By Loyd Eskildson

"The Auto Bailout" (Steven Rattner) tells how the author moved from chief economic correspondent for the New York Times to founding the investment firm Quadrangle Group, and then to leading President Obama's auto task force. The work was seen as a restructuring challenge, not as an ongoing management job. Initial impressions (GM's finances, Chrysler's new car pipeline) were that the case for a bailout was weak; however, the potential impact of liquidation on the Midwest was staggering. Deciding whether to let Chrysler go bankrupt was a difficult decision - it was in bad shape, and going bankrupt would at least have helped GM. What also struck the task force was how various stakeholders unrealistically hoped to be made whole or at least receive government assistance - eg. parts supplier Delphi hoped for government assistance even though nearly 90% of its workers were outside the U.S.
 
The "viability plans" submitted by GM and Chrysler on 2/17 showed that they both were still in denial, with costs way out of line versus competing Japanese transplants in the U.S.  Further, the much ballyhooed Chevy Volt couldn't possibly have any meaningful financial impact for at least 5 years. Ratter continues - "At GM, we were appalled by the absence of sound analysis provided to justify $100+ million November 2009, Subscribe to Fortuneexpenditures outside normal operations, yet, each was accompanied by decks of PowerPoint 'detail.'" CEO Wagoner seemed to believe that all their problems could be blamed on others (the financial crisis, oil prices, exchange rates, the UAW), despite their having burned through $34 billion of government funds in the last 5 quarters. Its board had remained totally docile in spite of mounting evidence of impending disaster. (Wagoner and most of the board were replaced.)
 
Chrysler did not have a single car recommended by Consumer Reports; fortunately, a resurgent Fiat stood in the wings to take over. Chrysler's lenders were owed $6.9 billion, the debt was trading at 15 cents on the dollar, liquidation value was about $1 billion, and the lenders insisted on getting every penny. The banks ended up taking $2 billion in cash, though still upset that the UAW health-care trust got $4.6 billion in notes, plus 55% in new equity for their $8 billion claim. (Rattner asserts there was no preference given the UAW; I wonder how much TARP money those same banks also received.)
 
GM eventually came up with a plan to reduce debt and other liabilities from $120 billion to $55 billion, along with $8 billion in annual North American structural costs. TARP had put $50 billion into GM, $12 billion into Chrysler.
 
Rattner believes that if they hadn't already had the TARP money and required congressional approval for cutting dealers, both GM and Chrysler would have been forced into bankruptcy. He left his government post in July, 2009.
 
"Twitter Hits Tweenhood" (Adam Lashinsky) reports that having amassed 55 million unique monthly visitors worldwide, Twitter hasn't collected any meaningful revenue, nor is it in any hurry to do so - even after three years. (Operating expenses are reported to be 'low.') Google, by contrast, started collecting some capital almost immediately and never raised additional venture capital after an initial $25 million stake in 1999. Twitter has raised over $150 million (most recently in a $100 stake that values the firm at $1 billion), with no hint of a business plan. The current focus - increasing traffic to 100 million/month.
 
Fortunately, a 10/21/09 New York Times article adds useful details. Under agreements made that day, Twitter's steady stream of posts will be made available to Microsoft and Google's search engines, creating a potential new source of cash. Microsoft said it did not plan to put ads on its Twitter search service for now, while Google said ads might appear at a later date. Less optimistic analysts pun that "all that twitters is not gold."
 
"He Measures the Web" (Jessi Hempel) reports on Josh James' 'Omniture' that can tell clients in real time how many people visit their website and how long they stay. It was just sold for $1.8 billion (24% premium) to Adobe systems. Revenues hit $296 million in 2008, it has some 1,200 employees, and earned $136 million in the 3rd quarter (down 29% from prior year).

 Fortune Magazine

Loyd Eskildson is retired from a life of computer programming, teaching economics and finance, education and health care administration, and cross-country truck driving.  He's now a reviewer for Basil & Spice.

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