I just got done listening to Diane Rehm’s show on the auto begs (it was terrible, frankly); there was a great deal of skepticism whether the auto companies would get any government help this month.

Aside from the fact that GM is asking for $4 billion for operations through the end of the month and an additional $4 billion for January, there’s another reason a bridge loan can’t wait.

According to very recent market research (conducted by CNW Marketing Research), more than 30% of consumers who considered a GM vehicle and purchased a competitive product instead cited the possibility of GM bankruptcy as the top reason for not buying a GM product. This is more than double the percentage of the next highest reason.

To highlight this point, both the Baseline and Downside Scenarios outlined in this submission assume that consumers will consider GM products and services on their merits, and without regard to concerns relating to the company’s viability. If this assumption is not true, and concerns regarding the company’s viability continue to weigh on purchase decisions (as they clearly did in November 2008), the company expects to that first-quarter 2009 cash outflows would be materially worse than even the Downside Scenario. As such, clarity and prompt action adds real value to the company and to consumers.

GM’s sales dropped 41% from last November’s numbers; Chrysler’s sales dropped 47% (the industry as a whole dropped 37%, with Ford having one of the smallest drops). In other words, all this discussion of whether or not to let GM or Chrysler go bankrupt is making it more likely that they’ll go bankrupt, because they’re not even keeping pace with the industry’s severely contracted sales numbers.

That doesn’t mean Congress will get something passed right away. But it does raise the stakes for this week’s hearings.

We interrupt the focus on the auto industry to look briefly at the subpoenas Nora Dannehy–the special prosecutor investigating the US Attorney firings–has sent out.

A prosecutor who is investigating the dismissals of nine U.S. attorneys has been meeting with defense lawyers, dispatching subpoenas and seeking information about the events, according to legal sources familiar with the case. 

[snip]

Dannehy, a longtime assistant U.S. attorney in Connecticut, in recent weeks has met with lawyers and government officials involved in the case. A grand jury in the District has issued subpoenas, the sources said. 

There are two worthwhile details here. First, the news that Kyle Sampson has taken a leave from his law firm.

D. Kyle Sampson, who served as the chief of staff to Gonzales until his March 2007 resignation, recently took a leave from his job as a partner at the law firm Hunton & Williams while the investigation proceeds. A spokeswoman for the law firm said he is on leave "pending admission to the D.C. bar." 

I can see how a swank firm wouldn’t want one of its partners indicted on its payroll.

The other, amusing, tidbit comes from George Terwilliger, Alberto Gonzales’ lawyer, making a pathetic case that the investigation–at least as it pertains to Gonzales–should end now. 

George J. Terwilliger III, an attorney for Gonzales, said that his client had engaged in no wrongdoing, "making it patently unfair and unwarranted to prolong an investigation that has no substantive justification. By the department’s own standards, this matter should be closed now as to Judge Gonzales." 

You don’t suppose he wants this to end yesterday because an Obama Administration might be less willing to shield Gonzales’ role by sustaining Bush’s executive privilege claim, do you?

I’m slowly working my way through the Begs to Congress of the Big Two and a Half. And I’m struck by the way the Chrysler beg basically argues that it’ll be cheaper for the government to give a loan now.

Chrysler doesn’t say so explicitly, but it is seeking money to carry it until such a time as some other company will buy it.

Chrysler remains focused on developing partnerships, strategic alliances or a consolidation as a fundamental element of its restructuring to expand its product portfolio, generate incremental revenue, and create additional operational synergies related to manufacturing, purchasing and distribution.

[snip]

Further partnership, restructuring and consolidation is required for the industry to be viable in the long-run.

Thus, even though it does present its reorganization plan to prove it is making necessary changes, it never really claims it–Chrysler, as a free-standing entity–will return to viability by itself (in fact, it spends a few sentences bitching about the Daimler takeover). 

So it needs to present a case for why the government should bridge it to the point where it can be purchased, rather than let it go into bankruptcy. Again, without saying so explicitly, it suggests the money it would get from the government–$6 billion from the DOE funds intended to retool for more efficient cars, and a $7 billion loan here, for a total of $13 billion–would serve the same bridging function as a Debtor-in-Possession loan that it would need for bankruptcy.

