Auto bailouts on firing line at presidential debate

Paul Sancya / AP file

The Obama administration's bailout of General Motors was one of the hot-button issues dividing President Obama and GOP challenger Mitt Romney during Tuesday night's presidential debate.

By Paul A. Eisenstein, NBCNews contributor
This week’s second presidential debate focused on a wide variety of issues from the economy to foreign policy, and the health of the auto industry was one of the most significant topics touched on by President Barack Obama and his GOP challenger Mitt Romney.

The two couldn’t be further apart on the subject of the 2008–2009 bailout of General Motors and Chrysler. The Democratic president touted the Treasury-funded rescue of the two automakers, which the Republican challenger has long opposed.

But while he once supported clean energy programs, Romney has also come out against the government-funded, low-interest loan program that has helped fund a number of battery makers, automotive startups and other green firms. In the first presidential debate in Denver, he referred to several firms by name, dubbing California battery-car startups Tesla Motors and Fisker Automotive “losers.”

There’s no doubt that the Department of Energy's loan program has picked some clunkers, notably the solar panel maker Solyndra, which received $527 million before going bankrupt. This week, another firm that was helped out by the Energy Department also filed for Chapter 11. But the results may turn out better when it comes to Massachusetts-based A123 Systems.

A producer of lithium-ion batteries, A123 is one of many once-hopeful suppliers stung by a slower-than-anticipated ramp-up in demand for battery-electric vehicles. Its situation was complicated by manufacturing issues and a costly recall earlier this year. But A123’s doors aren’t closing. After rejecting a potential rescue bid from China, it has instead agreed to sell its auto business to mega-automotive supplier JCI.

“We believe the deal makes very good strategic sense,” writes Rod Lache, senior automotive analyst with Deutsche Bank. If anything, under the new — and well-funded — parent, he contends, that automotive battery operation could now do even better. The purchase by well-run JCI “should likely allay customers’ concerns” about whether A123 would be able to survive an ongoing shake-out in the battery market.

Meanwhile, the sale of A123 comes as good news for one of the companies Romney cited by name: Fisker Automotive. The California plug-in hybrid maker is one of A123’s most visible customers and was hurt by the battery-pack recall. But Fisker was facing the possibility it might run out of batteries by next year if A123 had folded.

Nonetheless, the fate of Fisker remains far from certain. Its first product line, the Karma, got off to a slow start that led the Department of Energy to freeze its $529 million loan after the automaker had drawn only $193 million of that cash.

That has complicated plans to develop a second, lower-cost and higher-volume model, the Fisker Atlantic, that will be much more critical to the automaker’s bottom line. Fisker officials have privately complained that they’re caught in the crossfire due to the politicization of the Department of Energy loan program and have been scrambling to replace that money with private funds. They’ve raised about $300 million this year, but new Fisker CEO Tony Posawatz this week told investors the launch of the Atlantic will be delayed to 2014 or even 2015 — leading some to question the company’s future.

As for Tesla Motors, its outlook is also up in the air, depending upon whom you ask. Founder and CEO Elon Musk — a PayPal pioneer who also runs private space firm SpaceX — has acknowledged production of the new mainstream battery-electric vehicle, the Tesla Model S, is way behind schedule and that is putting a serious strain on the company’s finances with few other sources of revenue to tap.

Up to speed
Nonetheless, Musk and others at Tesla insist they will be up to speed and in the black by next year when a second product line, the Model X crossover, debuts. Tim Draper, a legendary Silicon Valley entrepreneur and early investor in the firm, is so confident he recently told Detroit to “create something different because you’ve lost the electric-car battle.” Asked what they might turn to, he suggested, “flying cars.”

While the Department of Energy loan program might be controversial, the real point of contention between Obama and Romney concerns the bailouts of GM and Chrysler. Both companies were surviving on lifelines thrown to the automakers by President George W. Bush when Obama took office. Obama eventually approved the rest of what turned into an $84 billion rescue.

Romney called for both carmakers to be cut loose, despite his family ties to Michigan. He continues to insist he opposes the bailout, although the former Massachusetts governor has also taken credit for nudging the Obama administration into pushing GM and Chrysler through managed bankruptcies before approving further cash aid.

Bailout proponents insist the rescue effort saved as many as 1 million jobs. And they have some significant momentum on their side as the auto industry gains credit as one of the leading factors in the revival of the U.S. economy. Between them, Chrysler and GM have also added tens of thousands of new direct and indirect jobs since their rescues as their sales increase.

Chrysler, the smaller of the two automakers, has shown a 24 percent sales gain this year — about 10 points ahead of the overall automotive recovery. It's doing so well that Chrysler could be the financial foundation for its Italian partner Fiat SpA, which is struggling during the collapse of the European car market. That’s doubly ironic considering that Obama approved a rescue of Chrysler only after Fiat agreed to take it over.

General Motors' story is a mixed one, though investors have given the maker an increased vote of support despite some serious, ongoing issues.

GM sales are up this year, though not quite keeping up with the overall market revival. But it is the powerhouse in key emerging markets such as China. Its biggest issue is Europe: GM's Opel subsidiary will post its 14th year of red ink in 2012 with no clear turnaround in sight.

That was a key reason for the sharp downturn in GM stock following its November 2010 IPO. But over the last three months it has staged one of the market’s stronger rallies, rebounding from barely $18 a share to nearly $25 a share. Upcoming third-quarter earnings could determine whether it maintains that momentum.

And the pre-election announcement will likely only add to the sniping between Obama and Romney. The latter has insisted he would have immediately sold the Treasury’s remaining shares over the summer, which would have meant billions of dollars more losses than if the White House walked away today.

Nonetheless, GM would have to climb all the way to $54 a share for taxpayers to break even on the bailout, so the president seems in no rush to sell those shares despite the ongoing debate.

