Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. GM Bankruptcy Clock Ticking FastGM appears likely to follow fellow carmaker Chrysler into bankruptcy court. The company lost $6 billion in the first quarter of the year, with no signs that sales will improve. The company faces a June 1 deadline imposed by the government to drastically reduce its liabilities and expenses, including persuading the United Auto Workers (UAW) to accept stock to cover the company's $20 billion obligation to fund retirees' health benefits, and bondholders to accept pennies on the dollar, again in stock, for $27 billion in current debt. The company must get both the union and 90% of the bondholders to agree to the terms or the government will withhold future loans, driving the company directly into bankruptcy where a judge can impose terms on all parties.Bankruptcy would also ease the company's plans to slash 2,600 of 6,246 dealerships over the next year. --d.f. Labels: auto industry, auto industry loans, bankruptcy, Chrysler, Daniel Fireside, General Motors, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Dumps Pontiac and WorkersIn a last ditch to stave off bankruptcy, GM announced that it will ditch the Pontiac brand by the end of next year (Hummers, Saabs, and Saturns will be done by the end of 2009 but other companies may buy the brand names), cut 23,000 of its 61,000 factory jobs by 2011, and slash the number of dealers by 42% to 3,600, and offering creditors stock for debt. The US Treasury would end up with at least a 50% stake in the company, bondholders up to 10%, the UAW 39%, and existing stockholders 1%.Bondholders, who currently own $27 billion in company debt, are the key to the deal going forward. In a letter to bondholders, the company warned:
The company will close 16 of its 47 US manufacturing plants by 2012, including six this year and seven next year. The automaker has already received over $15 billion in taxpayer funding and must present a restructuring plan by June 1 in order to receive additional funding and avoid bankruptcy. --d.f. Labels: auto industry, bankruptcy, Daniel Fireside, General Motors, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). No May Loans for GM and ChryslerGM and Chrysler were not deemed "financially viable" by the Energy Department, a critical benchmarks that makes them ineligible for next month's disbursement of TARP funds.From the Washington Post: Next month, $25 billion in loans aimed at producing more fuel-efficient cars will start flowing to suppliers and automakers -- just not to the two companies most in need of funding, General Motors and Chrysler. Labels: Chrysler, GM, TARP program Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Auto Supplier and Six Flags Going DownThe car won't run and the park is closed.GM and Chrysler parts supplier American Axle appears headed for bankruptcy. The company's stock traded at $30 a share in 2007, but is now worth only pennies and will soon be delisted by the NYSE. Although the auto companies have received billions in federal bailout funds, parts suppliers have not, although proposals are floating around to include them in future plans. American Axle slashed 3,000 workers last year while losing $118 million. Theme park operator Six Flags Inc seems next in line for bankruptcy protection. The company appears unable to meet future payments to investors and creditors after a report that the company lost over $200 million in the final quarter of 2008. Labels: auto industry, auto industry loans, bankruptcy, Chrysler, GM, Six Flags Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Citi and GM DeathwatchCitibank has now joined the ranks of the penny stocks. In 2006 the stock was trading at $55.70 and the company had a market capitalization of $277.2 billion. Today, the stock is trading at under $1 per share and the market cap is $5 billion. However, the US government has already lent the company $45 billion, so the actual value of the company is probably far less (i.e. negative).Bank of America isn't doing much better. On the auto front, auditors for GM are debating whether to continue to portray the carmaker as a "going concern." This determination will factor heavily in the company's ability to access more loans from the government or whether it will be headed straight for bankruptcy. GM stock is trading just below a lofty $2 mark. Labels: auto industry, auto industry loans, bad bank, Citibank, Citigroup, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). UAW Reaches Deal With FordFrom the wires. Ford hasn't received bailout money, but pressed the union for concessions because they didn't want to be disadvantaged if the union made concessions with Chrysler and GM. The deal still needs to be ratified by the union.DETROIT – The United Auto Workers and Ford Motor Co. said Monday they agreed to let the automaker change how it pays for a health care trust fund for retired workers, a deal that could serve as the model for cash-starved General Motors Corp. and Chrysler LLC. Full story here. Labels: auto industry, auto industry loans, Chrysler, ford, GM, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More GM Loan Fine Print: UAW Can't StrikeYesterday we reported that newly disclosed details of the Bush emergency loan to GM included clauses forcing the automaker to seek massive concessions from their main union, the UAW, including pegging wages and working conditions to those at non-union U.S. plants.One major clause that we didn't mention, however, was that the UAW and its affiliated locals are prohibited from engaging in any strike or work stoppage. If the unions take either type of