GM Halted
By Barry Ritholtz - November 7th, 2008, 11:21AM
General Motors-GM reports Q3 EPS ($4.45) vs. consensus of ($3.70) Reports Q3 revenue $37.94B vs. consensus of $39.41B.
GM reported a net loss of $2.5 billion for the third quarter, including special items. Company says “estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.”
Note that earnings were originally scheduled to be released at 10:30
Market shrugging this off, with the Dow up175
November 7th, 2008 at 11:22 am
they should halt it forever..
November 7th, 2008 at 11:33 am
“Saved by ZERO”
The only hope for GM…
November 7th, 2008 at 11:35 am
To clarify…
I’m referring to stock price, not financing interest rates.
November 7th, 2008 at 11:43 am
Vermont Trader- Are you still buying on the dips?
I’m thinking if I should load up some QID towards to end.
November 7th, 2008 at 11:43 am
Perhaps a merger with Chrysler will save them… LOL. Perhaps all three together can make one US automaker that can survive.
What a sad time to see. The US may end up with 1 car company while Japan has at least five — Toyota, Honda, Nissan, Mitsubishi, Subaru, and is Isuzu still around too?
What / who to blame?
The unions for the legacy costs?
Management for agreeing to union demands?
Management for 30 years of mostly boneheaded decisions emphasizing big vehicles in a world where it was obvious oil wouldn’t stay cheap forever, and where Jpanese small cars were continually taking market share?
Management for being to slow to pick up on TQM vis a vie the Japanese auto makers who ate their lunch with much better quality starting in the 1980s?
Yes, I think we must blame management for all these shortsighted decisions which have now led to their demise. It boggles the mind: How could have so many highly educated and highly paid managers been so stupid for so long?
November 7th, 2008 at 11:47 am
Blame poor (greedy) executive management. Sound familiar? (Hint: Wall Street)
November 7th, 2008 at 11:47 am
Ha! For a second the ‘()’ didn’t register and I was wondering how the heck they managed to make money. I think the only hope for any of the big three is to try and be the last one standing and then beg for a bailout. Congress might let some of the domestic auto industry fail, but I don’t think they’ll be willing to have it go extinct.
November 7th, 2008 at 11:53 am
GM $4.15
EPS (ttm): -103.193
(source yahoo finance)
Just another fugly number.
November 7th, 2008 at 11:53 am
GM has made many mistakes, but the biggest has been to make crappy, ugly, unreliable cars that no one seems to want to buy. They deserve to go broke for that reason alone.
November 7th, 2008 at 11:54 am
Now the U.S. automakers are doing a lot of fear mongering of their own. We are facing Armageddon if we don’t pony up $25B immediately and another $25B after that. (So they say).
Amazing how many surrogates they’re getting to go to bat for them (like Phil Lebeau/CNBC)
November 7th, 2008 at 11:57 am
Here is the hard lesson America is learning: workers cannot afford to buy a $25,000 automobile on a $7.50 hr. salary.
And the rich have no interest in driving Chevrolets.
November 7th, 2008 at 11:59 am
@WM: LOL. So you mean a salary at Home Depot isn’t enough to buy a $25,000 car?
So true. So true indeed.
November 7th, 2008 at 12:08 pm
Winston:
But you can’t buy your own personal jet with a salary/bonus of less than $100 million. They have to have (living) standards to maintain, you know.
November 7th, 2008 at 12:09 pm
I think the Feds should step in and offer the following deal to ALL three automakers:
1. Declare bankruptcy. Wipe out ALL stock and all employee/union contracts.
2. The Feds will take over the pension plans immediately and keep them properly funded, but no additional people will get added to it and it’ll be converted to a 401(k) once the requisite conversion factors are determined.
3. The Feds will recapitalize what’s left to the tune of $50B in exchange for senior preferreds and the requirement that the automakers re-tool their cars to get DOUBLE the current MPG in the next 5 years. If they don’t make the target, dump the stock and let them go under.
Good for the planet, good for the automakers, good for America.
November 7th, 2008 at 12:16 pm
Bad for the Dilbert of an underpaid engineer that has to figure out how to double the MPG on one of the fat hogs!
