GM Losses Spread Pain From Inner Detroit to Wealthy Suburbs
11-28-2005, 08:46 PM
#1
I feel the need...
Thread Starter
GM Losses Spread Pain From Inner Detroit to Wealthy Suburbs
GM Losses Spread Pain From Inner Detroit to Wealthy Suburbs
2005-11-18 00:00 (New York)
By John Lippert
Nov. 18 (Bloomberg) -- Pastor Ed Mullins at Christ Church
Cranbrook in Bloomfield Hills, Michigan, a mansion-filled town in
the fourth-richest county in the U.S., sprinkles his sermons with
reminders to pray for people who've lost their jobs. Among the
intended beneficiaries are newly unemployed automobile executives
seated in the hand-carved pews.
Parishioner Sandy Munro, 56, who owns a 30-person
engineering firm, says Mullins's message resonates with him.
``Anybody who belongs to Christ Church and who's involved in the
auto industry is a heartbeat away from bankruptcy,'' he says.
Detroit, no stranger to auto shocks, is in its most
precarious position since 1979, when a revolution in Iran sent
oil prices soaring and put the brakes on demand for the Motor
City's gas-guzzling cars. By 1985, U.S. automakers and suppliers
had cut 200,000 jobs, leaving 33.6 percent of Detroit residents
living in poverty, a higher percentage than in any other major
U.S. city.
This time, all of Detroit, from frustrated sellers of
million-dollar estates that linger on the market to former
occupants of now-vacant downtown office buildings, will emerge
poorer and emotionally scarred.
Forty-eight miles (77 kilometers) northwest of Bloomfield
Hills, Randy Richardson is facing his own crisis. A factory
worker for General Motors Corp. -- whose chief executive officer,
Rick Wagoner, earned $9.96 million in salary, bonus, other
compensation and stock options in 2004 -- and now for Delphi
Corp., Richardson, 45, has suffered setbacks in an automotive
career that dates to 1977.
Single Dad
He endured the death of his wife, Denise, from lung cancer
in 2001 and two 5 1/2-year layoffs during which he worked as a
salesman at packaging companies. Now he must find another job or
raise four children, ages 6 to 18, on $19 an hour, 39 percent
less than he currently makes as a skilled electrician.
He'll also have to pay $656 a month for health insurance,
which is free now, should his United Auto Workers union agree to
concessions that Delphi proposed after filing the biggest
bankruptcy of a manufacturing company in U.S. history on Oct. 8.
Firings during the next four years may claim 20 percent of
the jobs that Delphi, GM, Ford Motor Co. and Visteon Corp.
provide in Michigan, or 45,000 in total, says Sean McAlinden, an
analyst at the Center for Automotive Research in Ann Arbor,
Michigan. All told, Detroit's meltdown may cost the state 250,000
jobs, as automotive sales to suppliers and retailers dry up.
`End of Detroit as We Know It'
``The combination of lost market share and high costs in
Detroit has reached the point of unsustainability,'' says Sasha
Kamper, who helps manage $86 billion in debt at Principal Global
Investors in Des Moines, Iowa. ``The question is whether it will
be the end of Detroit as we know it or whether the companies can
restructure. Right now, it's hard to guess.''
Investors are feeling Motown's blues. Merrill Lynch & Co.
analyst John Casesa says the U.S. auto industry is too unstable
for shareholders to count on a decent return. Yesterday, Wagoner
told employees on an internal Web site that he had no plans to
file for bankruptcy.
Bank of America Securities analyst Ron Tadross pegs the
chance of a GM bankruptcy within two years at 40 percent. A
Chapter 11 filing may wipe out the $1.7 billion that billionaire
Kirk Kerkorian has spent buying 9.9 percent of GM's shares.
Before that happens, Kerkorian, 88, who spearheaded an
unsuccessful hostile bid for Chrysler Corp. a decade ago, may
pressure Wagoner to accelerate a planned overhaul of the world's
largest automaker.
Wagoner's Plan
At a press conference in Detroit on Oct. 17, Wagoner, 52,
promised to reduce North American automotive costs by $6 billion,
or about 5.5 percent.
He announced an agreement with the 655,000-member UAW under
which active workers would cut future wages by $1 an hour and
retirees would pay as much as $752 per year per family to lower
GM's health care costs. He said GM would close an unspecified
number of factories to help eliminate 25,000 jobs and would buy
more parts from companies outside the U.S.
Wagoner also said he planned to sell a controlling stake in
the General Motors Acceptance Corp. finance unit. If the buyer is
a higher-rated company, Wagoner would lower his borrowing costs,
which increased after Standard & Poor's cut GM's debt to junk
bond status in May. At the time, GM had $291.8 billion in debt.
Seated in a conference room in GM's headquarters 33 floors
above the Detroit River, Wagoner says his most important task is
to ensure his 325,000 employees aren't distracted by the turmoil.
``Some people think a time of crisis is when you throw your
hands up and run around and try to change everything,'' Wagoner
says. ``I think that's exactly the wrong thing to do.''
GM's Losses
GM lost $4.5 billion in the first nine months of 2005, a
$7.4 billion swing from a $2.9 billion profit in the year-earlier
period. Sales fell 0.4 percent to $141.5 billion.
On Nov. 9, the company said it overstated its 2001 profit by
as much as $400 million and understated its loss for the second
quarter of 2005 by $796 million.
GM shares dropped 45 percent from late July to $20.60 at
9:39 a.m. yesterday, the lowest since the crash of 1987, before
rebounding to close at $22.63. The company's 8.75 percent 30-year
bonds maturing in July 2033 sold for 74 cents on the dollar on
Nov. 17 compared with 108 cents on Dec. 31, 2004, according to
the Trade Reporting and Compliance Engine, NASD's bond-price
reporting service.
At Baltimore-based MTB Investment Advisors, fund manager Wil
Stith cut his holdings of automotive bonds to less than $1
million from $25 million at the beginning of 2005.
``We bought on the premise that the bonds were cheap,''
Stith says. ``As the operating metrics of the companies
deteriorated, we decided that's no longer a good rationale.''
$30 a Share for GMAC
William Cohen, a fund manager at New York-based Equinox
Capital Management Inc., says the GMAC finance unit is a reason
to buy GM stock.
Cohen increased his GM holdings by 34 percent in the three
months ended on Sept. 30 to 2.2 million shares. He says GMAC is
worth as much as $30 a share by itself. The UAW agreement to
lower health costs signals GM may be able to make money on cars,
too.
``The odds of getting value on the thing are as good as
they've been in a while,'' Cohen says.
David Tepper, president of Chatham, New Jersey-based
Appaloosa Management LP, says some risks are worth taking, even
amid Delphi's bankruptcy. The Chapter 11 filing affected only
Delphi's U.S. units. The company also runs 120 manufacturing
sites with 140,000 employees in China, Germany, Mexico, South
Korea and elsewhere.
`Value for Shareholders'
Appaloosa bought 52 million Delphi shares for a 9.3 percent
stake, according to an Oct. 11 U.S. Securities and Exchange
Commission filing.
``If all claims that workers have stay trapped in the U.S.
subsidiaries, then there's tremendous value for shareholders,''
Tepper says. ``Its foreign assets are incredibly profitable.''
Even if Wagoner stabilizes GM and Delphi prospers outside
the U.S., Detroit would still be in bad shape. Ford, the No. 2
U.S. automaker, earned $1.9 billion during the first nine months
of 2005, a 45 percent slide from the $3.4 billion it earned a
year earlier. Revenue rose 3 percent to $130.5 billion.
Shares of Dearborn, Michigan-based Ford fell 31 percent from
mid-June to close at $7.80 yesterday. In May, Visteon, the second-
biggest U.S. auto parts maker, gave 24 plants and offices back to
Ford, its former parent. While the move helped Visteon escape
bankruptcy, it put the burden of reviving or selling the plants
on Ford.
Ford Motor Credit
Ford Chief Financial Officer Don Leclair says he has no
plans to mimic GM by selling the Ford Motor Credit Co. finance
unit. Ford's financial-services unit, which includes Ford Motor
Credit, reported a pretax profit of $3.6 billion for the first
nine months of 2005. Ford's automotive business had a $1.7
billion pretax loss during the same period.
Wagoner's plan for GMAC may push Ford to sell a portion of
its credit unit, says Scott Colbert, who helps manage $7 billion
in debt at Commerce Bank Investment Management in St. Louis.
That's because Ford's borrowing costs would be higher than those
of its bigger rival if it doesn't act, Colbert says.
``When GM is borrowing at 150 basis points over U.S.
Treasuries and Ford is at 300, trust me, Ford is going to do
something,'' he says. A basis point is 0.01 percentage point.
The upheaval in Detroit is all the more striking because
it's not occurring during a recession. Vehicle sales may reach 17
million in 2005, making it the third-best year in U.S. history,
Merrill Lynch's Casesa says. The pace shows signs of slowing. In
October, the annualized sales rate fell to 14.7 million, the
lowest level in seven years.
Bad News for Detroit
A sales slowdown would be more bad news for the city of
Detroit, which is struggling with a $187 million deficit in its
$1.4 billion general-fund budget. In September, Sean Werdlow,
Detroit's outgoing chief financial officer, said the city may run
out of cash in December.
