How Sick Is Gm Financially

[747]

THE Australian dollar closed higher today among speculation that US car giant General Motors could be filing for Chapter 11 .

GM and GMAC Financial Services were served subpoenas by the US Securities and Exchange Commission as part of an investigation into its accounting practices

CNN http://money.cnn.com/2005/10/26/news/fortune500/gm_sec/index.htm


The world's No. 1 automaker said its net loss was $1.6 billion for the last 3 months

CNN http://money.cnn.com/2005/10/17/news/fortune500/gm_loss/index.htm

[Marco]

Just to clarify, I don't think a Chapter 11 bankruptcy means the company is going to fall in a heap and it's all over - isn't it a form of bankruptcy protection, time to rearrange the business and get back into financial shape?

I think the Aust. equivalent would be receivership rather than outright bankruptcy - someone who knows more about this please correct me if I'm wrong.

[OzJavelin]

Most BIG companies don't seem to know exactly what's happening with their finances until they go to the well and it's dry. Having worked for IBM and Telstra, neither of them had a clue where money was coming from, where it was going, or how much they actually had. I wouldn't be surprised if this all fell in a screaming heap ...... but if it does, look out. This could trigger a real global recession. :(

Rod.

[speedyocca]

the most important question is what would happen to holden??

[COSMOS]

Chapter 11 is a legal state the company goes into which allows it to achieve certain financial restructing objectives without the burden of;

wage agreements
union agreement
superannuation payments
reporting to the SEC (US ASIC)
reporting to the NYSE

many famous US companies have been through this including Northwest Airlines, United Airlines etc. It lets them save themselves by cutting wages, shortchanging employees on super payouts and voiding union agreements and reporting obligations.

Is it serious for GM - hell yeah. I spent some time at GM earlier this year and yes this is pretty serious. Not just for them but for all their supply partners too.

will they stop selling cars - probably NOT. Will they sell less cars and have less models and staff - probably yes.

watch this space.

[COSMOS]

the most important question is what would happen to holden??

it would source its small and medium models from countries with a positive exchange rate like SthKorea, it would delete expensive model lines like awd, and it would delay the launch of a new model like VE which when it comes down the line will be more expensive and offer fewer variants.

welcome to the global economy folks. it cant go on forever...

[SSBarney]

Chapter 11 is a legal state the company goes into which allows it to achieve certain financial restructing objectives without the burden of;

wage agreements
union agreement
superannuation payments
reporting to the SEC (US ASIC)
reporting to the NYSE

many famous US companies have been through this including Northwest Airlines, United Airlines etc. It lets them save themselves by cutting wages, shortchanging employees on super payouts and voiding union agreements and reporting obligations.



theres a bit more to it than that,
It basically means that the company has sufficient unpaid creditors that would have the power to put it into bankruptcy or receivership, but they elect a chapter 11, which puts a legal stall over creditors to enable the company time to shuffle its finances and make some agreements so creditors daccept delayed or compromised payments.

[SSBarney]

the most important question is what would happen to holden??

Holden is a 100% owned subsidy of GM, so that means Holden is an asset that can be sold to pay the bills!
Who, if any one buys her, is another question.

[YLD57L]

I heard Ford was looking at buying Holden! :eek:

[Marco]

Holden is a 100% owned subsidy of GM, so that means Holden is an asset that can be sold to pay the bills!
Who, if any one buys her, is another question.

You would have to imagine, though, that Holden's future as a part of GM is a lot more secure than that of some of the lossmaking arms like Saab. Why they ever bothered buying out that lot I don't know.

Come to think of it, a lot of GM's purchases in recent years leave a lot to be desired. Buying stakes in Fiat and Subaru didn't exactly turn out to be brilliant ideas either.

In any case, Holden starts to look less attractive to any potential buyers when you consider that all of its non-Commodore models come from other GM divisions. I'd argue that unless GM falls over in a complete heap and there's a fire sale of anything viable (and really, would the US Government let GM collapse? I doubt it...), Holden will be in GM for the forseeable future.

[SSBarney]

I heard Ford was looking at buying Holden! :eek:
...are you my Uncle?.. or my Daddy? ... maybe your my grandpa?.. Oh please dont be my sister, since i've already slept with you! :rolleyes:

all cars seem to lead to so few makers, sad for all cars, and fans.

[Ghia351]

Just a quick read :eek: explaining the chapter11 term and process
http://www.ndb.uscourts.gov/forms/chapter11information.htm

and I would suggest many companies actually use this method to wipe out some debts, change their business structures, rearrange finances and reduce liabilities such as pension plans that would normally be legally binding pre-chapter11.

