Chapter 11 in all but name!
07-16-2008, 06:47 PM
#1
Team Owner
Thread Starter
Chapter 11 in all but name!
Wednesday, July 16, 2008
Daniel Howes
GM moves to secure $15 billion cushion
Deep cuts, new financing needed to ensure liquidity, restore confidence in firm's future
"Our plan is not a plan to survive," General Motors Corp. Chairman Rick Wagoner said Tuesday. "It is a plan to win."
Except that GM, beset by skyrocketing oil prices, slumping consumer confidence and a reliance on gas-guzzling pickups and SUVs that made business sense in different times, must ensure its hemorrhaging North American operations survive before the company can win. Stripped to the bare essentials, that's what GM's second restructuring announcement in six weeks is all about -- surviving the here-and-now long enough to make it to the long term.
And that means finding more cash from within the company -- at least $10 billion of the $15 billion it says it needs -- because global credit markets are so stingy and GM's ability to navigate difficult times is so suspect among the financial intelligentsia, however quasi-informed some of that suspicion may be.
It's all about the cash, folks, as GM's use of the words "monetize" and "liquidity" and "sell assets" and "financing activities" and "cumulative cash improvements" should tell you. A company without sufficient cash coursing through its operations and funding new products is a company running out of time or headed for bankruptcy or both.
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Notice that GM is aiming to reduce the cash cost of its salaried work force in the United States and Canada by 20 percent, not a specific number of heads; that executive bonuses will be nixed, along with raises in base salaries; that retiree health care for those 65 and older will end, effective Jan. 1; that capital expenditures will be reduced and global product spending for this year and next will equal last year's outlay; that the dividend will be suspended for the first time since the Great Depression.
GM is doing what it has to do to catch up with the tectonic shifts in the U.S. car market. At the same time, it is trying to make the case that a global automaker with $181 billion in annual sales and formidable positions in growth markets around the world is -- and theoretically will be -- worth more than the $5.65 billion it is valued by the American equity markets.
Building confidence is Job 1
The vast disparity between sales and market cap -- rival Toyota Motor Corp. books more profit in the States in six months than GM's outstanding equity is worth -- tells you a) how financially insignificant GM is on Wall Street and b) how serious its predicament truly is and c) how likely it is that GM will need to seek more than its stated $3 billion or so from would-be lenders.
"They're not pandering to Wall Street," says John Casesa, managing director of Casesa Shapiro Group in New York and a longtime analyst. "They're trying to rebuild confidence so they can attract investment."
Or, put more crassly, GM is trying to demonstrate that it's not a dead company walking in the country where its shares are traded and a vast amount of its debt is held. As successful as GM is proving to be offshore -- sales in China are up 627 percent over the past five years and 7,048 percent in Russia -- the General cannot be viable in its home market unless investors believe in management, their strategy and the automaker's future.
"We want investors to have confidence we know what we're doing," President Fritz Henderson says. So do thousands of employees, tens of thousands of retirees, the state of Michigan and the communities that depend on GM's continued survival.
Oil prices driving behavior
There are no guarantees, as GM's over-65 salaried retirees set to lose their company health care can attest. It's jarring to hear Wagoner acknowledge that he and his team don't know what the market will be like "three to six weeks from now," just like they didn't know how quickly things would deteriorate when they announced a series of actions at the annual meeting in early June.
The simple truth is that GM and its rivals, foreign and domestic, are operating in an environment they largely cannot control because it is moving at a speed few anticipated. Instant information begets instant reaction from traders, regulators, politicians and consumers. Fear and disbelief trump deliberation and confidence, and oil prices seem to trump everything.
Congressional testimony Tuesday by Federal Reserve Chairman Ben Bernanke contributed to a nearly $7 drop in the price of a barrel of oil to $138.74, but recent gyrations could just as easily push the commodity back toward the $150 mark as down further. The point: Automakers are scrambling to prepare for the worst because hoping for a return to normalcy is not a strategy.
It's a corporate death sentence. GM's grim moves telegraph an admission that the dreaded analysts mostly have it right: GM needs more cash to survive and it must shrink to grow.
Although Wagoner & Co. made clear their intention to focus on driving the profitability of their seven U.S. brands, excluding Hummer, the door to killing one or more clearly remains open.
Chapter 11 in all but name
That's not all. Assuming a Chapter 11 bankruptcy filing is the nuclear option interested parties want to avoid -- management, unions, employees, suppliers and dealers -- Tuesday's moves are likely just the first steps of what essentially is shaping up to be a Chapter 11 reorganization without walking into a federal courtroom.