``When you see police and firemen getting laid off, when you
see roads not repaired and schools not funded, you're seeing a
disintegration of what we once thought a society provides for
people,'' says Kevin Boyle, a history professor at Ohio State
University in Columbus.
Detroit can trace its current woes to its dominance at the
dawn of the global auto industry, says Jim Womack, president of
the Lean Enterprise Institute, a research firm in Brookline,
Massachusetts.
Ford, GM and the UAW erected uncompetitive cost structures
when they enjoyed oligarchic control of U.S. auto sales in the
1970s, he says. Since then, they've avoided cutting costs because
of hits like minivans, passenger-friendly pickups and sport
utility vehicles.
The SUV Premium
Two years ago, GM made a $10,000 pretax profit on each of
its full-size pickups and SUVs. It lost money on virtually
everything else, says David Healy, an analyst at New York-based
Burnham Securities Inc.
Today, the super-profits from pickups and SUVs have vanished
because Toyota Motor Corp. and others started competing in those
areas and because rising gasoline prices are pushing consumers to
turn away from energy-intensive vehicles.
In the one trend that would help GM stand out --
gasoline/electric hybrid vehicles that reduce fuel consumption
and emissions -- Toyota has a big lead. The Japanese company
plans to sell 400,000 hybrids in 2006; GM will introduce its
first full-performance hybrid in 2007.
``Toyota guessed right and GM guessed wrong on when hybrids
would become popular,'' Womack says.
Slippery Slope
As overseas companies flood into the world's most profitable
auto market, GM's portion of U.S. sales is declining. At its peak
in 1962, GM enjoyed a 51 percent share of the U.S. market. In
1985, the company accounted for 41 percent of U.S. auto sales. By
2005, the figure had slipped to 27 percent. During the 20 years
from 1985 to 2005, Toyota's U.S. share more than doubled to 13
percent from 6.2 percent.
GM's slide shows no sign of abating. The number of Americans
who intend to buy Asian or European vehicles in the next year is
6 percentage points higher than the current 42.6 percent market
share of such brands, says Doug Scott, a senior vice president at
GfK Automotive in Southfield, Michigan.
A year ago, the percentage of Americans who planned to buy
either a car or a truck-like vehicle such as a minivan, pickup or
SUV in the ensuing 12 months was split 50-50. Today, 56 percent
intend to buy cars in the next year and 44 percent favor trucks,
Scott says.
That's bad for GM, whose main innovation for 2006 is a
redesigned fleet of SUVs. ``GM has focused on trucks and sport
utilities for 10 years because that's been the mainstay of their
profit,'' Scott says.
Toyota's Dominance
Toyota is already the world's largest automaker by market
capitalization. Its shares were valued at $171.5 billion
yesterday, more than 13 times the $12.8 billion for GM.
Toyota, which is building factories in Canada, China, Russia
and the U.S., may sell 8.8 million vehicles in 2007, up from 8
million in 2005, says Neil King, an analyst at Global Insight
Inc. in London. King estimates GM will sell 8.6 million vehicles
in 2007, which would also make Toyota the world's largest
automaker by unit volume. Toyota plans a record 1.4 trillion yen
($11.9 billion) in capital spending in 2006, or 12 percent more
than its May forecast.
Wagoner is counting on better cars and trucks to pull GM out
of its slump. The 2006 Impala sedan comes with a V-8 engine that
lets the car travel 28 miles on a gallon of gas because some
cylinders shut off while the vehicle cruises. In comparison, the
2005 Impala with a smaller V-6 engine travels just 30 miles per
gallon.
Pulling Even
The trouble for Detroit is that everybody else's cars are
getting better, too. GM plans to replace 39 percent of its U.S.
fleet with new designs in 2007, an increase from 16 percent in
2006, says Michael Bruynesteyn, an analyst at Prudential Equity
Group in New York.
The updates will help GM pull even with the new-product
cadence of its rivals, not surpass it, he says.
At the same time, GM can't keep losing money on the 35
percent of U.S. sales it allocates at discounted prices to
employees, family members and friends or to rental car companies,
says Rod Lache, an analyst at Deutsche Bank Securities Inc. in
New York.
GM may announce that it's closing seven of 25 North American
assembly plants, Lache says. ``GM could be closer to a 20 percent
market share company,'' he says. Stefan Weinmann, a GM spokesman,
declined to comment.
Antagonized Suppliers
GM has already antagonized its suppliers by slicing their
prices and profit margins, says Munro, the Christ Church
Cranbrook parishioner and president of Munro & Associates in
Troy, Michigan. Munro's firm specializes in ``reverse
engineering,'' which means buying a car and tearing it apart to
see how it was designed.
Detroit's automakers accounted for 90 percent of his
business six years ago. Today, the figure is 30 percent, he says.
Now, he's concentrating on Daimler-Chrysler AG, the world's fifth-
largest carmaker, and nonautomotive customers such as Boeing Co.,
the world's largest aircraft company.
``On a defense contract, you're looking at a 15 percent net
margin,'' Munro says. ``At GM and Ford, we're just slave labor to
keep their factories operating.''
Delphi, which GM spun off in 1999, remains the automaker's
largest supplier. Since arriving in July, CEO Steve Miller has
minced no words, saying pension costs that were manageable when
workers retired at age 65 and died five years later are crippling
when workers retire at 50 and live 40 more years.
Delphi Strike?
Delphi can't afford to pay $65 an hour in wages and benefits
to unskilled workers, such as those who cut the grass at company
plants, he says. If workers try to prevent pay cuts by striking,
he says, he'll shut their factory.
Robert Betts, president of UAW Local 2151 at a Delphi fuel
injector factory in Coopersville, Michigan, says Miller is
attempting to undermine workers' confidence as they try to hold
on to their jobs.
``Our role as union leaders is to help our members place a
value on what our beliefs and our living standards are worth,''
Betts says. ``If a conflict occurs, we'll be able to decide what
actions we're willing to take, up to and including a strike.''
A Delphi strike would cripple GM within 48 hours, McAlinden,
the Center for Automotive Research analyst, says.
For Richardson, the single father who works at a spark plug
factory in Flint, Delphi's bankruptcy means he may have to sell
the house where he and his four children have lived since his
wife's death. And he may have to ask his parents to give up their
Florida retirement to help him with child care.
`Smaller Cuts'
Richardson's biggest complaint is that Delphi's management,
which is being investigated by the SEC for falsifying financial
statements, didn't deal with its workers honestly.
Instead of the current demand of a 39 percent pay cut and
elimination of retiree health care, managers could have asked for
concessions that may have kept the company from stumbling into
bankruptcy.
``I don't know anybody who wouldn't have preferred smaller
cuts over the last two years to what we're facing now,'' says
Richardson, sitting at a Formica table in the Starlight Coney
Island restaurant in Flint.
On June 30, Delphi restated four years of earnings and
reported a $4.8 billion loss for 2004. The loss, which included a
$4.7 billion write-off of previous tax benefits, compared with a
loss of $36 million that was first reported for 2004.
Delphi's loss for the third quarter of 2005 widened to $788
million from $119 million in the year-earlier period. Delphi said
$221 million of the loss was for costs for non-working employees
who can't be fired under union contracts.
Contract Showdown
Richardson's fate may become clearer by Dec. 16. That's when
Miller plans to ask a New York bankruptcy judge to terminate the
UAW's contract if the two sides can't reach a voluntary
agreement. Miller says he's hoping to offer bonuses to encourage
longtime Delphi workers to retire, quit or accept lower pay. Such
a package would enable the company to hire new workers at $14 an
hour, half as much as current employees.
GM would have to decide whether it wants to help pay for
Delphi's buyouts, Miller says. GM spokeswoman Toni Simonetti
declined to comment on whether GM would be interested.
While Wagoner hasn't criticized the UAW in public since a
1998 strike cost GM $1.3 billion, he says he doesn't fault Miller
for taking a firm stand.
``The message of `Boy, you've got to be competitive on a
global basis; you've got to be willing to make the changes, even
the tough ones' is a legitimate message,'' Wagoner says.
Pension Morass
On a larger scale, Delphi's plight shows how so-called
defined-benefit retirement systems are dying, Miller says. In
2005, 22 percent of nongovernment workers had such plans, down
from 37 percent in 1979, says Jared Bernstein, an economist at
the Economic Policy Institute in Washington.
Defined-benefit plans require a specified level of cash
payments and health care regardless of future cost. As retirees
began living longer and as competition and productivity
eliminated jobs and low interest rates reduced investment income
on pension assets, the plans became albatrosses.
At the end of 2004, unfunded liabilities for retiree health
care and life insurance totaled $10 billion at Delphi, $32
billion at Ford and $61 billion at GM.
Such plans are giving way to 401(k)-style defined-
contribution systems that cap what employers pay. This transition
underlies debates about the future of Social Security and
Medicare, Miller says.
Principal Global Investors' Kamper says the American auto
industry, which accounts for one in 20 nongovernment jobs in the
U.S., is too big to be allowed to fail like British Leyland in
the U.K.
`The Market is Working'
On Oct. 20, Democratic U.S. Senator Hillary Clinton of New
York called on President George W. Bush to convene an emergency
summit with auto executives to discuss health care and overseas
competition.
