Search results matching tag 'GM'

Say nyet to the pay czar

Minyanville — Tue, 06 Oct 2009 15:51:00 GMT

This article is written by Minyanville's Jeff Macke

We should have known this would end horribly. The first "red" flag was the administration inventing a job called Pay Czar.

There's a reason the communists whacked the last legitimate Czar and got away with it. The Red Army's horrifying power and sadism helped, but the real reason was the public figuring that Romanov's idiocy made it likely anyone else would be better.

Nicholas Romanov sent Russian troops to the front in World War I unarmed with instructions to use the guns of the dead Russian troops ahead of them. Pay Czar
Kenneth Feinberg is apparently set on fixing the markets by forcing banks to take half their pay in stock options.

You may remember stock options from the bubble days when everyone at Yahoo (YHOO) from the chief to the company chefs became zillionaires and retired in their 20s. That was about $300 in Yahoo share price ago.

So, in an allegedly coordinated effort, the administration has openly rigged the stock market, bought General Motors (MTLQQ), used taxpayer dollars to fund Cash for Clunkers (a program which curiously labeled cars like my Hummer and other toxic fog machine SUVs as "efficient"), and is now mandating stock options instead of cash for highly paid executives at firms that willingly or unwillingly took the low interest loans -- which were largely responsible for killing anything resembling a free market in the US.

Professional short sellers have, in effect, been sent to the front unarmed.

Perhaps most appalling is that the stock option lunacy of the Internet bubble fixed itself. That's how free markets are supposed to work -- when appalling policies are standard, artificial value is created.

The inevitable crash of the phony values forces companies to self-correct. In the case of options, the public revolted, new hires weren't willing to accept scrip pay when previous hires were 80% underwater on their options and the boards were forced to make the companies grow up.

Any first-year business school student could explain the lunacy of stock options instead of cash. They dilute shareholders and lead to absurd excesses and unintended consequences like the first receptionist hired being worth $50 million.

The business world regards options as a dangerous experiment gone horribly wrong. The non-business world charged with creating Czars of all sorts (apparently "Militant Dictator" was trademarked) regards mandating an insane dilution level of option pay as a panacea for a market collapse which already happened.

If I had taxation with representation, I'd use it to pay for business people, or at least economists, placed in the role of aiding stock markets. Czar Feinberg was probably an excellent lawyer, but law is an entirely different field than business.

"Smart" isn't fungible, which is why you wouldn't let a brilliant waiter perform your brain surgery.

The administration hired a lawyer who doesn't remember business history less than a decade old, labeled him a Czar, and gave him free rein over pay levels in businesses for which he has never worked.

Spoiler Alert: This policy will end horribly unless it's somehow shoved in the crib by the lawyers we elect as senators, congressmen, and president.

How do I know? Because I actually worked in business and traded my way through the last options bubble.

No positions in stocks mentioned.

Five ways to take smart risks in uncertain markets

Why earnings look opaque beyond the third quarter

What happens after "the easy" trade?

Chrysler may not make another year

Douglas McIntyre — Fri, 02 Oct 2009 14:31:00 GMT

Rumors, credible rumors, are beginning to circulate in the car industry and the automotive press, that Chrysler may not make it another year primarily due to its falling sales and growing financial losses at partner Fiat.

Chrysler sold a 62,197 cars in September, down 42% from the same month last year. The figure was down from 93,222 in August when traffic to dealers was pushed up by the ”cash for clunkers” program.

Chrysler’s problems may only be beginning and, if so, Fiat, the ”managing partner” among Chrysler’s owners may not be able to keep the American company intact.

Chrysler has operated at a disadvantage to the Japanese for some time. That has been true of all three U.S. car companies. Now that each has restructured, each has more leverage against a lower costs base. That should allow General Motors, Ford (F), and Chrysler to make an operating profit even with domestic light vehicles sales running at a rate of only 10 million a year. But, Chrysler still has disadvatages which start with the age of its fleet and extend to the problem that it no longer has enough market share to cover even a lower cost base.

GM has the capital and the daring to offer its cars for a 60-day test drive. There is some financial risk to the action, but GM has enough new models coming to market that the odds of people turning in cars is relatively small.

