ford and Chrysler executives also said Sunday that their companies are developing plans.

While the chief executives of GM, Ford and Chrysler were testifying before the Senate and House last week, auto dealers and a few members of Congress called for tax incentives or other measures designed to boost car buying.

In an interview over the weekend, Michigan Gov. Jennifer Granholm, who is serving as an economic adviser to President-elect Barack Obama, said she is working with the auto makers to craft a "definitive plan" to present to Congress on Dec. 2.

Congressional Democrats have urged the Bush administration to provide loans for the auto makers from the $700 billion Troubled Asset Relief Program, but the White House and Treasury Secretary Henry Paulson have opposed that.

Gov. Granholm said one way of getting help from TARP would be to have banks that get some of the $700 billion "steer" financing to the Big Three or provide the Big Three with short-term loans to keep them from running short of cash. (With a rescue far from assured, the auto industry is scrambling to conserve cash. Please see related articles on page B3.)

It is unclear how far along these discussions are, or if there is an appetite at the White House to issue such a directive.

Members of Congress from Michigan have been in contact with Mr. Paulson and Commerce Secretary Carlos M. Gutierrez to push for funding for Detroit, if Congress isn't able to come through with a bailout bill, people familiar with the discussions said Sunday.