GM May Kill Another Brand / GM Financial Woes

[NegatiZE]

Reuters / March 23, 2005

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DETROIT -- General Motors, which issued a shock profit warning last week and has been losing market share, may phase out one of its weaker car brands if sales fail to meet projections, company Vice Chairman Bob Lutz said on Wednesday.

GM's Buick and Pontiac are both "damaged brands" due to lack of investment over the years, and GM is working to correct that with an array of new vehicles coming to market, Lutz told a Morgan Stanley automotive conference in New York.

But if some of its brands fail to meet sales projections, "then we would have to take a look at a phase-out. I hope we don't have to do that. What we've got to do is keep the brands we've got."

Financial analysts have said for years that the world's largest automaker has too many brands to support, even with the gradual phase-out of the Oldsmobile brand a few years ago, particularly with its weaker U.S. sales.

Sales for both Pontiac and Buick have lagged in recent years. But GM is in the midst of a $3 billion investment in new vehicles for Buick and Pontiac showrooms and they will have four new vehicles this year, including the Solstice roadster, Torrent SUV and the G6 mid-sized coupe.

GM, which last week cut its earnings outlook for 2005 by as much as 80 percent, posted a 6 percent drop in U.S. sales for the first two months of the year. GM's U.S. market share fell to about 25 percent, far below its share of 27.5 percent for all of 2004.

Analysts said last week that GM's March sales could fall as much as 10 percent in March, while foreign automakers such as Toyota Motor Corp., Hyundai Motor Co. Ltd. and Nissan Motor Co. Ltd. would continue to gain U.S. market share.

Lutz said GM will post relatively flat U.S. sales for March, however, performing much better than expected.

"I think we're going to be just about even, our best guess at this point. Either a percent over or a percent under," he said. "It is a substantially better month than January or February, and it looks like the whole industry is up."

'A HUGE ALBATROSS'

No details about an expected restructuring at GM, the largest private U.S. provider of health care, have emerged since it roiled markets with its warning last week.

But the company, which has about $300 billion in outstanding debt, said on Wednesday it was in talks to sell a stake in its GMAC Commercial Mortgage unit after potential investors expressed interest in the unit.

And Lutz and Gary Cowger, GM's president for North America, spoke of possible demands for a cut in mounting health care benefits for the company's hourly union employees in remarks on the sidelines of the New York auto show on Wednesday.

An elimination of any one of GM's brands would likely mean plant closings and a shrinking of GM's hourly work force.

"An across-the-board competitive health care plan for salaried and hourly employees could literally save us billions," Cowger said. Health care costs, added Lutz, are "a huge albatross hanging over American industry today."

Lutz particularly acknowledged that the automaker, which will struggle to make a profit this year, faces challenges. But he said GM was "taking the necessary step to right this ship."

"Sure, we face short-term challenges, and this is not going to be a banner year," he said. "It's a difficult period of adjustment. But we will get through it."

He said some of GM's new cars, such as its Chevrolet Cobalt small car and the Pontiac G6 mid-sized car, will post their best sales to date in March, and told the Morgan Stanley conference "I don't know where all the gloom and doom is coming from."

He quoted one car reviewer who said, referring to GM's troubles, that the quality of the Cobalt convinced him that "the Titanic may yet turn fast enough to miss the iceberg."

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The Death of the Dollar

Jason Hommel

Ceasar was supposed to be a god.
Julias Caesar was killed
on the Ides of March (March 15th)

Today, we don't make men gods. Instead society has made our financial system into a false god.

On March 15th, 2005, (the ides of March) we may have just witnessed the beginning of the death of our financial system as General Motors stock took a nosedive from $34/share down to $30.

It does not seem like much (GM down just over 10% in one day), but as of March 17th, the stock is down to $28.35, and the market cap is down to $16 billion. (GM is down nearly 18% for the week.) It's the type of volatility that we usually only see in silver stocks!

What does this mean?

GM's stock price decline is like a dagger right into the heart of the U.S. financial system, and the dollar itself!

Why did it happen?

Apparently, someone in power did the equivalent of shouting "the emperor has no clothes" and people woke up, and are beginning to see more clearly! The media decided it was time to expose the truth that GM is nearly insolvent, and will expect to lose $1.50/share in the first quarter alone!

But the story is worse than that! GM has $300 billion in debt http://finance.yahoo.com/q/ks?s=GM

...and has a market cap, now, of $16 billion. See the problem there? The bondholders could buy the company nearly 20 times over if they used their money to buy stock instead of loan it to the company. The implication is clear--that GM is headed towards bankruptcy, and will default on the bondholders, who will then own a company worth less than $16 billion dollars!

For every one point that interest rates rise, refinancing GM's debt will cost an additional $3 billion in annual interest payments -- money that they clearly do not have! Where is GM going to get another $3 to $6 to $9 billion as interest rates rise by 1%, 2%, and 3% more? Selling cars? Nope. Selling stock? Unlikely in this market! Borrowing more? From whom? The U.S. government itself is propping up this bond market, and there are no buyers even for U.S. bonds, and there haven't been for months now!

So, therefore, GM will soon be a $300 billion dollar blow-up!

How big is that? It's bigger than Enron, Global Crossing, LTCM, K-Mart, and the IRAQ war all put together!

$300 billion going belly up is a big enough event to topple the U.S. government! How so? It will shake the confidence in the entire financial system. Companies as big as GM are not supposed to go bankrupt in our "normal" world. They are "supposed" to be "too big to fail".

The value of the "official" U.S. gold hoard of 261 million oz., at $440/oz. is only a mere $115 billion.

