Discuss Detroit Archives - Beginning January 2006 General Malaise Previous Next
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Mrjoshua
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Username: Mrjoshua

Post Number: 765
Registered: 03-2005
Posted From: 69.209.142.16
Posted on Monday, March 27, 2006 - 10:46 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

General Malaise

By PAUL INGRASSIA
March 27, 2006; Page A16
The Wall Street Journal, op-ed

More than a whiff of Greek tragedy hovers over General Motors these days. The company's quarter century of retreat, occasionally relieved by brief periods of prosperity, is entering a dramatic and perhaps climactic new phase. But there's also a new hint of hope that the company somehow will survive in smaller form, soldiering on like Byzantium after the fall of Rome.

On March 16 and 17 the company announced a series of accounting stunners: that 2005's losses actually totaled $10.6 billion instead of the mere $8.6 billion it first reported; that it uncovered other accounting errors that will delay the filing of its annual report; and that GM will restate its earnings for 2000 through 2004.

The accounting miscues thus span Rick Wagoner's entire tenure as CEO, and they aren't the half of it. GM now stands subject to six SEC probes (although two of them include several companies besides GM), and a seventh seems likely due to the annual-report delay. Under Mr. Wagoner, age 52, GM has written off billions of dollars from disastrous foreign alliances, seen fully one-sixth of its U.S. market share melt away and watched its bond ratings sink below banana-republic levels.


Rick Wagoner: End of the road.

Which means the clock is ticking on the young CEO, as surely it should be. Look for the board to oust him this summer, at the latest, and thus complete a sadly ironic cycle. Mr. Wagoner first came to prominence in an earlier boardroom revolt -- the company's epic upheaval of 1992. In the fallout from the forced resignation of then-CEO Robert Stempel, Mr. Wagoner was vaulted ahead of several others to become GM's chief financial officer at just 39 years old.

And just as Mr. Stempel was off in Asia when his board started to stir against him, so Mr. Wagoner was visiting Korea and China in mid-March when GM's board called a special meeting to demand a probe into the newly found accounting errors. Perhaps it was best that Mr. Wagoner was thousands of miles and many time zones away. The special meeting can't have been pleasant.

It's all a far cry from the sunny scene in Brescia, Italy, in the summer of 2000. Shortly after he became CEO, Mr. Wagoner summoned reporters and analysts to an elegant, showy seminar there, portraying GM as a newly nimble car company that would achieve a 5% profit margin. Had GM actually achieved that, it would have earned $10 billion last year instead of losing $10 billion. That's a $20 billion difference -- rather stretching the term "margin of error."

Even a year ago Mr. Wagoner saw nary a cloud. In January 2005, he forecast that GM would earn $4 to $5 a share last year, and he publicly pooh-poohed analysts who suggested otherwise. In March, he trimmed the earnings forecast to $1 to $2 a share. A month later the company trashed those forecasts too. After that it took still more months for Mr. Wagoner to enter crisis mode.

So here we are. Last week the company moved to sell part of its GMAC financing unit. And the board held a special meeting yesterday afternoon to discuss the next steps in selling parts of GMAC, long one of the auto maker's crown jewels.

Also last week the company offered early-retirement incentives -- ranging from $35,000 to $140,000 -- to all of its U.S. hourly workers and most of those at Delphi Corp., its former parts unit that is now independent and in bankruptcy, a state GM itself is desperate to avoid. Now Wall Street is watching for the "take rate," the new term for the percentage of eligible workers -- 131,000 in all -- who will accept the buyout instead of clinging to their jobs on the bet that those jobs still will exist. It's a cruel, but necessary, choice. Ironically, it was foisted on GM's workers partly by their union's very success in winning the gold-plated benefits and job-security guarantees that are one -- but hardly the only -- reason for the company's current travails.

In a separate move, Delphi has set this Friday as the deadline for agreeing with the United Auto Workers union on wage and benefit cuts. Without an agreement, Delphi says, it will ask a bankruptcy court judge to throw out its labor contracts. That, in turn, could prompt Delphi workers to strike and deprive GM factories of key car components -- and probably push GM into bankruptcy along with its corporate offspring. On top of all this, the Detroit newspapers report that tomorrow GM will ax hundreds of white-collar employees. Sadly, the company that is creating lots of work for journalists and SEC staffers can't keep its own people on the job.

