GM tried to mask its billion-dollar third-quarter loss with bright news

Marc

Fully vaccinated are you?
Leader
From MSN - Interesting summary:
General Motors' big scam

GM tried to mask its billion-dollar third-quarter loss with bright news about cuts in health-care costs and some vague pronouncements about more savings. I don't buy it.

By Robert Walberg

Rick Wagoner might not be the best CEO in the country, but he would make an expert tosser in three-card monte. For those unfamiliar with the game, three-card monte is a sleight-of-hand game where willing participants are scammed out of their money by the dealer, or tosser.

Well, Mr. Wagoner just scammed the investment community when he announced General Motors' (GM, news, msgs) huge third-quarter loss of $1.1 billion, or $1.92 per share. The Street expected a loss of “only” 87 cents per share.

Normally, a miss of this magnitude would tank the stock. Knowing, though, that it was about to report more bad news, the company pursued a course of distraction. At the same time it announced staggering losses, management trumpeted a slew of restructuring moves -- the biggest being a deal with the United Auto Workers union to cut health-care costs by nearly $3 billion a year.

GM also announced another $2 billion in structural cost cuts -- though it’s important to note that details of how the company hoped to achieve those cuts were virtually nonexistent. In sum, General Motors hopes to save nearly $5 billion (or $5 per share) by the end of calendar year 2006.

Management also announced that it is considering selling a majority stake in its profitable GMAC financing unit. Based on Street estimates, selling a 51% stake would raise nearly $11 billion. That would go a long way toward shoring up the company’s finances, though it would take away a major source of the automaker’s earnings.

Market share: Now you see it…

As management hoped, the Street ignored the large operating losses and focused on the restructuring. GM stock soared 7.5% Monday, closing back above $30 per share. Additional gains are likely over the near-term as traders cover short positions and Wall Street analysts up their ratings.

Better days might indeed be in the offing. It’s tough to imagine things getting much worse. But investing on the hope of improvement is never a great, or profitable, idea. Despite its efforts to lower its structural costs, the critical problem facing GM over the long term is the downward trend in market share.

The $1.1 billion quarterly loss was not the only number management wanted to sweep under the rug. Two more numbers it wasn’t very proud of were 14.6% and 25.6%. Those were its global and North American market-share numbers, and they were down 0.8% and 2.9% from the same period last year. Even more than the quarter's huge loss, these are the numbers that should frighten investors.

GM can streamline its operations all it wants. But if it can’t streamline the design of its cars, improve sales and grow its market share, all the restructurings will be for naught. What really ails GM is not the high costs of operations but an unfocused, unattractive and uninspiring assortment of cars that leaves a growing number of consumers uninterested.

Don’t get me wrong. Monday's cost-cutting announcements improve the company’s chances of returning to profitability sooner rather than later. It was especially encouraging to see management and labor working together amicably to reach an agreement on reducing health-care costs. That’s a big change from the past, and shows that both sides recognize they need one another to survive.

At some time, GM management needs to focus on the larger picture, and that’s how to recapture market share from foreign competitors. The company bet on big trucks and SUVs to return it to glory at a time when oil prices were just about to shoot higher -- a big mistake that many of its foreign competitors did not make. Now it must backtrack, downsize and retool to meet the growing demand for sleeker, more fuel-efficient vehicles.

No real fix in sight

For the better part of two decades, the company has been chasing rather than leading the market. That failure rests squarely with management. Unfortunately, the current team doesn’t seem any better equipped to deal with the company’s long-term problems than its predecessors. It spends too much time pointing fingers and making excuses and not enough time innovating and inspiring.

With the health-care crisis abated (at least temporarily), the financial exposure to Delphi’s bankruptcy factored in and cost-cutting plans put forth, management should have no more major distractions. It’s time now to deliver on a new line of automobiles that win the heart and minds of consumers worldwide.

GM’s stock might go up another 10% or more on the hope that tomorrow will be better than today. But this is one investor who won’t bite. Until management proves that it knows how to do something other than cut costs, GM’s future isn’t likely to improve. It might not lose $1.6 billion next quarter or the quarter after that, but make no mistake about it: GM is a broken company with no real signs of getting healthy.

Show me sustained market share gains and I’ll jump back on board. Until then, I have no more interest in playing the stock than I do in playing a game of three-card monte.
 