See what this $300 billion blow-up will mean? Imagine the financial chaos as a pile of wealth almost three times larger than the current value of the U.S. "official" gold hoard evaporates!

The annual deficit is around $700 billion. How will the U.S. government sell bonds to finance the deficit if bondholders are getting wiped out?

If the government can't sell bonds while running a deficit, then the government must simply be printing money to fund the deficit--and they are, as can be seen in the rate of growth of the money supply, M3! Therefore, inflation is raging, and interest rates must keep pace, which is why GM is doomed!

Interest rates must head up, as confidence in the U.S. dollar bond market will be shaken like a tree in a hurricane!

Foreign nations are all sounding the alarm already that they will be selling U.S. bonds to diversify the holdings of their central banks: Russia, India, China, South Korea, Japan... what major foreign nation is left to buy them?

A Tsunami of dollar selling is about to begin, and will make the recent dollar decline seem like a small bump in the road.

It may take a few months for this to play out. You may have time to buy silver at under $10/oz. for a few more weeks or months. But after GM declares bankruptcy, which may take between 3 months to a year, get ready for the dollar to crash by more than 90% in the following 6-12 months.

Germany's hyperinflation in the 1930's took about a year and a half. Recently, Argentina's took place nearly overnight. Who knows which way the dollar will die, whether a quick death, or a more slow and painful one?

Either way, the dollar is dead. Long live gold and silver!

March 18th, 2005

 

[Autox MSP]

Its all good, the 2nd largest automaker, Toyota would be glad to buy up GM. We'll then get products that GM should have built.

 

[NegatiZE]

The only prob is, I think Toyota would be crazy to snatch up a company that has 300 BILLION in debt..DAMN.

 

[Antoine]

Interesting...On a side note...this section is becoming full of quality auto news and cool pics...I'm going to update this forum's name and maybe it's location...maybe make a few regular posters mods...carry on

 

[geomatics_tech]

I saw a report on tv the other day saying gm shares are trading at the same value as they were in the 1940's, and that the day b4 the report the stock dropped 14%.

if they go much lower I think they'll be out of business.

shaun (canada)

 

[NegatiZE]

.

GM Is in Talks to Sell Stake in Unit
Commercial Mortgage Unit May Raise Up to $1 Billion If a 50% Interest Is Sold
By DENNIS K. BERMAN and LEE HAWKINS JR.
Staff Reporters of THE WALL STREET JOURNAL
March 23, 2005; Page A3

General Motors Corp. is in discussions with a number of private-equity and other financial firms about selling a stake in its GMAC Commercial Mortgage subsidiary, said people familiar with the matter, in a deal that could raise as much as $1 billion for the car maker.

If struck, the deal would generate proceeds that would represent just a tiny portion of the $300 billion in debt that the auto giant has outstanding. Nonetheless, it would be a small step as GM attempts to recover from the dismal performance of its North American auto operations and tries to avert the threat of a credit downgrade.

GM's commercial-mortgage business collects payments on mortgages valued at more than $247 billion, while originating loans in sectors ranging from health care to golf courses.


The people familiar with the situation said the unit could be valued at anywhere between $1 billion and $2 billion. Should outside investors take as much as a 50% stake, that could generate as much as $1 billion in proceeds.

GM last year had said it was selling the unit, and news reports said the Philadelphia-area subsidiary was near a deal with Deutsche Bank AG. But that combination never materialized, and the company said it was content holding the businesses. Private-equity firms, however, began inquiring about the unit and are now in negotiations about structuring a deal that would keep GM as a significant shareholder. While negotiations have intensified in recent weeks, these people say, there is no guarantee that a deal will be reached.

Over the past few years, the GMAC financing subsidiary -- of which the commercial-mortgage unit is a part -- has contributed the majority of GM's profit. This year GMAC is expected to generate net income of at least $2.5 billion, although that will be down from 2004 as a result of higher interest rates.

Still, the contribution from GMAC will be welcomed by GM. The world's biggest auto maker warned Wall Street earlier this month that it expects to incur a loss of $1.50 a share in the first quarter of 2005, excluding special items, compared with a previous estimate of break-even or better. Instead of generating $2 billion in cash this year, as previously forecast, GM said it will burn $2 billion in cash, not including costs related to restructuring and its recent $2 billion settlement of a dispute with Italy's Fiat SpA.

"There was some interest expressed on the part of multiple parties to invest in our commercial-mortgage business. We're in discussions with those parties," said Toni Simonetti, a GM spokeswoman. "We are amenable to equity partners, but GMAC's intention is to maintain a significant equity interest in this business."

Ms. Simonetti declined to discuss which companies are seeking to invest or what their proposed investments would be valued at.

She said GMAC initially decided against selling the business in part on the basis that "the company didn't like the terms it was getting."

"It's a business that we like. It's a profitable growth business," Ms. Simonetti said. "In this funding environment, an equity partner is a source of funding. Clearly, it's something we are looking at, but there's nothing definitive at this point."

 

[jesse]

If they start phasing out too many brands eventually they'll phase out the whole company. The only solid brands they have are Saab and Hummer. Even Cadillac lost sales this quarter despite having some pretty nice looking cars. I think their trucks and SUVs sell well but they are probably losing that to Toyota too.

 

[mazdaspeedpower]

GM ******* sucks. They make low quality cars, and thier distributors are ******* losers who don't give a **** about the customer once you are out the door with your newly falling apart piece of crap money pit. I sure hope they ******* just phaze themselves completely out.

 

[Captain KRM P5]

oldsmobile was always the poor man's buick and buick has since been the poor man's caddy. buick has a new minivan and the boring lacrosse this year - big deal.