So why is there a hint of hope? Well, precisely because of all these painful steps and, more importantly, the reason behind them: a newly alarmed and energized board. The catalyst is Jerome B. York, former chief financial officer of both Chrysler and IBM, and agent of investor Kirk Kerkorian, who holds nearly 10% of GM's shares. "Jerry," as he is known, joined the GM board on Feb. 6.

The GM board has other strong members, such as former Clinton White House official Erskine Bowles and John Bryan, retired CEO of Sara Lee. But they and the others all are part-timers who really don't know the auto industry, or the key questions to ask about management's explanation of events.

Mr. York, in contrast, spent most of his career in the car business. And as our Monica Langley reported last week, he is clambering all over GM these days, poring over engines, machinery and financial reports with equal intensity. For Mr. York, unlike any of the other 11 GM directors except Mr. Wagoner, GM is a full time job. Which is only fitting, since Mr. York is charged with protecting Mr. Kerkorian's $1.7 billion investment. Mr. Bowles, for one, says he's "thrilled" Mr. York is around.

So is, one suspects, Robert Lutz, GM's vice chairman and product-development guru. The two men were colleagues at Chrysler, where Mr. Lutz developed the Chrysler Concord, the Jeep Grand Cherokee and other vehicles that made Chrysler a hot company in the years before its purchase by Daimler Benz.

But Mr. Lutz has been surprisingly ineffective at GM, as if mired down like a raisin stuck in oatmeal. Developing distinct vehicles for eight different brands, far too many for a company with less than 25% of the market, is a task that exceeds even Mr. Lutz's talents. GM has neglected trimming its brand lineup for far too long, and it will take a new CEO to tackle that task. Mr. Lutz, at age 74, is too old for the job, and Mr. York, himself 67, doesn't want it. There are a couple of outstanding car-company CEO's in Europe: Dieter Zetsche at DaimlerChrysler and Carlos Ghosn, who heads the Nissan-Renault alliance as CEO of both companies. Mr. Zetsche brilliantly revived Chrysler recently, and Mr. Ghosn engineered the spectacular turnaround of Nissan a few years back.

Turning around GM would make either man an icon in business history, and likely would yield them riches far beyond their current salaries. But the betting here is that neither will take the bait. So let me float the names of two former GM executives who have succeeded admirably after leaving the company some years back.

One is Harry J. Pearce, former vice chairman of GM and, since last summer, non-executive chairman of Nortel, where he is overseeing the cleanup of problems at the once-high-flying Canadian telecommunications company. Mr. Pearce, age 63, actually had been slated to become chairman of GM before being struck with leukemia in the late 1990s. But he has beaten the odds and regained his health.

Second is Lewis B. Campbell, 59, chairman and CEO of Textron, a conglomerate whose earnings have surged and whose stock price has tripled in the last three years -- a performance that Messrs. Kerkorian and York, not to mention other GM shareholders, could love. He was a GM vice president before leaving, after more than 20 years at the company, in 1992.

Full disclosure here: Both Messrs. Pearce and Campbell are friends of mine, and Mr. Campbell is a director of Dow Jones, which publishes this newspaper. But both offer auto-industry experience and successful track records. Besides, how many high-powered CEOs can claim with pride, as Mr. Campbell can, that they are honorary members of the UAW?

Mr. Ingrassia, a former Detroit correspondent for this newspaper, is president of Dow Jones Newswires.
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River_rat
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Username: River_rat

Post Number: 72
Registered: 02-2006
Posted From: 68.166.44.44
Posted on Monday, March 27, 2006 - 11:09 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

Nice post, Mrjoshhua,

The (economic) future of Detroit, Michigan and GM may be decided this Thursday. This is decision day relative to the Delphi - UAW contract. Talks are ongoing today. Let us all hope that there is a resolution of the conflict that does not result in a work stoppage (aka - strike). Any such job action will drive a stake into the heart of an already very injured corporation.