And as mentioned above I couldn't imagine the US Fed government allowing GM to collapse, its just too big a workforce to allow to suffer in the most basic analysis.

[HFV6]

Chapter 11 would entail the bankruptcy court mediating with GM and its creditors to allow GM to move towards a more acceptable position. Considering GM's assets are extensive (nearly US$500 billion) and considering a decent chunk of this is held as a cash reserve, it would be very doubtful that GM would ever 'collapse' as such. Chapter 11 would probably have a positive effect on GM's position, most notably in relation to ridiculously onorous health and wage liabilities. I believe there are also negative ramifications to getting to the Chapter 11 stage in the form of higher interest payments applicable to borrowings. I'm doubtful though that GM would reach that stage as sales are now increasing worldwide and the company is clearly in a transitional phase towards much brigther days.

[VYBerlinaV8]

A couple of interesting things to think about:

1) GM currently spends more on health insurance for workers than it does on steel - says something about their cost structures.

2) Enron Australia, a wholly owned subsidiary of Enron Corp., was in great financial shape until the collapse of Enron Corp. Creditors in Australia got 70 cents in the dollar. See any similarities between Holden and GM?

What does this mean? Holden could be in real trouble if GM collapses. My opinion (and that's all it is) is that a collapse of GM is possible, and will occur when GM gets itself into a position where it can't meet the interest on its outstanding obligations. They have been headed this way for some time - even before this mess they had been assigned 'junk bond' status.

A restructure is certainly possible, but given their business performance over the last several years I wouldn't have thought it will necessarily help them much.

Sorry to have such a doom and gloom opinion, but this reminds of several other situations where big companies that were considered unstoppable came unstuck ( Enron, HIH, Arthur Andersen, etc). :eek:

[seldo]

the most important question is what would happen to holden??
Well, they are not going to sell-off Holden, because it is one of their most profitable divisions - it's a bit like trying to save money by sacking your best salesman to try to save the cost of his commissions. But GM are quitting loss-making or low-return assets like their investments in SAAB, Isuzu and Subaru. The collapse of Delphi also has some huge ramificataions for GM.

[HFV6]

I don't think anyone would suggest that GM would 'sell off' Holden to recoup some costs. As i mentioned earlier, in ther 2003 annual report (i haven't got a 2004 AR in my possession) GM is said to have US$33 billion in cash and US$22 billion in bonds in their possession. It would take a fare while for lossess even as high as US$1.3 billion per quarter to eat into that hoard, hence the fact that they have not been too worried about their bond status as being 'junk', as they don't need to borrow to finance the losses if its would cost too much. GM will not collapse (considering no one's been fudging the books as in WorldCom, Enron, One.Tel, HIH's case) and the turn around is happening as we speak. Chapter 11 is more likely but still not highly probable. If for some remote reason GM did collaps, administrators would do with GM's assets what would make the greatest return for creditors, whether it be sell off car divisions in their entirity, or break them up and sell their individual assets. Given Holden's profitability as a unit, its brand strength and its integration into the Australian market, i would suggest that it wouldn't be too hard to find a buyer for the whole unit. Whether this would be good for Holden is another story, but i can tell you for sure if GM was to collapse it wouldn't take Holden down with it.

[YLD57L]

...are you my Uncle?.. or my Daddy? ... maybe your my grandpa?.. Oh please dont be my sister, since i've already slept with you! :rolleyes:

all cars seem to lead to so few makers, sad for all cars, and fans.

Just joking mate. :)

What you said in the second sentence is true. As cars become such a world market and companies become huge by merging/buying etc. they are threatening to become more and more alike and less interesting to enthusiasts...

[NinetySix]

A couple of interesting things to think about:

1) GM currently spends more on health insurance for workers than it does on steel - says something about their cost structures.$

thats just the way it is in america

the thing about america is there is no medicare, if you had a heart attack you would be 50k or so out of pocket.

most good jobs in america have a health insurance plan included. if you have a job that does not include health insurance, then your basically just getting by until you can find a job that includes health insurance :rolleyes:


my brother was working long, long stressful hours at a petro-chemical company in houston as a clerk for average money but with no health insurance. His wife has it with her job, and his daughter in law has it from her dad. he hated working at a desk all day long (dont blame him) and he is now working for a satellite TV company, installing and setting up dishes with much better working conditions (not stuck at a desk!!!) working much less hours for slightly less take home pay, but with health insurance now.

so hes miles ahead now, and has garunteed future raises yet to come too.

