The Crash Begins

[gnutruk]

The Crash Begins

 

(or accelerates, actually)

 

In Re the article below, GM has been maneuvering toward bankruptcy (deliberately) for a long time. Gradually the pieces fall in place, and the time is now approaching optimum.

 

In fact, not much is wrong with GM that couldn’t readily be fixed by an application of car-loving management. However, for the last thirty years or so, the top people at GM have not cared a fig about the auto/truck business, but only about managing financial deals on Wall Street.

 

What this soon-to-be bankruptcy is all about is breaking the unions, pure and simple. GM management has hated the concept of unions for decades, but in the past has had to tolerate them.

 

With the coming bankruptcy, GM’s lawyers will be able to get the Court-Appointed Bankruptcy Administrator to eliminate all union contracts, all pension plan obligations, and all retiree and current employee health care benefits – except, of course, the pension and health care programs which are exclusively available to the top executive class.

 

In a way, GM never truly recovered from the oil-price shocks of 1973. They’ve merely been coping ever since. In the interim they’ve had better years and worse years, but overall they’ve been gradually dwindling. Now GM is stooped and bowed, and will not get up again.

 

On a different web-site, a poster named Twohlford said:

 

“I understand our President has a plan to send American workers to China . . . .”

 

LOL! However, it cuts closer to the truth than many of us would like to think. Because, both GM and Ford – in whatever new form those companies take after they both emerge from their coming bankruptcy proceedings – have long term plans to exit the auto manufacturing business altogether. By the year 2020 (approx.), neither of them will be making any vehicles in North America, but in China, India, and Brazil only. The “New” GM and Ford companies will continue exclusively as marketing entities, at about one-twentieth their current sizes, and will be involved solely with managing concepts such as “Brand Value.”

 

Shedding their union contracts/pension obligations/health care obligations is simply what they have to do first – “becoming lean and mean” – before they can completely re-structure, in preparation for going overseas.

 

My condolences if you have GM (or Ford) stock in a 401-K. It’s too late to get out without getting skinned. All the sharks on Wall Street have already done you in.

 

gnutruk

 

S&P Junks GM, Ford

 

By TSC Staff

5/5/2005 2:41 PM EDT

Updated from 1:54 p.m. EST

In separate moves that were seen by many as inevitable, Standard & Poor's on Thursday lowered its ratings on the debt of General Motors (GM:NYSE - news - research) and Ford (F:NYSE - news - research) to speculative grade, or junk, status.

 

Shares of both companyies slid more than 5% in the wake of the cuts, one day after rallying when a private investor offered a rich price for a big slug of GM stock. The S&P downgrades also sent broader stock averages down as much as 1% and roiled corporate bond markets, where many fund managers will now be prohibited from owning GM and Ford.

 

"This is the beginning of the end of the U.S. auto industry as most people have come to know it," says Sean Egan, managing director of Egan-Jones Ratings Co., an independent firm. "In another two years, we're likely to see substantial layoffs and bankruptcy filings by possibly one or both of these companies and massive restructurings of most of the U.S. auto manufacturers."

 

S&P lowered its long- and short-term corporate credit ratings on GM and its finance affiliate, General Motors Acceptance Corp., to BB/B-1 from BBB-/A-3; a rating below BBB is considered junk. In addition to the two-notch downgrade, S&P maintained a negative outlook on GM and GMAC.

 

"The downgrade to non-investment-grade reflects our conclusion that management's strategies may be ineffective in addressing GM's competitive disadvantages," S&P said in announcing the downgrade. "Of greatest immediate concern is that GM's sport utility vehicles (SUVs) will no longer be as profitable as they have been in recent years."

The credit rating agency said the tender offer announced Wednesday by Kirk Kerkorian's Tracinda Corp. "represents an additional uncertainty" but was "not a factor at all in the current rating action."

 

In a separate but related action, S&P cut its long- and short-term ratings on Ford and its Ford Motor Credit affiliate to BB+/B-1 from BBB-/A-3. As with GM, the credit rating agency maintains a negative outlook on Ford.

[Instrument 40]

So what does this mean to "joe consumer" when he goes to buy a chevy or ford? Will they be dealing? Will rebates and incentives continue? Is this a great time to a really good deal on a new truck? Or will dealerships play hardball with prospective buyers?

[Scyry]

So what does this mean to "joe consumer" when he goes to buy a chevy or ford? Will they be dealing? Will rebates and incentives continue? Is this a great time to a really good deal on a new truck? Or will dealerships play hardball with prospective buyers?

 

<{POST_SNAPBACK}>

 

 

 

Getting a "deal" is part of the reason they are dying. No one wants to buy something at MSRP anymore, they want $5000-$8000 in cash back. Between that and labor unions, Chevy and Ford are screwed.