Jim Wynne

Leader
Admin
GM can streamline its operations all it wants. But if it can’t streamline the design of its cars, improve sales and grow its market share, all the restructurings will be for naught. What really ails GM is not the high costs of operations but an unfocused, unattractive and uninspiring assortment of cars that leaves a growing number of consumers uninterested.

There's the issue in a nutshell. Cutting the costs involved in producing products that people don't want to buy is just whistling past the graveyard, and further evidence that A) Deming was right, and B) GM executives just don't get it.
 
B

Baldrick

Couldn't agree more JSW05.

Rick Wagoner might not be the best CEO in the country, but he would make an expert tosser in three-card monte.

Sounds to me like the guy is already a grade 'A' tosser (given that the word "tosser" means something quite different over here! :mg: )

Anyone care to take a guess as to how long it will be before one of the Big Three US auto manufacturers goes out of business? I wouldn't be surprised if it happened within 5 years.
 
K

Kevin H

With regard to the GM's bankruptcy, the article below just hit the Yahoo News from AP. Looks like interesting times for the auto industry and its suppliers.
By ALEKSANDRS ROZENS, AP Business Writer

NEW YORK - An increasing number of investors are betting that General Motors Corp., the world's largest automaker, may be forced to seek bankruptcy protection within the next six to 12 months as it struggles to overcome slumping sales and the high cost of health care benefits for workers and retirees.

Concerns about the automaker's future are showing up in the credit default swaps market, where investors effectively buy insurance protection against defaults. Holders of GM debt who want to arrange a hedge against the risk that they won't be repaid are finding that the cost of buying the protection has risen dramatically in recent days.

"The markets are telling you that more traders are starting to see a greater risk that a default scenario could happen sooner in time than later," said John Tierney, a credit strategist at Deutsche Bank Securities in New York. "You cannot deny there is a pattern here."

GM spokesman Jerry Dubrowski responded by saying the automaker has "no plans to declare bankruptcy," and he noted that GM has about $19 billion in cash on hand. Beyond that, he declined to discuss recent pricing trends for credit default swaps. "Typically we don't comment on stock prices or bond prices," he said. "We don't think it is appropriate to do that."

At issue is the nearly $31 billion in debt related to GM automaking operations that ratings agencies already have downgraded to junk status, or below investment grade. Dubrowski said GM's total debt, including debt sold by its General Motors Acceptance Corp. unit, now stands at $276 billion.

Credit default swaps for GM are now trading at what is known as an "upfront" basis, meaning a bondholder seeking protection against a default has to pay more money up front because the Wall Street firms arranging the hedges have to pay more to protect themselves.

Michiko Whetten, a quantitative credit analyst at Nomura Securities International Inc., said GM debt had previously never traded on an upfront basis. But now that it is, it puts GM in an unenviable category with Delphi Corp. and Delta Air Lines Inc. — other companies whose debt traded on an upfront basis ahead of their petitioning for bankruptcy.

Auto parts maker Delphi, once owned by GM declared bankruptcy in October, and Delta, the nation's third largest carrier, went bankrupt in September.

GM lost nearly $4 billion in the first nine months of this year. The Detroit-based company has been hammered by high labor costs and rising prices for raw materials like steel. And while it recently reached agreement with the United Auto Workers union to temper the rise in health costs, GM still has been losing U.S. market share due to competition from healthier foreign rivals and weakened demand for sport utility vehicles, its longtime cash cows.

Wall Street's credit default swaps traders now view GM as a company so risky that a holder now must pay as much as $12 per year for every $100 of the automaker's five-year corporate debt if they want to hedge against a default, up from $8 to $9 just several weeks ago. In addition, credit default swaps traders are now demanding more of that money up front from investors looking to protect their GM holdings.

These losses may not actually occur, but the pricing moves in the swaps market are a good indication of how Wall Street traders and investors are judging the risk of a GM default.

GM Chairman and CEO Rick Wagoner said in an October interview with The Associated Press that unlike the airline industry, where some bankruptcy filings haven't had a big effect on business, even speculating about bankruptcy hurts the auto business.

"When you're buying a car it's a very different thing," Wagoner said. "It's a massive financial commitment. You expect to own it for a long time, and (bankruptcy) is something that's going to have an impact in the consumer's mind."

On Monday, GM, whose stock is trading at nearly half of its 52-week high, announced price cuts to shore up its sales. Its shares fell 40 cents, or 1.7 percent, to $23.34 in afternoon trading Tuesday on the New York Stock Exchange.