In an Oct. 31 telephone interview with Bloomberg News, U.S.
Treasury Secretary John Snow said the Bush administration is
doing plenty to help automakers. It's negotiating free-trade
agreements with China and India and cracking down on excessive
lawsuits. Snow said automakers are helping themselves by
designing better vehicles and cutting costs. ``The market is
working,'' Snow said.
Not content to wait for Washington, more Michiganders are
courting rivals from Asia. On Oct. 13, 500 people traveled to
Superior Township near Ann Arbor to watch Hyundai Motor Co. open
a research center.
`Have I Got a Deal for You'
``If there are any more opportunities for ribbon cuttings,
have I got a deal for you,'' Michigan Governor Jennifer Granholm
told South Korea's largest automaker.
Tim Leuliette was in the audience. Leuliette, 55, is CEO of
Plymouth, Michigan-based Metaldyne Corp., which makes parts for
engines and transmissions. At a Deutsche Bank conference in
September, Leuliette said Metaldyne sends 34 percent of the parts
it produces for automakers to GM and Ford and 7 percent to Asian
companies.
By 2009, he hopes to sell 28 percent to GM and Ford and 20
percent to the Asians, which he says are growing faster.
``Thousands of auto companies have come and gone,'' Leuliette
says. ``Consumers are voting with their pocketbooks. We all have
to deal with that.''
Metaldyne is owned by Greenwich, Connecticut-based Heartland
Industrial Partners LP, a private equity firm. Tens of billions
of dollars in private equity cash is poised to go to the U.S.
auto industry, Leuliette says.
Private Equity
``The structural change that's necessary is not easy when
you're focused on quarterly earnings,'' Leuliette says. ``That's
why private equity can be a catalyst.''
Delphi's Miller is accustomed to working with private
equity. In 2003, he sold bankrupt Bethlehem Steel Corp., where he
was CEO, to billionaire Wilbur Ross. On Oct. 17, Ross formed a
venture with automotive interiors maker Lear Corp. to acquire
U.S. parts companies.
Miller says neither shareholders nor private equity
investors should invest in companies with defined-benefit plans.
He says private equity firms are avoiding suppliers that are
overly dependent on GM, which he says may lose more market share.
GM will go bankrupt if it can't cut pay and benefits during UAW
talks in 2007, he says.
A measure of how far the UAW is willing to go to adapt to
Detroit's new reality lies in Dundee, Michigan, a village of
3,750 people southwest of the city.
On Oct. 3, Tokyo-based Mitsubishi Motors Corp., Chrysler and
Hyundai began building four-cylinder engines at a pair of jointly
owned factories.
Saturday Shifts
To grab a piece of the action, the UAW agreed that workers
at the plants would be hired through a state agency, even though
Chrysler eliminated 250 similar jobs at a factory in nearby
Trenton. The UAW said its members -- who earn $30 an hour --
would work Saturdays at straight-time pay instead of overtime as
part of a rotating schedule that provides more days off.
The upshot is that the Dundee plants will employ 530 people,
or two-fifths as many as Chrysler needed at Trenton, says Bruce
Coventry, 52, president of the Global Engine Manufacturing
Alliance that runs the factories.
``We can hire 300 extra people and be laid off in two years,
or we can stay competitive and keep our jobs for 30 years,'' says
Jimmy Pierce, 36, a UAW team leader at Dundee.
Individually, Chrysler, Hyundai and Mitsubishi build no more
than 500,000 of each engine per year, Coventry says.
Help From Cabela's
Dundee is one of five identical facilities the three
companies will operate in Japan, South Korea and the U.S. to
build 1.8 million engines annually. The Dundee plants will
produce 840,000 engines per year by 2008 for the $803 million
investment to build them. That's half of the amount Chrysler paid
for prior factories, Coventry says.
With savings in hand, the new plants can buy computer-
controlled machining and assembly equipment that switches among
direct injection, turbocharged and hybrid gasoline/electric
engines with the flip of a switch, Coventry says.
At the Dundee announcement, Granholm said persuading Hyundai
and the others to stay near Detroit, rather than head to
neighboring Indiana, came with a price: Dundee contributed $42.5
million in tax abatements and grants.
She said the village couldn't have afforded the incentives
if it hadn't first attracted a Cabela's Inc. hunting superstore.
With 25-foot-high (7.6-meter-high) statues of grizzly bears
fighting out front, the store is one of Michigan's largest
tourist attractions, with 600,000 visitors a year.
Horse-Drawn Carriages
At Christ Church Cranbrook, some people are scared by signs
that Detroiters are losing leadership in the auto industry they
invented, parishioner David Carleton says. He counts himself
among those who know how to adapt. Carleton's Detroit-based film
production company, Mindfield Pictures, has added Toyota to
Chrysler, Ford and other clients.
Carleton, 38, says that in the early 20th century, residents
couldn't imagine how they'd survive as new technologies
diminished Detroit's dominance in building horse-drawn carriages
and wood-and coal-burning kitchen stoves. The city rebounded by
becoming the first to mass-produce automobiles.
A century later, as rivals outdo the once-dominant U.S.
automakers on innovations and costs, Detroit will have to muster
that kind of resilience to keep from fading, horse-and-carriage
style, into obsolescence.
source: bloomberg.com
Cliff's Notes: Oh noes!!!!
PistonFan: may buy an American car out of sheer pity for my neighbor.
2005-11-18 00:00 (New York)
By John Lippert
Nov. 18 (Bloomberg) -- Pastor Ed Mullins at Christ Church
Cranbrook in Bloomfield Hills, Michigan, a mansion-filled town in
the fourth-richest county in the U.S., sprinkles his sermons with
reminders to pray for people who've lost their jobs. Among the
intended beneficiaries are newly unemployed automobile executives
seated in the hand-carved pews.
Parishioner Sandy Munro, 56, who owns a 30-person
engineering firm, says Mullins's message resonates with him.
``Anybody who belongs to Christ Church and who's involved in the
auto industry is a heartbeat away from bankruptcy,'' he says.
Detroit, no stranger to auto shocks, is in its most
precarious position since 1979, when a revolution in Iran sent
oil prices soaring and put the brakes on demand for the Motor
City's gas-guzzling cars. By 1985, U.S. automakers and suppliers
had cut 200,000 jobs, leaving 33.6 percent of Detroit residents
living in poverty, a higher percentage than in any other major
U.S. city.
This time, all of Detroit, from frustrated sellers of
million-dollar estates that linger on the market to former
occupants of now-vacant downtown office buildings, will emerge
poorer and emotionally scarred.
Forty-eight miles (77 kilometers) northwest of Bloomfield
Hills, Randy Richardson is facing his own crisis. A factory
worker for General Motors Corp. -- whose chief executive officer,
Rick Wagoner, earned $9.96 million in salary, bonus, other
compensation and stock options in 2004 -- and now for Delphi
Corp., Richardson, 45, has suffered setbacks in an automotive
career that dates to 1977.
Single Dad
He endured the death of his wife, Denise, from lung cancer
in 2001 and two 5 1/2-year layoffs during which he worked as a
salesman at packaging companies. Now he must find another job or
raise four children, ages 6 to 18, on $19 an hour, 39 percent
less than he currently makes as a skilled electrician.
He'll also have to pay $656 a month for health insurance,
which is free now, should his United Auto Workers union agree to
concessions that Delphi proposed after filing the biggest
bankruptcy of a manufacturing company in U.S. history on Oct. 8.
Firings during the next four years may claim 20 percent of
the jobs that Delphi, GM, Ford Motor Co. and Visteon Corp.
provide in Michigan, or 45,000 in total, says Sean McAlinden, an
analyst at the Center for Automotive Research in Ann Arbor,
Michigan. All told, Detroit's meltdown may cost the state 250,000
jobs, as automotive sales to suppliers and retailers dry up.
`End of Detroit as We Know It'
``The combination of lost market share and high costs in
Detroit has reached the point of unsustainability,'' says Sasha
Kamper, who helps manage $86 billion in debt at Principal Global
Investors in Des Moines, Iowa. ``The question is whether it will
be the end of Detroit as we know it or whether the companies can
restructure. Right now, it's hard to guess.''
Investors are feeling Motown's blues. Merrill Lynch & Co.
analyst John Casesa says the U.S. auto industry is too unstable
for shareholders to count on a decent return. Yesterday, Wagoner
told employees on an internal Web site that he had no plans to
file for bankruptcy.
Bank of America Securities analyst Ron Tadross pegs the
chance of a GM bankruptcy within two years at 40 percent. A
Chapter 11 filing may wipe out the $1.7 billion that billionaire
Kirk Kerkorian has spent buying 9.9 percent of GM's shares.
Before that happens, Kerkorian, 88, who spearheaded an
unsuccessful hostile bid for Chrysler Corp. a decade ago, may
pressure Wagoner to accelerate a planned overhaul of the world's
largest automaker.
Wagoner's Plan
At a press conference in Detroit on Oct. 17, Wagoner, 52,
promised to reduce North American automotive costs by $6 billion,
or about 5.5 percent.