The concern is that the employee wage and benefit cuts need to be so deep, the UAW leaders and members can not accept them. This will result in
a likely suicidal strike that will also lead to a reactive response from GM. Very difficult and scary week for the city and state economy.


the river rat the economist
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Danny
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Username: Danny

Post Number: 3866
Registered: 02-2004
Posted From: 141.217.174.227
Posted on Monday, March 27, 2006 - 11:19 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

William Durant, who thou art in Abraham's bosom, take a look at thy dream. See what thy corporation had done to thy companies profits. Thou are so sad to thy businessmen that had triggereth ye collapse of thy American dream.
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Livernoisyard
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Username: Livernoisyard

Post Number: 349
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Monday, March 27, 2006 - 11:32 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

At some point (probably already at present), prospective buyers should be considering if GM and Ford will be going concerns that will be around to back up their warranties. Only 26% from a poll this winter stated that they would purchase a vehicle from a company operating under bankruptcy protection. Once that consumer mindset takes hold, one or both firms will be toast, no matter what they do to counteract it.

Just last spring, both Ford and GM were poo-pooing the reports that their massive bonded debt would ever be rated as junque status. Now their bonds are so many levels down the junk ladder that they may never ever be considered investment grade again.
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Crew
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Username: Crew

Post Number: 893
Registered: 02-2004
Posted From: 146.9.52.113
Posted on Monday, March 27, 2006 - 12:23 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

Livernoisyard, You can't use the term "poo-ppoing" and expect to be taken seriously.
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Hornwrecker
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Username: Hornwrecker

Post Number: 983
Registered: 04-2005
Posted From: 63.41.8.66
Posted on Monday, March 27, 2006 - 1:06 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

From what I've heard from a Tech Center employee is that all vacations are canceled, and everyone must report in Tuesday morning, bringing in any company car and/or laptop computer.
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Valkyrias
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Username: Valkyrias

Post Number: 224
Registered: 02-2005
Posted From: 69.47.103.87
Posted on Monday, March 27, 2006 - 11:11 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

i heard that as well, hornwrecker, in addition to hightened security and everyone's phones being tapped and emails being read.
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Livernoisyard
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Username: Livernoisyard

Post Number: 360
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Tuesday, March 28, 2006 - 12:40 am: Edit PostDelete PostMove Post (Moderator/Admin Only)

A worker's email account that suddenly goes kaput at midnight Monday might be a bad sign...
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Livernoisyard
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Username: Livernoisyard

Post Number: 362
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Tuesday, March 28, 2006 - 9:39 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

It appears as if the Detroit News used a more vanilla version of these AP accounts:

GM says it will restate results from 2000 to 2004: Detroit News

GMAC May Be Unable to Sell Majority Stake: Forbes

Associated Press [Forbes]
GMAC May Be Unable to Sell Majority Stake
03.28.2006, 06:16 PM

General Motors Acceptance Corp. said Tuesday it may be unable to sell a majority stake of its operations, in a regulatory filing that again highlighted the myriad financial woes at the world's largest automaker.

GMAC, the giant finance arm of General Motors Corp., said in its annual report that "we are uncertain at this time if any transaction" will occur for GMAC or any of its subsidiaries, including residential mortgage arm Residential Capital Corp.

GMAC management had hoped a new parent for the company would bring investment-grade credit ratings to the finance business, which was slashed to junk status last year alongside its sliding automotive parent. It was those sub-par ratings that caused GM to consider the sale, which GM Chief Executive Rick Wagoner announced in October.

Also Tuesday, GM said it will restate financial results for GMAC from 2003 through the third quarter of 2005.

The restatement relates to the improper classification and presentation of cash flows for certain mortgage loans.

The company said the restatement won't impact previously reported total cash and cash equivalents and it will have no effect on GMAC's income. In an annual report for GMAC, the company warned that further credit downgrades "jeopardize our ability to continue operations."

GMAC noted in its filing that if the stake sale doesn't go through, GMAC faces numerous risks to its business.

Credit ratings agencies have said repeatedly that they will probably knock GMAC's ratings closer to those of its auto maker parent if the finance company isn't divested, and GM is burdened with middling junk ratings. Those lower ratings would dramatically raise the cost of funding for GMAC, as well as severely impede its access to capital.

If no sale occurs, GMAC said, "our access to capital may be seriously constrained, as most unsecured funding sources may decline, including bank funding."

The cost of secured funding may also ramp up if no sale goes through, the filing added, leading to a reduction in liquidity for certain asset classes.

