This post first appeared on Minyanville.
It's official: General Motors (GM), the world's largest car company for more than 75 years, will drag its $82 billion in assets and $173 billion in liabilities into bankruptcy court.
The long-awaited move leaves the US government as GM's majority owner. Washington is betting more than $50 billion in taxpayer money that its turnaround plan can transform GM into a slimmed-down, dynamic powerhouse in the rapidly changing global automotive industry - despite mountains of debt, labor disputes, high fuel prices, and anemic sales.
The GM bankruptcy will allow its new public-employee chieftains to more quickly downsize the bloated firm, shuttering dealers, ditching struggling brands like Hummer and Saturn, as well as rapidly renegotiating labor contracts. According to the Wall Street Journal, the protection of Chapter 11 bankruptcy will also enable the company to rid itself of nearly $80 billion in debt.
And although GM’s bankruptcy filing may speed its way through the courts, as did Chrysler's (and the company could emerge from bankruptcy as early as this week), the 2 failed automakers’ cases couldn't be more different.
First, the sheer size of GM -- with nearly 3 times the assets and a fraction of the debt Chrysler had when it filed for bankruptcy protection April 30 -- will make its proceedings infinitely more complex. Pacifying a web of creditors, dealers, labor groups, and investors will be no easy task.
In addition, when GM eventually does emerge from bankruptcy, around 60% of its equity will be owned by Uncle Sam, since more than $50 billion in government loans will be converted to equity.
By contrast, Chrysler used bankruptcy protection in part, to cement a sale of key assets to Italy’s Fiat, which will own the new Chrysler in conjunction with labor unions, while the government holds a small, less-than-10% stake. Congressional meddling into its new Detroit-based Frankenstein's monster could hold up decisions at GM, as major as which brands to scuttle to trivialities like which brand of paperclips to use.
The Obama Administration reiterated that government ownership will be transitory, predicting that GM could once again be a public company within 6 to 18 months. During that time however, competitors like Ford (F), Toyota (TM) and Hyundai can leap ahead as GM focuses on cleaning up old messes and charting a new path for the future. Analysts say, however, that a new government-enhanced GM could emerge with an unfair advantage over companies like Ford that didn’t need to be bailed out.
Finally, and perhaps more importantly, GM must regain the trust of a country whose loyalty to the brand was based not on quality craftsmanship or reliability, but on patriotism. Without a dedicated client based in the United States that buys its cars because they are superior to those manufactured by its foreign competitors, the restructuring of GM will fail in even its most modest aims.
The automobile may have been invented in the United States, but its construction was perfected elsewhere. The turning of that tide will be the ultimate test of this brave new era in American car-making.
Showing posts with label FORD. Show all posts
Showing posts with label FORD. Show all posts
Wednesday, June 3, 2009
Thursday, April 23, 2009
Consumers to Banks: Give Us a Little Credit
This post first appeared on Minyanville.
Even the Treasury Department's best attempts at statistical obfuscation can't hide the truth that credit remains off limits for most Americans. Banks -- despite billions in government handouts -- still aren't lending.
A Wall Street Journal study of lending data supplied by the 19 biggest recipients of TARP funds paints a decidedly less-rosy picture than does the Treasury's analysis of the same information.
New lending, as measured by aggregate loans made in February compared to last October -- which was the month then-Treasury Secretary Hank Paulson poured tens of billions of dollars into Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and other big American banks -- is down 23%. This tally, arrived at by the Journal, contrasts Treasury Department figures that measure the change in lending by looking at the median amount of new loans made by the same group of banks.
No surprise, government methodology arrives at numbers that make things markedly better.
And while no one data point can truly claim to be the best measure of the entire US lending environment, that government officials chose the method that supports their claim that borrowing is still possible for the most creditworthy Americans, shouldn't be surprising.
