Thoughts on GM's huge financial pinch......

[2dogs]

The boys at GM had better get their act together or the shareholders are going to send em to China......only kidding - but GM has some real problems........check todays http://money.cnn.com/2005/03/16/news/fortune500/general_motors/?cnn=yes

[DmaxMaverick]

I'm not at all surprised. GM is the largest seller of SUV's and light duty trucks. This class of vehicle is also the lowest in economy. Rising fuel costs will certainly steer buyers away from the big 3, for better mileage, and into foreign vehicles. This isn't the first time, nor the last. All 3 lost. GM has a bigger piece, so naturally, they will lose more. GM is also dumping a couple billion this year into plant renovation, which effects the whole picture. It's not just declining sales.

This too shall pass. Now is the time to buy GM stock. This time of year, the stock will fall. Always does. Just more this year, with everyone buying homes, and refinancing their old ones to pay for fuel. It's a good thing for people that are in the market for a new vehicle. Discounts and incentives are at an all time high.

An active economy is a good thing. I get nervous when it is stable, which also means stagnant. GM is not going away, at least not in my lifetime.

[More Power]

The auto industry as a whole has been inching ever so slowly toward offering more diesels, and the EPA has (over the past year or so) warmed a bit to the idea of clean diesel engines in consumer vehicles. As long as the price spread between gas & diesel closes - even if fuel costs in general remain high - there will be an increasing market for light diesels.

As fuel costs (gas/diesel) increase, diesel engines become a lot more attractive. If you can increase fuel economy by 20-50% over a comparable gas equipped vehicle, the big jump in fuel cost becomes less painful for those who really would rather drive a full-size SUV or light truck with a diesel engine than drive a small import gasser.

MP

[OC_DMAX]

Financially, the "auto business" portion of GM has been on a long slippery downslide for many years. Decaying market share, low profitability, foreign competitors eroding away the lowerend of the car business, etc. What they are left with is a niche at the top-end of the SUV and Large Truck market. Ever wonder why those products cost so much? Its the only place GM/Ford have left to themselves (and that won't last long).

Other businesses that GM has invested in and then divested from (Hughes and EDS most recently) were cash cows for them and generated a lot of cash flow. I know, I have worked for Hughes - now part of Raytheon - for over 26 years. When part of GM, Hughes was producing over $1 Billion per year in profit for them. They sold those business's over the last 10 years, so GM's financials are now more exposed to the swings in the auto business. I'll bet if you remove GMAC from the number mix, the auto business looks even worse.

[Zapper]

Sorry, I've been hearing about GM's woes for 28 years, same woes as Chrysler had in the 80's. My opinion of GM is they want as many produstion facilities in this country to fail, in the public eye, as they can show the public. They would like nothing more than to do as the other 2 of the big three have done and move the majority of their production facilities south...way south. Of course they then would sell their vehicles at the same price as they would be sold as if they had been built in the USA by American labor. I don't see where this has benifited the buyer, the workers or the country, only the corporations. In my veiw all gains in quality, cost and productivity that have been made have been made in spite of upper managements intentions. I know myself and the vast majority of my co-workers take a great deal of pride in building and shipping the best. Just my insight.

[MTTwister]

Let's throw this into the mix -- What's your take on the economy, Housing and consumer debt?
Pessimist that I am - I believe that the average consumer is carrying a hugh load of debt, and may be mortgaged up to the eyeballs. Any serious down turn in the economy, and potential bankruptcies are looming, maybe why congress is taking a hard line on this option.
So, GM has a serious exposure (sp) on the financing front with GMAC, and with DiTech ( Home Loans).

Sure would hate to see GM carrying a boat load of repossesed real estate on the books - marked to market.

[OC_DMAX]

I agree with you MTTwister. At present, I think there is an economic bubble in housing (at least here in CA). People are taking seconds out on houses and spending the money. A little downturn in the economy (due to gas prices, as an example), some people loose their jobs and then cannot pay the large mortages they are carrying (once again a Calif perspective).

Extremely low interest rates have kept the economy rolling for the last 6 years or so. That has allowed for large appreciation in housing prices and enabled GM to offer EXPENSIVE vehicles to the public for roughly the same monthly payment. The real surprise potentially lying ahead is an increase in interest rates; mostly due to the irresponsibly Federal budgets during the last 5 years (huge deficits) and the large trade imbalance.

If the above scenarios play out, GM is not well positioned as you mention. A positive for GM is the large cash balance in their bank account (roughly $23B, or at least that is what USA Today proclaimed). Also, a lot of mortages are packaged and resold to investors. Not sure if GM is actually holding "the paper".

[autocrosser]

I think what everone had better watch out for is the upcomming world wide depression that is looming right outside our doors.