Chrysler believes that the amount of DIP financing that it would need to remain viable even during a relatively short bankruptcy (just one year) would approximate $12 to $15 billion. And, even that estimate presumes that financing remains available for the company’s dealers and customers, which cannot be counted on given current market conditions.

If financing for its dealers is unavailable from traditional sources during the Chapter 11 process (as Chrysler must assume would be the case), then Chrysler would need at least $5 billion of additional DIP financing just to support its dealers, pushing the expected total size of the year-one DIP financing need approximately $17 to $20 billion.

The enormous size of the DIP financing facility that Chrysler would require is due to many factors, including (i) the likelihood that many consumers will shun purchasing vehicles made by a manufacturer that is in chapter 11, thereby starving the company of revenue while it attempts to reorganize; (ii) the extraordinary imperiled financial state of the automotive suppliers will likely leave the Bankruptcy Court with no choice but to approve billions of dollars of payments to many of its suppliers on account of "pre-petition" claims just to keep the suppliers themselves afloat and the assembly lines moving at Chrysler; (iii) in addition, Chrysler expects that many suppliers will eliminate any trade credit during its chapter 11, thereby instantly consuming billions of additional dollars of working capital; and (iv) the incurrence by Chrysler of significant professional fees on account of the bankruptcy proceedings.

Given the current adverse credit markets, we would note [sic] expect DIP financing of such size would be provided by Chrysler’s existing lenders or by any other private source. Accordingly, the DIP would have to be provided by the U.S. Government.

It then sketches out what would happen if, instead of Chapter 11 bankruptcy, Chrysler simply liquidated, including the loss of 193,000 jobs between Chrysler itself and dealerships. It ends by arguing that a $7 billion bridge loan would be cheaper than the $17 to $20 billion it would need for bankruptcy financing or the social costs of liquidation (at this point, it doesn’t mention the $6 billion DOE money).

Management fully recognizes that this is a significant amount of money. However, the Company believes this request is the least costly alternative considering the options we face. it provides the least detrimental effect on human capital and the stimulus necessary to prevent further economic decline, if not outright economic depression.

All of which leaves me with one question. What of the $6 billion DOE loan? Given all the talk about partnerships and consolidation, shouldn’t we taxpayers get some input into what happens with such a consolidation. Shouldn’t we have some guarantee that that $6 billion doesn’t get eaten up by Dongfeng motors, at such a time as it decides to buy Chrysler? What if Chrysler doesn’t get that cash, and some innovative upstart does?

I’m going to steal this catch from MadDog shamelessly. He notes that the author of the Ford "beg" is David Leitch:

An interesting bit of trivia – Based on the document’s properties, I’m guessing the author of the Ford Beg document is: David G. Leitch, group vice president and general counsel for Ford Motor Company

Leave it to a lawyer to plea-bargain with Washington. *g*

Ah, but it’s not trivia at all. You see, David Leitch is Fredo’s Fredo–or rather, the top deputy to Alberto Gonzales when he was White House Counsel.

Prior to joining Ford as general counsel in April 2005, Leitch served in the White House as Deputy Counsel to President George W. Bush. In that capacity, he advised the President and his staff on a variety of legal issues, including issues involving the war on terror, judicial nominations, legislative proposals and ethics.

Another example of Ford’s tin ear, I guess. You really ought to hide that detail before you hand over a document to a Democratic Congress.

Ford points out that the manufacturers in Richard Shelby’s state all hopped on the SUV gravy train, too.

Throughout the 1990s and into this decade, we became increasingly dependent in the U.S. market on trucks and large SUVs, which were in heavy demand by consumers and generated large profits. Many of our competitors, both foreign and domestic, likewise followed market demand and added more truck and SUV products to their lineups.

How are those Honda Pilots made in Alabama doing, Shelby?