[Halen5150]

At $40K-$50 for sticker price, they'd better give me some cash back...

[Instrument 40]

Getting a deal is not why they are dying. high cost for medical insurance, retirement funds, union wages, and having some really tough competition in markets where they are weak (fuel efficnet vehicles) is WHY both Ford and Chevy are having problems. That being said, GM still produces the best Truck and SUV's. Ford being second. GM needs to step it up and produce vehicles that can compete with Camry, Altima, and the Accord. NAd no, the Malibu can't compete with these cars, primarily because these cars already have proven themselves to be durable, decent resale, and fuel efficent. Even if GM came out with somthing that would be an apples to apples comparison they still are behind.

[MillerClemsonHD]

Bc of healthcare etc. GM is at a $1600 disadvantage per vehicle before it is ever manufactured. Hard to compete like that. Let alone how far behind they are in research. They have squeezed supliers to the brink of bankruptcy in the past 10yrs. I think trade is a good thing, but just shipping jobs overseas is not helping this country at all. Car and truck prices are going to go up soon. I paid 6k more for my truck than my dad paid for a pontiac bonneville 12yrs ago. As expensive as cars + trucks are today they arent that expensive looking at the past 15yrs.

[melbertbloosfan]

A link to the short version of GM's 2004 financials. If you want to see for yourself where your monthly payments go or wish to have facts to back up an arguement.

 

http://www.gm.com/company/investor_informa...mt/stmt_01.html

 

 

[gnutruk]

So what does this mean to "joe consumer" when he goes to buy a chevy or ford? Will they be dealing? Will rebates and incentives continue? Is this a great time to a really good deal on a new truck? Or will dealerships play hardball with prospective buyers?

 

<{POST_SNAPBACK}>

 

 

 

Typically, Bankruptcy Judges ignore the marketing side of the operation unless something egregious is proposed. If creditors see the seed corn being given away to mere “consumers,” they will squawk and get the Judge to reverse any particular program that’s too generous – incentives or rebate offers, for example. So in all likelihood GM will continue to promote in the standard fashion. They’ll probably tend to push more financing incentives, but with more and more tripwires imbedded in the fine print such that fewer and fewer applicants qualify. The goal as always will be to lure the unsuspecting into the showrooms (and thus into the sales cubicles next to the show-floor) where salesmen can load on the pressure. Although consumers are targeted to see, and respond to, the incentives aimed at them (such as rebates), what GM’s “incentive programs” mostly entail are incentives given to dealers and individual salespeople to move more product. Expressed as a percentage, less than half of all incentives wind up in the pockets of buyers.

 

Therefore, in the short term, neither the bond rating downgrade nor the impending bankruptcy will affect prices on the lot very much. Rather, GM’s ability to move 2005 models off the lot is going to depend more on what gas prices do over the next month or so.

 

What happens in the Middle East will be the key to oil price movements, naturally. Former U.N. Chief Weapons Inspector Scott Ritter (Col. [Ret.] USMC) has called an attack against Iran this June. As both British Labor Party member Tony Benn and former US Secretary of State Colin Powell have indicated (both of whom have superb access to information even though neither of them are ‘officially’ members of their respective governments any more), the war rhetoric has been toned down in the period leading up to the British national elections, which concluded yesterday with Blair’s party maintaining its majority, albeit slimed down. With that event behind us, the window of opportunity is now wide open, and over the next few weeks we will see a VERY dramatic escalation in the saber-rattling coming out of Washington (Langley, actually) and London. As is well known, an attack is virtually certain if Tehran opens that Oil Bourse denominated in Euro’s, as they have threatened to do. The Pentagon and the White House MUST stop the slide into other currency “baskets,” not only of oil – although that is the main issue – but of all other strategic resources as well. To that end they will be forced to close down the Iranian oil industry, which is technically very easy for the U.S. military to do. The U.S. (along with the British) does not have to occupy Iranian territory, of course, but merely shut off transshipment.

 

IF that happens, then retail gasoline prices in the range of 4.00 – 4.50 per gallon are likely by late June. Under that scenario, GM and Ford will experience almost irrestible pressure to juice up rebates very nicely in order to clear the lots. If Ritter is correct and the bombs start to fall sometime in June, then I would speculate that mid-July would be an excellent time to check out the dealers. The salespeople will be VERY pumped up to deal because of the highly attractive incentives they will realize per unit moved, and the consumer could see rebates perhaps as high as 7,000 – 8,000. Rebates will not go above 8,000, however, for in that range the cut starts to go deep into muscle, so even though you will see ads on TV pushing dealer add-on programs, don’t wait for the top but instead jump when advertised rebates go over 6,000.