GM had a hard September with sales down 45% to 156,673, but the new promotion ought to improve its share in October and November. Ford has demonstrated the ongoing strength of its new model line. In September, Ford’s sales only dropped 5% to 114,655. That means that Ford is picking up market share rapidly and some of that is probably coming at Chrysler’s expense.

The Congressional Oversight Panel has already said taxpayers will not see most of the $81 billion that they put into the American car industry. The $14.3 billion put into Chrysler is more and more likely to be lost completely. The biggest single loser if Chrysler cannot survive is the UAW which owns 55% of the company.

The daily management of Chrysler is controlled by Fiat which owns 20% of the U.S. company with options which could take that amount to 35%. Fiat has not put any money into Chrysler, so if the American firm becomes a significant operational or management burden there are very few reason for the Italian company, which has sales troubles of its own in Europe, to stay long term. Fiat lost $254 million in the second quarter, so its board may eventually believe that Chrysler is a distraction and one without a future.

Chrysler is not just up against the traditional competition of its two domestic rivals and Toyota (TM), Honda (HMC), and Nissan. South Korean upstart Hyundai is posting sales improvements even as the car market remains weak and in September it posted a sales increase of 27% to 31,511, about half of Chrysler’s sales for the month. Hyundai’s strength is in small fuel-efficient cars, the market where Chrysler needs to find success with its products and those from Fiat.

At this point, the Chrysler product line is still dominated by mid-sized sedans, SUVs from Jeep, minivans, and pick-ups like the Dodge Ram. The company has no real product in the alterative energy/hybrid segment. Chrysler’s domestic market share in September 2008 was 11.1%, according to Edmunds. Based on sales figures released by the industry today, that share is now closer to 7.5%

Even Chrysler’s traditional rivals are doing well despite a harsh market. Nissan sold 55,393 light vehicles last month, down only 7% from a year ago. Toyota sold 126,015, down12.7% and now has sales which are about double Chrysler’s. Honda’s sales for the month were 77,229 cars and light trucks. The number was down 20%, but it means Honda was still very likely to have picked up share in the American market.

Chrysler sales are now running at the rate of 750,000 a year. It probably does not have the capital to wait through another year of low US car sales with a market share that is almost certainly to stay below 8%. It does not have models tailored to the current market tastes. Chrysler is going out of business. The company just hasn’t made it official.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

Related articles:

500 largest companies

IBM goes after Google

Unemployment worse than it seems

GM ends eBay sales test

Kim Peterson — Wed, 30 Sep 2009 19:27:00 GMT

General Motors turned to eBay (EBAY) last month in a desperate attempt to sell more cars, hoping for a new sales channel as it shuts down dealerships across the country.

It didn't work. After just seven weeks, GM has decided to end the online program. Dealers say it didn't help them sell more vehicles -- in fact, buyers started lowballing them for better deals, The Wall Street Journal reports.

"We thought the program was successful but that this was not the right time," GM's sales chief told the Journal. GM said it would try again with eBay next year. If GM does revive the effort, it will have learned plenty of lessons.

The program allowed people to submit an offer for a car online, and wait for a dealer to respond. But dealers reported that people were sending in ridiculously low bids, and it became a waste of time to try and sort through silly offers that would probably never amount to anything.

One person offered $2,500 for a $40,000 car, the Journal reported.

Which is not to say that there isn't a future for buying cars online. Many buyers have found success shopping for cars on eBay and other sites. But in this economy, and with GM's well-publicized bankruptcy, the conditions were not right for a GM-eBay alliance.

Related reading:

GM tests eBay sales

GM's expensive mess

General Motors selling golf course, parking lots, factories

GM tries to pitch Camaro to gay men

Can GM stay No. 1?

Zombie stocks make a killing

Kim Peterson — Thu, 24 Sep 2009 19:13:00 GMT

Traders are hot on zombie stocks these days, trying to make a buck from companies everyone else has written off as dead.

Washington Mutual went bankrupt, but its stock is suddenly smoking -- gaining 64% Monday, the Los Angeles Times reports. No one really thinks the company is going to magically return to life soon, but investors are hoping even a tiny uptick in the share price will bring profits.