I’m going to do a series of posts on what the automotive companies are asking for–and then I’ll do a summary (probably with questions some smart folks in Congress should ask). I’ll start with an interesting series of political requests Ford made. 

No CA-Specific CAFE Standard

This is cheeky. In its first political request, Ford basically takes on an issue dear to the Speaker.

First, Ford was proud to support stronger CAFE standards, and we are absolutely committed to meeting them. However, we urge Congress to maintain one economy-wide set of national standards on fuel economy. A patchwork of standards would place enormous financial and engineering burdens on manufacturers and have the effect of reducing consumer choice — all for little or no environmental benefit.

Of course, if I were Pelosi or Waxman, I’d turn around and say, "good, we’ll raise the national rates to the levels CA wants."

I’m not surprised Ford made this request–at the very least, it will spark discussions of why state-specific levels make it harder on auto makers to work efficiently. I am surprised that Ford led with this request, since it’s sure to piss a few people off. I guess Ford hasn’t given up its tin ear.

A Trade-In Incentive

Next, Ford asks for something that has been proposed around the blogosphere: a program, attached to the stimulus bill next year, offering incentives to consumers to trade up in terms of efficiency.

Second, in developing a stimulus bill to drive our country’s economic recovery, we ask Congress to consider incentives for consumers to trade in older vehicles and move to more fuel-efficient vehicles.

This makes sense, particularly for Ford, as it would create market demand for their cars, as they often now lead segments for efficiency. And it’d get consumers into car showrooms to buy.

Note that there’s no discussion of what happens to these trade-ins, though. That needs to be part of the equation, as no one wants these cars in the used car market.

Ongoing R&D Assistance

I’m not sure precisely which R&D incentive Ford is referring to here–but they want it to continue.

We also ask that continued R&D incentives be considered: the automobile industry spends $12 billion annually on research and development – more than any other industry.

I’m guessing this will be a totally uncontroversial request and will open discussions about what cool things the automotive industry is already doing on R&D.

Health Care, Health Care, Health Care

All you folks who have been asking why the Big Two and a Half don’t support healthcare reform? Here you go:

Third, we look forward to working with Congress on comprehensive health care reform that will improve patient care, bring greater transparency, utilize new health information technologies and drive down costs.

Now, if I were writing this beg, I’d put this one first, if only because the Democrats in Congress would see the possibilities of the Big Two and a Half leading the callls for reform. This isn’t, of course, support for single payer, yet. Though at least this will advance the debate.

Take on the Yuan

Ford doesn’t mention China specifically here, but they’re basically suggesting they’re being slammed by suppliers working in China.

Fourth, currency is the medium in which trade occurs – it can be as important a determinant of trade flows as the goods themselves. Currency values must be fairly determined – through an open market – not predetermined by governments to support their domestic industries.

I’m actually a touch surprised by this–Ford does use Chinese suppliers. I guess they’re using far less than competitors (though I’m not sure which competitors), or they’re simply using more domestic parts than their competitors.

And this is only going to happen within larger discussions of international responses to the crisis–and I’m skeptical if it will get done even then. 

Fair Trade

Damn, these guys are almost sounding like Democrats. They’re demanding level playing fields on trade deals.

Finally, we support free trade, but it needs to be fair trade. Agreements such as the recent US-Korea trade pact hurt domestic manufacturers because they maintain non-tariff barriers to U.S.-produced goods and prevent a level playing field.

This is another (slight) suprise. There was a time when Ford and the lobbyists that BushCo dumped into the industry was getting interested in a trade deal with Thailand. That’s because there is a high quality plant or two assembling cheap cars in Thailand. I’ve long suspected that Ford intended to import Rangers once it closes its St. Paul plant.

But, particularly with the market for pick-ups cratering, I imagine Hyundai represents a far greater challenge to Ford right now, as it is picking up market share in many of the segments in which Ford competes. It’d be nice if they said that specifically, if only because it would give me another reason to beat up Richard Shelby and his state’s Hyundai plants.

