Place your bets who will go down first

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krogoth's picture
krogoth
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Place your bets who will go down first

FORD or GM?

 

 

 

General Motors Says It May Run Out of Operating Cash This Year

By Jeff Green and Mike Ramsey

Nov. 8 (Bloomberg) -- General Motors Corp., seeking U.S. aid to avoid collapse, said it may not have enough cash to keep operating this year and will be ``significantly short'' by the end of June unless the auto market improves or it adds capital.

Available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June, the largest U.S. automaker said yesterday as it reported a $4.2 billion third-quarter operating loss. Merger talks with Chrysler LLC were suspended.

``Things are clearly deteriorating more quickly than people expected,'' said Jill Fields, who manages $2 billion in high- yield debt as managing director at Babson Capital Management LLC in Springfield, Massachusetts. ``They're either going to need aid or they're at risk for filing'' for bankruptcy.

GM's outlook and Ford Motor Co.'s $7.7 billion cash burn added urgency to automakers' pleas for government help after a quarter in which U.S. industrywide sales plunged 18 percent. The companies are asking for $50 billion in new loans, a person familiar with the plan said.

Chief Executive Officer Rick Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli renewed the push for assistance in meetings with U.S. House and Senate leaders in Washington on Nov. 6. Wagoner said GM also has been in contact with the staff of President-elect Barack Obama.

``We have sufficient liquidity to continue on plan,'' Mulally, 63, said in an interview with Bloomberg Television. Dearborn, Michigan-based Ford reported an operating loss of $2.98 billion.

Ford rose 4 cents to $2.02 in New York Stock Exchange composite trading, paring the shares' decline this year to 70 percent. Detroit-based GM fell 44 cents, or 9.2 percent, to $4.36. The stock has tumbled 82 percent this year.

$73 Billion in Losses

Yesterday's cash forecast was the bleakest yet from GM, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills.

A bankruptcy filing ``would be a disaster far beyond General Motors and a sad chapter in American history,'' Wagoner, 55, said in a Bloomberg Television interview. GM said on Oct. 24 that bankruptcy ``is not an option.''

Should GM take such a step, the result would be 2.5 million jobs lost in the first year among automakers, suppliers and related businesses, according to a Nov. 4 report by the Center for Automotive Research, based in Ann Arbor, Michigan.

Bailout Optimism

A U.S. rescue package for GM, Ford and Chrysler is likely before President George W. Bush leaves office in January, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor.

``Either the federal government provides money for a bailout and lets the industry retool, restructure, and move ahead, or the industry dies,'' Virag told Bloomberg Television.

Babson Capital's Fields said GM and Ford bonds already are trading at ``bankruptcy levels,'' so the automakers are relying on ``a political decision'' to avert that fate. She wouldn't say whether the holdings she manages include GM or Ford debt.

GM's 8.375 percent bond due in July 2033 fell 4.3 cents to 24 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 34.83 percent.

Ford's 7.45 percent note due in July 2031 dropped 3.5 cents to 34 cents on the dollar, yielding 22 percent.

Chrysler Talks

While GM didn't specify any prospective partners in saying merger discussions were being halted, the biggest U.S. automaker had been in negotiations on a tie-up with Auburn Hills, Michigan-based Chrysler, people familiar with the plans said.

Consideration of a strategic acquisition was ``set aside'' to focus on ``immediate liquidity challenges,'' GM said.

GM's per-share operating loss was wider than the average estimate on an adjusted basis of $3.94, based on 10 analysts surveyed by Bloomberg.

Including a non-cash, $4.9 billion one-time gain related to unloading retiree medical bills, GM had a net loss of $2.5 billion, compared with a $38.9 billion year-earlier loss on a tax-accounting charge. GM's auto sales in the U.S., its largest market, fell 21 percent.

GM's cash use in the fourth quarter should be closer to the levels in this year's first and second quarters, when it was about $3.6 billion, Chief Financial Officer Ray Young said on a conference call.

GM said it is trying to boost cash by $20 billion by the end of next year, an increase from a July 15 plan for $15 billion.

Asset sales, a part of the strategy, have been hampered because potential buyers can't get financing, Chief Operating Officer Fritz Henderson said. GM's Hummer brand of sport-utility vehicles is among the businesses on the block.

Ford's Loss

Ford also said it was accelerating savings programs including a 10 percent reduction in salaried-job costs, expanding on a 15 percent slash this year; deeper cuts in production; and a smaller capital-spending budget.

The per-share operating loss of $1.31 was wider than the 93-cent average of 10 analyst estimates compiled by Bloomberg. Revenue plunged 22 percent to $32.1 billion.