He announced an agreement with the 655,000-member UAW under
which active workers would cut future wages by $1 an hour and
retirees would pay as much as $752 per year per family to lower
GM's health care costs. He said GM would close an unspecified
number of factories to help eliminate 25,000 jobs and would buy
more parts from companies outside the U.S.
Wagoner also said he planned to sell a controlling stake in
the General Motors Acceptance Corp. finance unit. If the buyer is
a higher-rated company, Wagoner would lower his borrowing costs,
which increased after Standard & Poor's cut GM's debt to junk
bond status in May. At the time, GM had $291.8 billion in debt.
Seated in a conference room in GM's headquarters 33 floors
above the Detroit River, Wagoner says his most important task is
to ensure his 325,000 employees aren't distracted by the turmoil.
``Some people think a time of crisis is when you throw your
hands up and run around and try to change everything,'' Wagoner
says. ``I think that's exactly the wrong thing to do.''
GM's Losses
GM lost $4.5 billion in the first nine months of 2005, a
$7.4 billion swing from a $2.9 billion profit in the year-earlier
period. Sales fell 0.4 percent to $141.5 billion.
On Nov. 9, the company said it overstated its 2001 profit by
as much as $400 million and understated its loss for the second
quarter of 2005 by $796 million.
GM shares dropped 45 percent from late July to $20.60 at
9:39 a.m. yesterday, the lowest since the crash of 1987, before
rebounding to close at $22.63. The company's 8.75 percent 30-year
bonds maturing in July 2033 sold for 74 cents on the dollar on
Nov. 17 compared with 108 cents on Dec. 31, 2004, according to
the Trade Reporting and Compliance Engine, NASD's bond-price
reporting service.
At Baltimore-based MTB Investment Advisors, fund manager Wil
Stith cut his holdings of automotive bonds to less than $1
million from $25 million at the beginning of 2005.
``We bought on the premise that the bonds were cheap,''
Stith says. ``As the operating metrics of the companies
deteriorated, we decided that's no longer a good rationale.''
$30 a Share for GMAC
William Cohen, a fund manager at New York-based Equinox
Capital Management Inc., says the GMAC finance unit is a reason
to buy GM stock.
Cohen increased his GM holdings by 34 percent in the three
months ended on Sept. 30 to 2.2 million shares. He says GMAC is
worth as much as $30 a share by itself. The UAW agreement to
lower health costs signals GM may be able to make money on cars,
too.
``The odds of getting value on the thing are as good as
they've been in a while,'' Cohen says.
David Tepper, president of Chatham, New Jersey-based
Appaloosa Management LP, says some risks are worth taking, even
amid Delphi's bankruptcy. The Chapter 11 filing affected only
Delphi's U.S. units. The company also runs 120 manufacturing
sites with 140,000 employees in China, Germany, Mexico, South
Korea and elsewhere.
`Value for Shareholders'
Appaloosa bought 52 million Delphi shares for a 9.3 percent
stake, according to an Oct. 11 U.S. Securities and Exchange
Commission filing.
``If all claims that workers have stay trapped in the U.S.
subsidiaries, then there's tremendous value for shareholders,''
Tepper says. ``Its foreign assets are incredibly profitable.''
Even if Wagoner stabilizes GM and Delphi prospers outside
the U.S., Detroit would still be in bad shape. Ford, the No. 2
U.S. automaker, earned $1.9 billion during the first nine months
of 2005, a 45 percent slide from the $3.4 billion it earned a
year earlier. Revenue rose 3 percent to $130.5 billion.
Shares of Dearborn, Michigan-based Ford fell 31 percent from
mid-June to close at $7.80 yesterday. In May, Visteon, the second-
biggest U.S. auto parts maker, gave 24 plants and offices back to
Ford, its former parent. While the move helped Visteon escape
bankruptcy, it put the burden of reviving or selling the plants
on Ford.
Ford Motor Credit
Ford Chief Financial Officer Don Leclair says he has no
plans to mimic GM by selling the Ford Motor Credit Co. finance
unit. Ford's financial-services unit, which includes Ford Motor
Credit, reported a pretax profit of $3.6 billion for the first
nine months of 2005. Ford's automotive business had a $1.7
billion pretax loss during the same period.
Wagoner's plan for GMAC may push Ford to sell a portion of
its credit unit, says Scott Colbert, who helps manage $7 billion
in debt at Commerce Bank Investment Management in St. Louis.
That's because Ford's borrowing costs would be higher than those
of its bigger rival if it doesn't act, Colbert says.
``When GM is borrowing at 150 basis points over U.S.
Treasuries and Ford is at 300, trust me, Ford is going to do
something,'' he says. A basis point is 0.01 percentage point.
The upheaval in Detroit is all the more striking because
it's not occurring during a recession. Vehicle sales may reach 17
million in 2005, making it the third-best year in U.S. history,
Merrill Lynch's Casesa says. The pace shows signs of slowing. In
October, the annualized sales rate fell to 14.7 million, the
lowest level in seven years.
Bad News for Detroit
A sales slowdown would be more bad news for the city of
Detroit, which is struggling with a $187 million deficit in its
$1.4 billion general-fund budget. In September, Sean Werdlow,
Detroit's outgoing chief financial officer, said the city may run
out of cash in December.
``When you see police and firemen getting laid off, when you
see roads not repaired and schools not funded, you're seeing a
disintegration of what we once thought a society provides for
people,'' says Kevin Boyle, a history professor at Ohio State
University in Columbus.
Detroit can trace its current woes to its dominance at the
dawn of the global auto industry, says Jim Womack, president of
the Lean Enterprise Institute, a research firm in Brookline,
Massachusetts.
Ford, GM and the UAW erected uncompetitive cost structures
when they enjoyed oligarchic control of U.S. auto sales in the
1970s, he says. Since then, they've avoided cutting costs because
of hits like minivans, passenger-friendly pickups and sport
utility vehicles.
The SUV Premium
Two years ago, GM made a $10,000 pretax profit on each of
its full-size pickups and SUVs. It lost money on virtually
everything else, says David Healy, an analyst at New York-based
Burnham Securities Inc.
Today, the super-profits from pickups and SUVs have vanished
because Toyota Motor Corp. and others started competing in those
areas and because rising gasoline prices are pushing consumers to
turn away from energy-intensive vehicles.
In the one trend that would help GM stand out --
gasoline/electric hybrid vehicles that reduce fuel consumption
and emissions -- Toyota has a big lead. The Japanese company
plans to sell 400,000 hybrids in 2006; GM will introduce its
first full-performance hybrid in 2007.
``Toyota guessed right and GM guessed wrong on when hybrids
would become popular,'' Womack says.
Slippery Slope
As overseas companies flood into the world's most profitable
auto market, GM's portion of U.S. sales is declining. At its peak
in 1962, GM enjoyed a 51 percent share of the U.S. market. In
1985, the company accounted for 41 percent of U.S. auto sales. By
2005, the figure had slipped to 27 percent. During the 20 years
from 1985 to 2005, Toyota's U.S. share more than doubled to 13
percent from 6.2 percent.
GM's slide shows no sign of abating. The number of Americans
who intend to buy Asian or European vehicles in the next year is
6 percentage points higher than the current 42.6 percent market
share of such brands, says Doug Scott, a senior vice president at
GfK Automotive in Southfield, Michigan.
A year ago, the percentage of Americans who planned to buy
either a car or a truck-like vehicle such as a minivan, pickup or
SUV in the ensuing 12 months was split 50-50. Today, 56 percent
intend to buy cars in the next year and 44 percent favor trucks,
Scott says.
That's bad for GM, whose main innovation for 2006 is a
redesigned fleet of SUVs. ``GM has focused on trucks and sport
utilities for 10 years because that's been the mainstay of their
profit,'' Scott says.
Toyota's Dominance
Toyota is already the world's largest automaker by market
capitalization. Its shares were valued at $171.5 billion
yesterday, more than 13 times the $12.8 billion for GM.
Toyota, which is building factories in Canada, China, Russia
and the U.S., may sell 8.8 million vehicles in 2007, up from 8
million in 2005, says Neil King, an analyst at Global Insight
Inc. in London. King estimates GM will sell 8.6 million vehicles
in 2007, which would also make Toyota the world's largest
automaker by unit volume. Toyota plans a record 1.4 trillion yen
($11.9 billion) in capital spending in 2006, or 12 percent more
than its May forecast.
Wagoner is counting on better cars and trucks to pull GM out
of its slump. The 2006 Impala sedan comes with a V-8 engine that
lets the car travel 28 miles on a gallon of gas because some
cylinders shut off while the vehicle cruises. In comparison, the
2005 Impala with a smaller V-6 engine travels just 30 miles per
gallon.
Pulling Even
The trouble for Detroit is that everybody else's cars are
getting better, too. GM plans to replace 39 percent of its U.S.
fleet with new designs in 2007, an increase from 16 percent in
2006, says Michael Bruynesteyn, an analyst at Prudential Equity
Group in New York.
The updates will help GM pull even with the new-product
cadence of its rivals, not surpass it, he says.
At the same time, GM can't keep losing money on the 35
percent of U.S. sales it allocates at discounted prices to
employees, family members and friends or to rental car companies,
says Rod Lache, an analyst at Deutsche Bank Securities Inc. in
New York.