Unless you’re from MI, you probably don’t know who Robert Ficano is. But as the Wayne County Executive, he’s one of the senior-most elected officials in the state (and a potential Democratic candidate for Governor in 2010). I guess he’s about had it with Richard Shelby’s bad-mouthing of American-brand SUVs, because Ficano has taken out radio ads in AL pressuring Shelby for being un-American in his opposition to the Big Two and a Half.

Congress wouldn’t turn its back on American veterans in need, yet that’s exactly what some Senators are about to do. In World War II, America faced its greatest challenge, three true blue American car companies stood up for our country in her hour of need: General Motors, Ford, and Chrysler were the arsenal of democracy that built the tanks, vehicles, and planes that helped our soldiers win.

We face a devastating economic crisis that threatens to destroy our American auto industry as Congress considers a loan package that will allow the car companies to stay in business, let us not forget the invaluable service they gave our nation.

One of every ten jobs in America is related to the US auto industry including thousands in Alabama. If GM, Ford, and Chrysler go out of business, millions of jobs would be lost. Southern suppliers that sell billions of dollars in parts to the auto companies would close. Call Senator Richard Shelby at 205-731-1384 and tell him to stand up for the car companies that still secure our freedom today. (Paid for by the Robert E. Ficano Committee, Wayne County, MI)

Apparently, Ficano started these ads during the first go-around with Congress; with the help of the Regional Chamber of Commerce in Wayne County, Ficano has expanded the ads to other states whose anti-union foreign automaker loving members of Congress want to bankrupt the American competition: in addition to Alabama, Tennesee and Kentucky (and DC). 

Sure, it’s probably not going to change many minds. But its time someone really started hitting Richard Shelby hard for his posturing on this–particularly since his beloved Japanese car companies’ sales slipped even more last month than Ford’s did (GM and Chrysler’s sales absolutely tanked, though).

The Bush Administration is in Vaughn Walker’s courtroom today, trying to convince him to just give the telecoms immunity with no further scrutiny.

But given the questions Judge Walker has posed to the Administration, it looks like it won’t be that easy. For example, there’s this question, which highlights just how nutty this retroactive immunity is:

What exactly has Congress created with § 802 (in Pub L No 110-261, 122 Stat 2467, tit II, § 201 (2008))? It does not appear to be an affirmative defense but rather appears to be a retroactive immunity for completed acts that allegedly violated constitutional rights, but one that can only be activated by the executive branch. Is there any precedent for this type of enactment that is analogous in all of these respects: retroactivity; immunity for constitutional violations; and delegation of broad discretion to the executive branch to determine whether to invoke the provision? 

He goes from there to ask several more questions getting at that pesky separation of powers thing. You know–separation of powers, which says that the courts have the ajudicatory function?

In making the certification called for by section 802(a)(5), is the Attorney General performing an adjudicatory function? That is, is he not making a determination that only a court can make?

They are all good questions. And they suggest that Walker is not going to simply roll over and abdicate his Article III function. Which probably means this will be appealed beyond the time when the Bush Administration leaves office.

Which I guess means we ought to be preparing some questions for Eric Holder about FISA at his confirmation hearing.

When Mullaly refused to even consider taking a $1 dollar salary for the next year and then admitted that Ford didn’t need cash from Congress immediately, I knew this would happen.

But this week, as the automakers take a second run at Congress, hoping to persuade lawmakers to give them $25 billion in federal aid, their agendas are diverging as they contemplate futures as drastically different car companies.

Those differences will become clear as they deliver more detailed plans for how they would use that money not just to survive, but also to turn themselves around to be competitive in the long term.

That should make for a sharp contrast to the hearings two weeks ago, when the executives presented a united front, saying in lockstep that it was the credit crisis and weak economy, not their strategies, that had put them in dire straits.

The short version of what they’re asking for is as follows:

Ford: Ford will brag about all its recent improvements (including beating out even Honda on a recent list of safest vehicles), make some symbolic changes (including, hopefully, cutting Mulally’s pay), and simply ask that it have access to $7 billion credit if things remain bad when it would need that money, next summer or so.

Chrysler: Chrysler will beg Congress to help someone else buy it. I think it will be unsuccessful.