Remember Lehman Brothers? Shares of the bankrupt bank have quintupled in the last four weeks, the Times reports. And General Motors -- or, should I say, Motors Liquidation Co. (MTLQQ) -- has seen shares more than double.

It's a dangerous game, playing around in these stocks that common sense would tell you to stay away from. So who's dabbling in the dead?

Bing: The risks of investing in bankrupt companies

Experts tell the Times that aggressive day traders are likely to blame. They're snapping up enormous volumes of the shares, looking for something as small as a 1-cent increase on a 1 million share block.

The economy has devastated some of the market's best-known names, creating a new breed of what the Times describes as "blue-penny stocks" (a blue-chip that has become a penny stock).

"You look at this using conventional valuation metrics and it makes no sense," one equity risk manager told the Times. "There's suddenly a huge potential for profit in these essentially worthless companies."

Related reading:

4 zombie stocks better off dead

The new hot stock? AIG

Secrets behind Lehman's collapse

Stampeding into bonds

A 'clunkers' sales flurry

Kim Peterson — Tue, 01 Sep 2009 16:49:00 GMT

Don't be fooled by the headlines. Yes, the cash-for-clunkers program helped Ford (F) boost sales a remarkable 17% in August from a year ago. It was the first time since 2006 that sales went up for two months straight, The New York Times reports.

For a brief few weeks, the auto industry sprang back to life. People flooded into dealerships, buying cars into the wee hours of the morning and taking advantage of rebates of as much as $4,500.

Bing: More on cash-for-clunkers

But as soon as cash-for-clunkers ended, dealerships turned back into ghost towns. “Dealers are saying as soon as the program ended everything stopped dead,” industry consultant John Casesa told Bloomberg.

Don't expect next month's sales to be as cheery. And in fact, analysts were somewhat disappointed by Ford's August total. They had expected sales to be higher, somewhere in the range of a 33% to 39% increase.

So either the analysts were too optimistic, or cash-for-clunkers wasn't as successful at boosting sales as some had thought. Nearly 700,000 buyers took about $2.88 billion in rebates, MarketWatch reported.

The biggest sellers in the program were foreign cars: the Toyota Corolla and the Honda Civic. American cars were at the top of the trade-in list, and included the Ford Explorer SUV and the F150 pickup (pictured).

Ford was the first of the Big Three to report August sales. Chrysler is expected to disclose a 15% drop in sales in August, the Associated Press reports. Analysts expect that General Motors' (MTLQQ) sales fell 16%.

Toyota and Honda were expected to see the first sales increases this year, with sales up an estimated 8.9% and 3.2%, respectively.

At the time of this writing, Kim Peterson did not own shares of any companies mentioned.

Related reading:

A 'cash for clunkers' frenzy

'Cash for clunkers' off to a hot start

Could your clunker bring you $4,500?

Cash in on the ‘clunker' bill

Keep your old clunker or buy a new car?

GM tests eBay sales

Kim Peterson — Tue, 11 Aug 2009 17:15:00 GMT

Things are so bad for General Motors that the automaker is now selling cars on eBay (EBAY).

Actually, it's not the worst idea. People can buy GM cars and trucks from some 225 California dealers at this eBay site starting Tuesday, according to Bloomberg.

It's a desperate attempt by GM to find more sales channels as it cuts the number of its dealerships by 42%. GM is selling new Chevrolet, Pontiac, Buick and GMC cars, and buyers can accept the "buy it now" price or make a lower offer, which starts an online negotiation. After a car is sold, a California dealer will contact the buyer to arrange financing and delivery.

Bing: More about General Motors

The move could be aimed at bolstering GM sales in California, where its market share is only about 13.5% (the national average is 19%). GM says it chose California because the state has been so damaged by the recession, Bloomberg reports.

EBay will get a fee from each sale, though the company wouldn't say how much. The auction site generally gets $125 for used-car transactions.