Could GM, faced with further market deterioration, decide to kill Saturn or Buick or euthanize Saab, as so many critics have been clamoring? Yes. Could it study the option of selling its sprawling Service Parts Operations or shopping transmission or stamping facilities for cash? Yes. Could GM, faced with heavier calls for cash, push United Auto Workers leaders to reopen their landmark deal creating a health care trust fund and negotiate a smaller contribution?
If it means avoiding federal bankruptcy court, the answer is yes because that's what this excruciating exercise is all about.
Daniel Howes
GM moves to secure $15 billion cushion
Deep cuts, new financing needed to ensure liquidity, restore confidence in firm's future
"Our plan is not a plan to survive," General Motors Corp. Chairman Rick Wagoner said Tuesday. "It is a plan to win."
Except that GM, beset by skyrocketing oil prices, slumping consumer confidence and a reliance on gas-guzzling pickups and SUVs that made business sense in different times, must ensure its hemorrhaging North American operations survive before the company can win. Stripped to the bare essentials, that's what GM's second restructuring announcement in six weeks is all about -- surviving the here-and-now long enough to make it to the long term.
And that means finding more cash from within the company -- at least $10 billion of the $15 billion it says it needs -- because global credit markets are so stingy and GM's ability to navigate difficult times is so suspect among the financial intelligentsia, however quasi-informed some of that suspicion may be.
It's all about the cash, folks, as GM's use of the words "monetize" and "liquidity" and "sell assets" and "financing activities" and "cumulative cash improvements" should tell you. A company without sufficient cash coursing through its operations and funding new products is a company running out of time or headed for bankruptcy or both.
Advertisement
Notice that GM is aiming to reduce the cash cost of its salaried work force in the United States and Canada by 20 percent, not a specific number of heads; that executive bonuses will be nixed, along with raises in base salaries; that retiree health care for those 65 and older will end, effective Jan. 1; that capital expenditures will be reduced and global product spending for this year and next will equal last year's outlay; that the dividend will be suspended for the first time since the Great Depression.
GM is doing what it has to do to catch up with the tectonic shifts in the U.S. car market. At the same time, it is trying to make the case that a global automaker with $181 billion in annual sales and formidable positions in growth markets around the world is -- and theoretically will be -- worth more than the $5.65 billion it is valued by the American equity markets.
Building confidence is Job 1
The vast disparity between sales and market cap -- rival Toyota Motor Corp. books more profit in the States in six months than GM's outstanding equity is worth -- tells you a) how financially insignificant GM is on Wall Street and b) how serious its predicament truly is and c) how likely it is that GM will need to seek more than its stated $3 billion or so from would-be lenders.
"They're not pandering to Wall Street," says John Casesa, managing director of Casesa Shapiro Group in New York and a longtime analyst. "They're trying to rebuild confidence so they can attract investment."
Or, put more crassly, GM is trying to demonstrate that it's not a dead company walking in the country where its shares are traded and a vast amount of its debt is held. As successful as GM is proving to be offshore -- sales in China are up 627 percent over the past five years and 7,048 percent in Russia -- the General cannot be viable in its home market unless investors believe in management, their strategy and the automaker's future.
"We want investors to have confidence we know what we're doing," President Fritz Henderson says. So do thousands of employees, tens of thousands of retirees, the state of Michigan and the communities that depend on GM's continued survival.
Oil prices driving behavior
There are no guarantees, as GM's over-65 salaried retirees set to lose their company health care can attest. It's jarring to hear Wagoner acknowledge that he and his team don't know what the market will be like "three to six weeks from now," just like they didn't know how quickly things would deteriorate when they announced a series of actions at the annual meeting in early June.
The simple truth is that GM and its rivals, foreign and domestic, are operating in an environment they largely cannot control because it is moving at a speed few anticipated. Instant information begets instant reaction from traders, regulators, politicians and consumers. Fear and disbelief trump deliberation and confidence, and oil prices seem to trump everything.
Congressional testimony Tuesday by Federal Reserve Chairman Ben Bernanke contributed to a nearly $7 drop in the price of a barrel of oil to $138.74, but recent gyrations could just as easily push the commodity back toward the $150 mark as down further. The point: Automakers are scrambling to prepare for the worst because hoping for a return to normalcy is not a strategy.
It's a corporate death sentence. GM's grim moves telegraph an admission that the dreaded analysts mostly have it right: GM needs more cash to survive and it must shrink to grow.
Although Wagoner & Co. made clear their intention to focus on driving the profitability of their seven U.S. brands, excluding Hummer, the door to killing one or more clearly remains open.
Chapter 11 in all but name
That's not all. Assuming a Chapter 11 bankruptcy filing is the nuclear option interested parties want to avoid -- management, unions, employees, suppliers and dealers -- Tuesday's moves are likely just the first steps of what essentially is shaping up to be a Chapter 11 reorganization without walking into a federal courtroom.
