Discuss Detroit Archives - Beginning January 2006 Wall Street vs. Detroit vs. Labor Previous Next
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Huggybear
Member
Username: Huggybear

Post Number: 184
Registered: 08-2005
Posted From: 64.148.231.226
Posted on Thursday, March 23, 2006 - 9:05 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

Ok, this one is on topic, since essentially everyone's property value is riding on the outcome of GM and the UAW.

I've seen the arguments pro and con on labor vs. management on the domestic automakers. "Lazy workers" say some. "Stupid management," say others.

But isn't the real problem here the UAW vs. Wall Street?

That is where perception (right or wrong) *is* reality. Wall Street is the source of the low stock prices and bond rates that are exacerbating the company's pension shortfalls and making it difficult to finance new product development. The 23-year old "analysts" who help set stock price targets and give sound bites to the paper are not going to let up on pressuring GM until it either (a) it extorts huge concessions or (b) reorganizes and avoids the union contract.

Option (a) is a tough path, becauase analysts are gunning for the destruction of the UAW. This means that any cut is "a start" but "not enough." It's like the number of missions in Catch-22.

Option (b), the nuclear option, would have devastating effects on the company and on Michigan. Given a clean slate in reorganization, one thing that would be on the table is whether Michigan should be the administrative seat of GM. Don't kid yourself about what the consequence could be. 8,000 GM workers are in the Renaissance Center *alone*, and if GM left, it would also put several MILLON square feet of Class A office space with a river view on the market. The consider EDS, Compuware, and the various other companies whose major focus is automotive. Then the suppliers.

There is no "selling your way" out of this, for two reasons:

(a) Since GM's long-term debts represent about 60 years of Toyota's current annual profits (use that annual figure as a "best case"). Raising the stock price and bond ratings are a much faster way of fixing the problem, and that, I think is going to put the hurt on labor (yes, they would dump top management too, but that's a very small number of people representing not much money).

(b) The low stock price and negativity coming out of New York are impacting customer confidence and sales. All they hear is that GM is "going under" and messages that could be paraphrased as "lazy Americans make domestic cars, and those cars are expensive because they make too much money."

So given that labor is likely going to take the hit,

(1) Why isn't the UAW lobbying Wall Street or making some kind of intelligent national pitch? Bring the impact home. By Toyota's employment metrics on NPR ("150,000" workers, presumably including gas station attendants), GM and Ford employ millions of people in the United States.

(2) Why doesn't Granholm step in and offer to mediate the labor issue? Is she too worried about stepping on the toes of labor? Is she worried about making waves before the election? Michigan has the most to lose in this.
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Track75
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Username: Track75

Post Number: 2260
Registered: 10-2003
Posted From: 12.75.18.72
Posted on Thursday, March 23, 2006 - 11:45 am: Edit PostDelete PostMove Post (Moderator/Admin Only)


quote:

Wall Street is the source of the low stock prices and bond rates that are exacerbating the company's pension shortfalls and making it difficult to finance new product development. The 23-year old "analysts" who help set stock price targets and give sound bites to the paper are not going to let up on pressuring GM until it either (a) it extorts huge concessions or (b) reorganizes and avoids the union contract.


GM's low stock price and sub-junk bond ratings accurately reflect the potential risk and return of investing in GM. There's no "23 year old analyst" cabal that's out to punish GM undeservedly. A GM bankruptcy is a very real possibility. Blaming Wall Street for GM's current woes is like a 350 lb person blaming their bathroom scale.



quote:

Option (a) is a tough path, becauase analysts are gunning for the destruction of the UAW.


"Wall Street" isn't gunning for UAW destruction for ideological reasons. If GM could generate a decent return on investment then Wall Street wouldn't care if Rick Wagoner himself were a UAW member. GM set a goal several years ago to make 5 on every $1.00 of sales. They've never even come close to hitting this not-so-lofty goal. The union situation is a big part of the problem -- that's why there's pressure to get something done on it.



quote:

Given a clean slate in reorganization, one thing that would be on the table is whether Michigan should be the administrative seat of GM.


No chance of a post-bankruptcy GM moving anywhere. Virtually all the (non-production) intellectual capital of the North American auto industry is here in Detroit. Plants can be located just about anywhere but the rest of the organization needs to be in SE MI.



quote:

There is no "selling your way" out of this, for two reasons:

(a) Since GM's long-term debts represent about 60 years of Toyota's current annual profits (use that annual figure as a "best case").


I don't know where you got your numbers to come up with the "60 years" claim. First, the vast majority of GM's long-term debt is held by GMAC and is offset by receivables (car loans, equipment and real estate financing). Second, GM's long-term debt attributable to the automotive operations total around $30B. Third, Toyota's yearly profit is about $11B. That's not a 60:1 ratio, it's less than 3:1. Fourth, GM's problem isn't their long-term debt, it's much more their lack of demand for their products, long-term health care and pension liabilities, their overcapacity, burdensome labor contracts, bad management decisions and mediocre brand images.



quote:

So given that labor is likely going to take the hit,

(1) Why isn't the UAW lobbying Wall Street or making some kind of intelligent national pitch? Bring the impact home. By Toyota's employment metrics on NPR ("150,000" workers, presumably including gas station attendants), GM and Ford employ millions of people in the United States.