GM may announce that it's closing seven of 25 North American
assembly plants, Lache says. ``GM could be closer to a 20 percent
market share company,'' he says. Stefan Weinmann, a GM spokesman,
declined to comment.
Antagonized Suppliers
GM has already antagonized its suppliers by slicing their
prices and profit margins, says Munro, the Christ Church
Cranbrook parishioner and president of Munro & Associates in
Troy, Michigan. Munro's firm specializes in ``reverse
engineering,'' which means buying a car and tearing it apart to
see how it was designed.
Detroit's automakers accounted for 90 percent of his
business six years ago. Today, the figure is 30 percent, he says.
Now, he's concentrating on Daimler-Chrysler AG, the world's fifth-
largest carmaker, and nonautomotive customers such as Boeing Co.,
the world's largest aircraft company.
``On a defense contract, you're looking at a 15 percent net
margin,'' Munro says. ``At GM and Ford, we're just slave labor to
keep their factories operating.''
Delphi, which GM spun off in 1999, remains the automaker's
largest supplier. Since arriving in July, CEO Steve Miller has
minced no words, saying pension costs that were manageable when
workers retired at age 65 and died five years later are crippling
when workers retire at 50 and live 40 more years.
Delphi Strike?
Delphi can't afford to pay $65 an hour in wages and benefits
to unskilled workers, such as those who cut the grass at company
plants, he says. If workers try to prevent pay cuts by striking,
he says, he'll shut their factory.
Robert Betts, president of UAW Local 2151 at a Delphi fuel
injector factory in Coopersville, Michigan, says Miller is
attempting to undermine workers' confidence as they try to hold
on to their jobs.
``Our role as union leaders is to help our members place a
value on what our beliefs and our living standards are worth,''
Betts says. ``If a conflict occurs, we'll be able to decide what
actions we're willing to take, up to and including a strike.''
A Delphi strike would cripple GM within 48 hours, McAlinden,
the Center for Automotive Research analyst, says.
For Richardson, the single father who works at a spark plug
factory in Flint, Delphi's bankruptcy means he may have to sell
the house where he and his four children have lived since his
wife's death. And he may have to ask his parents to give up their
Florida retirement to help him with child care.
`Smaller Cuts'
Richardson's biggest complaint is that Delphi's management,
which is being investigated by the SEC for falsifying financial
statements, didn't deal with its workers honestly.
Instead of the current demand of a 39 percent pay cut and
elimination of retiree health care, managers could have asked for
concessions that may have kept the company from stumbling into
bankruptcy.
``I don't know anybody who wouldn't have preferred smaller
cuts over the last two years to what we're facing now,'' says
Richardson, sitting at a Formica table in the Starlight Coney
Island restaurant in Flint.
On June 30, Delphi restated four years of earnings and
reported a $4.8 billion loss for 2004. The loss, which included a
$4.7 billion write-off of previous tax benefits, compared with a
loss of $36 million that was first reported for 2004.
Delphi's loss for the third quarter of 2005 widened to $788
million from $119 million in the year-earlier period. Delphi said
$221 million of the loss was for costs for non-working employees
who can't be fired under union contracts.
Contract Showdown
Richardson's fate may become clearer by Dec. 16. That's when
Miller plans to ask a New York bankruptcy judge to terminate the
UAW's contract if the two sides can't reach a voluntary
agreement. Miller says he's hoping to offer bonuses to encourage
longtime Delphi workers to retire, quit or accept lower pay. Such
a package would enable the company to hire new workers at $14 an
hour, half as much as current employees.
GM would have to decide whether it wants to help pay for
Delphi's buyouts, Miller says. GM spokeswoman Toni Simonetti
declined to comment on whether GM would be interested.
While Wagoner hasn't criticized the UAW in public since a
1998 strike cost GM $1.3 billion, he says he doesn't fault Miller
for taking a firm stand.
``The message of `Boy, you've got to be competitive on a
global basis; you've got to be willing to make the changes, even
the tough ones' is a legitimate message,'' Wagoner says.
Pension Morass
On a larger scale, Delphi's plight shows how so-called
defined-benefit retirement systems are dying, Miller says. In
2005, 22 percent of nongovernment workers had such plans, down
from 37 percent in 1979, says Jared Bernstein, an economist at
the Economic Policy Institute in Washington.
Defined-benefit plans require a specified level of cash
payments and health care regardless of future cost. As retirees
began living longer and as competition and productivity
eliminated jobs and low interest rates reduced investment income
on pension assets, the plans became albatrosses.
At the end of 2004, unfunded liabilities for retiree health
care and life insurance totaled $10 billion at Delphi, $32
billion at Ford and $61 billion at GM.
Such plans are giving way to 401(k)-style defined-
contribution systems that cap what employers pay. This transition
underlies debates about the future of Social Security and
Medicare, Miller says.
Principal Global Investors' Kamper says the American auto
industry, which accounts for one in 20 nongovernment jobs in the
U.S., is too big to be allowed to fail like British Leyland in
the U.K.
`The Market is Working'
On Oct. 20, Democratic U.S. Senator Hillary Clinton of New
York called on President George W. Bush to convene an emergency
summit with auto executives to discuss health care and overseas
competition.
In an Oct. 31 telephone interview with Bloomberg News, U.S.
Treasury Secretary John Snow said the Bush administration is
doing plenty to help automakers. It's negotiating free-trade
agreements with China and India and cracking down on excessive
lawsuits. Snow said automakers are helping themselves by
designing better vehicles and cutting costs. ``The market is
working,'' Snow said.
Not content to wait for Washington, more Michiganders are
courting rivals from Asia. On Oct. 13, 500 people traveled to
Superior Township near Ann Arbor to watch Hyundai Motor Co. open
a research center.
`Have I Got a Deal for You'
``If there are any more opportunities for ribbon cuttings,
have I got a deal for you,'' Michigan Governor Jennifer Granholm
told South Korea's largest automaker.
Tim Leuliette was in the audience. Leuliette, 55, is CEO of
Plymouth, Michigan-based Metaldyne Corp., which makes parts for
engines and transmissions. At a Deutsche Bank conference in
September, Leuliette said Metaldyne sends 34 percent of the parts
it produces for automakers to GM and Ford and 7 percent to Asian
companies.
By 2009, he hopes to sell 28 percent to GM and Ford and 20
percent to the Asians, which he says are growing faster.
``Thousands of auto companies have come and gone,'' Leuliette
says. ``Consumers are voting with their pocketbooks. We all have
to deal with that.''
Metaldyne is owned by Greenwich, Connecticut-based Heartland
Industrial Partners LP, a private equity firm. Tens of billions
of dollars in private equity cash is poised to go to the U.S.
auto industry, Leuliette says.
Private Equity
``The structural change that's necessary is not easy when
you're focused on quarterly earnings,'' Leuliette says. ``That's
why private equity can be a catalyst.''
Delphi's Miller is accustomed to working with private
equity. In 2003, he sold bankrupt Bethlehem Steel Corp., where he
was CEO, to billionaire Wilbur Ross. On Oct. 17, Ross formed a
venture with automotive interiors maker Lear Corp. to acquire
U.S. parts companies.
Miller says neither shareholders nor private equity
investors should invest in companies with defined-benefit plans.
He says private equity firms are avoiding suppliers that are
overly dependent on GM, which he says may lose more market share.
GM will go bankrupt if it can't cut pay and benefits during UAW
talks in 2007, he says.
A measure of how far the UAW is willing to go to adapt to
Detroit's new reality lies in Dundee, Michigan, a village of
3,750 people southwest of the city.
On Oct. 3, Tokyo-based Mitsubishi Motors Corp., Chrysler and
Hyundai began building four-cylinder engines at a pair of jointly
owned factories.
Saturday Shifts
To grab a piece of the action, the UAW agreed that workers
at the plants would be hired through a state agency, even though
Chrysler eliminated 250 similar jobs at a factory in nearby
Trenton. The UAW said its members -- who earn $30 an hour --
would work Saturdays at straight-time pay instead of overtime as
part of a rotating schedule that provides more days off.
The upshot is that the Dundee plants will employ 530 people,
or two-fifths as many as Chrysler needed at Trenton, says Bruce
Coventry, 52, president of the Global Engine Manufacturing
Alliance that runs the factories.
``We can hire 300 extra people and be laid off in two years,
or we can stay competitive and keep our jobs for 30 years,'' says
Jimmy Pierce, 36, a UAW team leader at Dundee.
Individually, Chrysler, Hyundai and Mitsubishi build no more
than 500,000 of each engine per year, Coventry says.
Help From Cabela's
Dundee is one of five identical facilities the three
companies will operate in Japan, South Korea and the U.S. to
build 1.8 million engines annually. The Dundee plants will
produce 840,000 engines per year by 2008 for the $803 million
investment to build them. That's half of the amount Chrysler paid
for prior factories, Coventry says.
With savings in hand, the new plants can buy computer-
controlled machining and assembly equipment that switches among
direct injection, turbocharged and hybrid gasoline/electric
engines with the flip of a switch, Coventry says.
At the Dundee announcement, Granholm said persuading Hyundai
and the others to stay near Detroit, rather than head to
neighboring Indiana, came with a price: Dundee contributed $42.5
million in tax abatements and grants.