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It's official: Auto industry firing on all cylinders

CNBC's Phil LeBeau reports on the state of automaker stocks, including Toyota and Honda increasing incentives.

By Paul A. Eisenstein, msnbc.com contributor
It’s hard to say whether there’s a direct link between the strong surge in April car sales and the four-year high the Dow Jones industrial average is on track to set today, but both are clearly delivering a dose of much-needed news about an uncertain economic recovery.

With the last few automakers finally reporting, the industry appeared to continue gaining momentum despite worries about fuel prices and other economic issues. General Motors boosted its forecast for all of 2012 by a full 500,000 vehicles, to somewhere between 14 million and 14.5 million.

That’s despite the fact that both GM and Ford posted modest declines for April -- as did Asian rival Nissan -- but the slowdown in sales that some feared after the unusual warm winter clearly didn’t materialize. And a number of makers, including Audi and Volkswagen, are today bragging about setting records. VW sales were their best in 40 years, Audi their best ever for the month.

“It’s good to see the market is still growing,” said David Sullivan, an auto analyst with AutoPacific, Inc. What surprised Sullivan -- and many other analysts -- was the fact that while demand was up for small, high-mileage vehicles, American motorists also plunked their money down on many of the bigger pickups that were supposedly going out of style.

Related: Chrysler sales jump; Ford, GM dip slightly

Nissan, for example, set new April sales records for both its small Rogue crossover and subcompact Versa models. But demand, the maker said, was also up for the full-size Titan pickup as well as the big Quest minivan.

Also noteworthy was the fact that the industry, on the whole, maintained its momentum without having to ramp up incentives. Quite the contrary. OVerall, manufacturers trimmed rebates and other givebacks by an average 4.7 percent compared to March of this year, or about $120 a vehicle -- with the average car, truck or crossover sold in April 2012 carrying incentives of $2,446, according to data collected by research firm TrueCar.com.

There were a few exceptions, notably Honda ramped up spending by 8 percent for the month, to $2,398 per vehicle, while Toyota increased its givebacks 4.4 percent, to $1,823, said TrueCar.

"Incentives continued to decline for most automakers with the exception of Honda and Toyota as both are vying for recapturing their lost market share from last year,” said Jesse Toprak, TrueCar’s director of industry trends and insights. “Ford is now spending less on incentives as a percentage of their average transaction price then Honda.”

The spending did appear to pay off, however, with Toyota sales increasing 11.6 percent for the month while Honda’s rose 9.2 percent to April 2011. The incentives helped the smaller maker breathe some life back into its fading Accord line. Long one of the nation’s top-sellers, that midsized sedan took an embarrassing slip in recent months, falling behind the Nissan Altima. Accord was up 41 percent for the month, handily outpacing the Altima.

But Nissan’s April slowdown reflects, in part, the fact that it trimmed back production of its midsize model in preparation for the launch of an all-new Altima next month. And CEO Carlos Ghosn has boldly declared his belief that the next-generation sedan will be able to overtake both Accord and the long-dominant Toyota Camry.

Nissan’s Infiniti division was in the black for April, buoyed by demand for its new three-row JX crossover. Company officials recently predicted that they’re on track to hit 200,000 units in annual sales in the next several years -- which would move the long-lagging luxury brand into the upper tier of upscale marques.

The initial success of the big JX -- as well as Nissan’s other large trucks and crossovers was matched by strong demand for some of the bigger models in the Chrysler corporate portfolio, especially the Jeep Grand Cherokee.

Chrysler posted a 20 percent overall jump in April, with all of its brands exceeding the industry average sales increase. The Fiat brand surged 336 percent after a painfully slow launch of the little Fiat 500. It was, in fact, the 25th consecutive month of sales gains for Chrysler and the 14th month in a row when the maker beat the industry average increase.

“Chrysler continues to surprise on the upside every month now,” said analyst Joe Phillippi, of AutoTrends Consulting. “The new products, the Grand Cherokee, the 300 and even the 200 are doing well.”

Like other analysts, Phillippi suggested the Detroit maker has been countering its long-time reputation for poor quality with new vehicles that are “really well screwed together.”

That was echoed by Reid Bigland, president and CEO of the Dodge brand and Chrysler’s head of U.S. sales.

"This business is all about product,” he said, “and the quality and fuel efficiency of our current vehicle line-up has never been better which is evident in our results."

The April numbers are particularly impressing analysts because they are less dependent both on incentives and on fleet sales, a traditional dumping ground for manufacturers desperate to keep their factories humming. Lower fleet business was the primary reason behind the modest decline at General Motors -- where retail sales ran roughly flat with April 2011 -- and at Ford.

But the latter maker could crow about the strong demand for its higher-mileage models, including both the Edge crossover and midsize Fusion, both setting April sales records. On the high end, buyers yet again bought more full-size F-Series pickups with V-6 engines rather than the traditional big-truck V-8s.

Can the market maintain its momentum? Analyst Phillippi is upbeat, at least for the near-term, suggesting that even the modest U.S. economic recovery is sending buyers back to showrooms. That’s particularly true for products like the F-Series and Nissan Titan.

“There are a lot of people who need work vehicles, especially to replace the ones they’ve been hanging onto” during the recession, said Phillippi. “A lot of those trucks are just wearing out.”

GM raised its forecast for the year to somewhere between 14 million and 14.5 million, which could mean a year-over-year jump of about 1.5 million units compared to all of 2011.

“We expect gradual improvement in the economy going forward,” said Don Johnson, vice president, U.S. Sales Operations. “Over time, strength in the manufacturing sector and strong retail sales will lead to more job creation. That will help more consumers put the recession behind them, gain even more confidence and drive vehicle sales higher for both the industry and GM.”

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