[JHamilton]

I heard Ford was looking at buying Holden! :eek:

Ford is trading aroung $8 a share. IMO..they are in worse shape than GM.

[JHamilton]

thats just the way it is in america

the thing about america is there is no medicare, if you had a heart attack you would be 50k or so out of pocket.

most good jobs in america have a health insurance plan included. if you have a job that does not include health insurance, then your basically just getting by until you can find a job that includes health insurance :rolleyes:


my brother was working long, long stressful hours at a petro-chemical company in houston as a clerk for average money but with no health insurance. His wife has it with her job, and his daughter in law has it from her dad. he hated working at a desk all day long (dont blame him) and he is now working for a satellite TV company, installing and setting up dishes with much better working conditions (not stuck at a desk!!!) working much less hours for slightly less take home pay, but with health insurance now.

so hes miles ahead now, and has garunteed future raises yet to come too.

The higher health care cost rise, corporations will be forced to pass this cost on to their employees. My company pays my insurance b/c I am single, but a spouse is $300/mo. and adding children is over $600/mo. My last trip to the emergency room was $4600 + doctor's fees and medicine (3hrs for a kidney stone), so its worth whatever it cost.

Here is an article regarding GM's cost:

http://money.cnn.com/2005/10/17/news/fortune500/gm_wagoner/

[NinetySix]

point is, ford probably spends more on healthcare than they do on steel too?

certainly doesnt sound like a happy ending with 'slashing healthcare budgets' but maybe the GM deal was a little too sweet compared to others?


maybe holden can claim to be spending more on workcover than they are on steel :lol:

[NinetySix]

My last trip to the emergency room was $4600 + doctor's fees and medicine (3hrs for a kidney stone)

the meds dont come cheap either? my brother got sick and i think it was about us$50 for anti biotics


i just paid $22 for panadiene forte and penicillin, and that was going with the cheaper brands... i miss having a health care card (then they are $3.70 each)

[JHamilton]

point is, ford probably spends more on healthcare than they do on steel too?

certainly doesnt sound like a happy ending with 'slashing healthcare budgets' but maybe the GM deal was a little too sweet compared to others?


maybe holden can claim to be spending more on workcover than they are on steel :lol:

GM's coverage is good, but pretty standard. You are right, its absolutly a problem across the board.

On a positive note.....

Exxon Mobil Posts New Record for Profit
AP
IRVING, Texas - Exxon Mobil Corp. had a quarter for the record books. The world's largest publicly traded oil company said Thursday high oil and natural-gas prices helped its third-quarter profit surge almost 75 percent to $9.92 billion, the largest quarterly profit for a U.S. company ever, and it was the first to ring up more than $100 billion in quarterly sales. Net income ballooned to $9.92 billion, or $1.58 per share, from $5.68 billion, or 88 cents per share, a year ago.

I'm very happy to say I contributed several hundred dollars to the cause. :rolleyes: I'm sure the profits will go to good use.

[HFV6]

Here's a relatively dark story in last weeks 'The Economist' magazine:

Death by red ink
Oct 20th 2005
From The Economist print edition


Rare good news from Detroit is unlikely to persist

GENERAL MOTORS still insists on referring to itself as “the world's largest automaker”. But some people—including some company insiders—are beginning to worry that it could also become the world's biggest bankruptcy. And America's second largest car manufacturer, Ford, could follow suit.

On October 17th, GM succeeded in putting a positive spin on its dismal third-quarter financial report. GM shares initially jumped by as much as 10%, in response to the company's claim that it is finally getting to grips with the soaring cost of health care for its employees and pensioners. Shaving $1 billion off its annual health-care bill of $6 billion, through a deal with the unions, is a real achievement. But the truth is that GM still lost $1.6 billion in the last quarter, taking annual losses to $3.8 billion so far this year. Despite strong numbers from its Chinese operations and a nascent turnaround in Europe, the core North American market in effect accounted for that entire flood of red ink. GM has been virtually giving away its cars and trucks this year, most recently with an incentive programme offering to ordinary customers discounts usually reserved for employees. Despite this, the carmaker's market share took a disastrous tumble during the July-September quarter, to 25.6% compared with 28.5% during the same period the year before.