The bogey man known as "Wall Street" isn't going to be swayed by a PR campaign that seeks to keep an overstaffed company overstaffed. They will be encouraged by real progress on the cost side, and if the subsequent financial results justify it they'll recognized the added value in the stock price and debt ratings.



quote:

(2) Why doesn't Granholm step in and offer to mediate the labor issue?


Because she has nothing to offer, would only get in the way and would probably do something that would hurt her come election time.
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Royce
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Username: Royce

Post Number: 1546
Registered: 07-2004
Posted From: 68.255.240.236
Posted on Saturday, March 25, 2006 - 3:42 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

I have a lot of complaints with GM. One of them is that their products, in terms of appeal, are poor. They don't make very appealing cars in my opinion. The one GM car that I can see myself purchasing is the Saturn Aura. Yet for two years now I have seen it as a concept car at the auto show.

I thought that if you showed a concept car one year that the next year it would either go into production or it go into concept car heaven along with other concept cars that have come and gone. Never seen any other concept car displayed two years in a row at the auto show. What gives?

Also, another complaint with GM is this: where is the push by GM to make a car that competes with the Toyota Camry and Honda Accord? Every GM commericial I see during a sporting event advertises a truck or SUV. I know GM is trying to reach the testosterone-filled male, buy why keep advertising trucks and SUVs when continued increases in gas prices have slowed demand for these gas-guzzlers? How many people can afford to buy a $45,000 Escalade which gets very poor gas mileage? I can't.

Now, the Malibu, which is surely a car that competes with the Camry and Accord, was a beautiful car prior to this latest model. The car's current design is awful. It's boxy and uninspiring. On the other hand, the new design of the Impala, another car that surely competes with the Camry and Accord, shows slight improvement over the previous generation. However, why is the back elevated so high?

Yet, another complaint deals with the Solstice. Everybody's raving about the Solstice, but it's a two seater. How many average Americans are going to purchase this car for everyday use? It's not practical or versatile. It's a fun car that you drive on the weekend when the temperature is high. How many days in Michigan are you going to have a chance to enjoy this car?

The Cadillac CTS, STS, and DTS are appealing cars, but they are still luxury cars that most average Americans can't afford. If GM keeps focusing on luxury brands and gas guzzlers they will continue to loose more and more market share, lose money, and have to lay off more workers.

In conclusion I just want to say that I simply don't understand why they can't see that they are shooting their own selves in the foot with the decisions that they are making. Is there someone on this forum that can explain to me what's GM's strategy for making cars and staying in business? I am truly baffled.
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Huggybear
Member
Username: Huggybear

Post Number: 187
Registered: 08-2005
Posted From: 64.148.231.89
Posted on Saturday, March 25, 2006 - 9:42 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

Track75, sorry I didn't get to address this earlier.

S&P puts GM's consolidated debt at $285 million as of the end of 3Q last year. I take that to mean pensions. And you are right, I transposed Toyota's 4Q profit with its yearly ($11bn). But even then, it's a 25:1 or greater ratio. So I had the wrong denominator - but the point remains.

I don't disagree that the two killer costs are labor, pension and health care and that they should be cut. I also don't dispute that those are why Wall Street cut two-thirds of GM's value in the last five years. But the new "norm" appears to be using Chapter 11 reorganization to hack away at things. Although that might be valid for airlines, it would be a very destructive tool in the auto industry. I can definitely see GM getting pushed into it if it fails to get huge concessions out of UAW in 2007 - but it's hard to see GM voluntarily doing it.

I just think it's amazing that the UAW keeps talking about "making cars people want" when that won't solve the underlying problem, and the capital markets want the UAW's head on a pike.
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Track75
Member
Username: Track75

Post Number: 2265
Registered: 10-2003
Posted From: 209.104.139.219
Posted on Saturday, March 25, 2006 - 1:39 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

Huggybear, the $285B in LT debt isn't pensions, it's primarily GMAC debt. GMAC goes to the financial markets to borrow money to fund car loans, mortgages and commercial financing. When you go and buy your 2006 Corvette via a GMAC loan, GMAC pays GM the $55,000 price and you pay GMAC $1000 every month. The total amount you owe shows up as a receivable and the amount GMAC borrowed from the financial markets and paid to GM for your Corvette shows up as LT debt. It's a similar situation if you lease.

So for every dollar of GMAC debt, GMAC has a customer out there somewhere that's paying a car note, lease or mortgage. GMAC's LT debt isn't comparable to the LT debt held by GM to fund automotive operations.

If you look at GM's most recent 10-Q they list their liabilities broken out in two segments, Automotive Operations and Financing Operations. As I stated earlier, GM's Automotive ops only has $30B of LT debt. Look for the statement titled "Supplemental Information to the Condensed Consolidated Balance Sheets". It's around page 11 on the 2005 Q3 10-Q which you can get at http://www.gm.com/company/inve stor_information/earnings/hist _earnings/pdf/Q305_10q.pdf
The rest is GMAC debt.

BTW, pensions and other retiree liabilities are not included in LT debt, there's a separate line item for pensions (and most of the health care burden is off-balance sheet).

GM's financial situation isn't very good, but it's misleading to treat the GMAC debt like industrial debt. You have to analyze GMAC debt like you'd analyze a bank.

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