Given the news from Wednesday and yesterday on the accounting "boo-boo" and the recent earnings, GM's stock is on a free-fall for the last 2 days. We've discussed some of it in another thread already.

I came accross this interesting article written for todays Detroit Free Press that outlines why the falling stock price is more risk to GM's ultimate demise than just losing money for a few quarters. It's VERY interesting.
Here's what's in store for General Motors...

After reading this article, it really does make very simple and basic issues come to light.

I have never commented on the prospects of GM being taken over or filing for bankruptcy - never. I have held faith and confidence in their future cars and trucks, development, and overall management to guide them through a rough time. But when you start popping out accounting issues... at this 11th hour of crisis... well...
At this point, I AM CONCERNED FOR GM's FUTURE.

I Grew up and live in the shadow of RJReynolds Tobacco Company, who, for all my life as a kid, dominated everything in our community. They were bigger than huge. They owned Winston (the #1 sponsor and reason for the existence of NASCAR for 40 years - as in "Winston Cup" Racing), Winston cigs, Salem cigs, chewing tobaccos, snuffs, Hawaiian Punch brands, Del Monte brands, Green Giant brands, and about 20 other household names all were owned by RJR. Well, back in the 1990s, they came into a streak of bad luck, with some recalls, bad management, bad investments, and of course the tobacco lawsuits and settlements. Short-story... KKR stepped in and bought the tobacco giant for pennys on the dollar, broke the best name brands out and sold them for a profit, then pillaged the main company and turned it over to investors that are to this day still trying to rebuild the core company.
My point is - this CAN happen, I have seen it once in my lifetime.

Thoughts? Discussion?

 

When you consider how much GM affects the entire American economy and job market... I think if it came right down to it, the govt would have to help bail them out, like they did the airlines and such...

It's not only GM, but the suppliers, their suppliers, raw materials, etc.

The trickle down effect is enourmous.

 

I have to say I'm very concerned, and I don't even have a stake in GM. I don't work for them and I don't own 1 share of stock. I guess I'm "just" a GM enthusiast.

What concerns me most is that many in the general public don't seem to recognize what could happen to our economy should General Motors collapse. Heck, some of these yahoos on Import boards (or the Detroit News auto forum ) are cheering for and laughing in delight in the notion of GM going out of business. My biggest worry is that public perception of American cars, while flat out wrong, will never change either.

 

But, IMHO :


way too much emphasis is put on stock prices, which are a short term indication of a companies health/worth.


Execs need to think - and be compensated for long term profits , not short term fluctuations then they boogie out the door to let someone else clean up the mess.

If they were bought out, and the company remained intact who knows - it might be a good thing.

Sometimes outsiders bring insights into a company that those inside have become blind to.

I suspect that is one reason why consultants are so popular - corporate does not want to listen to those inside for whatever reason.

I further suspect that should the worse come, GM might try to declare bankruptcy and/or have the goverment kick in loans similar to Chrysler in the 80's.

Bankruptcy might clean out the last of the effects of their previous poor decisions - guaranteed loans thru the Fed = buy stock when it's cheap, boys !

But , this is all my uneducated opinion(s).


Britt

 

But Kerkorian already has a reputation for MAKING MONEY at the expense of liquidating the "purchased" company peice by peice. That doesn't mean he will, but he has in the past.

Think of it this way... he buys a '76 Z28 that is all together, runs pretty decent, and is not eat up with rust for $1500. It needs paint, interior, and probably should have an engine overhaul too, but it's not a write-off.
Instead of investing another $5000 into making the car right and show-worthy, this guy takes the engine out and sells it for $500, the tranny gets him $250, the complete rear-end gets him $250, the seats and interior fetch $200, the doors fetch $200 each, the fenders fetch $100 each, the hood fetches $150, the trunk lid fetches $125, the dash gets him $100, the steering wheel/column gets $100, the rims/tires get $250, then he starts offering front clips and rear clips to rebuilders/racecar guys for $300-500 each, and then take what's left to the scrapyard and get $.07/lb for the hull.