action, the government can recall the loans and force the company into bankruptcy. The terms of the government loans extends through December 29, 2011. The UAW has a "no-strike" clause in its current contract that extends though September 2011. However, local unions have different timetables for negotiating their contracts. If the UAW was forced to reopen its contract to make concessions, the no-strike clause could be set aside. The union is reportedly pushing its allies in Congress to reopen the terms of the loan agreement once the Obama administration takes office. Labels: auto industry, auto industry loans, bailout, GM, labor organizing, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Borrows, UAW PaysGM CEO Rick Wagoner says that the $13.4 billion in U.S. government loans it has received should get the company through the end of March, but it may be back asking for additional help after that.Under the terms of the Bush-approved bailout, the automaker can only receive additional funds if it has shown that it can get tough concessions from bondholders and the United Auto Workers (UAW). The union made major concessions in 2007, however the Bush loan deal requires GM to get the union to agree to renegotiate a promised $21 billion company contribution to a retiree trust fund that will be the UAW, and also to force the union to agree to accept wage and work conditions equal to those at non-union plants. The union has raised loud objections to the terms of the loan, and a bill being pushed by Democrats in the House would strip the loan of these forced concessions. Labels: auto industry, auto industry loans, GM, labor organizing, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Toyota Profits Hit PotholeToyota expects to report its first operating loss in 70 years. The company announced that it will likely post a loss of $1.7 billion for the fiscal year ending March 31. For the previous year, the company reported an operating profit of $28 billion.The company expects next year's outlook to be even grimmer. November U.S. sales plunged 33.9%, still better than GM's 41% decline. The company has seen its sales plummet not only in the United States, its largest market, but also in China and India. With little debt and $18.5 billion in reserves, Toyota is in much better shape than its American rivals. However, the company's decline, as well as those of other carmakers and electronics companies, has shaken Japan's heavily export-dependent economy. Japan's finance minister reported on Monday that the country's exports 26.7% in November, the largest recorded drop since 1980 when statistics were first collected. More from the New York Times here. Labels: auto industry, GM, Toyota Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Shares Plummet On Analyst ReportA Deutsche Bank analyst forecast that GM's shares would soon be valued at $0 sent the car company's stock plummeting another 24% today. The analyst took the view that GM would either enter into bankruptcy or would enter into a government bailout that would leave shareholders with no equity.The stock fell to $3.02 in early trading, their lowest in over 60 years. Shares climbed back to $3.36 by the end of trading. Labels: auto industry, financial crisis bailout, General Motors, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). No GM/Chrysler DealAfter losing a staggering $4.2 billion in the 3rd quarter, GM has been forced to call off talks about it buying fellow beleaguered car maker Chrysler.Cerberus Capital Management, the private company that owns Chrysler, is still on the hunt for some kind of public or private lifeline. In a side note (in case you missed it here), Cerberus is chaired by former Bush administration Treasury Secretary John Snow and its board includes Dan Quayle, who was vice president under former president George H.W. Bush. Labels: auto industry, Cerberus Capital Management, Chrysler, Dan Quayle, General Motors, GM, John Snow Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GM Chrysler Deal Would Cause Massive LayoffsAs sales at US automakers continue to fall through the floor, Chrysler and GM are trying desperately to hammer out a merger as their sales and cash reserves evaporate. They are currently seeking $10-12 billion dollars in government support to cover merger-related expenses. It's unclear how the merger of two money-losing companies would combine to make a profitable one.UAW President Ron Gettelfinger has expressed alarm at the deal's potential for massive job losses. The latest estimates are that Chrysler alone would have to cut more than half of its current workforce of 67,000 employees, and an additional 50,000 jobs in related industries would be in danger, according to the consulting firm of Grant Thornton. To complicate matters, the two cash-starved companies are currently facing payments of $7 billion each by 2010 into a the voluntary Employee beneficiary association, or VEBA, a trust fund designed to cover the future health care costs for union retirees. Any changes to the fund resulting from a merger would need union approval. The UAW is trying to reinsert itself as a major player in the talks, and has recently hired top ex-auto industry execs to help with its lobbying efforts. Labels: auto industry, Chrysler, General Motors, GM, Ron Gettelfinger, UAW, VEBA Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Movement on the Bailout FrontThis could be pretty big news. From Reuters:Bair says FDIC's powers could extend to insurers Wed Oct 29, 2008 11:34am EDT By Karey Wutkowski WASHINGTON (Reuters) - The Federal Deposit Insurance Corp's powers could be expanded if Congress