Could GM, faced with further market deterioration, decide to kill Saturn or Buick or euthanize Saab, as so many critics have been clamoring? Yes. Could it study the option of selling its sprawling Service Parts Operations or shopping transmission or stamping facilities for cash? Yes. Could GM, faced with heavier calls for cash, push United Auto Workers leaders to reopen their landmark deal creating a health care trust fund and negotiate a smaller contribution?
If it means avoiding federal bankruptcy court, the answer is yes because that's what this excruciating exercise is all about.
07-16-2008, 06:55 PM
#2
Team Owner
Thread Starter
Wednesday, July 16, 2008
Moody's: Chrysler on review for downgrade
Associated Press
NEW YORK -- Moody's Investors Service is reviewing its ratings on Chrysler LLC for a possible downgrade and keeping a negative outlook on Ford Motor Co., citing the market shift away from trucks and SUVs.
Moody's said late Tuesday it is reviewing Chrysler's Corporate Family Rating of B3, its senior secured first lien term loan rating of B1 and its senior secured second lien term loan rating of Caa1.
All three ratings are non-investment, or "junk," grade.
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The credit ratings agency also is maintaining its negative outlook on Ford's B3 Corporate Family Rating and Ford Motor Credit Co.'s B1 senior unsecured rating.
A negative outlook implies a 40 percent chance that a rating will be downgraded in the next 18 months, according to Moody's.
The agency cited the deteriorating business outlook for U.S. automakers amid a weakening economy, record-high fuel prices and a shift in demand away from trucks and sport utility vehicles toward cars and crossovers.
Moody's said Chrysler's biggest challenge is building enough profitability in its car and crossover offerings to offset the shift in demand.
Ford, too, is vulnerable given the flight from its trucks and SUVs, its high rate of cash burn and the likelihood that it will not be profitable through 2009, according to Moody's
On Tuesday, Fitch ratings downgraded General Motors Corp.'s non-investment grade issuer default rating to "B-" from "B" with a negative outlook.
Moody's: Chrysler on review for downgrade
Associated Press
NEW YORK -- Moody's Investors Service is reviewing its ratings on Chrysler LLC for a possible downgrade and keeping a negative outlook on Ford Motor Co., citing the market shift away from trucks and SUVs.
Moody's said late Tuesday it is reviewing Chrysler's Corporate Family Rating of B3, its senior secured first lien term loan rating of B1 and its senior secured second lien term loan rating of Caa1.
All three ratings are non-investment, or "junk," grade.
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The credit ratings agency also is maintaining its negative outlook on Ford's B3 Corporate Family Rating and Ford Motor Credit Co.'s B1 senior unsecured rating.
A negative outlook implies a 40 percent chance that a rating will be downgraded in the next 18 months, according to Moody's.
The agency cited the deteriorating business outlook for U.S. automakers amid a weakening economy, record-high fuel prices and a shift in demand away from trucks and sport utility vehicles toward cars and crossovers.
Moody's said Chrysler's biggest challenge is building enough profitability in its car and crossover offerings to offset the shift in demand.
Ford, too, is vulnerable given the flight from its trucks and SUVs, its high rate of cash burn and the likelihood that it will not be profitable through 2009, according to Moody's
On Tuesday, Fitch ratings downgraded General Motors Corp.'s non-investment grade issuer default rating to "B-" from "B" with a negative outlook.
07-16-2008, 07:04 PM
#4
Safety Car
John - this may sound heartless....but ....I'd use the GM cash to buy Ford, merge them and file Chapt 11. Close divisions and re-emerge much stronger.
07-16-2008, 07:10 PM
#5
Team Owner
Thread Starter
I have no clue any more. I know fuel will kill everything. I said to myself when they were pinning their hopes on the new trucks and SUV I hope there's not a war or gas shortage. Plenty of fuel just out of sight in price.
\
May be one huge car campany with all three in it to reduce cost on development. Chrysler will need to merge soon with someone. You have no clue what is happening with them as they are private now. Bet car sales are below 14 million for the year from over 17 million before this all happened.
\
May be one huge car campany with all three in it to reduce cost on development. Chrysler will need to merge soon with someone. You have no clue what is happening with them as they are private now. Bet car sales are below 14 million for the year from over 17 million before this all happened.
07-16-2008, 07:43 PM
#6
Le Mans Master
07-16-2008, 07:50 PM
#7
Race Director
problem is, when you go chapter 11 and alienate your suppliers, they don't want to business with you anymore. The whole point of Chapter 11 is eliminating debt (ie screwing your suppliers), and it's hard to continue without them.
They go Chapter 11, and they whole chain brakes into pieces......You end up with suppliers sueing each other for money, and GM takes (deservedly) all the blame.
Trust me, I've been through too many of these!