Net result?
He scraps the car out for a total of about $3500, making a nice $2000 for himself (easily doubling his money even after paying for ads, labor, tools, etc).
The problem is... the car is GONE. Kaput. Fini. Terminado.

That was my point in bringing up the KKR buyout of RJReynolds in my post.
Everyone was saying, "Well, here comes the ambulance... they'll get things straight now." Instead, they should have said,"Here comes the butcher block... things will get closed-down and shipped-out now." We lost over 70,000 jobs in my immediate area within 18 months of the buyout. It still hurts to this day - there are tons of big, empty warehouses around Winston-Salem and Greensboro that used to be home to RJR Industries and subsidiaries. Housing was in the toilet for years.
If you want to know more, there are several books about Ross Johnson (the CEO who positioned RJR for the takeover), KKR, and RJR/Nabisco. There was even a network movie made about this event in which James Garner plays the role of Ross Johnson called Barbarians At The Gate. It's no shoot-em-up testosterone movie, but it is VERY clinching, and tells a pretty accurate story about how 2 (greedy) men ultimately ruined THOUSANDS of families and lives to make themselves VERY wealthy. Johnson himself is noted as clearing $49-million from the entire sellout of the company that everyone thought he was trying to save, but was actually trying to buy himself. After he made an initial offer backed by American Express, the bidding war became public (underground) and went out of control. Stock prices went nuts, and Ross Johnson ended up leveraging the deal for KKR. KKR made hundreds of millions then, and are still milking dividends from some of the remaining companies today.

So my point was exactly that... I doubt Kirk has GM's long-term future at mind as much as he does making hundreds of millions of dollars in the next 12-24 months by liquidating GM peice by peice.

Likewise, nevermind profits or losses during a quarter... if the stock prices keep falling, the company is getting even cheaper for him to take over in a hostile takeover mode (i.e. buying a controlling interest in the outstanding shares.). For a company the size of GM, I think he would only need 25-30% to be controlling stockholder, and certainly 51% gives him ultimate control at all levels.

I just wonder if GM has an anti-takeover bylaw in their corproate ***** that is like a "poison-pill" that goes into effect upon the loss of control by the board. I was first exposed to this self-preservation tactic while working at AMP when they were (attempted) to be taken over by Allied Signal back in 1998. The poison pill saved them fromAllied Signal, but Tyco got around it by way of peaceful takeover (a.k.a. "merger").

 

Proud I you tell the Kerkorian deal like it is. That guy is not in it for GM. He wants to split of GMAC and then take the profit and run. He does NOT want what is best for GM. Spinning off GMAC is an IDIOTIC move. Lets take our most profitable division and sell it off to make a quick buck. I pray that someone in a position to stop what could happen will see this and make a move to stop him.

 

I wish that I had some words of wisdom to share, but I really don't. I'm sure that many of the decisions that seemed so OBVIOUSLY wrong to an outsider like myself, for so many years, somehow made sense at time to those who made them. But all those decisions have finally brought us to this point. I'd love to hear Wagoner's reasoning for the Fiat debacle though.


Here's some things that run through my head.

- Does Wagoner have what it takes to save this company?

- Does The Board have what it takes to save this company?

- Does the current insular corporate culture even have the capacity to save this company?

- How long will The Board give Wagoner?

- Who will The Board replace Wagoner with, if they do?

- The last time The Board took over, in retrospect it's leadership (?) and decision making were catastrophic.

 

Thought I'd throw this in here:

AP
UAW Members OK GM Health Care Proposal
Friday November 11, 5:15 pm ET
By Dee-Ann Durbin, AP Auto Writer
UAW Members Agree to Tentative Proposal to Make General Motors Workers Pay More for Health Care


DETROIT (AP) -- General Motors Corp. got some relief from its spiraling health care costs as auto workers agreed to pay more of their health costs, but analysts said the ailing automaker must do more to turn around its North American operations.

The United Auto Workers said Friday that its members had agreed to a tentative proposal to make retirees and hourly workers pay more for their health care. The world's biggest automaker asked the UAW for the unusual concessions this spring as health care costs rose and it lost U.S. market share to Asian competitors. GM lost more than $3 billion in the first nine months of this year.

