2 articles recently caught my attention. What do you guys think on the future of GM?
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 recently.
''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.
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.
and this one.
General Motors Corp. said Monday it would cut 30,000 hourly jobs and close or scale back operations at about a dozen U.S. and Canadian plants in a bid to save $7 billion a year and halt huge losses in its core North American auto operations.
The cuts are 5,000 more than the 25,000 jobs GM had said it would cut in June, and represents more than 22 percent of its union workforce in North America. Many of the cuts would start next year, GM said Monday, despite job protection provisions in its union contract that runs through September 2007.
GM Chairman and CEO Rick Wagoner said he expects another 7 percent of salaried workers in North America would also be cut by the end of 2006, though he gave no specific number of job cuts planned there. Seven percent would equal about 2,500 jobs in the United States and additional cuts in Canada as well.
The automaker said the plan is aimed at saving $7 billion a year by the end of 2006.
Wagoner said the cuts were what the troubled automaker needed to turn around its operations but he wasn't ready to predict when GM will return to profitability. He also wouldn't promise this would be the end of job cuts and plant closings.
"As we sit here today, it's our best guess and well thought out analysis," Wagoner said.. "If we've learned anything in the last five years, it's that there's no guarantees in this business or any other business."
Not surprisingly, the announcement was criticized by the leadership of the United Auto Workers union.
"We have said consistently that General Motors cannot shrink itself to prosperity. In fact, shrinking General Motors only exacerbates its problems," UAW President Ron Gettelfinger and Vice President Richard Shoemaker said in a joint statement.
"GM's return to prosperity depends on it offering products that consumers find attractive, exciting and want to buy. Only then will GM's market share stabilize and grow, only then will revenues increase and only then will General Motors return to prosperity," they added. "But, unfortunately, it is workers, their families and our communities that are being forced to suffer because of the failures of others."
Wagoner said he had received support from the company's board of directors and from its employees as he moved forward with the cutback plans and that he had no plans to leave the company. Some investors and analysts have lost confidence in Wagoner given the company's spate of troubles this year. (Full story).
"I've given no thought to anything but turning the business around," Wagoner told reporters, adding that he believes his experience with GM should help him lead that effort. "I wasn't brought up to run and hide when things get tough. I'm convinced that's the way that things get righted."
He said the moves were not due to any pressure by the board. "We're not taking these actions because of any pressure on me," he said. "We're taking these measures to get the business right."
Stock rallies, but ...
Some investors liked the move, and GM (down $0.25 to $23.80, Research) stock rose in late morning trading, though the stock is still down about 45 percent this year.
But at least one industry analyst was not impressed.
"The plan is essentially as expected, meaning not terribly aggressive," UBS analyst Rob Hinchliffe wrote in a note to clients, adding that the company's market share, which has been sliding, may fall further. He kept a sell rating on the stock and a price target of $20, below the current price.
In June, GM announced plans to trim 25,000 hourly jobs in its North American operations by the end of 2008 in an effort to stem losses. The company has lost $2.2 billion in the first three quarters of this year, excluding special items. Most of those losses, about $1.6 billion, have come at its core North American auto operations.
The company's contract with the United Auto Workers union essentially prevents layoffs before it expires in September 2007, as the company needs to pay union members whether or not there is a job for them.
Wagoner said that some kind of buyout would likely be offered to speed up the job cuts, but that until the buyout packages are worked out with the union, the company can't say how many of the job cuts would come through retirement and how much through buyouts.
The assembly plants being closed are in Oklahoma City, Lansing, Mich., and Doraville, Ga., with the first two closing next year and Doraville slated to shut in 2008.
Some shifts will be eliminated at three other assembly plants, including Line 1 at Spring Hill, Tenn., and Oshawa, Ontario, Car Plant No. 2, which will both be shut, although assembly plants on the same property will continue to operate.
Other facilities to be closed include stamping plants in Lansing, Mich., next year and in Pittsburgh in 2007, along with two powertrain plants, in St. Catharines, Ontario, and Flint, Mich., in 2008.
And the company will shut three parts facilities in Portland, Ore., Ypsilanti, Mich., and St. Louis by 2007. One other parts facilty yet to be identified will also be closed.
With the announced closings, GM is essentially keeping its capacity of large sport utility vehicles and pickups intact, even though big SUVs sales have slumped in recent months in the face of higher gasoline prices.
Wagoner said he believed that a new line of large SUVs due early in 2006 should give a lift to those sagging sales, and that some of its large SUV capacity is being changed to produce either SUVs or pickups, depending upon demand. He said GM needs to keep capacity for the vehicles that it can sell at the greatest profit -- namely the larger vehicles.
Among the vehicles made at the assembly plants being closed are the Chevrolet Impala and its twins, the Saturn Ion, its minivans, the SSR sport pickup and some mid-sized SUVs. The company will have a North American capacity of about 4.2 million vehicles a year at its own plants, down from about 5 million.
"Oklahoma City, (which makes the mid-sized SUV) is a very good plant but a classic example of ... just having too much capacity in that segment," said Wagoner. "That's why that plant in on the list today. We don't have any plants left that aren't very high quality and quite productive. I'm sure I'm not going to satisfy any plant as why they've been chosen to be on the list."
