GM Sells Finance Arm for $14 Billion

[mikeyb]

DETROIT General Motors CEO Rick Wagoner said a $14 billion deal to sell 51 percent of General Motors Acceptance Corp., widely considered the beleaguered company's cash cow, will help drive its turnaround plan in North America.

The long-awaited sale of the financing subsidiary to a consortium, led by hedge fund Cerberus Capital Management LP, was announced Monday. The group also includes Citigroup and Japan's Aozora Bank. GM will keep GMAC's lease and retail assets as part of the deal.

Wagoner said the GMAC sale is an important ingredient in the efforts to restore GM to profitability as it pays massive amounts in buyouts to reduce future labor costs. GM, which reported a $10.6 billion loss in 2005, expects to receive the $14 billion in cash from the transaction over three years.

source:http://www.edmunds.com/insideline/do/News/articleId=109863

 

[jred321]

huh? i don't get it. to make the company better they sell off the only profitable part of it? how does that work?

 

[Hughes412]

HA! That's old news, I heard about this last week. It's the only part of the company that they could sell and make money on.

 

[jred321]

but how does selling their profitable part of the company help them in the long term? it seems very short sited to me

 

[Mallard]

but how does selling their profitable part of the company help them in the long term? it seems very short sited to me

While it was the most profitable subsidiary they control, the market giving GM 'junk bond' status has hurt their credit rating. Kind of hard to hand out loans when you can't get a decent interest rate. They only sold 51% of it so they will still make money on any future profits of the division.

 

[NVP5White]

but how does selling their profitable part of the company help them in the long term? it seems very short sited to me

The sale of GMAC is to acquire blood-money to pay off the UAW. This new cash will be used in the employee buy-out program, as well as the severence packages for the salaried employees and plant closing they just announced.

While I agree that it is better in good times to have greater amount of profitable business entities. GM didn't have the luxury of getting out of its situation on the cheap...everybody knows they tried to for long enough. So they had to sell something to get cash because no one is going to buy thier bonds at the aforementioned "junk" rating.

Just a guess here, but I think if GM had its way it would only design cars and count money in the US. ALL other operations would be moved overseas. While this presents its own probelms, GM feels it does not have any other choice. Based on their recent success in China, we may see a large percent of manufacturing of GM parts and assembly move there.

BTW, can you imagine what kind of control China will have over the US once we make all computers components, cars, and just about everything else over there. A little scary...

 

[RaiderMS3]

They should have waited like on all GM products. They could have gotten it for half that next year! cough..cough, my 2000 loaded Sonoma...

lol, I keed.

 

[Mallard]

NVP5White - GM is not the only company moving to China. Pretty much ALL manufacturing is going that way. Every car maker has a plant there, as well as many other manufactured goods that used to be made in North America. It is a major problem right now and stands to hurt the American economy greatly. Manufacturing in China is so cheap that is actually more profitable to produce goods over there, load them on a boat, take them half way around the world, and ship them from ports then it is to make them in North America. It's hard for a company that relies so heavily on America to compete with the price of goods from China, no matter what industry.

I'm not saying that this is the core of GM's problems (because it's not) but it's why, if the UAW doesn't come to an agreement with Delphi and GM that can allow them to manufacture goods in the US, you will see more and more jobs go across the pond, even in engineering. Right now my company can hire 6 people in the Ukrane for the price of one in the US.

 

[TheMAN]

yay globalization and "free trade"

 

[Mazdamia]

I think it would be kind of funny to have China just stop exporting to us for a month and stop buying all of our government debt.

Our entire nation would shut down...(I'd have more work though since I work at a hospital and there would be alot of heart attacks)

 

[NVP5White]

NVP5White - GM is not the only company moving to China. Pretty much ALL manufacturing is going that way. Every car maker has a plant there, as well as many other manufactured goods that used to be made in North America. It is a major problem right now and stands to hurt the American economy greatly. Manufacturing in China is so cheap that is actually more profitable to produce goods over there, load them on a boat, take them half way around the world, and ship them from ports then it is to make them in North America. It's hard for a company that relies so heavily on America to compete with the price of goods from China, no matter what industry.

I'm not saying that this is the core of GM's problems (because it's not) but it's why, if the UAW doesn't come to an agreement with Delphi and GM that can allow them to manufacture goods in the US, you will see more and more jobs go across the pond, even in engineering. Right now my company can hire 6 people in the Ukrane for the price of one in the US.