Hourly workers approved the proposals by a 61 percent majority, UAW President Ron Gettelfinger and chief GM negotiator Richard Shoemaker said in a brief statement. Retirees couldn't vote on the proposal. Autoworkers voted through their local unions for a week starting Nov. 3.

"Certainly we have mixed feelings about it," said Oscar Bunch, president of UAW Local 14 in Toledo, Ohio, which was one of the first to approve the agreement. "Nobody likes to go to their membership and ask for concessions, but I don't think that the UAW had any other choice."

GM spokesman Stefan Weinmann said hourly workers would see some changes in their health care immediately. Changes for retirees must still be approved by the U.S. District Court in Detroit, he said. GM and the UAW said that approval isn't expected until early next year.

Ford Motor Co. and DaimlerChrysler AG's Chrysler group are expected to ask for similar concessions from the UAW. The union's contracts with all three automakers expire in 2007.

Harley Shaiken, a professor and labor expert at the University of California at Berkeley, said that it's extremely rare for the UAW to agree to concessions outside of its normal contract negotiations. The last instance of this happening was in 1982, Shaiken said.

GM pays for health care for a total of 750,000 U.S. hourly employees, retirees and their dependents, including around 110,000 active workers.

GM expects to spend $5.6 billion this year on health care for all its workers. The company says the new agreement would cut annual health care expenses by $1 billion after taxes and would shave $15 billion, or 25 percent, off its $60 billion in long-term retiree health care liabilities.

Under the proposed agreement, GM retirees will pay up to $752 annually for families and $370 for individuals for their health care. Right now, retirees pay no monthly premiums and a small fraction of other health care costs.

The agreement requires GM hourly workers to contribute $1 per hour in future pay increases to a new fund to help pay for retirees' coverage. GM will contribute $3 billion to that fund over the next six years.

Mike Sheridan, the president of UAW Local 95 in Janesville, Wis., said hourly workers, who currently make around $57,000 a year before taxes and overtime, will contribute around $2,000 a year.

Erich Merkle, senior auto analyst with the consulting firm IRN Inc., said the deal is significant but the automaker is facing a mountain of other challenges. GM has the labor force and plant capacity of an automaker with 33 percent of the U.S. market, Merkle said, but GM's share fell to 26 percent in the first 10 months of this year.

"A billion a year is a nice chunk of change, even for GM, but it's really not even close to being enough in terms of what they have to do," Merkle said. "This is the easy part."

Merkle said GM must make good on its promise to reduce manufacturing employment levels by 25,000 by 2008. The automaker has said it also wants to use 100 percent of its North American plant capacity by that time. GM uses around 85 percent of its plant capacity now.

GM also needs to eliminate a jobs bank that pays salary and benefits to laid-off workers, Merkle said. Weinmann wouldn't say how many workers are in the jobs bank, but it's believed to be several thousand.

In a recent interview with The Associated Press, GM Chairman and CEO Rick Wagoner said the company's UAW contract requires it to operate the jobs bank.

"It's one factor that's important in our overall cost competitiveness. I can't tell you it's the only or the primary thing for us," Wagoner said.

GM also may be liable for pension costs at its former parts division, Delphi Corp., which filed for bankruptcy last month.

GM shares rose 97 cents, or 4 percent, to close at $24.48 on the New York Stock Exchange.

A day earlier, GM shares plunged to their lowest level in 13 years on news that the company would restate earnings for 2001. GM said it overstated earnings by as much as $400 million, or 35 percent, by booking supplier credits in the wrong period.

On Friday, Himanshu Patel, an analyst with JPMorgan Chase & Co., said the market had overreacted. Patel said the restatement doesn't indicate a broad pattern of deceitful accounting at GM, and said the company's prospects are brighter as gas prices fall and new vehicles come to market in the beginning of 2006.

http://biz.yahoo.com/ap/051111/gm_uaw.html?.v=13


Here's a question, is GM in as bad of a position as Chrysler was in the 80s when Iacocca took over? They faced the same problems, high legacy costs, overproduction, competition from foreign manufacturers, and a sagging image.

 

Oh, and one more thing....