Most of the third world countries are dependant on the US buying their products and generating 50 to 60 billion dollars in foreign trade deficite a month in this country. One of these days, and it's not far in the future, it's going to have to slow down a bunch. That's when it's going to really hit the fan. These other countries won't be able to buy our products and the imbalance is going to get worse. Then comes the lay offs and corporate failures.

The biggest problem is no one knows what to do about it withourt setting off the big bomb. The financial wizzards don't even want to talk about it in public their scared to death.

We can't compete with the third world countries now due to our cost to produce products. Most of the large corporations are saddled with such a big obligation to fund retirements and medical that they are cash strapped and that's going to get worse. That's why so many corporations are filing bankruptcy and getting out from under the debt.

My advice is watch your pennies because there is going to be a lot of problems and not just with GM.

[MTTwister]

Another nasty scenario - Many of our trading partners, that are getting rich off our consumption of their crap, are holding a significant amount of our national debt (treasuries), and/or using our money to strengthen their own condition (economically, militarily, etc).

Suppose they wanted to declare war on the US? Merely start unloading / presenting US Debt for payment, or refusing to subscribe to the next refi offering, and the perverbial poop hits the fan. Not a shot need be fired!

By moving automotive manufacturing to China, we've given them the opportunity to "research" our processes, and we know they've never been to shy about 'borrowing' technology. They'll be producing cheap knockoff's of US auto's, and with 2 billion people, and a car in every garage, the demand for Oil just went parabolic.

Time for somethng positive! ..... let me get back to ya!

[Nix]

Wow. Look what happens when large corporations own Congress. We've just been sitting here all this time letting them do it. George Washington and Thomas Jefferson must be doing backflips in their graves.

[Zapper]

And the oil companies own the White House.

[Nix]

Well hopefully enough people will get fed up with the situation, get out of the La-Z-Boy and act before China ends up owning all of the US instead of just the part they own now.

[rjschoolcraft]

Originally posted by Zapper:
And the oil companies own the White House. :rolleyes:

Man, you guys are pessimistic. With all of the complaining, you'd think the sky is falling.

This will really fire some of you up...

A big reason why we can't compete is because we have too many people who don't pull their own weight. I worked for GM for 15 years, most of that at the Allison Division. I've been in and out of all of the transmission plants and the aircraft engine plants as well as many of GM's automotive plants. Those places are like country clubs. I can't tell you how many times I had to wake a guy up to discuss a job he was supposed to be machining for me. Walk through the plant...see how many folks are sitting around reading the paper, or a book. I've seen it with my own eyes. The unions protect these lazys and we, as a nation, pay the price.

Now, some folks do work hard, and I've seen that as well. However, for every one that pulls his weight, there are two or three that loaf. Drives up the cost of doing business and the cost of the products that we buy.

I firmly believe that we could pay workers above competitive wages and compete with anyone in the world...if we could just get rid of the dead wood.

My informed opinion. Let 'er rip.

[OC_DMAX]

RonnieJoe wrote: "I firmly believe that we could pay workers above competitive wages and compete with anyone in the world...if we could just get rid of the dead wood."

No problem, lets start at the executive suite and work our way down the ladder.

[Nix]

:D

[MTTwister]

http://www.safehaven.com/article-2812.htm -
A little more than 1/2 way down the article.


" ... GM's market capitalisation is $15 billion and it has debt of some $300 billion.

GM's debt of some $300 billion is estimated to be some 5 times the value of all the gold in the United States Bullion Depository at Fort Knox in Kentucky or some 147.3 million ounces of gold bullion worth some $62 billion. However, this is just an estimate as unlike other U.S. government assets which are audited on an annual basis by the General Accounting Office or GAO there has not been a proper audit of the U.S. bullion reserves since the Eisenhower Administration.

Interest must be paid on GM's debt and on average interest payments of around 5% per annum would equate to payments of $15 billion per annum. This is the entire market capitalisation of GM being paid in debt repayments per annum. This does not bode well for workers, bondholders and shareholders and pension funds which hold GM bonds and or shares. .... "

By the Way, this is, of course, from a "super bear" site.

[mark45678]

I was reading in one of the truck mags that toyota is going to make a tundra diesel! Its target market is 3/4 ton heavy towing spec , IF I recall it was going to be over 300 hp and you can bet the fuel economy is going to be in the low 20's! the current tundra with a v-8 gas motor will get consitant 17's mpg... Heads up big 3 , your going to need to raise the bar and not just in the horse power department, HP comes easy fuel economy is hard! :eek:

[nlp]

Ford's stock is at $11.50...hardly stellar.
Toyota, Honda, and Nissan are the future...

[OC_DMAX]

mark45678 -

Your post fits in with exactly what I posted at the beginning. GM makes lots of money with top end vehicles. Now as you post, Toyota is going after the heavy duty trucks. They may not hit the target the first time, but the second shot will be spot on. Nibbling away again at GM's profit niche.