November 7th, 2008 at 12:22 pm
The 900 level we talked about this week is holding so far, as some of us had suggested here earlier this week. If that holds through the close today it would be quite good news for this market in terms of establishing a range for the next month or so, with SPX 1000 as the ceiling. Unless hedge fund redemptions play a big role next week, it looks like we will not see deadhobo’s 840 re-test or AT’s wave 5 of 3 down to 775. At least, not yet. I am firmly in the December rally, ugly January camp at the moment. I sold my SKF, just watching for now.
November 7th, 2008 at 12:35 pm
i am in my late 30s, which means i was driving in the mid 80s and i am old enough to remember the oil embargo, gas rationing, Iacocca’s saving of Chrysler, etc.
how about some dates?
1972 – Honda Civic debuts
1989 – Honda Accord becomes best selling car in the U.S.
1979 – Iacocca “rescues” Chrysler
1981 – K-car introduced
i learned directly during those formative years: foreign cars = quality, U.S. cars = crap.
later in business school i would learn all about TQM, Sigma Six, etc. i don’t have any memories of any business cases where U.S. car companies made an effort to change in the ways that Honda and Toyota did with respect towards manufacturing.
well, the U.S. did have “The pride is back” and other hilarious ad campaigns.
since 1984 i have owned Toyotas, Hondas, even Mitsubishis. never, not once, have i had a recall, a manufacturing problem, etc. i can’t even begin to list the problems friends & family have had during this same period with Chevys, Chryslers, Fords, etc. hilarious problems like windows falling into the door panel b/c the car company used plastic clips to hold the window in place. dangerous problems like transmissions failing in under 30K due to extraneous remnants from the manufacturing process being left in the engine. the list goes on and on.
while all this is purely speculative evidence, it does point to a mindset. i doubt i am alone.
meanwhile, reacting to the xenophobic, anti-American rhetoric spouted in the 80s, foreign car companies began building plants in the U.S. now a Honda might be built in Ohio. that Tundra engine comes from Alabama.
and in the end, our government will do the exact wrong thing with regards to this crisis: even though we are “capitalist”, our government will bailout companies deemed “too big to fail”, thus perpetuating craptacular products produced by the same geniuses that perpetuated the problem in the first place. gotta love alliteration.
aside: i had the distinct displeasure of working in the IT industry directly related to the U.S. auto retailing industry. anyone here enjoy going to buy a car? go ahead, raise your hands. hmmm, wonder why? how about that dealership service department? got any good stories? no one’s go-to mechanic works for a dealership. wonder why?
i literally LOL at this WSJ article yesterday – priceless! http://online.wsj.com/article/SB122592581001202837.html
let me be the frank: until auto manufacturers and dealers can FIRST properly identify their problems and then fix them, the U.S. auto industry deserves to fail.
gl Detroit. i keep praying your influence will go the way of the steam engine…but thank god our government is here to slow that down from happening!
November 7th, 2008 at 12:36 pm
There is no mistaking the love affair between American drivers and larger vehicles. Until the recent gas spike that is. Most of the Big 3’s larger vehicles come standard with huge 8 cylinder engines. Most of us don’t need an engine that size because we don’t make it a habit to pull stuff. Why not exchange the 5.3L with a 3.1L? People would then still get their large vehicles and better fuel economy. About the money they need. Congress has already invested a trillion in our financial industries. Yet everyone says the Big 3 are not worth saving for what amounts to chump change in comparison. The collapse of the Big 3 would cost America millions of jobs and the PBGC would inherit those bankrupt companies legacy costs. Not to mention the costs of unemployment benefits and retraining. The problems in both the financial and automotive sectors are similiar in that the CEOs making most of the decisions were either inept and corrupt but probably both.
November 7th, 2008 at 12:40 pm
leftback @ 12:22
I’ll be happy with a brief test of the 875 level.
November 7th, 2008 at 12:45 pm
Big 3 deserve to fail. But what about the ripple effects of their failures?
November 7th, 2008 at 1:06 pm
I really don’t have a problem with GM declaring bankruptcy and reorganizing. Tomorrow would be just fine with me. Maybe China can buy it and build their Cherry models there.
If it’s a bankruptcy reorganization, the business continues with a court supervised stability. Outrageous labor contracts get rewritten and brought back to Earth. Deadwood management gets sent packing. Pensions may or may not be covered by the company. But even if the US has to honor a pension guarantee, it would probably still be less in cost than a continued slow death spiral.