decides to shift insurance companies from state regulation to federal regulation, FDIC Chairman Sheila Bair said on Wednesday. The FDIC could start providing guarantees for insurance companies, much like it already guarantees the deposits of most U.S. banks, if the insurance industry comes under federal regulation, Bair said. Insurance companies are currently regulated by individual states. "Our authorities would be expanded," Bair said at the annual conference of the International Association of Deposit Insurers. Read the rest of the article Many people know about this already, but remember the pressure on the automakers. They want to get a (subsidized) deal done before the election next week, so an incoming government won't be able to tamper with it. But the deal is so complex it'll be extremely difficult to pull off. Sounds a bit like Bear Stearns, but in the non-financial, real-economy sector. From the Financial Times: GM and Cerberus race to finalise Chrysler deal By Bernard Simon in Toronto, Julie MacIntosh in New York James Politi in Washington, John Reed in London. Tuesday Oct 28 2008 19:20 General Motors (NYSE:GM) and Cerberus Capital Management are racing to finalise a deal for the carmaker to acquire the private equity group's stake in Chrysler before next week's US election. While many motor industry experts question the benefits of a tie-up between Detroit's number one and number three carmakers, they increasingly recognise that the companies have few other options. Both are bleeding cash and in danger of running out of liquidity some time next year as sales fall in their core US market. Read the rest of the article Labels: Cerberus Capital Management, Chrysler, FDIC, financial crisis bailout, GM, Sheila Bair Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Automakers Ditch Jobs, 401Ks, and NASCARA quick gloom and doom update on the US auto industry today.Chrysler announced that it was cutting 1,825 jobs. The cuts are about 6% of the company's hourly workforce of 33,000. General Motors announced that it is indefinitely suspending company matching contributions to employee 401K retirement accounts. The Washington Post reports that Detroit automakers are pulling out of NASCAR: GM's annual investment alone was rumored to be $120 million-$140 million at the peak of its involvement in NASCAR. But it severed sponsorships with Bristol Motor Speedway and New Hampshire Motor Speedway this summer, and deeper cuts are promised as part of GM's $10 billion cost-savings program. Labels: 401K, auto industry, Chrysler, General Motors, GM Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Bad News For AutomakersBillionaire investor Kirk Kerkorian is cutting his losses by shedding part of his 6.49% stake in Ford Motor Company, and has announced that he will sell of the remainder of his holdings in the near future. Starting in April, Kerkorian began buying up about $1 billion worth of Ford stock. As of Tuesday, his holdings were worth less than $290 million, a loss of 71%.Like other US automakers, Ford is facing trouble from all sides: tightened consumer spending, a growing distaste for gas-guzzling SUVs, and a frozen credit market. According to the LA Times, Ford and GM are each burning through $1 billion a month in scarce cash just to keep going. Adding another blow to Detroit's desperate hope for a quick fix, the Washington Post reports that US automakers may not see any of the recently approved $25 billion government loan program for more than a year. The emergency loan, the largest government support of the US auto industry since the 1979 Chrysler bailout, was enacted to help Detroit automakers switch to more energy-efficient vehicles. However, carmakers have been counting on it to tide them over until the credit markets begin to thaw. Labels: auto industry, bailout, Chrysler, credit crisis, ford, GM, Kirk Kerkorian Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Harley In Hog HellLike the hawkers of their 4-wheeled brethren, Harley Davidson is facing tough times. The Wall Street Journal reports today that the company is being hit by a double whammy of slumping consumer sales and a major squeeze on their in-house financing unit, which provides credit for both customers and dealers.Although they're not in as bad shape as GM (currently in merger talks with Chrysler, although the lack of available credit is holding things up), company sales are down 9% for the first three quarters of 2008 versus a year earlier, and operating income from Harley's financing unit fell 28% in the latest quarter, according to the WSJ. While still profitable, Harley's net income in the third quarter fell 37% compared to a year earlier. Labels: auto industry, credit crisis, economic meltdown, GM, Harley Davidson, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). General Motors In a DitchGM shares plunged to their lowest price since 1949 before recovering slightly, reports the Washington Post. Analysts are concerned that the global auto industry is on the verge of "outright collapse." Standard & Poor said on Thursday that it is considering cutting the rating of both GM and Ford to "junk" status, which would sharply increase their cost of borrowing.Both domestic and imported car sales have been plummeting in the wake of the financial market meltdown. According to a company statement "Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets," GM said in a statement on Friday. Somehow this doesn't inspire a lot of confidence. Labels: auto industry, financial crisis, financial crisis bailout, General Motors, GM, Washington Post Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