The loss for Ford excluded a gain for shedding future retiree medical bills under a new union contract. Including the gain, Ford had a net loss of $129 million, or 6 cents. The net loss a year earlier was $380 million, or 19 cents.

Ford's U.S. auto sales tumbled 25 percent in the quarter.

To contact the reporters on this story: Jeff Green in Detroit at [email protected]; Mike Ramsey in Detroit at [email protected].

Last Updated: November 8, 2008 00:01 EST

 

 

joe2baba's picture
joe2baba
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Re: Place your bets who will go down first

neither zo

sorry i am out of the game. we will keep sending them money they are too stupid to fail.

Damnthematrix's picture
Damnthematrix
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Re: Place your bets who will go down first

http://www.time.com/time/world/article/0,8599,1849410,00.html 

For years, Germany Inc.'s best promotional vehicles have been the world-class luxury cars the country produces. Shiny Audi, BMW and Mercedes-Benz cars are like mobile billboards for excellence, from New York to Moscow, Buenos Aires to Shanghai.

But as the global financial crisis begins to take its toll on the real economy, Germany's export machine has hit a wall. German exports fell 2.5% in August, the sharpest fall since 2003, as consumers and companies around the world cancel orders for everything from high-end industrial equipment to chemicals.

The car industry, still Germany's biggest employer, is the worst hit. High gas prices in key markets such as the U.S. have slowed sales for months. Some consumers have been waiting for more fuel-efficient models, while many more are now delaying new purchases because of uncertainty over their jobs. Thanks to the credit crunch, even people who want to buy are finding finance has dried up.

All that spells trouble for the likes of BMW, Mercedes Benz, Porsche, Volkswagen, Ford Europe and General Motors' Europe arm, Opel. Ferdinand Dudenhoffer, a respected industry analyst, predicts that the number of new German cars delivered to customers in 2008 will fall by at least 100,000 units to around 3.1 million, and will likely slip below three million next year. As a result, he says, German car companies will have to cut up to 20,000 jobs over the coming year.

German manufacturers are already cutting back production. On Oct. 13, Opel workers in the eastern German town of Eisenach will stay home for three weeks as GM Europe tries to adjust to falling demand for its cars. Opel was one of the first western firms to set up shop in Eisenach after the fall of the wall in 1989. The factory, which employs some 1,800 people, now produces GM's popular Corsa model for export around Europe and beyond. The town (population 40,000) has also become home to suppliers such as component maker Bosch, machine servicing firm Hormann, and Lear, which makes seats for the Corsa. "Eisenach lives from Opel," says Uwe Laubach, head of the local branch of the IG Metall union.

BMW is also struggling with the downturn, especially the massive decline in car leasing contracts in the U.S. It says that its plant in Leipzig will close for a week later this month and its Regensburg plant will shut from Nov 3 to 7, during the Bavarian Fall holidays. Union officials say the company's main plant in Munich may also shut for a few days. Ford plans to cut production at its Saarlouis plant in southwestern Germany and says it is also laying off 204 part-time workers. Mercedes parent Daimler announced earlier this year that because of slower demand it would slow production through 2008 and send workers home for Christmas on December 17, days earlier than usual.

Speaking at the Paris Motor Show earlier this month, Carl-Peter Forster, president of GM Europe, said that car sales were falling fast across Europe and that higher gas prices had made the cost of car ownership prohibitive. To own and operate a car in Germany now costs 25.5 % more than it did in 2000, he said, while the consumer price increase has only been 15.6 %. Forster believes carmakers need help from Europe's capitals to turn the situation around. He wants European governments to stimulate the economy, free up credit and restore consumer confidence.

Some union leaders say the problems are actually self-made and have little to do with the financial crisis. They say company managers misjudged the market and want wage hikes above the rate of inflation in Germany to give families enough money to buy cars and other products and so boost the domestic economy.

But the current crisis is much more likely to accelerate structural changes taking place in the car industry across Western Europe. In the coming years, German car makers are likely to move more production out of the country and closer to their customers in Russia, the U.S. and Asia. Assuming, that is, that they still have a growing customer base in those places.

Damnthematrix's picture
Damnthematrix
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Re: Place your bets who will go down first
November 10, 2008, 6:44PM

GM's Shares Hit by Analyst Downgrades

Several analysts are forecasting that GM shares will sink below a dollar on weak sales, cash burn, and looming debt

General Motors' (GM) shareholders probably have a gloomier outlook than the company itself.