The company would downsize and maybe start making cars worth buying for a change. They lack style, their reliability has always been questionable due to a cynical attitude towards reliability in past years, many are damn ugly, and so on. I suspect their books have been to Fantasy Island a time or two so that, although they are GAAP compliant, they are also an example of where the limits to SarbOx lie. Ditto their EPA mileage claims.
Ford probably has the capacity to save itself and Chrysler probably will also land on it’s feet in a smaller size. GM must be allowed to fail, using reorganization as a cushion.
Re the market today: I suspect there will be a decent sell of in the last hour … maybe 200 points down from the open. Next week, the markets will look like they have the heebie jeebies or the DTs.
November 7th, 2008 at 1:08 pm
What stock will take GM’s spot in the DJIA?
November 7th, 2008 at 1:10 pm
nyxjf @ 12:45
It’s about costs versus benefits. The $700B bailout bill already gives the auto companies $25B.
The steel companies and the airlines have been in and out of bankruptcy, and their still surviving.
There are no good options here. But “bankruptcy” doesn’t mean the end of the road; it just means slimming down and voiding existing contracts that are weighing down the auto companies. They would emerge stronger and better (though a lot smaller).
It’s all moot anyway; Obama will probably give them whatever they want.
November 7th, 2008 at 1:26 pm
@KJ, Isuzu is still around and you forgot Suzuki and Mazda, which makes seven or eight, depending on if you consider Mazda to be owned by Ford… and for how much longer.
The American car companies have serious legacy problems, as pointed out and evidenced here. Not only a retirement cost legacy problem, but a quality and product choice legacy problem. GM really does seem to be doing the right thing now. On a dollar for dollar basis, their current cars are as nice and as reliable as the Japanese at this point, but most people, including those on this list, still hold prejudice against them. And they have no one to blame but themselves for that; they produced crap for a quarter century until a few years ago. It’s a similar situation at Ford. Chrysler, on the other hand, seem to be clueless. Personally, I’d rather see the government spend money on start-ups like Tesla and A123 Systems (the battery manufacturer) to leapfrog the Japanese companies and start producing electrics. Why play catch up when we can get ahead? At least they would be rewarding innovation rather than rewarding bad management that just recently got their crap together, a day late and a dollar short.
November 7th, 2008 at 1:33 pm
Here’s a plan — GM’s market cap is about $4B, Ford’s is under $2B. We can assume that Chrysler’s value is around $1B. So for about $10B (pocket change these days), Uncle Sam can buy all three companies, under the “National Re-deployment Plan”, with a stated intent of reinstating them as public companies in a series of IPO’s in 2015, as AT LEAST a half-dozen (much) smaller competing companies, restructured by that point so as to be able to each survive on their own.
By “restructured”, I mean that all agreements with labor unions will be eliminated (remind them of PATCO if they resist), and all wages (hourly AND salaried) will be immediately cut in half, with the generous holiday/vacation policies eliminated, and health care benefits targeted to be replaced by some forthcoming National Health Care plan. In exchange for this, no plan closings for at least 3 years. Also, senior management (plant manager and above) would get at least half their compensation in the form of qualified stock options, with the cash portion going no higher than $200K per year at ANY job classification.
Given the current job market, I doubt that many would leave. The compensation changes would immediately solve the car companies’ cash flow problems, and the 2015 line in the sand would give them ample incentive to fix these broken companies, pronto.
If they cannot figure out how to be competitive by that point, let them die. It is not essential to the USofA that we have a domestic auto industry.
November 7th, 2008 at 1:43 pm
constantnormal @ 1:33 p.m.
Sounds like a plan, but
“If senior management (plant manager and above) would get at least half their compensation in the form of qualified stock options,”
why not, for all employees below that level, have an ESOP (say, 15% of base wage/salary per year) that vests at the time of the IPO?
Then, every employee’s got skin the game.
November 7th, 2008 at 1:55 pm
Winston Mun has it nailed. I work for these guys (supplier) and can’t afford a new Detroit vehicle. Most average income families can’t afford a new car, Detroit or Foreign.
Reorganization/liguidation may be the best course, but man will hurt.