GM's outlook in the credit default swaps market took on a bleaker tone after last week's disclosure by GM that it plans to restate its earnings for recent years. GM said its 2001 earnings were overstated by approximately $300 million to $400 million, but the final amount hasn't been determined. GM plans to issue the restated earnings for 2001 and any subsequent years before it issues its 2005 annual report next year.

That triggered what is known as an inversion in the credit swaps curve — a measure of risk between short- and long-term GM debt — meaning that Wall Street traders are betting the risk of GM declaring bankruptcy is greater in the next six months to a year than over a longer period of time like five years.

In a November 10 report, Banc of America analysts reiterated a sell rating on the company's stock, saying they believe the odds GM management could be held accountable for the accounting woes has risen and this could accelerate a bankruptcy protection decision they judged to be "inevitable."

According to Deutsche Bank's Tierney, the accounting problems caught investors by surprise and "contributed to a sense that GM problems are very deep."
 

Wes Bucey

Prophet of Profit
More employee blood to spill

Alas, the news just goes from bad to worse:
GM prepares to wield job ax
By Jui Chakravorty

DETROIT (Reuters) - As General Motors Corp. (NYSE:GM - news) prepares to announce much-awaited job cuts and U.S. assembly plant closings, analysts wonder if the cuts will be aggressive enough to convince people of a possible turnaround at the ailing auto giant.

The world's largest automaker, which has lost nearly $4 billion this year, has said it will provide details by the end of 2005 about its previously announced plan to cut at least 25,000 manufacturing jobs as part of a broader restructuring plan.

"Announcing the plan alone will not be enough," Standard & Poor's equity analyst Efraim Levy said on Friday. "If the plan is not concrete, not enough, or not realizable, Wall Street could take it negatively."

Chief Executive Richard Wagoner has committed to a series of plant closings and the elimination of nearly a quarter of GM's U.S. factory work force through 2008.

"They need to lose a lot more jobs through 2008. The 25,000 number is the natural attrition rate, and they need to go beyond the ordinary to accomplish any change. They need more, a lot more," Levy said.

GM has been grappling with high health-care and commodities costs, loss of U.S. market share to foreign rivals, and slumping sales of large sport utility vehicles which used to be its profit center, but have now lost popularity due to high gasoline prices.

To make matters worse, GM's main parts supplier -- bankrupt Delphi Corp. (Other OTC:DPHIQ - news) -- is battling with its unions and will ask the court to void its labor contracts if a deal is not reached by mid-December. A strike at Delphi could shut down some GM and Delphi plants and could force the automaker to burn through billions of dollars a week, analysts have said.

A work stoppage could also cripple GM, Delphi's largest customer, as it prepares to roll out its GMT-900 truck series, a crucial component of its recovery plan.

PRESSURE MOUNTS
Wagoner in June said the proposed cuts would save the automaker $2.5 billion a year. But analysts worry about expenses associated with the cost cuts, and some estimates predict that early retirement and employee relocation costs could total up to $2 billion.

As investors await the changes, the Detroit News on Friday reported GM plans to make the announcement as early as next week.

"We have said that we will make announcements by the end of the year and that's what we will be doing," GM spokesman Stefan Weinmann said. "And we won't provide any more specifics."

Wagoner has said he plans to cut manufacturing capacity to match demand by 2008. Some experts believe The Lansing Craft Center, where GM builds the Chevrolet SSR, will likely be shut down because the convertible sport pickup has not been selling very well and GM has idled the plant for several months this year.

At least two other plants likely to be shut down are the Doraville, Georgia, plant, which builds GM's minivans, and an SUV plant in Janesville, Wisconsin, analysts said.

The new plant closings will add to three assembly plants that GM has already closed or stopped production at this year: a car plant in Lansing, Michigan, an SUV plant in Linden, New Jersey, and a van plant in Baltimore.

GM will also have to shed its old habit of keeping furloughed workers on the payroll and typically cutting factory jobs only by retiring workers after 30 years of services, analysts say.

Analysts also worry that GM's proposed sale of a 51-percent stake in its finance arm will reduce pressure to undergo a major restructuring, as the sale could bring in as much as $15 billion.

Still, GM shares rose 96 cents, or 4.3 percent, to $23.60 in Friday trade on the New York Stock Exchange.
 

Wes Bucey

Prophet of Profit
Ford says, "Me, too! Me, too!"