They go Chapter 11, and they whole chain brakes into pieces......You end up with suppliers sueing each other for money, and GM takes (deservedly) all the blame.
Trust me, I've been through too many of these!
07-16-2008, 08:17 PM
#8
Team Owner
Thread Starter
even the bad PR hurts them when people are shopping.
Bleeding 1.5 billion a month it sure goes fast. Can't build and design a car in a year.
Bleeding 1.5 billion a month it sure goes fast. Can't build and design a car in a year.
07-16-2008, 09:26 PM
#9
Safety Car
Jody, I'm serious - I've thought about it a lot through the past ~10-15 years. I think the time is right for a merger or buyout.
It's like the airlines.....too many competitors and production costs are crazy. Buy Ford and maybe Chrysler from Cerebus, on the Cheap in the future - or drive them to extinction.
Either the UAW wakes up ( John, I'm not slamming Labor I want to keep US manufacturing here too ) or close North America and take it offshore. Sadly those are the realities.
(High oil prices aren't bad for all..........it will help many in this country. How about domestic steel??)
This reminds me of early JD Rockefeller and Standard oil..........as well as early auto- packard, dodge, nash, cord, hudson, aurburn, mercury et al.
Oh ..the market must like the GM announcement GM and Ford are up.
It's like the airlines.....too many competitors and production costs are crazy. Buy Ford and maybe Chrysler from Cerebus, on the Cheap in the future - or drive them to extinction.
Either the UAW wakes up ( John, I'm not slamming Labor I want to keep US manufacturing here too ) or close North America and take it offshore. Sadly those are the realities.
(High oil prices aren't bad for all..........it will help many in this country. How about domestic steel??)
This reminds me of early JD Rockefeller and Standard oil..........as well as early auto- packard, dodge, nash, cord, hudson, aurburn, mercury et al.
Oh ..the market must like the GM announcement GM and Ford are up.
07-16-2008, 09:30 PM
#10
Safety Car
problem is, when you go chapter 11 and alienate your suppliers, they don't want to business with you anymore. The whole point of Chapter 11 is eliminating debt (ie screwing your suppliers), and it's hard to continue without them.
They go Chapter 11, and they whole chain brakes into pieces......You end up with suppliers sueing each other for money, and GM takes (deservedly) all the blame.
Trust me, I've been through too many of these!
They go Chapter 11, and they whole chain brakes into pieces......You end up with suppliers sueing each other for money, and GM takes (deservedly) all the blame.
Trust me, I've been through too many of these!
GM has been squeezing it's suppliers mercilessly for 15years. It can't worsen their relationships.
joel
07-16-2008, 09:57 PM
#12
Le Mans Master
Jody, I'm serious - I've thought about it a lot through the past ~10-15 years. I think the time is right for a merger or buyout.
It's like the airlines.....too many competitors and production costs are crazy. Buy Ford and maybe Chrysler from Cerebus, on the Cheap in the future - or drive them to extinction.
Either the UAW wakes up ( John, I'm not slamming Labor I want to keep US manufacturing here too ) or close North America and take it offshore. Sadly those are the realities.
(High oil prices aren't bad for all..........it will help many in this country. How about domestic steel??)
This reminds me of early JD Rockefeller and Standard oil..........as well as early auto- packard, dodge, nash, cord, hudson, aurburn, mercury et al.
Oh ..the market must like the GM announcement GM and Ford are up.
It's like the airlines.....too many competitors and production costs are crazy. Buy Ford and maybe Chrysler from Cerebus, on the Cheap in the future - or drive them to extinction.
Either the UAW wakes up ( John, I'm not slamming Labor I want to keep US manufacturing here too ) or close North America and take it offshore. Sadly those are the realities.
(High oil prices aren't bad for all..........it will help many in this country. How about domestic steel??)
This reminds me of early JD Rockefeller and Standard oil..........as well as early auto- packard, dodge, nash, cord, hudson, aurburn, mercury et al.
Oh ..the market must like the GM announcement GM and Ford are up.
My guess is the gov't would see some anti-trust issues in a deal like that, but in today's economic environment, maybe they would lighten up a bit.
I remember when I was in college (late 60's), an economics professor told us that GM, Ford and Chrysler always let American Motors announce their prices first for the new model year. He said they did that because the Big 3 wanted American Motors to stay in business because if they went out of business, the gov't anti-trust police would bear down on the other 3 pretty hard.
So, in their own best interest they made sure their prices wouldn't be enough to drive AMC out of business.
Self preservation at its best.
07-16-2008, 10:06 PM
#13
"AlohaC5" Senior Member
What really ticks me off about this whole "monetization" process is the fact that GM will terminate retiree health care for those 65 and older. What a bunch of BS! I'm not a union guy, but a decision like this provides insight into the character (or lack thereof) of a major corporation. Apparently, contracts between employer and employee carry no weight with this company. I would be hesitant to work for a company with a track record like this.
