By Emily Chasan - Analysis
NEW YORK (Reuters) - If any of the big three U.S. automakers is forced to sell assets in a liquidation, their brands and patents may attract the most interest, while the manufacturing assets could be a tough sell.
Both General Motors Corp (GM.N) and Chrysler LLC — currently being kept afloat by billions in taxpayer dollars — have warned they could file for bankruptcy if they are unable to reach deals with key stakeholders. A bankruptcy for either company is expected to save the stronger and more profitable parts of the companies, such as GM’s Chevrolet and Cadillac divisions and Chrysler’s Jeep unit, but some parts could be destined for fire-sales or liquidation as the U.S. auto industry grapples with sharply reduced consumer demand.
While some potential buyers may be eager to get their hands on valuable patents and brands, companies that specialize in corporate liquidations and asset dispositions may not relish the job of trying to sell off manufacturing facilities.
In fact, attempts to liquidate automotive assets at auctions over the last few weeks have been a “disaster” as uncertainty about the future of the industry scared buyers off, said Bob Maroney, co-president of the commercial and industrial division of Gordon Brothers Group, one of the largest U.S. liquidation and asset disposition firms.
“There have been some automotive plants closed and they tend not to liquidate very well because the intangible value of these facilities dissipates very quickly and a lot of the equipment inside these facilities has somewhat of a special- purpose nature to it,” Maroney said.
“If someone’s going to try to estimate what the value of the assets are on a pure disposition basis, it’s not going to be a very high number.”
Maroney said the need to take capacity out of the auto industry in the United States and the shift of auto production away from Michigan, has left little incentive for foreign buyers to purchase these assets.
Also, just-in-time delivery practices tend to leave the automakers with little inventory in their plants to remarket and there are few alternative uses for some of the parts and machinery that were designed for specific cars.
“A buyer has to say that this is an asset I can use in my own manufacturing or be a dealer who may be able to deem it to be a good purchase price and hold it for resale,” Maroney said.
Otherwise, plants may be sold for other purposes entirely. A former auto parts manufacturing facility in Allen Park, Michigan, for example, is set to become a $146 million, 750,000 square-foot movie production studio.
But at another Gordon Brothers unit that specializes in acquiring brands, Kenneth Frieze says he has already fielded telephone calls from a large automaker bondholder about what the value of some of the auto sub-brands might be.
“There’s a tremendous amount of value to some of these brands,” Frieze said. “There are hundreds of millions of dollars in royalties today that some of these brands are getting outside of the automotive sector.”
In 2001, Ford Motor Co (F.N) actually bought brand licensing agency Beanstalk Group to try to get more mileage out of names such as Volvo, Land Rover, Aston Martin and Jaguar. It sold Beanstalk four years later, but continues to license its brands. Motorcycle maker Harley-Davidson Inc (HOG.N), which once tried to trademark the “chug” sound of its motorcycles, has also licensed its brand onto hundreds of other products.
“Jeep and Hummer are brands that are extendable beyond simply producing an automobile,” Frieze said.
For example, the Jeep brand has been used on AM-FM portable radios and Hummer has been emblazoned on bicycles.
A key question in the potential automakers’ split-off of their best assets is whether the new company will retain control of most of the patents, said Gabe Fried, a managing member and founder of Streambank, a consulting firm that advises clients on the valuation and disposition of patents and other intellectual property (IP).
“To enter into the U.S. market, one needs to have the protection of those patents and I think we’re going to see a high level of interest from manufacturers overseas who are trying to break into the U.S. supplier market. It would help them tremendously,” Fried said.
Some of the most valuable patents could include process patents, which identify a high-quality, low-cost way of manufacturing parts, and raw material patents, which protect formulas for low-cost, light, high-performance materials, Fried said.
“Michigan ranks No. 2 in the country in terms of R&D spending, driven by the enormous IP activity of major automotive manufacturers,” said Stacy Fox, managing director and co-founder of RoxStream LLC, a consulting firm that specializes in IP disposition in the automotive sector.
“There is a wealth of IP within those companies and frankly only a portion of the value is realized in their own operations.”
Reporting by Emily Chasan, additional reporting by Chelsea Emery; Editing by Andre Grenon