GM: GM will have to offer a much more comprehensive plan, because unlike Chrysler, Congress will refuse to let it fail. This NYT articles talks about closing Saturn dealers and selling Saturns through Buick/Pontiac/GMC dealers and postponing the payment to the UAW for it to pick up retiree healthcare.

I suspect that GM’s proposing the Saturn closures because those dealers would presumably be easier to back out of than the older Buick/Pontiac/GMC dealers (and there are fewer of them). GM might be thinking of rebranding the Saturn when it makes the move, since Saturns are basically now Opel cars; rebranding the line and moving it to new dealers ought to revitalize those older dealers, and give GM a way to ease out of those dying brands without giving up the market presence they have. And by rebranding, it would make it easier for GM to have people like Dan Neil proclaim GM to be his favorite car company. In other words, the idea would be to shift, over time, to being Chevy, Caddy, and Saturn/Opel, and to use this crisis to get help easing out of another brand of dealership while still trying to retain the older ones.

In short, this week’s meetings just turned back into what they always were: GM and Chrysler trying to find a way out of their very different crises, which have been exacerbated by the credit crisis, with Ford joining in because it can’t survive GM going under and because it could use some easier credit lines.

Given the sketchy plans laid out here, I’ll be most interested in two things. First the prospect of Congress pretending to be able to grasp GM’s problems–when it couldn’t even understand how China plays into continued GM existence last round of hearings? Will Congress understand that they need to allow GM to continue to invest in China if they want it to continue to be an American company? Will it be able to help GM shift the healthcare burden to the UAW with people like Richard Shelby squawking about unions?

And Chrysler: I can’t think of a really feasible solution for Chrylser, particularly now that its fate will be separate from GM and Ford’s. That’s because it is already a fundamentally international company, with more of its assembly being done in Canada and Mexico (and it will have to retain that if it wants to sell itself). In addition, a lot of the technology Chrysler relies on is fundamentally international as well, developed in joint ventures with companies like Hyundai and Mitsubishi. Which means it’s harder to make a case for saving Chrysler for strategic reasons. There are companies out there that–if a deal was sweetened with a way to get out of some contracts here–would be interested in Chrysler. My question is, does that really accomplish objectives like jobs saved and supply chains salvaged here in the US? I’m not so sure.

In the comments to this thread, we discussed the possibility that Obama would execute a long overdue shift in emphasis in our foreign policy, emphasizing the State Department and soft power over DOD and military power (and, even, soft power implmented by the military). See, especially, this nadezhda comment.

That appears to be the plan:

Yet all three of his choices — Senator Hillary Rodham Clinton as the rival turned secretary of state; Gen. James L. Jones, the former NATO commander, as national security adviser, and Robert M. Gates, the current and future defense secretary — have embraced a sweeping shift of priorities and resources in the national security arena.

The shift would create a greatly expanded corps of diplomats and aid workers that, in the vision of the incoming Obama administration, would be engaged in projects around the world aimed at preventing conflicts and rebuilding failed states. However, it is unclear whether the financing would be shifted from the Pentagon; Mr. Obama has also committed to increasing the number of American combat troops. Whether they can make the change — one that Mr. Obama started talking about in the summer of 2007, when his candidacy was a long shot at best — “will be the great foreign policy experiment of the Obama presidency,” one of his senior advisers said recently.

The adviser, who spoke on the condition of anonymity because he was not authorized to speak publicly, said the three have all embraced “a rebalancing of America’s national security portfolio” after a huge investment in new combat capabilities during the Bush years.

The article points out many of the hurdles Obama will face in implementing this plan. There’s DOD’s insatiable appetite for money–the same money that would need to be switched to State. And there’s the right wing suspicion of any kind of foreign policy that doesn’t give them a hard-on.

Of course, those hurdles may be easier to overcome given the team Obama is announcing today, partly because Gates will give Obama cover for "gutting" Defense, Hillary will be adamant about increasing her portfolio, and Jones will have the chops to knock any skeptics in the military back in place.

Let’s hope they succeed.