Not ALL manufacturers are looking to move North American production to China.

http://www.autonews.com/apps/pbcs.d...3/SUB/60331082/1003/BREAKING&refsect=BREAKING

To clarify my previous comment, I meant that GM would like to make all North American cars outside of the US. Whether that ends up being China, Mexico, or Canada remains to be seen. Clearly, other manufacturers are investing in domestic plants, but in right-to-work states like Indiana and Kentucky.

As for the unions, they exist for the benefit of thier members. In no way does their history or recent actions indicate they are willing to reduce wage costs to equal the price companies are willing to pay. If companies such as yours can benefit from having people in the Ukrain do work, well then they would be silly not to. In the global economoy there will more winners and that means spreading the wealth around. For centuries the vast majority of personal and corporate wealth has resided in a handful of nations. Now we will begin to see a redustribution of wealth to other countries. Americans will benefit from this in the long run. We'll get goods for less and have investment and trade opportunities never before imagined. As a whole our economy has been moving to an Information based economy and we will still be the leader of the world economy because of our strong legal and financial systems.

 

[Hughes412]

While I see your point, I cant help but feel its flaud big time. The bad thing about having other countries make our goods it you cant control the quality of the goods until they have reached our shores. Yea the company will have people over there to check for quality issues but we have already seen that kind of check system mess up, remember the flu vaccine?
The problem with America is that we charge to much for the goods we make. Lower the pay AND the price to buy things then the little guys can afford more and will spend more. The economy will go up and Americans will be happy. But that will never happen. The world is teaching our kids to get as much as you can for as little as possible. To buck the system at every corner. But thats a different topic. The short of it is they need to keep our work in the states.

 

[Mallard]

Not ALL manufacturers are looking to move North American production to China.

http://www.autonews.com/apps/pbcs.dll/article?AID=/20060403/SUB/60331082/1003/BREAKING&refsect=BREAKING

To clarify my previous comment, I meant that GM would like to make all North American cars outside of the US. Whether that ends up being China, Mexico, or Canada remains to be seen. Clearly, other manufacturers are investing in domestic plants, but in right-to-work states like Indiana and Kentucky.

Yes, and as you said, they are in right-to-work states where they don't have to deal with the UAW. On top of that, they pay their workers LESS then what the last offer Delphi offered the UAW in its last proposal. This proposal was rejected without even sending it to the workers for vote.

As for the unions, they exist for the benefit of thier members. In no way does their history or recent actions indicate they are willing to reduce wage costs to equal the price companies are willing to pay. If companies such as yours can benefit from having people in the Ukrain do work, well then they would be silly not to. In the global economoy there will more winners and that means spreading the wealth around. For centuries the vast majority of personal and corporate wealth has resided in a handful of nations. Now we will begin to see a redustribution of wealth to other countries. Americans will benefit from this in the long run. We'll get goods for less and have investment and trade opportunities never before imagined. As a whole our economy has been moving to an Information based economy and we will still be the leader of the world economy because of our strong legal and financial systems.

Unions were created because of the horrible working conditions in industrial revolution. They were to protect the workers from injury, health risks, etc. Current laws prevent that from happening now whether a union is present or not. If you've ever been in a UAW plant you would know that the union is horribly inefficient, they have tons of redundant jobs, and it's very bureaucratic. The union needs to be reformed if they have any hope of retaining jobs in the US. When your competitors are able to make cars with fewer people on staff with lower wages it becomes nearimpossible to compete price-wise.

I disagree with the rest of your statement too. It will not be good for America to have every company outsource to foreign countries. GM's cutting 30,000 production workers and 2500 engineering positions. Delphi is cutting a bunch of workers as well. (Forget the numbers) Ford announced today that they plan on cutting 30,000 jobs as well. You have entire communities that relied on those plants as a way of life. Large numbers of these people will probably end up on welfare. You may think, "well those are mostly blue collar jobs that can be sourced a lot cheaper in undeveloped nations." Well, as I mentioned, this reaches engineering positions as well (what I do). So maybe we'll get cheaper goods in the US, but who will be able to buy them after everyone's laid off?