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 recently.
''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.
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.
and this one.
General Motors Corp. said Monday it would cut 30,000 hourly jobs and close or scale back operations at about a dozen U.S. and Canadian plants in a bid to save $7 billion a year and halt huge losses in its core North American auto operations.
The cuts are 5,000 more than the 25,000 jobs GM had said it would cut in June, and represents more than 22 percent of its union workforce in North America. Many of the cuts would start next year, GM said Monday, despite job protection provisions in its union contract that runs through September 2007.
GM Chairman and CEO Rick Wagoner said he expects another 7 percent of salaried workers in North America would also be cut by the end of 2006, though he gave no specific number of job cuts planned there. Seven percent would equal about 2,500 jobs in the United States and additional cuts in Canada as well.
The automaker said the plan is aimed at saving $7 billion a year by the end of 2006.
Wagoner said the cuts were what the troubled automaker needed to turn around its operations but he wasn't ready to predict when GM will return to profitability. He also wouldn't promise this would be the end of job cuts and plant closings.
"As we sit here today, it's our best guess and well thought out analysis," Wagoner said.. "If we've learned anything in the last five years, it's that there's no guarantees in this business or any other business."
Not surprisingly, the announcement was criticized by the leadership of the United Auto Workers union.
"We have said consistently that General Motors cannot shrink itself to prosperity. In fact, shrinking General Motors only exacerbates its problems," UAW President Ron Gettelfinger and Vice President Richard Shoemaker said in a joint statement.
"GM's return to prosperity depends on it offering products that consumers find attractive, exciting and want to buy. Only then will GM's market share stabilize and grow, only then will revenues increase and only then will General Motors return to prosperity," they added. "But, unfortunately, it is workers, their families and our communities that are being forced to suffer because of the failures of others."
Wagoner said he had received support from the company's board of directors and from its employees as he moved forward with the cutback plans and that he had no plans to leave the company. Some investors and analysts have lost confidence in Wagoner given the company's spate of troubles this year. (Full story).
"I've given no thought to anything but turning the business around," Wagoner told reporters, adding that he believes his experience with GM should help him lead that effort. "I wasn't brought up to run and hide when things get tough. I'm convinced that's the way that things get righted."
He said the moves were not due to any pressure by the board. "We're not taking these actions because of any pressure on me," he said. "We're taking these measures to get the business right."
Stock rallies, but ...
Some investors liked the move, and GM (down $0.25 to $23.80, Research) stock rose in late morning trading, though the stock is still down about 45 percent this year.
But at least one industry analyst was not impressed.
"The plan is essentially as expected, meaning not terribly aggressive," UBS analyst Rob Hinchliffe wrote in a note to clients, adding that the company's market share, which has been sliding, may fall further. He kept a sell rating on the stock and a price target of $20, below the current price.
In June, GM announced plans to trim 25,000 hourly jobs in its North American operations by the end of 2008 in an effort to stem losses. The company has lost $2.2 billion in the first three quarters of this year, excluding special items. Most of those losses, about $1.6 billion, have come at its core North American auto operations.
The company's contract with the United Auto Workers union essentially prevents layoffs before it expires in September 2007, as the company needs to pay union members whether or not there is a job for them.
Wagoner said that some kind of buyout would likely be offered to speed up the job cuts, but that until the buyout packages are worked out with the union, the company can't say how many of the job cuts would come through retirement and how much through buyouts.
The assembly plants being closed are in Oklahoma City, Lansing, Mich., and Doraville, Ga., with the first two closing next year and Doraville slated to shut in 2008.
Some shifts will be eliminated at three other assembly plants, including Line 1 at Spring Hill, Tenn., and Oshawa, Ontario, Car Plant No. 2, which will both be shut, although assembly plants on the same property will continue to operate.
Other facilities to be closed include stamping plants in Lansing, Mich., next year and in Pittsburgh in 2007, along with two powertrain plants, in St. Catharines, Ontario, and Flint, Mich., in 2008.
And the company will shut three parts facilities in Portland, Ore., Ypsilanti, Mich., and St. Louis by 2007. One other parts facilty yet to be identified will also be closed.
With the announced closings, GM is essentially keeping its capacity of large sport utility vehicles and pickups intact, even though big SUVs sales have slumped in recent months in the face of higher gasoline prices.
Wagoner said he believed that a new line of large SUVs due early in 2006 should give a lift to those sagging sales, and that some of its large SUV capacity is being changed to produce either SUVs or pickups, depending upon demand. He said GM needs to keep capacity for the vehicles that it can sell at the greatest profit -- namely the larger vehicles.
Among the vehicles made at the assembly plants being closed are the Chevrolet Impala and its twins, the Saturn Ion, its minivans, the SSR sport pickup and some mid-sized SUVs. The company will have a North American capacity of about 4.2 million vehicles a year at its own plants, down from about 5 million.
"Oklahoma City, (which makes the mid-sized SUV) is a very good plant but a classic example of ... just having too much capacity in that segment," said Wagoner. "That's why that plant in on the list today. We don't have any plants left that aren't very high quality and quite productive. I'm sure I'm not going to satisfy any plant as why they've been chosen to be on the list."