She said the village couldn't have afforded the incentives
if it hadn't first attracted a Cabela's Inc. hunting superstore.
With 25-foot-high (7.6-meter-high) statues of grizzly bears
fighting out front, the store is one of Michigan's largest
tourist attractions, with 600,000 visitors a year.
Horse-Drawn Carriages
At Christ Church Cranbrook, some people are scared by signs
that Detroiters are losing leadership in the auto industry they
invented, parishioner David Carleton says. He counts himself
among those who know how to adapt. Carleton's Detroit-based film
production company, Mindfield Pictures, has added Toyota to
Chrysler, Ford and other clients.
Carleton, 38, says that in the early 20th century, residents
couldn't imagine how they'd survive as new technologies
diminished Detroit's dominance in building horse-drawn carriages
and wood-and coal-burning kitchen stoves. The city rebounded by
becoming the first to mass-produce automobiles.
A century later, as rivals outdo the once-dominant U.S.
automakers on innovations and costs, Detroit will have to muster
that kind of resilience to keep from fading, horse-and-carriage
style, into obsolescence.
source: bloomberg.com
Cliff's Notes: Oh noes!!!!
PistonFan: may buy an American car out of sheer pity for my neighbor.
11-28-2005, 09:13 PM
#3
I feel the need...
Thread Starter
How would you like to be down almost $500 million on your "investment" in less than six months? I might be a tad upset, watch the fireworks begin -- greater chance Rick Wagoner is out of a job vs GM declaring bankruptcy next year. 
Bold Moves at GM May Come With Kerkorian on Board: Doron Levin
2005-11-17 00:04 (New York)
(Commentary. Doron Levin is a Bloomberg News columnist. The
opinions expressed are his own.)
By Doron Levin
Nov. 17 (Bloomberg) -- The time may have arrived for
General Motors Corp. to try a bold stroke to do something to
reverse a slide that has some investors speculating not whether
the world's No. 1 automaker will seek bankruptcy, but when.
If GM does something out of character, that man behind it
may be none other than Kirk Kerkorian, the octogenarian casino
mogul and GM's biggest individual investor.
Yesterday GM stock fell another 5.8 percent, bringing the
decline since mid-September to a roughly 37 percent. The stock's
slide reflects growing apprehension in equity and credit markets
that GM is on its way to becoming the most iconic failure in
American business history.
The cascade of bad news for GM during the past 60 days has
been extraordinary. It includes the bankruptcy filing of Delphi
Corp., its erstwhile parts subsidiary and biggest supplier; GM's
$1.6 billion third-quarter net loss, its fourth-straight
quarterly deficit; and, last week, the announcement of
accounting errors requiring a restatement of 2001 financial
results.
Whatever else has plagued GM over the years, the accounting
profession always regarded the company as a paragon.
Since last spring, Kerkorian, 88, has amassed 9.9 percent
of GM's common shares. But he could lose all or most of his $1.7
billion investment, which already has lost a quarter of its
value, in a bankruptcy. The automaker discounts the bankruptcy
buzz, saying it has no plan to seek court protection from
creditors.
Financial Cushion
GM says its $19.2 billion hoard of cash and other liquid
investments is enough to tide it over until it starts making
money again.
Bankruptcy doesn't necessarily entail running out of money
though. As much as anything, it reflects a loss of confidence
among lenders, investors, customers, suppliers and employees in
a company's ability to keep commitments.
Kerkorian in May said he was a passive investor. He
evidently grew restive as GM's results deteriorated during the
summer. On Sept. 21, he disclosed that he may ask for
representation on GM's board.
Although credited with a sharp eye for spotting when the
fortunes of troubled companies are about to turn positive, the
reclusive billionaire may have underestimated the scope of GM's
financial woes, not to mention its dwindling position in the
all-important U.S. vehicle market.
Right-Hand Man
Kerkorian's lieutenant and probable proxy on the GM board,
Jerry York, has his own incentive to make sure GM remains
viable. York, 67, who is acting as consultant for Kerkorian's
Tracinda Corp., would be paid 4 percent of any profit on the GM
investment in 2009, according a filing with the U.S. Securities
and Exchange Commission.
York brings to the party long and rich experience in
financial management posts at automakers, most notably the
Chrysler bailout of the early 1980s. He also served as CFO
during Lou Gerstner's campaign to turnaround International
Business Machines Corp. in the mid-1990s.
``He's a very sharp individual,'' said Gerry Meyers, a
professor at the University of Michigan and former chief
executive of American Motors Corp.
Rick Wagoner, 52, GM's chief executive, is too diplomatic
to complain that Kerkorian might be a potential distraction as
the company tries to cut costs and speed up development of new
vehicles. York would be someone looking over his shoulder on
Kerkorian's behalf, second-guessing Wagoner's tactics,
challenging executives and pushing for quicker action.
Waste of Energy
Keeping Kerkorian at bay might take even more energy and
only postpone the inevitable. York could even be useful to
Wagoner. He not only knows more about the auto business than any
GM director, but could serve as the proverbial bad cop. The
Kerkorian-York presence gives Wagoner a reason to cut
employment, salary and benefits more substantively than he
originally dared.
GM has said it will announce a sweeping restructuring of
its North American operations before the end of the year. It's
the latest of many such moves that have unfolded over the years,
none to lasting effect.
GM has an institutional allergy to outsiders, especially
ones who might prod the automaker to overcome its plodding ways.
Ross Perot, the last billionaire who tried to pressure GM to
become more nimble, resigned as a director in the mid-1980s and
sold his GM stock after clashing with GM chairman Roger Smith.
But now Wagoner and the board know GM's credibility has
worn thin, exemplified by skepticism in credit markets of the
company's ability to repay debt. At the start of 2005, the
annual cost of insuring $10 million of GM debt for five years
with credit-default swaps was about $260,000. As of Tuesday,
that premium had risen to about $1.17 million.
Eugene Jennings, a retired professor of business at
Michigan State University, said ``boards can take a lot but they
won't stand for being embarrassed'' by a chief executive.
Wagoner's incremental strategies for GM during his five-
year tenure -- exemplified most recently by the $1 billion
reduction in union health-care costs -- have failed. The time
for piecemeal solutions is past.
source: bloomberg.com
Bold Moves at GM May Come With Kerkorian on Board: Doron Levin
2005-11-17 00:04 (New York)
(Commentary. Doron Levin is a Bloomberg News columnist. The
opinions expressed are his own.)
By Doron Levin
Nov. 17 (Bloomberg) -- The time may have arrived for
General Motors Corp. to try a bold stroke to do something to
reverse a slide that has some investors speculating not whether
the world's No. 1 automaker will seek bankruptcy, but when.
If GM does something out of character, that man behind it
may be none other than Kirk Kerkorian, the octogenarian casino
mogul and GM's biggest individual investor.
Yesterday GM stock fell another 5.8 percent, bringing the
decline since mid-September to a roughly 37 percent. The stock's
slide reflects growing apprehension in equity and credit markets
that GM is on its way to becoming the most iconic failure in
American business history.
The cascade of bad news for GM during the past 60 days has
been extraordinary. It includes the bankruptcy filing of Delphi
Corp., its erstwhile parts subsidiary and biggest supplier; GM's
$1.6 billion third-quarter net loss, its fourth-straight
quarterly deficit; and, last week, the announcement of
accounting errors requiring a restatement of 2001 financial
results.
Whatever else has plagued GM over the years, the accounting
profession always regarded the company as a paragon.
Since last spring, Kerkorian, 88, has amassed 9.9 percent
of GM's common shares. But he could lose all or most of his $1.7
billion investment, which already has lost a quarter of its
value, in a bankruptcy. The automaker discounts the bankruptcy
buzz, saying it has no plan to seek court protection from
creditors.
Financial Cushion
GM says its $19.2 billion hoard of cash and other liquid
investments is enough to tide it over until it starts making
money again.
Bankruptcy doesn't necessarily entail running out of money
though. As much as anything, it reflects a loss of confidence
among lenders, investors, customers, suppliers and employees in
a company's ability to keep commitments.
Kerkorian in May said he was a passive investor. He
evidently grew restive as GM's results deteriorated during the
summer. On Sept. 21, he disclosed that he may ask for
representation on GM's board.
Although credited with a sharp eye for spotting when the
fortunes of troubled companies are about to turn positive, the
reclusive billionaire may have underestimated the scope of GM's
financial woes, not to mention its dwindling position in the
all-important U.S. vehicle market.
Right-Hand Man
Kerkorian's lieutenant and probable proxy on the GM board,
Jerry York, has his own incentive to make sure GM remains
viable. York, 67, who is acting as consultant for Kerkorian's
Tracinda Corp., would be paid 4 percent of any profit on the GM
investment in 2009, according a filing with the U.S. Securities
and Exchange Commission.
York brings to the party long and rich experience in
financial management posts at automakers, most notably the
Chrysler bailout of the early 1980s. He also served as CFO
during Lou Gerstner's campaign to turnaround International
Business Machines Corp. in the mid-1990s.
``He's a very sharp individual,'' said Gerry Meyers, a
professor at the University of Michigan and former chief
executive of American Motors Corp.