07-16-2008, 11:42 PM
#14
Chap 11 would be largely focused at eliminating huge legacy pension/retiree medical liabilities, not screwing suppliers. Of course these aren't GM's only issues. They sell fewer cars that Toyota in the US with how many different brands and models and far more dealers overall. Their model doesn't work anymore given the evolution of the market. Sad because their products are clearly getting better.
I think it's going to take a combination of dramatic organizational/product/distribution re-org AND bankruptcy to put them back on a footing where they can begin to think about competing long-term and not just managing quarter to quarter to preserve cash.
Cut 2-3 brands, reduce/consolidate dealers, drastically reduce the number of models produced, continue to invest in R&D, quality and new product development and get your labor/benefits expenses straightened out.
Nobody gets retiree HC benefits anymore except legacy union guys and some government jobs (where maybe it's the quid pro quo for working a ****ty job for life at low pay).
I think it's going to take a combination of dramatic organizational/product/distribution re-org AND bankruptcy to put them back on a footing where they can begin to think about competing long-term and not just managing quarter to quarter to preserve cash.
Cut 2-3 brands, reduce/consolidate dealers, drastically reduce the number of models produced, continue to invest in R&D, quality and new product development and get your labor/benefits expenses straightened out.
Nobody gets retiree HC benefits anymore except legacy union guys and some government jobs (where maybe it's the quid pro quo for working a ****ty job for life at low pay).
07-17-2008, 07:11 AM
#15
Team Owner
Thread Starter
Thursday, July 17, 2008
Cutback plans boost GM stock
But analysts question firm's long-term prospects
David Shepardson and Christine Tierney / The Detroit News
Shares of General Motors Corp. soared Wednesday, signaling that the automaker's plans to raise $15 billion by the end of 2009 reassured investors and put their fears of bankruptcy to rest.
The Detroit automaker's stock jumped $1.64 to $11.48 -- gaining back nearly all the ground it lost after Merrill Lynch said on July 2 that a bankruptcy filing by GM "was not impossible." The comments in the Merrill report had sent GM's shares to its first close below $10 in more than 50 years.
GM announced plans Tuesday to cut at least 20 percent of its salaried work force costs, suspend its dividend for the first time since 1922, eliminate 65 and older salaried retiree health care coverage and reduce truck production by another 150,000 units. It said it also would raise cash through measures including asset sales.
Advertisement
Company officials said they don't expect to announce what assets are up for sale or what plants will be affected by the truck production cuts until after Labor Day.
They have retained several outside advisers to help shed some non-core assets in an effort to raise up to $4 billion.
GM said last month that previously announced reductions in truck output would affect factories that supply four truck plants slated for closure. GM will detail its plans to the United Auto Workers union.
UAW President Ron Gettelfinger said Wednesday that he didn't think the union would make any more concessions to GM. "We have done a lot. No, there's nothing more we can do," Gettelfinger said in an interview with Paul W. Smith on WJR Radio.
But his comments and long-term concerns didn't dampen the rally in GM shares.
The broader markets were up about 2.5 percent Wednesday and GM also benefited from a second straight day of sharp declines in oil prices.
Other auto stocks rose, too. Ford Motor Co. saw its battered shares jump 18.1 percent to $5.49, while auto suppliers stocks also gained. American Axle & Manufacturing Holdings Inc. was up 12.8 percent; Lear Corp. jumped 7.7 percent; and Dana Corp. was up 7.6 percent.
One factor that boosted GM's stock was the fact that the automaker didn't take any actions to dilute the stock's value -- namely a new offering.
Analysts wary of GM's future
But analysts underscored in reports that concerns about GM's long-term prospects remain and point out some of the big bills coming due in 2010.
GM pushed back $1.7 billion in payments owed in 2008 and 2009 to a fund that will cover health care for UAW retirees. GM will make the payments in 2010, when the UAW assumes responsibility for the fund. Gettelfinger didn't discuss that decision Wednesday.
That means GM will pay the $1.7 billion, plus accrued interest of 9 percent, along with $7 billion already scheduled for 2010. They will be the first payments as part of a deal to give the UAW $35 billion in cash and stock to assume $47 billion in retiree health care liabilities.
Merrill Lynch analyst John Murphy, who sparked the July 2 sell-off in shares by saying a GM bankruptcy could not be ruled out, expects the automaker's stock to head toward $7 a share.
In a report issued Wednesday, he painted a gloomy picture: In addition to the risk that GM could run short of cash, the automaker is caught in a severe cyclical downturn and faces many other risks, ranging from raw materials price increases to GM's exposure to its former parts unit Delphi Corp., which has struggled to emerge from bankruptcy. GM has already taken a $7.5 billion charge related to Delphi.