November 7th, 2008 at 2:06 pm
Joe S. Pack said, “Winston Mun has it nailed. I work for these guys (supplier) and can’t afford a new Detroit vehicle. Most average income families can’t afford a new car, Detroit or Foreign.”
Yes, Henry Ford knew this 94 years ago,
“The same year [In 1914] , Henry Ford shocked the world with what probably stands as his greatest contribution ever: the $5-a-day minimum-wage scheme. The average wage in the auto industry then was $2.34 for a 9-hr. shift. Ford not only doubled that, he also shaved an hour off the workday. In those years it was unthinkable that a guy could be paid that much for doing something that didn’t involve an awful lot of training or education. The Wall Street Journal called the plan “an economic crime,” and critics everywhere heaped “Fordism” with equal scorn. But as the wage increased later to a daily $10, it proved a critical component of Ford’s quest to make the automobile accessible to all. The critics were too stupid to comprehend that because Ford had lowered his costs per car, the higher wages didn’t matter — except for making it feasible for more people to buy cars.”
http://www.time.com/time/time100/builder/profile/ford3.html
November 7th, 2008 at 2:13 pm
I think people are missing an important point when they say that GM or Ford or Chrysler can use bankruptcy to reorganize and improve, just like the steel companies or airlines. The difference is this:
A lot of people relate the car they drive to their ego, at least to some extent. Imagine this scenario: Guy is comparing a Caddy and a Benz. Good income, can afford either. You think he wants to drive up to the club in a car made by a bankrupt company? Same thing with the other GM brands.
Another issue: People would worry about quality. A lot of the car-buying decision is based on perceived quality. A bankrupt company does not inspire much confidence in terms of build quality, service, etc.
November 7th, 2008 at 2:14 pm
Yes, both management and employees via their unions are to blame. But another is the federal government for coddling the industry. All three groups must understand that, as constantnormal wrote, “It is not essential to the USofA that we have a domestic auto industry”!
November 7th, 2008 at 2:24 pm
Henry1807 @ 2:13
No question that bankruptcy would hurt sales. But the CEO’s could make it very clear to the public exactly which models they would continue to support, and which they will discontinue. What matters, from a practical perspective, is that the companies continue to provide parts. And even for cars that have been discontinued, parts continue to be readily available for many years thereafter.
If another $25B would really solve all the problems and prevent job losses, then maybe it would be worth considering. But the U.S. auto companies are in a long term decline regardless, to say nothing of the next 12 months which is going to be bad with or without the bailout.
I say NO BAILOUT, but let Obama go ahead and use some of his “political capital” to do just that.
November 7th, 2008 at 2:37 pm
Yes, they can’t afford $25K, but, lo-and-behold, with favorable financing or a great lease, they “could.”
Hmm. Sounds similar to Real Estate — excess liquidity from leasing and financing. And a-down we go….
November 7th, 2008 at 2:39 pm
@SaneInSF: Add to that list credit cards…….”and a-down we go” is right. Until incomes for the rank and file go up significantly we will be merely running fast just to stay in place.
November 7th, 2008 at 6:01 pm
Henry – “You think he wants to drive up to the club in a car made by a bankrupt company?”
FYI – in the construction trades – it used to be a black mark to drive up to a jobsite in a foreign car or truck.
As foeign imoney started buying up (or investing) America that changed. But … imo Wall Street never saw the world that way. Cause it was the money play trade of the day and cool to boot.
November 8th, 2008 at 1:44 am
Can bankruptcy laws really handle something this size. Am I overly cynical of lawyers if I say I am not sure I want them adding to this mess. I was reading on the Becker-posner blog about how bankruptcy laws may have played a hand, albeit, small hand in all of this. I am just nervous about letting the courts get involved. This seems like a problem that is bigger than the court system at this point and it might be dangerous to put it in a judges hands.
I doubt this would happen but how great would it be if, as others suggested, we let them fail – have a bad 3 years and invest the 25b Obama is going to give them in alternative fuel vehicles. We could make the prius look like a hummer. Too bad it won’t happen.
November 8th, 2008 at 9:49 pm
great time to be a lawyer that’s for sure.
November 10th, 2008 at 1:48 am
GM is an HMO masquerading as an auto manufacturer, AIG was a hedge fund masquerading as an insurance provider. Perhaps if they would have focused on their original lines of business, they would have been in less pain.