 

If Iran is hit, GM files not later than late September after the Court reconvenes from summer recess. That will be the case no matter how long the Strait of Hormuz is kept shut, because the ripple will reverberate for a long time on the oil trading markets. I said in my earlier post that GM’s coming bankruptcy is “deliberate.” Perhaps that was too strong a term. I should have referred to it as being “engineered.” GM’s investment banks are the prime players in that decision, of course. You can bet they are watching events on the London oil board very, vary carefully. If Bush and Blair move on Iran, then an excellent opportunity will open for GM to file. With certainty they will avidly jump at that chance.

 

gnutruk

[16gaSxS]

Getting a "deal" is part of the reason they are dying. No one wants to buy something at MSRP anymore, they want $5000-$8000 in cash back. Between that and labor unions, Chevy and Ford are screwed.

 

<{POST_SNAPBACK}>

 

 

 

 

GM & Ford have ignored the effect of their big price increases over the years they have just add big deals to sell. I have little sympathy for these folks who have ignored the market place and the future. The Europeans are bying Diesel cars as fast as they can be built, why. 35-45% better MPG. The writting has been there for YEARS so what does GM do CANCELL it V-6 DuraMax and I-4TD. People would buy new Tahoes if they got 25 MPG and the is achievable right now with a V-6 Diesel but NO why build some thing that makes sense when we can just beef up inccentives to buy gas guzzelers. SCREW GM & Ford if they go down it's their own inept managment. Yeah the Goverment, and Unions have a part of the blame but Ford & GM have messed up BIG time. Can anyone say 1970's.........

Those who fail to learn from History are doomed to repeat it. It's just rerun time folks.

[Mark_in_Tulsa]

I wonder how all of this will affect the reputation of GM, and Ford.

 

I know a lot of people who are all about buying stuff, or getting help from union only businesses. Like painter, or plumbers....etc.

 

I wonder how this will look, if GM dumps there Union. And many people lose their jobs or benifits. I wonder if that will affect their image, with buyers who are all about union work. Or if it gives them a negative image, because of the bankruptcies, and the changes that will affect the hands that make these cars, and trucks.

 

I can see all kinds of rumors or lies going around from comsumers like "why buy a GM, they are going bankrupt. You know the quality won't be there, or the service down the road"

 

Ignorant people will start these vicious rumors, and try and make GM look bad.

[Instrument 40]

I wonder how all of this will affect the reputation of GM, and Ford.

 

I know a lot of people who are all about buying stuff, or getting help from union only businesses. Like painter, or plumbers....etc.

 

I wonder how this will look, if GM dumps there Union. And many people lose their jobs or benifits. I wonder if that will affect their image, with buyers who are all about union work. Or if it gives them a negative image, because of the bankruptcies, and the changes that will affect the hands that make these cars, and trucks.

 

I can see all kinds of rumors or lies going around from comsumers like "why buy a GM, they are going bankrupt. You know the quality won't be there, or the service down the road"

 

Ignorant people will start these vicious rumors, and try and make GM look bad.

 

<{POST_SNAPBACK}>

 

 

 

I don't think the "average" consumer, one that isn't automotive minded" would really care if the unions were dumped (I think the shareholders would love it!). I would imagine that initally it would be hard for GM but in the long run, the educated consumer would see this as a MAJOR plus for GM. As far as GM's and Ford's image I think they are both in the tank, reguardless of what rumors fly around.

[hvac1000]

We all forget. GM has BILLIONS and Billions of CASH available. They will have to burn that down along with the sale of other items before they can go belly up. I am not saying GM does not have problems and the possibility of being competitive without droping a boat load of benny's is a forgone conclusion. Looks like the medical ins for the employees will have to change and the medical for older retired people will definately have to go. Every one complains but the GM employees have had a good ride for to many years. I will miss my health benefits but at least I will still get my pension and my Social Security.

 

Right now there is 6500.00 per month from both of the above pensions I think I can asfford my medical insurance and RX drugs. Least we not forget Medicare pays for a lot to start with.

 

Both Ford and GM should have pushed harder years ago to settle with the unions. They will never be competitive with a union shop unless there are major changes.

 

One last thought. There are thousands of parts in a GM vehicle. The failure rate considering the number of parts used in assembly is NILL. I hear all these complaints of brakes/ head gaskets etc. So what. It is still less that one tenth of one percent failure ratio and that is a night and day improvement from years ago when there were a lot fewer parts.

[Indy]

Don't worry the government will bail them out and they'll build their own version of the K-car and save the day.