The automaker has made progress in cutting costs and streamlining its lineup, but concerns about liquidity are requiring GM to turn to "severe austerity actions" that could reduce future earnings power, Murphy wrote. "Some refer to the confluence of negative factors as the perfect storm or the 100-year flood; whatever term you deem appropriate, this is almost undoubtedly turning into a potential disaster for existing shareholders."
GM may get boost in cash in 2010
Due to the restructuring actions, Lehman Brothers auto analyst Brian Johnson said he expects GM to have $11.3 billion in cash in 2010, "up $10.4 billion from our previous estimate and in the $10-12 billion range we believe to be GM's working cash needs."
GM is burning through $1 billion or more a month, analysts say, and will announce a significant second-quarter loss on top of a $3.3 billion first-quarter loss.
Deutsche Bank analyst Rod Lache said the measures GM outlined allayed mounting fears of a cash crunch at the U.S. automaker, but did little to reassure investors about long-term prospects. "While we are somewhat more comfortable with questions about short-term survival, we continue to question its long-term earning power and competitiveness," he said.
Still, the moves whittled at GM's cost structure. Lache said they would cut GM's fixed costs by between $6 billion and $7 billion, to around $26 billion to $27 billion by 2010, from $33 billion last year.
GM Vice Chairman Bob Lutz posted a note on a company blog explaining the cuts were "hard calls to make. They weren't made lightly, they weren't pleasant decisions to reach."
"I'm not going to sit here and say we have done everything right and made nothing but good decisions," Lutz said. But he said since the company announced its turnaround plan in 2005 "we've had a firm sound plan and have delivered on it."
In a note issued Wednesday, Goldman Sachs analyst Patrick Archambault retained a sell rating on GM's stock. He attributed the stock's rise to relief that the cash-raising measures did not entail the issuance of new shares that would dilute current investors' holdings and weigh on the share price.
He also said the plan's assumption that the U.S. auto market will remain weak next year, with total industry sales not expected to exceed 14 million cars and light trucks, was conservative. But he said several factors could undercut the plan's objectives, such as high raw materials costs, any deterioration in vehicle pricing or weakness in GM's overseas operations.
You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com
Cutback plans boost GM stock
But analysts question firm's long-term prospects
David Shepardson and Christine Tierney / The Detroit News
Shares of General Motors Corp. soared Wednesday, signaling that the automaker's plans to raise $15 billion by the end of 2009 reassured investors and put their fears of bankruptcy to rest.
The Detroit automaker's stock jumped $1.64 to $11.48 -- gaining back nearly all the ground it lost after Merrill Lynch said on July 2 that a bankruptcy filing by GM "was not impossible." The comments in the Merrill report had sent GM's shares to its first close below $10 in more than 50 years.
GM announced plans Tuesday to cut at least 20 percent of its salaried work force costs, suspend its dividend for the first time since 1922, eliminate 65 and older salaried retiree health care coverage and reduce truck production by another 150,000 units. It said it also would raise cash through measures including asset sales.
Advertisement
Company officials said they don't expect to announce what assets are up for sale or what plants will be affected by the truck production cuts until after Labor Day.
They have retained several outside advisers to help shed some non-core assets in an effort to raise up to $4 billion.
GM said last month that previously announced reductions in truck output would affect factories that supply four truck plants slated for closure. GM will detail its plans to the United Auto Workers union.
UAW President Ron Gettelfinger said Wednesday that he didn't think the union would make any more concessions to GM. "We have done a lot. No, there's nothing more we can do," Gettelfinger said in an interview with Paul W. Smith on WJR Radio.
But his comments and long-term concerns didn't dampen the rally in GM shares.
The broader markets were up about 2.5 percent Wednesday and GM also benefited from a second straight day of sharp declines in oil prices.
Other auto stocks rose, too. Ford Motor Co. saw its battered shares jump 18.1 percent to $5.49, while auto suppliers stocks also gained. American Axle & Manufacturing Holdings Inc. was up 12.8 percent; Lear Corp. jumped 7.7 percent; and Dana Corp. was up 7.6 percent.
One factor that boosted GM's stock was the fact that the automaker didn't take any actions to dilute the stock's value -- namely a new offering.
Analysts wary of GM's future
But analysts underscored in reports that concerns about GM's long-term prospects remain and point out some of the big bills coming due in 2010.
GM pushed back $1.7 billion in payments owed in 2008 and 2009 to a fund that will cover health care for UAW retirees. GM will make the payments in 2010, when the UAW assumes responsibility for the fund. Gettelfinger didn't discuss that decision Wednesday.