Rick Wagoner, 52, GM's chief executive, is too diplomatic
to complain that Kerkorian might be a potential distraction as
the company tries to cut costs and speed up development of new
vehicles. York would be someone looking over his shoulder on
Kerkorian's behalf, second-guessing Wagoner's tactics,
challenging executives and pushing for quicker action.
Waste of Energy
Keeping Kerkorian at bay might take even more energy and
only postpone the inevitable. York could even be useful to
Wagoner. He not only knows more about the auto business than any
GM director, but could serve as the proverbial bad cop. The
Kerkorian-York presence gives Wagoner a reason to cut
employment, salary and benefits more substantively than he
originally dared.
GM has said it will announce a sweeping restructuring of
its North American operations before the end of the year. It's
the latest of many such moves that have unfolded over the years,
none to lasting effect.
GM has an institutional allergy to outsiders, especially
ones who might prod the automaker to overcome its plodding ways.
Ross Perot, the last billionaire who tried to pressure GM to
become more nimble, resigned as a director in the mid-1980s and
sold his GM stock after clashing with GM chairman Roger Smith.
But now Wagoner and the board know GM's credibility has
worn thin, exemplified by skepticism in credit markets of the
company's ability to repay debt. At the start of 2005, the
annual cost of insuring $10 million of GM debt for five years
with credit-default swaps was about $260,000. As of Tuesday,
that premium had risen to about $1.17 million.
Eugene Jennings, a retired professor of business at
Michigan State University, said ``boards can take a lot but they
won't stand for being embarrassed'' by a chief executive.
Wagoner's incremental strategies for GM during his five-
year tenure -- exemplified most recently by the $1 billion
reduction in union health-care costs -- have failed. The time
for piecemeal solutions is past.
source: bloomberg.com
11-28-2005, 09:51 PM
#4
Suzuka Master
Originally Posted by PistonFan
GM has said it will announce a sweeping restructuring of
its North American operations before the end of the year. It's
the latest of many such moves that have unfolded over the years,
none to lasting effect.
Eugene Jennings, a retired professor of business at
Michigan State University, said ``boards can take a lot but they
won't stand for being embarrassed'' by a chief executive.
Wagoner's incremental strategies for GM during his five-
year tenure -- exemplified most recently by the $1 billion
reduction in union health-care costs -- have failed. The time
for piecemeal solutions is past.
source: bloomberg.com
its North American operations before the end of the year. It's
the latest of many such moves that have unfolded over the years,
none to lasting effect.
Eugene Jennings, a retired professor of business at
Michigan State University, said ``boards can take a lot but they
won't stand for being embarrassed'' by a chief executive.
Wagoner's incremental strategies for GM during his five-
year tenure -- exemplified most recently by the $1 billion
reduction in union health-care costs -- have failed. The time
for piecemeal solutions is past.
source: bloomberg.com
11-29-2005, 08:54 AM
#5
Team Owner
Originally Posted by CGTSX2004
$65/hr for cutting the grass? Shit...if I had known they were paying that much for cutting grass, I'd have gone and worked for Delphi right out of high school...No wonder the US automakers are going out of business...
Oyeah, it was cash, under the table too.
Here is a business idea for you guys. I know someone that installs xmas lights on houses for $100 an hour. He supplies the lights.
11-29-2005, 01:12 PM
#7
Originally Posted by doopstr
Have you ever tried to hire someone to cut your grass? A local guy came to my house a few weeks ago and offered to cut my grass/remove leaves/remove dead branches for $80 a week.
Oyeah, it was cash, under the table too.
Here is a business idea for you guys. I know someone that installs xmas lights on houses for $100 an hour. He supplies the lights.
Oyeah, it was cash, under the table too.
Here is a business idea for you guys. I know someone that installs xmas lights on houses for $100 an hour. He supplies the lights.
Seriously? I remember when we owned a house in Cali, we had someone who came and did most of our gardening for $120 a month. 
guess the prices have gone up a bit?
Trending Topics
12-01-2005, 09:41 PM
#8
Banned
Join Date: Feb 2005
Location: Champaign, Illinois
Age: 42
Posts: 7,309
Likes: 0
Received 0 Likes
on
0 Posts
All I can say is that there are POTHOLES on Woodward through Bloomfield Hills. POTHOLES in Bloomfield Hills. I think I'll stay in The R.H. and Oakland Township. I mean, there are POTHOLES in Bloomfield Hills (and also in GM and Ford's business plans, but I don't plan to hit any more POTHOLES in Bloomfield to talk to Roger Smith, er, "The" Rick Wagoner)!
End of the World, Part XX was sometime last week. What Superbowl are we on next year? End of the World, Part XXV coming tomorrow in the Detroit News
<= turned down an interview with Ford corporate last year
Really tired of my old man bellyaching. Sure, I'm made my cease-fire with General Motors, but I figure they're shooting themselves down and taking down all those a$$wipes who ride their Yukon Denalis on my tail ... going down with them.
/croctears
<= concerned about the Michigan economy
End of the World, Part XX was sometime last week. What Superbowl are we on next year? End of the World, Part XXV coming tomorrow in the Detroit News
<= turned down an interview with Ford corporate last year
Really tired of my old man bellyaching. Sure, I'm made my cease-fire with General Motors, but I figure they're shooting themselves down and taking down all those a$$wipes who ride their Yukon Denalis on my tail ... going down with them.
/croctears
<= concerned about the Michigan economy
Last edited by M TYPE X; 12-01-2005 at 09:43 PM.
04-06-2006, 06:27 PM
#9
I feel the need...
Thread Starter
Originally Posted by M TYPE X
<= concerned about the Michigan economy
As Detroit wobbles, even its toniest suburbs feel ripples from the woes of GM and Ford
By JEFFREY ZASLOW
April 1, 2006; Page A1
BLOOMFIELD HILLS, Mich. -- Foreclosures are up and charitable giving is down. A local country club has a waiting list -- for members who want to quit. The market for expensive homes is so slow that Michael Robbins, a divorce attorney here, says one of his clients is still living with his ex -- three months after the divorce was final.
With the Michigan economy battered by the ailing auto industry, the ripples are being felt across the state -- even here in one of the nation's wealthiest communities. At a time when there's a growing gap between the rich and the poor, Bloomfield Hills offers a clear reminder that the wealthy often can't escape from the severe problems of a local economy. And that, in turn, is putting pressure on a wider swath of less-wealthy residents who depend on the rich for business.
That people are feeling down and out in Bloomfield Hills is certainly a matter of degree. Blue-collar workers, in a state that lost 21,000 jobs since November alone, have far-bigger worries -- about feeding families and paying health-care bills. And thousands of auto workers, now considering taking lump-sum buyouts recently proposed by General Motors Corp., are struggling over the question of how they'll support themselves once the quick-cash fix is gone. Just yesterday, auto-parts supplier Delphi Corp. announced plans to cut 25% of its salaried positions, while proposing to cancel labor contracts and retiree medical benefits. (See related article.)
Oakland County, where Bloomfield Hills is located, is the nation's fourth-wealthiest county with a population of more than one million, according to the latest per capita income data from the Commerce Department. Much of that money is connected to the fortunes of U.S. auto makers, making residents unusually vulnerable to the fate of a single industry. Unlike some major U.S. cities, Detroit is home to almost none of the richest residents in its area. They long ago moved on to a few select suburbs, including Bloomfield Hills.
http://www.bhambuzz.org/index.php/bu..._of_saturdays/
By JEFFREY ZASLOW
April 1, 2006; Page A1
BLOOMFIELD HILLS, Mich. -- Foreclosures are up and charitable giving is down. A local country club has a waiting list -- for members who want to quit. The market for expensive homes is so slow that Michael Robbins, a divorce attorney here, says one of his clients is still living with his ex -- three months after the divorce was final.
With the Michigan economy battered by the ailing auto industry, the ripples are being felt across the state -- even here in one of the nation's wealthiest communities. At a time when there's a growing gap between the rich and the poor, Bloomfield Hills offers a clear reminder that the wealthy often can't escape from the severe problems of a local economy. And that, in turn, is putting pressure on a wider swath of less-wealthy residents who depend on the rich for business.
That people are feeling down and out in Bloomfield Hills is certainly a matter of degree. Blue-collar workers, in a state that lost 21,000 jobs since November alone, have far-bigger worries -- about feeding families and paying health-care bills. And thousands of auto workers, now considering taking lump-sum buyouts recently proposed by General Motors Corp., are struggling over the question of how they'll support themselves once the quick-cash fix is gone. Just yesterday, auto-parts supplier Delphi Corp. announced plans to cut 25% of its salaried positions, while proposing to cancel labor contracts and retiree medical benefits. (See related article.)
Oakland County, where Bloomfield Hills is located, is the nation's fourth-wealthiest county with a population of more than one million, according to the latest per capita income data from the Commerce Department. Much of that money is connected to the fortunes of U.S. auto makers, making residents unusually vulnerable to the fate of a single industry. Unlike some major U.S. cities, Detroit is home to almost none of the richest residents in its area. They long ago moved on to a few select suburbs, including Bloomfield Hills.
http://www.bhambuzz.org/index.php/bu..._of_saturdays/
04-30-2006, 06:06 PM
#11
I feel the need...