Shares of the struggling automaker sank 23% on Monday, Nov. 10 after the company admitted on Friday, Nov. 7 that it may hit the danger point in its cash reserves (BusinessWeek.com, 11/7/08) by the New Year. Some Wall Street analysts say that GM shares may not recover for years even if the U.S. government comes to its rescue. That's because GM will owe so much additional debt that the burden will hang over its share price for a generation.

GM closed at 3.36, a 62-year-low for the automaker. Ford (F), widely considered to be in somewhat better shape to weather a recession next year, but far from being out of the woods, closed down 4.5%, to 1.93.

Looking at the Lame-Duck Session

Democratic leaders of Congress—House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid—wrote to President George W. Bush and Treasury Secretary Henry Paulson on Nov. 7 asking that they revisit their decision to not include the automakers as beneficiaries of the $700 billion bailout of financial firms last month.

But on Nov. 10, Capitol Hill sources said the White House seemed "dug in" on the idea that the bill can't be rightfully read to include auto companies. "The push now is going to be to pass an amendment to the bill that specifically benefits the automakers," said one congressional staffer with knowledge of the negotiations. Congress meets next week in a lame-duck session during which such an amendment could be voted on. The other possibility is attaching help to the automakers to an economic stimulus bill that the Democratic leadership is drafting for the session.

President-elect Barack Obama has made it clear that he wants the automakers helped one way or another. That may move enough reluctant Republicans to vote for it next week. "There are some Republicans who opposed helping the automakers a couple of months ago, but now seem more willing to go in Obama's direction," said the legislative staffer.

A Target Price of Zero

Wall Street is painting a dim picture of GM's future with or without government help. Barclays (BCS) now targets GM shares at 1, while Deutsche Bank (DB) slashed its target price to zero. "While further government assistance would decrease the likelihood of a GM bankruptcy, we believe any government assistance would likely significantly dilute GM's equity," analysts at Barclays Capital said. Deutsche Bank's Rod Lache wrote in a note to investors: "Without government assistance, we believe that GM's collapse would be inevitable, and that it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers, and sectors of the U.S. economy." Lache has a target of zero on GM.

Automakers are looking for a minimum of $25 billion in immediate loans. Part of the deliberations going on between GM and the Michigan congressional caucus has to do with what conditions the automaker may be willing to agree to in exchange for help—from executive compensation limits, shareholder dividends, and job protections.

GM said on Nov. 10 it would cut 1,900 factory jobs on top of the 3,600 cuts announced on Nov. 7.

GM on Nov. 7 posted a net loss of $2.5 billion in the third quarter, and said it ran through $6.9 billion in cash, leaving it with only a thin cushion between its current reserves and the minimum amount of cash needed to fund day-to-day operations.

GM said it is scrambling to find $5 billion of new cost cuts to augment an already aggressive plan to bolster its liquidity, and that it is seeking to raise new financing from banks, private investors, and the government.

Backed Away from Chrysler

"This is starting to feel like the Titanic, and we can all see the iceberg about a mile ahead of us and we can't steer away from it," said one senior executive at GM who asked not to be identified. "I've seen some of my staff in tears in the last week, and it's gut-wrenching," the executive said.

GM also said Monday that a troubled mortgage industry and frozen credit markets have raised doubts that the mortgage business of its General Motors Acceptance Corp. financial arm can survive. GM owns 49% of GMAC, while hedge fund Cerberus Capital Management owns 51%. Cerberus also owns 81% of Chrysler LLC. GM had been in talks to acquire Chrysler as part of its comeback plan, but has backed away from that idea while it focuses on getting federal assistance to stay independent and survive.

The filing says that the value of GMAC Residential Capital's mortgage loans has deteriorated due to weak housing prices, delinquencies, and defaults. It is also having trouble raising capital.

Cerberus Motivated to Sell

As Congress and the White House dither over how to help GM, though, Chrysler still represents a huge unsolved problem. Chrysler had around $11 billion in cash reserves at the end of July. The company has not updated its cash position, because it is privately owned and thus is limited in what it has to report. Its sales have fallen as fast, or faster, than GM's in recent months.

Assuming the government comes through with a rescue package, Chrysler will apply for help alongside GM. But Cerberus appears to be motivated to sell, not run, Chrysler.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.

rlee's picture
rlee
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Re: Place your bets who will go down first

I had been clinging to Ford being the one that went for the big BK protection first, then sell something off to keep the core of F.L.M. alive, grab ing some fast beltway cash along the way.  But, GM seems to be getting all the press of late, and they're openly crying the woes.  While GM seems to be setting themselves up for a handout, the BK route will still go to Ford first.

This opinion BTW is based purely on the flavor of the latest press information, as the real stories are seldom told outside the boardroom.

Bob 

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