There were a couple of small, bright spots. GMAC, the group's lending unit, netted $675m for the three-month period, much of that from writing loans for car and lorry sales. And Rick Wagoner, GM's chairman, was able to announce those health-care savings. But even these hard-won concessions from union retirees may quickly be overtaken by rapidly rising American medical costs. The United Autoworkers Union will probably not consider bigger concessions until 2007 when it is due to return to the bargaining table to renegotiate its four-year contract. In the meantime, GMAC may be sold off: Mr Wagoner announced he would be willing to sell a controlling stake in the finance unit, which has propped up its parent for the better part of two decades.

Even with GM promising to shave another $1 billion off its product development bill, there are plenty of reasons for scepticism about the company's future. The carmaker could be saddled with billions in additional pension and other costs as a result of the recently-announced bankruptcy of Delphi, its former parts-making arm. The increase in petrol prices may have made many buyers turn away from the sport-utility vehicles (SUVs) that long supported Detroit's balance sheet. The costly re-launch of full-size SUVs, such as the Chevrolet Tahoe in early 2006, may not counteract this trend.

Various ratings firms have signalled the possibility of further downgrades in GM debt. And more and more observers are wondering how long Mr Wagoner can hang onto his job, especially as Kirk Kerkorian, an octogenarian corporate raider based in Las Vegas, begins to flex his muscles. Mr Kerkorian failed in his bid to take over Chrysler a decade ago, but it is increasingly likely that his ally, Jerry York, will get a seat on the GM board. From there, Mr York, himself a former Chrysler executive, could become a convenient replacement for Mr Wagoner.

Ford, meanwhile, was expected to announce a loss of its own as The Economist went to press. Its headline numbers are likely to be less alarming than GM's. But the firm's fundamental situation may not be much better. Its market share is tumbling again, after a brief incentive-led surge earlier this year. And Ford has even fewer new products in the pipeline than does General Motors. In recent weeks, a number of top bosses have tendered their resignations, including Phil Martens, its North American product-development chief. A new boss, Mark Fields, assumed command of Ford's core Americas unit on October 1st. If that heralds a much-needed shake-up, there may someday be good news to come out of Detroit.

[SteveK]

welcome to the global economy folks. it cant go on forever...

Hmm, and welcome back Monaro and other potential concept cars come production?

Steve.

[NinetySix]

GM's coverage is good, but pretty standard. You are right, its absolutly a problem across the board.

so GM's cover will now be sub-standard?

but i guess not everybody will be able to just up and leave for a job with equal pay but better health insurance coverage

[SteveK]

Whether this would be good for Holden is another story, but i can tell you for sure if GM was to collapse it wouldn't take Holden down with it.
I have to agree there. I wonder if GM has been more of a hinderence in some aspects than a support? Just a gut feeling. I think our local product would do quite well overseas, same with Ford Australia, but has anyone even attempted to do so?

Cheers,
Steve

[dave_au]

Well, they are not going to sell-off Holden, because it is one of their most profitable divisions - it's a bit like trying to save money by sacking your best salesman to try to save the cost of his commissions.

Actually I think they could sell off Holden just because it is one of their most profitable divisions - and it makes sense.

Holden is profitable, but but on the big scheme of things it makes a modest profit for GM - while everything else is losing money fast. Now your not going to make brilliant capital gains selling a business thats going down the drain.

But you will get quite reasonable profit on sale from selling a small profitable company in a small country far far away. And you could then use this profit to assist you in restructuring your core business.

GM just dumped their small controlling stake in shares in Fujitsu Heavy Industries - the parent of Subaru. Subaru was, by no means what so ever, a unsound subsidiary. If you follow the logic of dumping the dogs, then they should have dumped Saab a long time ago.

[HFV6]

GM sold its stake in FHI because the relationship made no sense and should never have been created in the first place. Subaru does AWD, it does flat/boxer engine configurations and its business plan is fairly incompatible with that of other GM divisions. There wasn't a lot of intrinsic value in the relationship and Toyota wanted to buy so it makes sense to get rid of it. There is a fine line between wanting to maintain a company as it is a good source of profit and wanting to sell that company because you could get a good price for it because it is a good source of profits. Othe considerations would be taken into account. If GM survives it will most certainly not offload Holden as it is a good source of profits (I believe Holden makes in excess of $200 million a year in income, not bad compared to other profitable divisions like GMAC which makes the company about $500 million a year) but if they collapse, then to creditors the intrinsic value in maintaining the relationship with Holden (platform sharing, economies of scale, a source of HR talent etc.) would simply not exist meaning that it would make no sense to hold onto the company. In a nutshell if GM survives Holden will be kept, if GM goes down Holden will be sold (either to a private equity group or to another car maker).