Not to be upstaged by GM, Ford says, "We can sacrifice our workers, too!"
Ford to cut 4,000 jobs in North America
By Poornima Gupta Fri Nov 18,10:57 PM ET

NEW YORK (Reuters) - Ford Motor Co. (NYSE:F - news), facing a deepening financial crisis, said on Friday it plans to eliminate 4,000 salaried jobs, or 10 percent of its North American white-collar work force, as part of a larger restructuring plan.

A majority of the job cuts -- announced to employees in an e-mail distributed by Mark Fields, president of Ford's Americas business -- will be made in the first quarter of 2006, spokesman Oscar Suris said.

The cuts will come through attrition, layoffs and the elimination of some agency and contract positions, Suris said.

They will be in addition to the 2,750 job losses already announced by the automaker this year.

Ford lost $284 million in the third quarter and its automotive division is in the red. Its North American vehicle operations have lost more than $1.4 billion before taxes so far this year.

The company's shares have dropped more than 40 percent since the end of 2004. They hit $7.57 per share on Thursday, the lowest in more than two years, before rebounding to $8.41 per share on Friday.

Ford Chairman and Chief Executive Bill Ford Jr. said last month that the automaker will announce its long-awaited restructuring plan -- dubbed "Way Forward" -- in January.

He also warned that the plan would include "significant plant closings" to help slash costs in North America.

Fields and his team are expected to present Bill Ford with the restructuring plan in December.

Ford, like cross-town rival General Motors Corp., has seen its margins squeezed by intense competition in the U.S. market and by a dramatic slowdown in sales of cash cows such as mid-size and large SUVs due to high gasoline prices.

The two companies are also facing higher costs and a cut in their credit ratings to high-yield, or "junk," status.

Ford has taken a number of steps this year to strengthen its balance sheet, including the sale its Hertz Corp. rental car unit.

It also agreed to bailout former parts subsidiary Visteon Corp. and announced that it intends to increase the production of hybrid vehicles tenfold to 250,000 annually.
 

Jen Kirley

Quality and Auditing Expert
Leader
Admin
Thus we can observe the true widespread costs of failure to create and run a truly effective business model. Japanese auto manufacturing continues to dominate. Even though they also build Toyota and other East Asian auto company cars in the U.S., there is not a satisfactory re-absorption of cast-out U.S. auto workers. You know, the workers that contribute an estimated 2/3 of our U.S. economy through their buying power? Our status will continue to ratchet downward as this trend plays out.

Unfortunately new plants are not always being built here. Reasons recently given are focused on availability of an able, sufficiently educated workforce. Arguably there is a sufficient workforce available, but it's not concentrated where the plants were intended to locate.

Therein lies a contributing rub. Our society prizes home ownership, but owning a home and investing in a community (schools, friends, etc.) tends to apply a dampening pressure on U.S. workers' mobility. This is more, not less the case as home values have exploded in active areas.

It is a widespread application of personal decision making. I submit that the younger or higher level a worker is, the more likely he/she will accept the idea of uprooting family in pursuit of better work. I've done it three times, but the majority of Mainers have never lived elsewhere; they are moving out of rural and mill towns to the cities, but mostly the young leave the state.

So our workforce laments the end of work quality and security, but our society continues its schizophrenic set of values: home ownership over a more mobile model, fragmented families (every little branch of the family tree has its own home and set of expenses) and reluctance to undergo the personal risk for professional gain. Our business society doesn't help, as it thrusts most of the risk on workers to correctly guess what they should become and where, so they will be placed in elusive, rewarding work that may be enduring or not.

As our economy goes on its present course, the work force is less able to undertake this risk, not more able. The onus will continue to be placed on schools to "provide an appropriate education" without due recognition of these market and social pressures, and an overall forgetfulness that effort is an equal contributor to the good schooling equation.

I fear it will overall get worse before it improves much.
 

Wes Bucey

Prophet of Profit
GM says to Ford, "Can you top this?"

Instead of showing who can grow more, GM & Ford seem determined to show whose employees can suffer more pain. Ford says, "We can put 4,000 out of work!" GM fires back, "Hey! Not only are we going to lay off some people, we're going to close some plants so the whole community will suffer, not just some employees."
GM to close 4 U.S. plants: report
Monday November 21, 4:00 AM EST

FRANKFURT (Reuters) - General Motors Corp (GM) Chief Executive Rick Wagoner will announce plans this week to close four U.S. assembly plants, the Automotive News industry paper reported on Monday, citing a "company insider."