I don't know if there is some sort of cause and effect here, or what - but everytime I buy GM stock, the stock price plummets shortly thereafter.

I'm afraid of what might happen now if I buy any more. I just want to assure GM publicly not to worry about me purchasing anymore stock, during this period of crisis.

 

better be careful GM doesn't blame YOU for the loss this year



in all seriousness, the future doesn't seem to bright for the General right now, and the entire country will notice if GM goes down. i think they might be right around the same point Chrysler was when Iacocca stepped in.

 

I'd like to add to your list about things running through my head about GM:

- What was the point of braging about bringing a car to market in 18 months if it's still taking 4-6 years?

- It was recognized back in 2001 that too many eggs were in the SUV basket. Now it's over 4 years later, the big SUV market is collasping. Why is there still too many eggs in SUVs?

- Back in 2002, Holden was praised by Bob Lutz and others at GM for it's ability to run things efficiently and was a model for how the rest of GM should be run. Today, GM has forced Holden into GM-NA's way of doing things, and Holden has all but collasped, GM-NA is still doing things the way they always had (using alot of money to do things Holden used to do on a shoestring). What the h*ll went wrong?

- What was the point of putting a 30K per year Kappa in a 200K per year plant if you are still going to make plant overcapacity a major talking point? Why didn't GM simply give Holden the plant, a budget, and a deadline, and say we want a Commodore, a Statesman, and a Monaro badged a Bonneville, a Roadmaster (or Park Avenue) and a GTO.... afterall, this was the plan when I did my 1st article for PHR (different plant, though).

- Why didn't GM put a V8 in the W cars years ago? (they 1st ended up as engineering mules back in 97-98... at least 7 years before it reached production!)

I'm a big cheerleader with what GM has in the pipeline, I think Rick Wagoner steping up to the plate & making himself the fall guy if GM-NA sinks, and I think GM has the best group of car guys in key positions as it's ever had in recent history, but it's becoming apparent that these guys came in a little lazy or at the least, not willing to do what was needed very quickly.

My peeve isn't with Wagoner or GM top management. They are taking a bad situation, and doing the best they can. But GM's product development process is whacked.

GM is simply incapable of bringing a model to market as quickly as Chrysler, Ford, and Toyota can, and that's where they are sinking! This is what I've been saying even before GM had their meltdown. Instead of bringing GM-Holden's methods to GM-NA, GM-NA exported their methods to GM-Holden, and now GM Holden is in the same cash position as GM-NA.

To top it off, Holden is stuck with the Zeta expense since GM-NA isn't using the car, and GM-NA doesn't have a car ready to go in 2007/8 to start regaining share.

Great move.

Where's Peter Hanenberger when you REALLY need him.

I'm pulling for GM, I know that it takes money to open a plant, and I know it takes time to get a vehicle to market, but guys! The clock's almost out, and an 8 month hold shouldn't mean a 18 month delay!

I started buying Chrysler 10 years ago.

 

The problem is, how long can you blame ol' Ron? With GM set up to design cars 4 years ahead of the market, what do you expect?

 

The "Blame Ron" time is ending now. You're right, it's been 4 years.

This auto show is crucial to GM. The public and investors have heard nothing but bad things regarding GM for almost a year. Wall Street even has a pool going on them being bankrupt in 2 years.

This season, GM has to set aside "secrecy", and tell (if not show) what is coming, and work like hell to get it on the streets with all deliberate speed. A new Camaro and a set of conservatively styled SUVs aren't going to do it.

I fear that unless GM somehow dramatically shows they are on their game, the game's going to be over for Rick, and Bob Lutz (the best thing that ever happened to GM) is going to get railroaded. What's going to be left is a company trying to follow bland Toyota's business model... like Ford.

 

Well, I'll answer a few of these.......


[QUOTE=guionM]I'd like to add to your list about things running through my head about GM:

- What was the point of braging about bringing a car to market in 18 months if it's still taking 4-6 years?[QUOTE]


4 to 6 years? I don't think so. The problem is that too many people talk about future product.....the most memorable was the Solstice. There are a lot of vehicles in the pipeline......because a place holder is set in the future does not mean the vehicle is being worked on every day. The Cobalt Sedan was done in less than 24 months.....just over 18 as I recall.