That means GM will pay the $1.7 billion, plus accrued interest of 9 percent, along with $7 billion already scheduled for 2010. They will be the first payments as part of a deal to give the UAW $35 billion in cash and stock to assume $47 billion in retiree health care liabilities.
Merrill Lynch analyst John Murphy, who sparked the July 2 sell-off in shares by saying a GM bankruptcy could not be ruled out, expects the automaker's stock to head toward $7 a share.
In a report issued Wednesday, he painted a gloomy picture: In addition to the risk that GM could run short of cash, the automaker is caught in a severe cyclical downturn and faces many other risks, ranging from raw materials price increases to GM's exposure to its former parts unit Delphi Corp., which has struggled to emerge from bankruptcy. GM has already taken a $7.5 billion charge related to Delphi.
The automaker has made progress in cutting costs and streamlining its lineup, but concerns about liquidity are requiring GM to turn to "severe austerity actions" that could reduce future earnings power, Murphy wrote. "Some refer to the confluence of negative factors as the perfect storm or the 100-year flood; whatever term you deem appropriate, this is almost undoubtedly turning into a potential disaster for existing shareholders."
GM may get boost in cash in 2010
Due to the restructuring actions, Lehman Brothers auto analyst Brian Johnson said he expects GM to have $11.3 billion in cash in 2010, "up $10.4 billion from our previous estimate and in the $10-12 billion range we believe to be GM's working cash needs."
GM is burning through $1 billion or more a month, analysts say, and will announce a significant second-quarter loss on top of a $3.3 billion first-quarter loss.
Deutsche Bank analyst Rod Lache said the measures GM outlined allayed mounting fears of a cash crunch at the U.S. automaker, but did little to reassure investors about long-term prospects. "While we are somewhat more comfortable with questions about short-term survival, we continue to question its long-term earning power and competitiveness," he said.
Still, the moves whittled at GM's cost structure. Lache said they would cut GM's fixed costs by between $6 billion and $7 billion, to around $26 billion to $27 billion by 2010, from $33 billion last year.
GM Vice Chairman Bob Lutz posted a note on a company blog explaining the cuts were "hard calls to make. They weren't made lightly, they weren't pleasant decisions to reach."
"I'm not going to sit here and say we have done everything right and made nothing but good decisions," Lutz said. But he said since the company announced its turnaround plan in 2005 "we've had a firm sound plan and have delivered on it."
In a note issued Wednesday, Goldman Sachs analyst Patrick Archambault retained a sell rating on GM's stock. He attributed the stock's rise to relief that the cash-raising measures did not entail the issuance of new shares that would dilute current investors' holdings and weigh on the share price.
He also said the plan's assumption that the U.S. auto market will remain weak next year, with total industry sales not expected to exceed 14 million cars and light trucks, was conservative. But he said several factors could undercut the plan's objectives, such as high raw materials costs, any deterioration in vehicle pricing or weakness in GM's overseas operations.
You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com
07-17-2008, 07:19 AM
#16
Safety Car
Why are people so shocked? And appalled? How many of you have Toyotas in your garage, and are bitching about the fact that GM has to send jobs overseas? I know, I know. It was built over here. Or 32% of the parts came from the US. Or whatever excuse you told yourself made it ok for sending your dollars overseas.
This isn't a blind patriotic statement, I work in the industry for a supplier, and see this crap all day long. And as stated above, we still want GM business. The volumes make many other OEM's harldy worth our time.
FTR i have a Dodge and a Chevy...and a German car.
07-17-2008, 07:47 AM
#17
Team Owner
GMs problems are not the fault of current management.
They are moving in leaps and bounds compared to the other manufactuers.
Its legacy cost #1 and #2 the market.
GM in a better market would be dominating.
I think too though that the "gimme" society is starting to soften. I haven't bought a new car in three years, a first for us.
I won't buy a new car either...ever again...the down side of building better cars. The cars are so much better now than in the past.
Resale values suck...I picked up my A6 for 20 percent of what it sold for new and its in fantastic condition. My wife is looking at an X3 to go along with her new job, 50 percent off retail in a 3 year old car.
Even the beater Status held none of its value.
Nothing out there is inspiring enough for me to run out and have to have.
I sold the C5 and might even get a C6, have you seen how cheap C6's are going for now?
I can see myself buying a used 2nd get CTS in a few years.
I think more people area realizing the value of a good used car.
I can buy go new car that is less well equipped or I can buy a fully loaded luxury car a few years old for the price of the new cheap car.
They are moving in leaps and bounds compared to the other manufactuers.
Its legacy cost #1 and #2 the market.
GM in a better market would be dominating.
I think too though that the "gimme" society is starting to soften. I haven't bought a new car in three years, a first for us.