Even as the Treasury, Federal Reserve, FDIC and even Congress urge banks to make new loans, loudly assuring the American people the government has their best interests in mind, the borrowing public isn't listening: Americans continue to shun credit.
A spokesperson for JPMorgan Chase (JPM) said the bank aggressively made credit available "despite the fact that loan demand has dropped dramatically." This assessment is consistent with reports from community banks that consumers simply don't want to take on new debt.
About the only corner of the lending market that's booming is mortgages. Artificially low interest rates, falling home prices and aggressive marketing from the National Association of Realtors has led to a spike in new home loan originations.
Yet, as property values continue to spiral downward, banks like Wells Fargo (WFC), who tout their mortgage division as a strong earnings driver, are lending against an asset class that continues to tumble in value.
Increasingly, Americans are reassessing their own personal income statements. And with an economic future that's cloudy at best, taking on more debt isn't sounding like a great idea.
Not convinced? Examine the lengths to which automakers like Ford (F) are going to get buyers to open their wallets: payment insurance against job losses.
These sorts of marketing tricks are not dissimilar to teaser rates and no-money-down loans that were so prevalent during the mortgage boom. And we see how well that turned out.
Until Washington accepts the new reality -- that credit is driven not just by supply, but also demand -- we'll keep reading suspect analysis of data ostensibly supporting crackpot theories that credit markets have thawed, and a return to the go-go years of unsustainable economic growth is just around the corner.
Even the Treasury Department's best attempts at statistical obfuscation can't hide the truth that credit remains off limits for most Americans. Banks -- despite billions in government handouts -- still aren't lending.
A Wall Street Journal study of lending data supplied by the 19 biggest recipients of TARP funds paints a decidedly less-rosy picture than does the Treasury's analysis of the same information.
New lending, as measured by aggregate loans made in February compared to last October -- which was the month then-Treasury Secretary Hank Paulson poured tens of billions of dollars into Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and other big American banks -- is down 23%. This tally, arrived at by the Journal, contrasts Treasury Department figures that measure the change in lending by looking at the median amount of new loans made by the same group of banks.
No surprise, government methodology arrives at numbers that make things markedly better.
And while no one data point can truly claim to be the best measure of the entire US lending environment, that government officials chose the method that supports their claim that borrowing is still possible for the most creditworthy Americans, shouldn't be surprising.
Even as the Treasury, Federal Reserve, FDIC and even Congress urge banks to make new loans, loudly assuring the American people the government has their best interests in mind, the borrowing public isn't listening: Americans continue to shun credit.
A spokesperson for JPMorgan Chase (JPM) said the bank aggressively made credit available "despite the fact that loan demand has dropped dramatically." This assessment is consistent with reports from community banks that consumers simply don't want to take on new debt.
About the only corner of the lending market that's booming is mortgages. Artificially low interest rates, falling home prices and aggressive marketing from the National Association of Realtors has led to a spike in new home loan originations.
Yet, as property values continue to spiral downward, banks like Wells Fargo (WFC), who tout their mortgage division as a strong earnings driver, are lending against an asset class that continues to tumble in value.
Increasingly, Americans are reassessing their own personal income statements. And with an economic future that's cloudy at best, taking on more debt isn't sounding like a great idea.
Not convinced? Examine the lengths to which automakers like Ford (F) are going to get buyers to open their wallets: payment insurance against job losses.
These sorts of marketing tricks are not dissimilar to teaser rates and no-money-down loans that were so prevalent during the mortgage boom. And we see how well that turned out.
Until Washington accepts the new reality -- that credit is driven not just by supply, but also demand -- we'll keep reading suspect analysis of data ostensibly supporting crackpot theories that credit markets have thawed, and a return to the go-go years of unsustainable economic growth is just around the corner.
Tuesday, December 16, 2008
Car Czar, Treasury Could Force Automaker Bankruptcy
This post first appeared on Minyanville.
As 2008, a year most market participants would just as soon forget, draws to a close, the endgame approaches in the fight to save Detroit.