A higher cost of funding would lead to a lower return on capital and "significantly lower earnings and dividends," the filing said. "We may need to consider divesting of certain businesses in order to maintain adequate liquidity," the filing continued.

GMAC paid $2.5 billion in dividends to parent GM last year.

GM shares fell 1.5 percent, or 35 cents, in late-session trading after closing at $22.75 earlier on the New York Stock Exchange.
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Livernoisyard
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Username: Livernoisyard

Post Number: 366
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Wednesday, March 29, 2006 - 3:20 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

And the hits keep comin'...

Standard & Poor's Reviewing GM Debt Rating

Associated Press
Standard & Poor's Reviewing GM Debt Rating
03.29.2006, 12:56 PM

Standard & Poor's Ratings Services said Wednesday that it was reviewing whether to lower General Motors Corp.'s debt ratings after the automaker disclosed that an accounting restatement might affect its access to a $5.6 billion standby credit facility.

The world's largest automaker disclosed the potential impact of its accounting restatement in its annual report filed late Tuesday with the U.S. Securities and Exchange Commission.

S&P said it also was putting GM debt ratings on its CreditWatch list with negative implications because GM said certain lease obligations of as much as $3 billion could be subject to possible claims of acceleration, termination or other remedies.

The ratings agency said at a minimum, GM may have to seek waivers on financial reporting requirements from lenders, which would put pressure on the automaker's liquidity.

GM's long-term corporate credit rating is currently a B, which is five notches below investment-grade status. S&P said ratings of GM's finance arm, General Motors Acceptance Corp., won't be affected.

"The need to attend to this issue adds to the various challenges that management continues to face on a number of non-operating issues beyond solidifying access to bank credit facilities, including the situation at Delphi Corp., the possible sale of GMAC, and various accounting and other investigations," S&P said.

S&P said GM has around $20 billion, but can't afford a decrease in liquidity of its bank facility because it will need access to cash to pay for buyouts and wage agreements at Delphi, the parts supplier it once owned.

GM shares fell 63 cents, or 2.8 percent, to $22.12 in afternoon trading on the New York Stock Exchange.
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Livernoisyard
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Username: Livernoisyard

Post Number: 371
Registered: 10-2004
Posted From: 69.242.223.42
Posted on Wednesday, March 29, 2006 - 11:11 pm: Edit PostDelete PostMove Post (Moderator/Admin Only)

I sues you - that's probably what lawyers drive...

Associated Press
GM Seeking to Sell Stake in Isuzu Motors
By CHISAKI WATANABE , 03.29.2006, 08:42 PM

General Motors Corp. has approached two Japanese financial houses and a bank about buying the bulk of the automaker's 7.9 percent stake in Isuzu Motors, potential buyers said Thursday.

GM queried Mitsubishi Corp., Itochu Corp. and Mizuho Corporate Bank Ltd. earlier this month on whether they would like to buy the Isuzu stake, and spokesmen for all three companies said the offer is being considered.

GM holds about 90 million shares in the Japanese truckmaker, with the entire stake valued at about 38 billion yen ($320 million), Isuzu spokesman Naruhito Furuta said.

GM spokesman Jerry Dubrowski said the Detroit company had no comment on the report.

A sale would follow a similar divestment the struggling automaker - the world's largest - made earlier this month from Japan's Suzuki Motor Corp.

GM has been hit with U.S. market share losses, largely due to Asian competition, and has outlined a plan to cut 30,000 jobs and close 12 facilities in North America by 2008. GM has been looking to sell assets as a way to raise desperately needed cash.

GM sold 17 percent of its 20 percent stake in Suzuki Motor Corp., mostly to Suzuki, for about $2 billion earlier this month. At the time, GM said there were no plans to change its stake in Isuzu.

After any sale, Isuzu and GM would continue their business partnership, including the supply of trucks and other vehicles to each other, the Nihon Keizai newspaper reported in Thursday's edition.

Itochu spokesman Masahide Kitagawa said that GM contacted the trading company earlier this month about a possible sale of its stake and that Itochu is considering the purchase "positively." He said that nothing has been formally decided.

Mitsubishi spokesman Eiji Hashimoto also said his company was considering a purchase. Mizuho spokesman Misao Yoneyama the bank is also considering GM's proposal.

(Message edited by LivernoisYard on March 29, 2006)

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