Thread Starter
As GM Goes, So Goes the Nation
Originally Posted by M TYPE X
This slide's ride is gonna be painful.
I’m not going to affirm the old saw about what’s good for General Motors is good for the nation, or even turn it on its head and suggest that what’s bad for General Motors is bad for the nation. Mainstreet Americans know that the auto industry in terms of its dominance of U.S. economic activity is not what it once was. They also know that the industry is under siege from foreign competition and that a series of mistakes made over several decades by both management and labor have compounded the predicament. But the U.S. economy for better or worse, now stands on service and finance, as opposed to manufacturing legs. “What’s good for Microsoft or Citigroup” would probably be a better fit for the modern day version of Charles Wilson’s metaphor even though Gates or Prince would never acknowledge it.
But as an entropic symbol of U.S. manufacturing aside, I think it important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. GM commands the headlines today, but as General Motors goes, so goes the nation. Following their progress over the next few months and years will be like getting a 2010 Wall Street Journal in June of 2006. But rather than describe in detail every similarity of General Motors and the U.S. economy, I invite you to digest the following schematic for its rather frightening similarities and possible future consequences. I will sum up my own conclusions in the paragraphs to follow.
If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the uncompetitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. That is not to say that other automobile manufacturers or countries don’t share similar characteristics: they do – but GM and the U.S. are compared here because of their historical dominance and therefore the influence that they will have on investment markets as they struggle to adjust. If GM is a canary, let’s hope for the canary’s long life, but be mindful of its chirping deep in the mineshaft of future events that speak to broader implications for the U.S. economy.
http://www.pimco.com/LeftNav/Late+Br...O+May+2006.htm
But as an entropic symbol of U.S. manufacturing aside, I think it important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. GM commands the headlines today, but as General Motors goes, so goes the nation. Following their progress over the next few months and years will be like getting a 2010 Wall Street Journal in June of 2006. But rather than describe in detail every similarity of General Motors and the U.S. economy, I invite you to digest the following schematic for its rather frightening similarities and possible future consequences. I will sum up my own conclusions in the paragraphs to follow.
If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the uncompetitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. That is not to say that other automobile manufacturers or countries don’t share similar characteristics: they do – but GM and the U.S. are compared here because of their historical dominance and therefore the influence that they will have on investment markets as they struggle to adjust. If GM is a canary, let’s hope for the canary’s long life, but be mindful of its chirping deep in the mineshaft of future events that speak to broader implications for the U.S. economy.
http://www.pimco.com/LeftNav/Late+Br...O+May+2006.htm
Related thread:
https://acurazine.com/forums/showthr...ght=flat+world
01-13-2010, 07:49 PM
#12
I feel the need...
Thread Starter
Detroit Skids From Dream Machines to Bailouts in Vivid History
Halfway through “Crash Course,” Paul Ingrassia’s poised account of how Detroit’s automakers slid “from glory to disaster,” I started thinking about a Ford who never built Model Ts, Edsels or Mustangs.
“This is the saddest story I have ever heard,” Ford Madox Ford wrote in his classic novel, “The Good Soldier.”
Motor City was once “the Silicon Valley of the mid-20th century,” writes Ingrassia, a former Detroit bureau chief for the Wall Street Journal. It was a city of opportunity that brought us tailfins and built the dream machines of movies and music, from “American Graffiti” to “Little Deuce Coupe.”
These days, Motown is synonymous with bankruptcy filings, blight and a T-shirt that local teenagers wore long before the bailouts of General Motors Co. and Chrysler Group LLC: “Detroit: Where the Weak Are Killed and Eaten.....”
“This is the saddest story I have ever heard,” Ford Madox Ford wrote in his classic novel, “The Good Soldier.”
Motor City was once “the Silicon Valley of the mid-20th century,” writes Ingrassia, a former Detroit bureau chief for the Wall Street Journal. It was a city of opportunity that brought us tailfins and built the dream machines of movies and music, from “American Graffiti” to “Little Deuce Coupe.”
These days, Motown is synonymous with bankruptcy filings, blight and a T-shirt that local teenagers wore long before the bailouts of General Motors Co. and Chrysler Group LLC: “Detroit: Where the Weak Are Killed and Eaten.....”
08-15-2010, 06:05 AM
#15
I feel the need...
Thread Starter
Detroit Goes From Gloom to Economic Bright Spot
DETROIT — After a dismal period of huge losses and deep cuts that culminated in the Obama administration’s bailout of General Motors and Chrysler, the gloom over the American auto industry is starting to lift.
Jobs are growing. Factory workers are anticipating their first healthy profit-sharing checks in years. Sales are rebounding, with the Commerce Department reporting Friday that automobiles were a bright spot in July’s mostly disappointing retail sales.
The nascent comeback is far from a finished product. Foreign competitors are leaner and stronger, accounting for more than half of all car sales in this country. The sputtering economic rebound is spooking investors and consumers alike, threatening to derail some of Detroit’s gains. And talks next year on a new contract with the United Automobile Workers could revive old hostilities.
Still, the improving mood here reflects real changes in how Detroit is doing business — and a growing sense that the changes are turning the Big Three around, according to industry executives and analysts tracking the recovery......
Jobs are growing. Factory workers are anticipating their first healthy profit-sharing checks in years. Sales are rebounding, with the Commerce Department reporting Friday that automobiles were a bright spot in July’s mostly disappointing retail sales.
The nascent comeback is far from a finished product. Foreign competitors are leaner and stronger, accounting for more than half of all car sales in this country. The sputtering economic rebound is spooking investors and consumers alike, threatening to derail some of Detroit’s gains. And talks next year on a new contract with the United Automobile Workers could revive old hostilities.
Still, the improving mood here reflects real changes in how Detroit is doing business — and a growing sense that the changes are turning the Big Three around, according to industry executives and analysts tracking the recovery......
02-08-2011, 08:37 PM
#16
I feel the need...
Thread Starter
Chrysler scores hit with risky ad
http://www.youtube.com/watch?v=SKL25...layer_embedded
From The Detroit News: http://detnews.com/article/20110208/...#ixzz1DQQaswQ7
You better lose yourself in the music, the moment /You own it...
Chrysler Group LLC andits advertising agencyknew their Super Bowl homage to Detroit was a risk.
The $9 million, two-minute ad starred homegrown rapper Eminem, the city and the Chrysler 200 in a gritty yet poignant tribute that challenged viewers to reconsider their image of Motown.....
The $9 million, two-minute ad starred homegrown rapper Eminem, the city and the Chrysler 200 in a gritty yet poignant tribute that challenged viewers to reconsider their image of Motown.....
You better lose yourself in the music, the moment /You own it...
03-24-2011, 06:24 PM
#17
I feel the need...
Thread Starter
Detroit Outgrows Silicon Valley in Technology Jobs as Ford Binges on Hires
As a group of Ford Motor Co. (F) managers in blue jeans sat down to interview a suit-wearing candidate from a California technology company this month, they jokingly offered to cut off his tie to put him at ease.
Auto industry executives are trying to make Silicon Valley engineers feel at home in Detroit. With a burgeoning number of technology job openings to fill, they’re scouring Internet companies for workers, wining and dining applicants, and seeking promising students at schools such as Stanford University.
“We have a whole slew of job postings out there currently,” said Doug VanDagens, director of Ford’s connected service solutions, who has been trying to lure engineers to the automaker to design software. “We’re just on a growth binge.”
Expertise in cloud computing, mobile software applications and energy management are in demand in the Motor City as automakers replace car stereos with Internet radio and gasoline engines with motors powered by lithium-ion batteries. Technology job postings in the Detroit area doubled last year, making it the fastest-expanding region in the country, according to Dice Holdings Inc. (DHX), a job-listing website.
“There’s a war for talent out there, and it’s only going to get worse,” said Jim Bazner, vice president of human capital solutions at MSX International in Southfield, Michigan, which helps automakers find specialized employees. “There are hundreds of jobs, and all the automakers are hiring.....”
Auto industry executives are trying to make Silicon Valley engineers feel at home in Detroit. With a burgeoning number of technology job openings to fill, they’re scouring Internet companies for workers, wining and dining applicants, and seeking promising students at schools such as Stanford University.
“We have a whole slew of job postings out there currently,” said Doug VanDagens, director of Ford’s connected service solutions, who has been trying to lure engineers to the automaker to design software. “We’re just on a growth binge.”
Expertise in cloud computing, mobile software applications and energy management are in demand in the Motor City as automakers replace car stereos with Internet radio and gasoline engines with motors powered by lithium-ion batteries. Technology job postings in the Detroit area doubled last year, making it the fastest-expanding region in the country, according to Dice Holdings Inc. (DHX), a job-listing website.
“There’s a war for talent out there, and it’s only going to get worse,” said Jim Bazner, vice president of human capital solutions at MSX International in Southfield, Michigan, which helps automakers find specialized employees. “There are hundreds of jobs, and all the automakers are hiring.....”
04-05-2011, 04:15 PM
#19
Engineer
Thread
Thread Starter
Forum
Replies
Last Post
AcuraKidd
Non-Automotive & Motorcycle Sales
1
09-26-2015 04:10 PM