After Senate Republicans blocked a $14 billion rescue package for General Motors (GM) and Chrysler last week, the ball landed squarely in the court of the Bush Administration. Both GM and Chrysler have warned they'll be insolvent by the end of the year without government assistance.
Bloomberg reports the Treasury Department is considering a plan giving the yet-to-be-named “car czar” or the Treasury Secretary power to force GM or Chrysler into bankruptcy if either firm can't survive on its own. Officials said the troubled automakers would be required to submit turnaround plans by March 31st, but would not release further details of the plan.
Moody's Investor Services wrote in a note that a rescue would most likely include a so-called "prepackaged bankruptcy," which would remove certain roadblocks to restructuring the companies.
In a letter urging President Bush to withhold assistance, South Carolina Governor Mark Sanford asserted that using TARP money to rescue the auto industry would open the floodgates to other troubled industries. Sanford, a Republican, said “We are at a tipping point in moving from a market-based economy to a politically-based economy.”
Meanwhile, Ford (F) supports plans to rescue its beleaguered competitors, saying any failure of a major auto maker would have ripple effects throughout the industry.
The White House promised to keep tabs on any taxpayer money it decided to dole out, saying “There will be rigorous oversight to make sure that these companies are doing what they promised to do, and we want to make sure that everyone is making the concessions that they’re going to have to commit to make.”
The Treasury Department, however, doesn’t have a stellar track record on transparency and accountability. Earlier this month, the Government Accountability Office found critical oversight, transparency and regulation problems and recommended the Treasury hire additional personnel to manage TARP. All the Treasury appears to excel at is spending money.
As dire as the situation has become, it's hard to find many that truly believe Washington will allow the automakers to fail. Whether the money comes from TARP, the Federal Reserve or some yet-to-be-announced slush fund, conventional wisdom would be in for a very rude awakening if Detroit is hung out to dry.
As 2008, a year most market participants would just as soon forget, draws to a close, the endgame approaches in the fight to save Detroit.
After Senate Republicans blocked a $14 billion rescue package for General Motors (GM) and Chrysler last week, the ball landed squarely in the court of the Bush Administration. Both GM and Chrysler have warned they'll be insolvent by the end of the year without government assistance.
Bloomberg reports the Treasury Department is considering a plan giving the yet-to-be-named “car czar” or the Treasury Secretary power to force GM or Chrysler into bankruptcy if either firm can't survive on its own. Officials said the troubled automakers would be required to submit turnaround plans by March 31st, but would not release further details of the plan.
Moody's Investor Services wrote in a note that a rescue would most likely include a so-called "prepackaged bankruptcy," which would remove certain roadblocks to restructuring the companies.
In a letter urging President Bush to withhold assistance, South Carolina Governor Mark Sanford asserted that using TARP money to rescue the auto industry would open the floodgates to other troubled industries. Sanford, a Republican, said “We are at a tipping point in moving from a market-based economy to a politically-based economy.”
Meanwhile, Ford (F) supports plans to rescue its beleaguered competitors, saying any failure of a major auto maker would have ripple effects throughout the industry.
The White House promised to keep tabs on any taxpayer money it decided to dole out, saying “There will be rigorous oversight to make sure that these companies are doing what they promised to do, and we want to make sure that everyone is making the concessions that they’re going to have to commit to make.”
The Treasury Department, however, doesn’t have a stellar track record on transparency and accountability. Earlier this month, the Government Accountability Office found critical oversight, transparency and regulation problems and recommended the Treasury hire additional personnel to manage TARP. All the Treasury appears to excel at is spending money.
As dire as the situation has become, it's hard to find many that truly believe Washington will allow the automakers to fail. Whether the money comes from TARP, the Federal Reserve or some yet-to-be-announced slush fund, conventional wisdom would be in for a very rude awakening if Detroit is hung out to dry.
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