I won't buy a new car either...ever again...the down side of building better cars. The cars are so much better now than in the past.
Resale values suck...I picked up my A6 for 20 percent of what it sold for new and its in fantastic condition. My wife is looking at an X3 to go along with her new job, 50 percent off retail in a 3 year old car.
Even the beater Status held none of its value.
Nothing out there is inspiring enough for me to run out and have to have.
I sold the C5 and might even get a C6, have you seen how cheap C6's are going for now?
I can see myself buying a used 2nd get CTS in a few years.
I think more people area realizing the value of a good used car.
I can buy go new car that is less well equipped or I can buy a fully loaded luxury car a few years old for the price of the new cheap car.
07-17-2008, 07:47 AM
#18
Team Owner
Thread Starter
It will be a long time before a new Corvette comes out. They are scrambling on small fuel efficient cars now. Not like they need a new V-8 as they developed the LS motors before the put them in 1 million trucks per year. You may be getting parts for Corvettes at Carlisle only soon like a Hudson.
If you read "All Corvettes are red" you know how close it was to the axe then. This situation is much worse. I wonder how much Vette sales slid this year downward?
We hear the news of GM layoffs which make the nightly news but little of all the suppliers affect who layoff people. Looks like we are heading down the path of England but I hope not.
GM's racing will take a huge hit and all the local donations they have made to communities for years. Even if gas dropped tomorrow people now know it can shoot to the moon overnight and have no confidence in buying a big vehicle. Ford is trying to bring a small truck the build from Thailand here for sale as fast as possible.
I think we have reached the tipping point with cheap foreign goods and jobs leaving this country. This has been masked by all the loose credit we are now paying for. We thought we were doing fine but it was all borrowed expansion and good times.
If you read "All Corvettes are red" you know how close it was to the axe then. This situation is much worse. I wonder how much Vette sales slid this year downward?
We hear the news of GM layoffs which make the nightly news but little of all the suppliers affect who layoff people. Looks like we are heading down the path of England but I hope not.
GM's racing will take a huge hit and all the local donations they have made to communities for years. Even if gas dropped tomorrow people now know it can shoot to the moon overnight and have no confidence in buying a big vehicle. Ford is trying to bring a small truck the build from Thailand here for sale as fast as possible.
I think we have reached the tipping point with cheap foreign goods and jobs leaving this country. This has been masked by all the loose credit we are now paying for. We thought we were doing fine but it was all borrowed expansion and good times.
07-17-2008, 09:25 AM
#19
Team Owner
If GM's E-volt system works, and they decide to license the techology gas will be $1.00 a gallon.
Your talking nearly 100mpg in straight gasoline costs. That would cut my weekly fuel budget from $80 to $15 at current E85 prices. Their motor runs better on E85 due to higher compression.
It won't take oil execs long to do the math.
They can sell me 25 gallons of fuel at just over a buck and I'll never look at a electric car or they can sell me 3-4 gallons of E85 at 3.85...
I don't know if people realize how historic of a change GM will make in this country, if it works.
They are not re-inventing the wheel just using the same technology that trains have used for years. Purpose built diesel engine to power electric motors.
GM is claiming 150mpg, I'd say go with 2/3's of that for real world.
They cannot build enough themselves to make a difference, they need to license the technology to other companies, if they do that the impact will be history changing.
I truly believe Lutz wants to leave his mark and this is it.
Your talking nearly 100mpg in straight gasoline costs. That would cut my weekly fuel budget from $80 to $15 at current E85 prices. Their motor runs better on E85 due to higher compression.
It won't take oil execs long to do the math.
They can sell me 25 gallons of fuel at just over a buck and I'll never look at a electric car or they can sell me 3-4 gallons of E85 at 3.85...
I don't know if people realize how historic of a change GM will make in this country, if it works.
They are not re-inventing the wheel just using the same technology that trains have used for years. Purpose built diesel engine to power electric motors.
GM is claiming 150mpg, I'd say go with 2/3's of that for real world.
They cannot build enough themselves to make a difference, they need to license the technology to other companies, if they do that the impact will be history changing.
I truly believe Lutz wants to leave his mark and this is it.
07-17-2008, 10:01 AM
#20
Drifting
A friend/customer of mine was told by Lutz 110 mpg on the Eflex(volt). I don't doubt it either. 50-60 miles in electric range but after the motor runs, you're looking at 110 mpg.
GM is already in a joint venture with Chrysler and BMW with the 2 mode hybrid system. GM holds all the rights but you will see a Chrysler product similar to the Tahoe hybrid. BMW's timeframe is unclear.
GM is already in a joint venture with Chrysler and BMW with the 2 mode hybrid system. GM holds all the rights but you will see a Chrysler product similar to the Tahoe hybrid. BMW's timeframe is unclear.