So what are cars going for on the site? I did a quick search Tuesday and found these offers:

A 2009 GMC Yukon hybrid SUV: Buy-it-now price of $52,108

A 2009 Buick Lucerne CXL (pictured): Buy-it-now price of $33,297

A 2009 Chevrolet Corvette: Buy-it-now price of $49,514

A 2009 Pontiac G5: Buy-it-now price of $14,915

At the time of this writing, Kim Peterson owned shares of eBay in personal or client portfolios.

Related reading:

GM's expensive mess

General Motors selling golf course, parking lots, factories

GM tries to pitch Camaro to gay men

Ex-GM chief takes cuts

Can GM stay No. 1?

GM's expensive mess

Kim Peterson — Mon, 10 Aug 2009 18:23:00 GMT

General Motors (MTLQQ) is on its way to becoming a new, squeaky-clean General Motors, leaving all its garbage behind.

It gets to say goodbye to unwanted factories and liabilities. And it gets to coast away from hundreds of acres of land, some of which are so polluted that they threaten human health.

The old GM gets about $1.2 billion to wind down its operations, The Detroit Free Press reports. Most of that money will go to lawyers and other fees. But the environmental cleanup alone of GM's toxic sites will cost about $530 million.

Bing: More on General Motors

Now, city and state officials across the country are looking at GM's abandoned properties, and wondering where the money will come from to clean them up. Tax revenue is the most obvious answer.

Probably the biggest environmental headache is a 270-acre property along the St. Lawrence River in New York where GM dumped toxic sludge for years. That site is a significant threat to human health, the state says, and could cost as much as $225 million to clean up.

GM is leaving about 16 factories and 100 other sites behind. It will be able to sell some of those, but no one's going to buy a polluted property that costs hundreds of millions of dollars to scrub clean.

"It's very, very difficult to get another company to come in and take over a property where there is a legacy contamination problem that has remained unaddressed," a spokesman for a Michigan environmental department told the Free Press. "That would ultimately shift the likely cleanup to the state, but our cleanup program is more or less out of money at this point."

So what to do? Local governments can't sue GM for the money -- a judge said the new GM is exempt from any liability. The only other place to turn to is the federal government and the Environmental Protection Agency.

That means taxpayers are going to give GM yet another bailout, and this one could go on for decades.

At the time of this writing, Kim Peterson did not own shares of any stocks mentioned in personal or client portfolios.

GM tries to pitch Camaro to gay men

Ex-GM chief takes cuts

Can GM stay No. 1?

Relocate GM to China

Douglas McIntyre — Fri, 07 Aug 2009 10:54:00 GMT

GM says it will sell 1.4 million cars in China this year. It sold about 180,000 in the US in July. The critical difference between its costs in the two markets is that many of GM’s Chinese vehicles are made in facilities owned by joint ventures with local car companies. Others are produced in manufacturing facilities with low labor costs. And, GM’s sales are growing in China and dropping in the US.

GM’s expenses in it home market may be falling because it has gone through Chapter 11. Unfortunately, the firm’s sales in its home market were down about 20% last month, so its restructuring cost improvements may end up doing little good.

Bing: General Motors

The No.1 US auto company might be better off setting up joint ventures with other large car companies with factories in America to produce its vehicles. Ford (F), Toyota (TM), and Chrysler already have substantial manufacturing capacity some of which is underutilized.

It becomes more clear as each quarter passes that GM’s future is in Asia and Latin America. The old world car markets of Europe and the US have not only shrunk considerably during the recession; they may not be coming back.

Americans have learned that one of the best tools to help them live more frugally is to keep their cars an extra year or two. Repairs and maintenance are less expensive than a $30,000 purchase. Banks will not give them car loans in many cases. Money is too tight and financial firms are running so frightened that they are close to shutting down lending to even credit worthy borrowers.

GM’s US operations may never recover to the sales levels that they enjoyed just a few years ago. That means more cost cuts are in the wings. There are still too many auto plants in America. GM can take advantage of that. It just needs to find a suitable partner.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

Related articles:

Google's $100 billion brand

Fannie's $15 billion loss

B of A punishment

Can GM stay No.1?

Douglas McIntyre — Wed, 05 Aug 2009 11:01:00 GMT

General Motors' new chairman, Edward E. Whitacre Jr., says one of his major goals is to make certain that the No. 1 U.S. car company stays No.1. GM will find it very hard to measure up.

