Speaking at the Reuters 2008 Restructuring Summit, default expert Edward Altman dismissed the impact of $25b in low-interest federal retooling loans and pegged GM’s chances of avoiding C11 at 50 – 50. Or worse: 55 – 45. “A bankruptcy filing may be the best option for GM to protect its assets and further reduce costs, said Altman, professor of finance at New York University’s Leonard L. Stern School of Business. “If we have a global recession, you know autos are going to get hit and get hit hard, not just GM, and it’s looking more and more like a global recession.” To set the odds for GM’s ability to avoid C11, Altman used his “Z-Score.” The formula for predicting corporate bankruptcies pegs GM at “CCC-minus” or lower, one of the last rating categories above default. “Some [unnamed] studies have shown an accuracy rate of more than 80 percent for the Z-Score.” Which is obviously better than 50 – 50. Too bad the SEC says you can’t short GM (or Ford) until October 2. Anyway, GM responded with its usual iceberg, what iceberg? “We’ve been very clear that bankruptcy is not something that we’re considering,” spokeswoman Renee Rashid-Merem said.
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“….SEC says you can’t short GM (or Ford) until October 2.”
Guess what I’ll be doing around 12:03am on October 3. That’s right, online with the broker, shorting GM stock.
I wonder if I’ll be the only one…..
MikeinCanada
By all means, short it if you want to. First, just be sure that you borrowed the stock you short. Naked short selling is like writing checks with insufficient funds to cover. Unethical, oughta be illegal. (Not suggesting you personally would do such a thing…but lots of others have).
I’m sure our new socialist overlords will extend the deadline, and add additional financial firms to it such as P&G, Goya, and Pork Belly Futures.
Seriously, WTF. I thought the RNC was supposed to be about capitalism (I’m nominally a libertarian fiscal conservative / social moderate). Damn Republicrats.
“We’ve been very clear that bankruptcy is not something that we’re considering,” spokeswoman Renee Rashid-Merem said.
Even if this were believable, so what? They apparently didn’t consider the probability that gas prices would go up or the end of the fad where trucks were used as cars either, but things happen.
I wonder if they considered that the Chinese public just might someday use fuel efficiency as a criteria just as the rest of the world. A WSJ article yesterday cited just this trend as a reason for GM’s sales falling this year with Toyota beating them in car sales there.
“GM’s problems in China are remarkably similar to those it faces in the U.S.: a less-than-stellar reputation among consumers for fuel efficiency and vehicle quality.
GM officials say they aren’t overly concerned about slower sales of passenger cars in China because the company also sells other types of vehicles.”
Looking only at the passenger car market to gauge GM’s performance in China is tantamount to “shutting a blind eye to huge segments in [China’s] market, especially in the rural, second-, third- and fourth-tier markets,” said Rob Leggat, a GM spokesman
Oh well, the Aveo junk is still selling in Russia I guess. Besides we’ve got that $25B + $25B coming. Leave us alone.
“I thought the RNC was supposed to be about capitalism.”
I propose a new slogan for the Republican Party:
Capitalism for the Many, Socialism for the Few
GM may not be considering bankruptcy, but bankruptcy is clearly considering GM.
That’s funny as sh!t, Aegea. And sadly, it’s true!
Damn the torpedoes! Full speed ahead!
This is going to be one spectacular wreck
@ John T. Horner
At present, the Republican Party is about saving the Republican Party. The goal is to push as many of the consequences of the financial meltdown onto the next Administration and Congress with the hope that they will be tarred with a portion of the mess. It seems a good bet.
As an aside, I hope it works. In Canada our Conservative Party (think Republican light) was reduced to two seats countrywide (sorry about the unintended reference). Anyhow, they have rebuilt, and are on the brink of forming a majority government in upcoming elections, but the lack the depth and sophistication of the previous Conservative party or of the opposition Liberals.
It is always desirable to have at least two political options, it keeps the governing party honest and harder working. Just like competition in the private sector. One dominant party is far more likely to stray from the path than two or more in uneasy balance. That being said, Sara Palin? Wtf???
If we think things are bad in China now wait till the Chinese decide they have stolen enough tech to crank out their own cars in large quantities.
GM won’t go out of business. The government won’t let it!!! Especially if it’s Obama as President.
@Potemkin
Agreed. At least the British Empire had the good sense to make the transfer of technology and the emigration of specialized tradesmen to America illegal. It may have slowed America’s industrialization somewhat.
The same sort of short sighted business practices that have produced such turmoil in the financial markets have set us up for a reckoning in terms of industrial capability and even in the production of our own food. (Much is processed in China, then sent here–see frozen seafood, vegetables apple juice, vitamins and suppliments, etc).