[QUOTE]
- It was recognized back in 2001 that too many eggs were in the SUV basket. Now it's over 4 years later, the big SUV market is collasping. Why is there still too many eggs in SUVs?[QUOTE]


yeah.......so? What would you have done differently if you didn't have 20/20 vision after the fact? The reality is that SUVs are very profitable. What would you have done differently? Incentives are bad, too, but try dropping 'em!

[QUOTE]- Back in 2002, Holden was praised by Bob Lutz and others at GM for it's ability to run things efficiently and was a model for how the rest of GM should be run. Today, GM has forced Holden into GM-NA's way of doing things, and Holden has all but collasped, GM-NA is still doing things the way they always had (using alot of money to do things Holden used to do on a shoestring). What the h*ll went wrong?[QUOTE]

Can't answer that one.

[QUOTE]- What was the point of putting a 30K per year Kappa in a 200K per year plant if you are still going to make plant overcapacity a major talking point? Why didn't GM simply give Holden the plant, a budget, and a deadline, and say we want a Commodore, a Statesman, and a Monaro badged a Bonneville, a Roadmaster (or Park Avenue) and a GTO.... afterall, this was the plan when I did my 1st article for PHR (different plant, though).[QUOTE]

the opera ain't over til the fat lady sings.

[QUOTE]- Why didn't GM put a V8 in the W cars years ago? (they 1st ended up as engineering mules back in 97-98... at least 7 years before it reached production!)[QUOTE]


There are a couple of Impalas over at one of the warehouses...along with, as I recall, a Monte Carlo with a V8 engine in each. I want to say they were done in 2000.....but Mr. Zarella killed the program. (another reason I hate him)


[QUOTE]I'm a big cheerleader with what GM has in the pipeline, I think Rick Wagoner steping up to the plate & making himself the fall guy if GM-NA sinks, and I think GM has the best group of car guys in key positions as it's ever had in recent history, but it's becoming apparent that these guys came in a little lazy or at the least, not willing to do what was needed very quickly.[QUOTE]


I think Wagoner is paying the price for many many sins over the many many years. I don't agree with the lazy part at all.

[QUOTE]
My peeve isn't with Wagoner or GM top management. They are taking a bad situation, and doing the best they can. But GM's product development process is whacked.

GM is simply incapable of bringing a model to market as quickly as Chrysler, Ford, and Toyota can, and that's where they are sinking! This is what I've been saying even before GM had their meltdown. Instead of bringing GM-Holden's methods to GM-NA, GM-NA exported their methods to GM-Holden, and now GM Holden is in the same cash position as GM-NA.

To top it off, Holden is stuck with the Zeta expense since GM-NA isn't using the car, and GM-NA doesn't have a car ready to go in 2007/8 to start regaining share.[QUOTE]


I'm not an expert on Holden versus N/A........but I can give you an analogy. Someone decided we should take the Pontiac method of Distribution and apply it corporate=wide........was working very good for Pontiac. So.....they dropped GMC in it.....a lil burp, but that was all. Then Buick.......well, that went smoothly.....then Caddy........we're movin' along just fine!

Then.......they attemped to drop Chevy into it..........and the lights dimmed in 12 states...............

Never underestimate the size of GM.......not in terms of power per se....but the shear size of the organization and it's many many pieces. If it were as simple as doing things the way Holden did them, you can be assured it would have happened if it would have worked.

[QUOTE]I'm pulling for GM, I know that it takes money to open a plant, and I know it takes time to get a vehicle to market, but guys! The clock's almost out, and an 8 month hold shouldn't mean a 18 month delay![QUOTE}

Not sure what delay you're talking about....be more specific.

 

How many roads does GM have available to them?
They could do the Bankrupt deal, reconfigure itself to be faster and cheaper, and come back with some major cars?
Could they just realize that they wont be able to maintain #1 spot in the world, and sit back and concentrate on what matters such as quality, performance, and style?
With the 2nd one, they could stop worrying about such high numbers, start closing down redundent plants with massive over capacity, and focus back to cars.