It said the move was part of an effort by the world's biggest carmaker to quiet Wall Street speculation about a possible bankruptcy.

It quoted its source as saying the planned cutbacks would come in a "bold announcement" that should "cause a lot of people to shut up."

GM was not immediately available for comment. It has lost nearly $4 billion this year and has said it will give details by the end of 2005 of its plan to cut at least 25,000 manufacturing jobs as part of a broader restructuring plan.

"This is all rolling out to the original schedule," the company insider was quoted as saying. "It's carefully coordinated with the UAW (trade union) and other constituencies to avoid blowing the place up."
The paper said it was not clear how many jobs will be eliminated or which plants would close. The shutdowns will not affect GM's future product plans, it added.

Wagoner has committed to a series of plant closures and the elimination of nearly a quarter of GM's U.S. factory work force through 2008.
GM has been grappling with high health-care and commodities costs, loss of U.S. market share to foreign rivals and slumping sales of high-margin sport utility vehicles whose popularity has dwindled of late due to high fuel prices.

Wagoner said in June the proposed cuts would save the automaker $2.5 billion a year. But analysts worry about expenses associated with the cost cuts, and some estimates predict that early retirement and employee relocation costs could total up to $2 billion.

Wagoner has said he plans to cut manufacturing capacity to match demand by 2008. Some experts believe The Lansing Craft Center, where GM builds the Chevrolet SSR, will likely be shut down because the convertible sport pickup has not sold very well and GM has idled the plant for several months in 2005.

Two other plants likely to be shut down are the Doraville, Georgia, plant, which builds GM's minivans, and an SUV plant in Janesville, Wisconsin, analysts said.

The new plant closures will add to three assembly plants that GM has already closed or stopped production at this year -- a car plant in Lansing, Michigan, an SUV plant in Linden, New Jersey, and a van plant in Baltimore.

©2005 Reuters Limited.
 

Jim Wynne

Leader
Admin
Wes Bucey said:
Instead of showing who can grow more, GM & Ford seem determined to show whose employees can suffer more pain. Ford says, "We can put 4,000 out of work!" GM fires back, "Hey! Not only are we going to lay off some people, we're going to close some plants so the whole community will suffer, not just some employees."

This just in: According to MSNBC, GM is set to announce this morning the elimination of 30,000 jobs and closing of 5 plants. Stay tuned...
 

Jim Wynne

Leader
Admin
This now from Reuters:
NEW YORK (Reuters) - General Motors <GM.N> will cut about 30,000 jobs, close or significantly curtail operations at 12 plants in North America and cut the amount of vehicles it produces every year by 1 million as it attempts to cut costs by $7 billion (4.1 billion pounds).
The troubled automaker also said a recent agreement with the United Auto Workers union will allow it to cut health-care costs by about $3 billion annually.
"I regret the impact that today's actions will have on our employees. We'll work our hardest to mitigate that impact," said GM Chief Executive Rick Wagoner in a press conference. "We need to work this with the leadership of our unions."
The plants affected by today's announcement include those in Doraville, Georgia; an Oklahoma City plant that makes mid-size SUVs; and its Lansing Craft Centre in Michigan which makes a niche pickup.
Wagoner earlier this year said he planned to cut manufacturing capacity to match demand by 2008.
"It's a big move that we've made. We're confident that this is what it's going to take to get us going," Wagoner said.
In premarket trading on the Inet electronic trading platform, General Motors shares were up 87 cents at $24.92.
The auto giant has lost nearly $4 billion this year, while its shares have lost more than 40 percent of their value and hit a 14-year low last week.
The new closings are in addition to the three assembly plants that GM has already closed or stopped production at this year: a car plant in Lansing, Michigan; an SUV plant in Linden, New Jersey; and a van plant in Baltimore.
GM has been grappling with high health-care and commodities costs, loss of U.S. market share to foreign rivals, and slumping sales of large sport utility vehicles that used to be its profit centers, but have now lost popularity due to high gasoline prices.
To make matters worse, GM's main parts supplier -- bankrupt Delphi Corp. <DPHIQ.PK> -- is battling with its unions and will ask the court to void its labour contracts if a deal is not reached by mid-December. A strike at Delphi could shut down some GM and Delphi plants and could force the automaker to burn through billions of dollars a week, analysts have said.
 
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