May 15, 2009
With General Motors (GM) trading at approximately $1 it is more apparent that a restructuring deal is necessary and imminent. There are currently two parties involved in the negotiations with the U.S. Government / UAW Retired Workers on one side and individual / institutional investors on the other. The major discrepancy is who will have control of the company in the future and who will get paid off as a result of GM’s delinquencies.
Under the current deal set out by the Obama administration, the government would control 50% of the company, 39% would be controlled by the UAW, 10% by the bondholders and the remaining 1% for existing shareholders. Current shareholders and bondholders are not exactly ecstatic about this current deal and are working to structure another negotiation out of bankruptcy
If however this deal were to go down, the American taxpayers would be a majority stake holder in General Motors, which in the future may be more appropriately referred to as “Government Motors.” Ford (F) will more than likely have a difficult time competing against a government owned GM. With the government taking control, it is likely that they will do whatever they can in their power to revive GM no matter how much money it takes. The U.S. government has had no problem spending money now with the hopes the market will recover eventually. Paying for the trillions of dollars spent today will be a subject of interest for tax payers in the near future.
Ford, in a similar move to Capital One (COF) and many other financials, has opted to raise capital through the dilution of shares.
Just this week they sold 300 million shares of stock at a price of $4.75 per share. Originally, they had been looking for more like $6.00, but the markets did not agree that was reasonable. Ultimately, the dilution of shares reduces shareholder value and earnings per share (EPS). That is of course if there are positive earnings per share to be distributed. If EPS is negative it spreads the loss out to more shares which may make the loss look “less bad.” This is of course how we now have to compare things in a world filled with financial failure. “Less Bad” is now the new “Pretty Good.”
What is the money going to be used for? Ford has explained that they will fund retirees health care program, but seems more than likely that additional capital will be needed to stay competitive after that is exhausted as car sales have dropped off the economic cliff as the chart below illustrates.
(Click to Enlarge)
From here on in, Ford could literally be up against a giant if the government were to take control of GM. We foresee this as a major problem for them as the other two major domestic automakers (GM, Chrysler) will more than likely have a clean debt slate post bankruptcy with the addition of government backing. Demand will need to increase dramatically for domestic cars in the near future in order for Ford to stay viable all things considered.
Think about this: If the government owns a majority stake in GM, which company will get the most favorable treatment when it comes to government contracts, loans and exports?
March 10, 2009
I had the opportunity to debate about the future of the auto industry. I think I may have been a bit too “passionate” about the subject.
CLICK DOWNLOAD TO PLAY….
January 9, 2009
In a recent internal memo, General Motors’ (GM) management has begun the grim task of preparing employees for the inevitable: Job cuts… MASSIVE job cuts.
In order to remain complaint with the provisions of the $4 billion of “loans” from the TARP, GM is looking for ways to survive and restructure according to the government’s forced timetable.
Now the plan is to re-engineer their entire business model utilizing the idea of Zero-Based staffing. While that may not be a new idea, it is one that is usually associated with a newer company. How will GM attempt to restructure their current operations from the ground up? Good question. Here is what they are considering..
Read the entire article Here….
December 31, 2008
GMAC, the main source of auto loans for General Motors (GM), was recently approved as a bank holding company allowing them to access funds from the Federal government. Within days after the approval, taxpayers provided the lender with $6 billion of funds through the TARP in an effort to help stimulate auto sales. That could be helpful as during November sales were down a whopping 37%. What’s more, as record layoffs persist, vehicle sales are not seeing any chance of returning to normal levels anytime soon. Read more
December 3, 2008
The headlines are all a bustle over the drama that will likely unfold this week when the Beggars of Detroit come to visit the Interrogators of D.C. Perhaps the most concerning part of this bailout is that the facts keep changing.The latest reports show that the original $2 billion monthly burn rate estimate for GM has increased to $5 billion per month. It is frightening to learn now that the estimate is already outdated. In fact, MSNBC is reporting today that if General Motors (GM) is to survive 2008, they will need an initial $4 Billion and another estimated, $18 Billion in total U.S. assistance.
In what appears to be a virtual checkmate, the auto companies are making a show of their proposal by complying with the politically correct and the outcrys of all Americans to win over billions of dollars of funding. It has been made quite clear that most Americans do not want to give another cent to zombie companies that have a history of losing money in even the best economic times. But give we will. Let’s take a look at some of the latest news and read between the lines to figure out what is really going on.