The US needs to raise the tariffs on certain imported goods in order to make it comparitive to manufacturing something here. That way there are more blue collar jobs here, more people have an income where they can provide for themselves, and the economy will grow. (That's what Germany did in the past, and what the US did to imported trucks...that's why every major manufacturer has a truck plant in North America)

 

[NVP5White]

It will not be good for America to have every company outsource to foreign countries. GM's cutting 30,000 production workers and 2500 engineering positions. Delphi is cutting a bunch of workers as well. (Forget the numbers) Ford announced today that they plan on cutting 30,000 jobs as well. You have entire communities that relied on those plants as a way of life. Large numbers of these people will probably end up on welfare. You may think, "well those are mostly blue collar jobs that can be sourced a lot cheaper in undeveloped nations." Well, as I mentioned, this reaches engineering positions as well (what I do). So maybe we'll get cheaper goods in the US, but who will be able to buy them after everyone's laid off?

The US needs to raise the tariffs on certain imported goods in order to make it comparitive to manufacturing something here. That way there are more blue collar jobs here, more people have an income where they can provide for themselves, and the economy will grow. (That's what Germany did in the past, and what the US did to imported trucks...that's why every major manufacturer has a truck plant in North America)

This form of protectionist trade and economic policy would COMPLETLY shut down the US economy. The beauty of the US economic system is that businesses are free to identify a consumer need, produce a product to meet that need any way it sees fit (domestically, overseas, etc), and sell it to consumers for the highest price they will pay. Without the freedom to expand and contract, start new product lines, stop making old products people no longer want, and feel free to trade openly with other countries if they feel it gives them a competative advantage the system will grind to a hault. Then there will be no jobs for ANYONE.

See what you are describing is really socialism or worse, communism. Clearly, consumers do not want to buy as many cars as GM currently has capacity to make. What your saying is that the government or para-military-like unions should intervene and tell a private company what and how much they should produce and how many people should make it and how much they should get paid? CRAZY!

What if the government said white pearl metallic automotive paint costs the most allowing DuPont to make more money and employ more people so everyone has to drive that color car and pay extra for it? Would you agree with that policy or not?

I am all for people buying GM cars if they want to show their support for the company and its workers. I for one want to make my buying decision on other factors like reliability, performance, technology, etc.

 

[NVP5White]

While I see your point, I cant help but feel its flaud big time. The bad thing about having other countries make our goods it you cant control the quality of the goods until they have reached our shores. Yea the company will have people over there to check for quality issues but we have already seen that kind of check system mess up, remember the flu vaccine?

I agree that these economic ideas may seem illogical at first blush. But the fact is quality is no more controllable if the product is produced in the next state or accross the globe. As a customer you do not have ANY control over the production process of another company. If you walk down to Autozone and buy an airfilter, get it home and its got a hole in it, you return it and probably won't buy that brand anymore. You DO NOT drive to Nebraska to the Fram factory and tell them to fix their process.

The same is true if you are a business and receieve 10,000 high speed roller bearings and they are deffective. You send them back and find another supplier. The key to strong and balanced international trade is a stong legal and financial system. Laws establish a market for fair exchange of goods for money and allow an appeals process for consumers (businesses) who have a dispute. So long as the country of the business you are buying from has a legal system you are comfortable with, well then you can feel comfortable doing business their.

 

[romecandleboy]

The American workforce has priced themselves out of jobs. I mean, we need to make more money so we can live the lifestyle that's sold to us on TV. GM doesnt owe America anything ( I can't believe I'm actually defending GM ).

 

[Mallard]

See what you are describing is really socialism or worse, communism. Clearly, consumers do not want to buy as many cars as GM currently has capacity to make.

No, I'm not saying the government should dictate what people buy, or what a company produces. I am saying that the government should tax auto imports (or maybe some componentry) harder then they currently do in order to make the American worker something that is fiscally viable. This is what the US government did with trucks and SUV's made outside North America in the 1990's which is why everyone established truck plants in the US. (Merceds, BMW...) The tariffs were high enough that it didn't make economic sense to produce the vehicles and ship them over. Germany did the same thing to imports when their economy was recovering. If the government doesn't do anything to keep maufacturing in the US, those people will have to be supported by the government. (welfare) Whether it's giving tax breaks to companies that manufacture here or taxing imports it doesn't matter. They need to do something or else there will be a lot of people drawing off the system in a few years.