[FunkyPig]

Come to think of it, a lot of GM's purchases in recent years leave a lot to be desired.
Buying Daewoo has turned out to be probably GM's best decision in decades.

[JHamilton]

so GM's cover will now be sub-standard?

but i guess not everybody will be able to just up and leave for a job with equal pay but better health insurance coverage

My understanding is that the coverage will remain the same, but the employees will pay a percentage of the coverage. Employees with families will now pay more. My dad is a 27 year employee, so I'm not completely talking out of my arse.

[JHamilton]

Buying Daewoo has turned out to be probably GM's best decision in decades.

Buying Isuzu worked out prettly well too, but Saab has always seemed odd to me. GM may very well sell Holden though. Profitable or not, GM doesn't always make the brightest choices.

[dogwatch2]

Sometimes they do throw out the baby with the bathwater, back in the eighties the US parent company for "Hardees" burgers shut down the Aussie chain even though it was making a good profit, but was in trouble in the US. From memory Hardees had nicer burgers than Macca's. I can't see GM going down though, the US will just invade another oil producing country to get the gas price down so they can sell all those pick up trucks banking up !!!!! :lol: :lol: :lol

[Nobby]

I have to agree there. I wonder if GM has been more of a hinderence in some aspects than a support? Just a gut feeling. I think our local product would do quite well overseas, same with Ford Australia, but has anyone even attempted to do so?

Cheers,
Steve

Problem is, in the the US there is a maximum amount of cars that can be shipped in a year, after which mega taxes are put on on the price of the vehicle.

The only option would be to build the cars there, but that would lead to A) the demise of Aus car industry, as all cars would be built in the US and shipped here (we have no such crippling import tax as they do, and B) the cars would be be shyte again, albeit better designed than yank crap.

The US car industry has been hung out to dry by horrendous taxation and medical schemes over the last 30 years. That just how it works in the States, so I cant see their local automotive industry EVER getting any healthier.

They're boned.

[Nobby]

Buying Daewoo has turned out to be probably GM's best decision in decades.

Daewoo means a great deal to GM.

Sorry, that is getting old. Back to the topic at hand.

[NinetySix]

I have to agree there. I wonder if GM has been more of a hinderence in some aspects than a support? Just a gut feeling. I think our local product would do quite well overseas, same with Ford Australia, but has anyone even attempted to do so?

Cheers,
Steve

if GM liquidated im sure holden could work quite well independantly so long as somebody was still able to supply chev donks

even with the iron 304 holden had the edge over ford, but clearly the 347 has been an absolute hit in australia

[FunkyPig]

The idea of Holden being separated from GM is a very distant one. That would only happen if GM was truely broke and finished, which I think they are far from. But Holden would definitely be sold to a large car maker if that happened. Its an interesting thought, it could end up being owned by anyone... but thats not happening, its just a 'what if' question.

[VYBerlinaV8]

The idea of Holden being separated from GM is a very distant one. That would only happen if GM was truely broke and finished, which I think they are far from. But Holden would definitely be sold to a large car maker if that happened. Its an interesting thought, it could end up being owned by anyone... but thats not happening, its just a 'what if' question.

It's not happening yet. There are lots of comments here wondering why GM would sell Holden. The problem is that if GM goes tits up it won't be GM making that decision, it will be the administrators called in to recover creditors losses. In that case, Holden will be examined to determine whether it would be more profitable to sell it as a brand, or to split the company up and sell the assets. It would be very unfortunate if that happened, and I don't think it is likely to - yet. GM still have a fair way to fall before it would be worth looking at what would be a comparatively small asset.

To be honest, though, GM (and Ford US) have not been particularly proactive in managing their business. They have taken a beating in the states for years now, but are they doing anything different?

[747]

TOYOTA Motor's net profit for the year to March 2006 is expected to hit a record $US10.4 billion ($13.85 billion). Sales volume in the North American market was projected to mark double-digit growth in the current fiscal year.

Does anybody remember World War 2? Hell - GM was the largest company in the world... What the hell went wrong?

[Evil LS1]

theres a bit more to it than that,
It basically means that the company has sufficient unpaid creditors that would have the power to put it into bankruptcy or receivership, but they elect a chapter 11, which puts a legal stall over creditors to enable the company time to shuffle its finances and make some agreements so creditors daccept delayed or compromised payments.

Translation - allows the corporate scums time to shred the documents, doctor the accounts even more, screw the employees and ensure they land softly with gargantuan golden parachutes and 5 years later every one else gets 2c in the dollar, but only if you are at the front of the queue.

Oh yeah, son of Enron here we come.