Joe Friday

Why Won't GM Just Go Away?

Andrew, your thesis is accurate. the TARP loan for GM was a complete waste of taxpayer money. It was a transfer of wealth from future taxpayers to current GM employees, retirees and bond holders. With the exception of a few of senators, the hearings betrayed the complete ignorance of the politicians. The loan was entirely political, and it won't reverse the inevitiable chap 11 for GM, but only delay it.

Autoworkers' Pay Only Small Factor in Detroit's Problems

this discussion highlights the folly of the current bridge loan fiasco. The greatest part of the diffference between GM and the foreign manufacturers is their retiree obligations.

GM has something like 48B on its balance sheet as an accrued liability for retiree health care and other benefits. In Chap 11 that will be wiped out. There is no other way that GM can go forward as a sucessful company. That may be harsh and I agree it is completely unfair to the retirees but it is reality. These are the type of hard decisions and hard results that are required for successful restructurings.

Does anyone think that any Democratic government apointed "car czar" will have the political strength to do what has to be done?

The money coming from the government in this bailout is a complete waste of taxpayer dollars. In effect a transfer of wealth from the taxpayer to various creditors of GM who would otherwise not be paid. They money would be far wiser spent to fund a DIP loan for a proper chap 11.

Half of U.S. Consumers Delaying New Car Purchases

each year approximately 12M vehicles are "scrapped" in the US. Current run rates on vehicle sales (SAAR) is between 11-12M. It appears that this sales rate approximates the rate at which vehicles are being scrapped. Real growth in demand for vehicles should be consistent with population growth.
The sales rates we witnessed in the last few years of between 15-17M vehicles were unsustainable, and more of a function of insanely low financing rates then real "need". In essence, the auto industry brought forward demand, and now they will have to pay for that mistake.
it will take some time for that excess supply to work itself out of the market.

What Obama Needs to Know about Tim Geithner, the AIG Fiasco and Citigroup

Those who entered into insurance contracts with AIG did so voluntarily, and thereby assumed the counterparty risk associated with AIG.

They knew that these contracts were not "insurance" at all. AIG was not selling this "protection" as an insurance contracts at all so as to avoid the legal requirements for capital etc.

At no time did any counterparty believe they had the full faith of the US treasury backing their risk. The US taxpayer should not take this loss. They did not choose to take on this risk.

If we let AIG go bankrupt and all those who contracted with them lose out, so be it. In the future all will be more careful with whom they take on "counterparty" risk. That is a lesson all need to learn.

Bait-and-Switch Obviousness Shock: GM's Payoff

hard not to be cynical when their is such obvious deceit from our elected officials. I totally agree with the premise of your article. The 25B loan program was designed to help the automakers retool to make energy efficient cars, not to bail them out. Using those funds that have been set aside for the purpose of a bailout it stunning in its deceit.

Paulson should be ashamed of himself, if he does indeed sink to this level of dishonesty.

Why GM + Chrysler = Ugh

I can certainly understand why the GM creditors may support a deal since they will have access to the Chrysler cash that would find its way to the combined company balance sheet, but I cannot understand why the Chrysler debt holders would feel the deal would benefit them... For that matter, would they not typically have a right to call for the return of their deb? I would have thought that most debt instruments would provide for convenants against combinations that reduce their security?

Some True Safe Havens Are Still (Surprisingly) Undervalued

Note that it takes many years to bring a mine into production, and a lot of capital. Shutting down a mine in light of a fall in commodity prices is a very expensive decision. A company would not typically take such a decision, unless it comes to the conclusion that the commodity price has fallen below its cost of production, and the pricing for that commodity will remain suppressed for a long period of time (the losses from continued operation will be greater than the cost of shut down and subsequent start up when prices recover)
There have been a few mining closures during the last few months, and many more will follow if the commodity pricing complex remains suppressed. Naturally, these decision will result in reduced supply, which will lead to increased pricing, and so on. These cyles play out over many years however, and you may need to wait a few years for your thesis to pay off.

Auto Sales Are Cause for Optimism

www.bloomberg.com/apps...

further to this discussion, some of you may want to take a look at this chart to see what the cost of insuring GM debt is today. The debt market clearly expects insolvency.

Auto Sales Are Cause for Optimism

elroy, I agree that the chap 11 would hurt all the retirees as well as the shareholders and some debt holders. These are macro issues that go to the question of globalization/ unionized work forces/ moral and legal obligations to retirees etc. That debate is far to much for a forum such as this. In fact, the problems at GM go to the root of the problems with globalized trade and the reduction of all forms of trade hurdles.
The only issue here is....are GM shares a buy at these levels?

In my view, they are not. GM simply has to many anchors to succeed going forward. Absent huge changes in US trade policy, they will have no choice, in my view, but to eventually file. The longer they wait, the lesser will be their cash available to 'reorganize' with.

As an aside, I am not sure if the readers here have seen the promotional pieces being touted on CNBC relating to their upcoming piece on GM. Much is being made of the GM success in China, to bad nobody is mentioning that they actually lost money in China last quarter, even thought they sold a lot of cars. In addition, much of their reported "growth" in China is relating to their SAIC joint venture, in which they have a 34% interest, but report 100% of the sales as if they were their own. GM has done very well overseas and particularly in China, and they will continue to do so, but while they make and sell a lot of cars overseas, they do not make a lot of money there, and they will never be able to make up their domestic losses with foreign profits, unless they go through that chap 11 filing.

Auto Sales Are Cause for Optimism

while it is true that car sales will return, it does not follow that GM is a buy at these levels. GM will one day be a force to be reckoned with, but not until it goes through a chap 11 to shed all of the legacy obligations that it carries. It will never be competitive until it does so.
GM is in a sense, a victim of its own success. It has lasted long enough to become responsible for the health care of a million retirees and their families. GM has not funded that obligation, and cannot pay for it over a smaller number of vehicles, and still be profitable. In addition to the health care costs, they have the Delphi obligations, and huge "restructuring" costs which seem to grow monthly. GM should just file chap 11 and move on. They will emerge a strong company once again.

Big Three Automakers: Recapitalization or Bankruptcy?

while I agree with the premise, I believe it is naive to think that you can get negotiated agreeements with the creditors outside of the bankruptcy courts. I have been involved in these types of discussions, and they are simply not practical. Each stakeholder believes the other ones should take the bigger haircuts. It simply never works.
Chap 11 is almost inevitable for GM, in my view.

GM about to Throw away More Money

uh21, I certainly did not suggest that GM management was incompetent. I have been following the company for about 3 years, and the current management is doing is a good job in a tough environment. Their overseas growth is impressive. Unfortunately, although they have grown the foreign business, they have not been able to make enough money to make up for the continuing NA losses. The UAW legacy burdens make the long term survival almost impossible. They now have health care and pension responsibility for more than a million pelople, on the back on a much smaller work force. Once they take the pain and reorganize, they will be a force to be reckoned with...but their currrent equity is worthless.

GM about to Throw away More Money

two other headlines of note today. GM spent 826M buying it building and a couple of other ones in Detroit, and also offered upn 200M to Axle to help break the UAW deadlock. Surprising decisions from GM whose management said quite explicitly that they were very concerned about liquidity and cash flow on the conference call last week. They burned through 3.6B in cash last quarter, and this quarter looks much worse. With only 23B in cash, and over 30B in trade payables, they seem to be in deep trouble....