This would not mean everyone has to buy GM. It would mean that companies, including GM, would find it competitive to manufacture in the US. That's it. You make my last post out to be an extremist Commie view when it's something that happens every day in countries around the world.

What your saying is that the government or para-military-like unions should intervene and tell a private company what and how much they should produce and how many people should make it and how much they should get paid? CRAZY!

Um, that's exactly what the UAW already does. That's one reason why it's impossible for GM to manufacture cars cost effectively in the US. When they get a contract at a plant it dictates everyones wages, job, how many people have to be on payroll, and for how long. If GM needs 10,000 workers to build SUV's and the volume they're selling drops, causing them to cut production at the plant, nobody can be terminated from the payroll, they still make a full wage, $27 an hour...even if they sit at home all day and watch tv. That's the nature of dealing with the UAW, and if you want to change it all your workers will walk out and strike. Which is what will most likely happen on May 10th.

To give you an idea of life in a UAW plant; each worker is assigned their own task and they are not allowed to do anything but that job. If the light bulb goes out at your workstation and there are new light bulbs in the drawer next to you you're not allowed to do a thing. You have to call the electrition and have him do it or else a grivence will be filed against you. The UAW demands that all jobs in the plant have to be offered to UAW members first, even if unqualified. When a new roof needed to be installed on one plant they had to pay an entire UAW crew OT to come in on Sat and watch the roofers do the job. You have to have an equal number of UAW workers on the job site, even if they are unfit to complete the task.

A) The UAW needs to reform
B) The US government needs to do somethingto keep blue collar jobs in the US.

 

[NVP5White]

I am saying that the government should tax auto imports (or maybe some componentry) harder then they currently do in order to make the American worker something that is fiscally viable...This would not mean everyone has to buy GM. It would mean that companies, including GM, would find it competitive to manufacture in the US.

Um, that's exactly what the UAW already does. That's one reason why it's impossible for GM to manufacture cars cost effectively in the US. A) The UAW needs to reform
B) The US government needs to do somethingto keep blue collar jobs in the US.

Okay so lets distill this down to the most basic parts. First, why do you think that artificially boosting the pricies of competitor products is a good thing? Why should the US allow GM to sustain an efficient broken labor system? Why should the US MANDATE that GM survive, while other companies suffer unfairly? Just because Germany did it? BTW, our economy is not recovering...its thriving in the most free market the world and this country has ever seen. The only parts of the economy that are suffering are the companies that refuse to change the way they do business!

As for the UAW, I know they already act in the way I describe in my previous post. That was exactly the point I was trying to make...that the UAW and the rules they impose on their employers (GM, Ford, etc) is CRAZY! The UAW, as you said, was formed back when employees needed protection. But the UAW has been superceded by state and federal employee protection laws that are among the strongest in the world. So, the UAW doesn't need reform, its needs to be dissolved.

Finally, why does the US need a certain number of blue collar jobs? Because there is a large blue collar workforce currently? What about back 100 years ago when 70% of everyone worked blue collar? What if the government imposed laws, terrifs, etc, to maintain that level of blue collar worker? The US never would have developed the world's leading information economy. The US would have turned into the worlds junk yard full of employee only able to make basic component parts and all in the name of keeping the status quo. The fact is, the best thing for the US it to continually evolve...to continually devlope new technologies and competencies that will maintain our competative advantage. That is the only way to keep wages higher and to keep new money flowing into the country.

 

[romecandleboy]

While both points stated above are valid, the main culprit is healthcare costs per worker. Most other countries provide better healthcare for it's workforce in general. In America, healthcare costs are passed on to the employer. On top of that, we live in a 'take a pill' society where healthcare is 'reactive' insted of 'proactive'. This leads to more expensive health care costs down the line as well as ridiculous prescription costs.

 

[ZoomVT]

i agree with NVP5. Unioins need to be dissolved, and the government should not bail out GM or any other company that fails to adapt to the new economy. I agree that we do not need to keep blue collar jobs at a cost for the tax payers. We actually wanto to dissolve those jobs and educate the population to aspire to higher paying jobs, that way there is money flowing into the economy and we dont get affected by shifts in the world labor market.
If the union employees want to to keep their job they should dissolve the union and give breaks to their employers. It is not the best strategy for the long term as GM will still be unable to compete with cheaper labor overseas but at least it wont leave everyone unemployed in the short term.