In an exclusive interview with The Wall Street Journal, Whitacre said being No. 1 is “the position we should strive for… (as) an American company that employs hundreds of thousands of people…We just want to be No. 1.”

If wishes were horses, all the beggars would ride. GM is losing ground to the competition at an alarming rate. In July it sold 187,582 vehicles, down 20% from the same period a year ago. Toyota (TM) sold 174,872, down 11% and Ford (F) sold 158,354, up 2%. The spread between the top three manufacturers has become remarkably small.

GM has several hurdles to clear to keep its top spot. The first is that it will almost certainly lose share as it phases out or sells its Pontiac, Saturn, and Hummer brands. The number of nameplates that the company will offer falls well below Toyota.

GM has also lost ground in product development due to the company’s tremendous restructuring, layoffs, and bankruptcy. Ford now has the youngest fleet among the American car firms and it means to press that advantage by launching even more new vehicles over the next year.

It is entirely possible that GM could fall into the No. 3 spot in domestic cars sales as early as 2010, and Whitacre will end up looking foolish.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

Related stories:

Sony goes after Amazon

Buffett loses his chief pilot

Blackberry goes down market

The miracle at Ford continues

Douglas McIntyre — Mon, 03 Aug 2009 10:57:00 GMT

Ford (F) made two audacious decisions recently, decisions made in an industry where audacity died when Lee Iaccoca left the business. William Clay Ford, Jr., the company’s CEO since 2001, went outside the industry and brought in Boeing (BA) executive Alan Mulally to replace him in September 2006. Mulally may have been a good executive but he was not a “car man”, the kind of manager who had been running The Big Three for years.

Mulally, in turn, bet the company in order to take advantage of the opportunity to fill its treasury later in 2006 just before the auto market was swamped by one of the largest downturns in history. Ford got $23 billion in convertible notes and a revolving credit line for pledging an extraordinary amount of the firm’s assets.

All three of the major credit agencies cut their views of Ford once the capital infusion was announced. The majority of auto analysts believed that Ford had given too much for too little.

The decision by Mulally about the funding may not have taken Ford out of the woods, but they certainly kept the company from floundering to the point where it had to turn to the government for aid as GM and Chrysler did. Ford used the restructuring of the industry earlier this year, which had been given federal government blessing, to improve its own positions with the UAW and creditors. Ford substantially improved its place at the domestic car company table without becoming a ward of the state.

Ford’s latest bit of magic comes in the form of its announcement that its July sales were higher than they were a year ago. The Wall Street Journal reports that Ford's July increase was "the first year-over-year jump for the auto maker in almost two years.”

Ford gives part of the credit for the improvement to the “cash for clunkers” program that brought large numbers of buyers into U.S. dealerships. The federal program was so popular that the $1 billion fund was exhausted in a matter of days. The House has passed a bill to replenish the pool with an additional $2 billion, but if it is not signed into law, the August results for the domestic car market may flag a bit.

Ford gets more credit for the revival than the government’s program does, a great deal more. Ford now has the youngest line-up of vehicles among the American car companies, a testament to its decision to continue product development through the downturn and to prune the number of brands it offers.

Ford demonstrated that its decisions were working better than expected when it announced its second quarter earnings last month. The firm reported a profit of $2.3 billion, due primarily to extraordinary financial events, but the progress the company has been making was crystal clear.

The most important recent news about Ford is that it is gaining domestic market share. It is doing so during a period when the fortunes of General Motors (MTLQQ) and Chrysler are likely to be poor, giving the competitors of the two companies the chance to do well based on their misfortunes. Most analysts expected the large Japanese cars to benefit from the problems in Detroit. It appears that Ford is doing as well if not better than the Japanese at picking up new customers among the few intrepid consumers who are willing to come back into the car markets.

The improvements at Ford, which not so many quarters ago was at death’s door, has been fast and furious, and the benefit to its shareholders is probably not over yet.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

Image credit: Eduardo Sortica, Creative Commons attribution share alike 3.0 license

Related articles:

Oil up again

The great electric car

Citi's $100 million man