We were assured by many business and political leaders that sharing the wealth and the technology would result in a more democratic China, more open and cooperative. While no one disputes that China’s interests are different than America’s or the West’s, it is clear that Western business interests have helped consolidate an authoritarian regime, and undermine the health of our own economies. Outsourcing, and the hollowing out of our capabilities and capacity should have purchased more individual liberty and democratic reform in China, in measurable metrics (for lack of a more concise term).
Consider this: the way China treats its own citizenry is contemptible. How should we expect them to treat others who fall under their sphere of influence? As American and Western influence in general declines, it is an increasingly relevant question. (Ironically, it seems increasingly modeled on the British Empire, coldly self-interested, cruel, effective, and ruthlessly competitive).
@ eh_political:
Wouldn’t a PR campaign exposing the reality of Chinese made vehicles essentially make them as popular as Hummers at a GreenPeace conference?
(Hummers the trucks, not the other kind).
Or are we that morally bankrupt?
@ jkross22:
It’s not the vehicles, or any one thing that sparked my comment. I suppose it was a lament for the squandered opportunities of the post Cold War era. There really isn’t anything to be done about it now, except to acknowledge our errors, make what changes are possible, and see how things play out. It isn’t anything politicians and execs haven’t realized for years, but they have been co-opted with mountains of cash, and insulated from the downside until now.
The only thing that consoles me about NAFTA and China is that eventually the world will balance out and that is more likely to happen in the adult lifetimes of children than in my working life.
Now if natural resources get scarce (and not just kind where the speculators lie to us) then the wheels of that idea might just come off.
@ joeaverage:
NAFTA is a mutually beneficial trade agreement that strengthens all partners. It is what trade should be all about, openness, competition, cooperation, legally binding and largely observed practices.
Let me know when you want to tear it up. Our Canadian oil, metals, minerals and natural resources have alternative markets. We can buy up or replace the domestic car industry for peanuts. Given the devastation a wacky abrogation would cause here, don’t be surprised when we develop a parallel drug industry, and undercut your “pharmers”. Or stop paying software licenses. Or decide to delink ourselves from military ventures that are surprisingly vital to US national security.
Thankfully, anyone who resists the temptation to cherry pick quickly comes to the realization that NAFTA is of great benefit, and should be broadened and extended wherever possible. A majority of my family lives in the US, and it irritates me greatly when the strong and beneficial ties between our nations are casually brushed off or glossed over.
I don’t agree that NAFTA is mutually beneficial. Mexican workers absolutely do not have the same rights of collective bargaining as in the US and Canada. This fact alone leads to deterioration of US/Canadian wages and standards of living.
@ mel23:
No question about labour rights. And unlike the EU, only some classes of person may obtain visas to work in other countries–or consult. Skilled, highly educated business types and consultants are sucked into high paying jobs in the US, and US managers migrate freely to branch plants in Canada and Mexico.
I guess the issue is that Mexican labour does benefit, and that since NAFTA employment levels in all three countries have been stable and low. Do Mexican labour costs depress the standard of living in North America? It’s possible, but it pales to insignificance in comparison with the unbalanced trade with China. It’s hard to envision a less reciprocal trading relationship.
I have been trying to get a grip on this situation. I found this report by the Department of Commerce: “The Road Ahead for the Automobile Industry” 2008 [PDF], which contains lot of good information on the state of the industry. Also, “U.S. Automotive Industry Employment Trends” 2006 [PDF].
First the totality of the industry (the OEMs). In 2001, 17.1 million new vehicles (cars & light trucks) were sold in the US, of which 11.7 million were manufactured in the US. In 2007, the numbers were 16.1 and 10.5. This year they will be less. In 2001 the industry employed about 280,000 people down from 290,000 a few years before. In 2007, it was about 225,000.
I looked at Honda, because they have new plants, no union contracts, and they just plain know what they are doing. They have published nice summaries of their North American operations.
Honda has the capacity to manufacture 1.8 million vehicles, from 12 Plants employing 25,000 workers. The plants cost almost $11 billion.
On that basis, a 12 million vehicle per year industry (assuming that we eventually get back to 2001 like numbers) would consist of about 80 plants and employ about 170,000 people and have a total cost of about $72 billion. If the Big 3, were half of that they would have 40 plants, 85,000 employees and have a total investment of $36 billion.
The $25 billion is clearly quite meaningful in that context — but, they cannot afford to spend that kind of money on legacy costs like pensions for people who worked there years ago and job banks for people who have nothing to do.
This is where Chapter 11, could provide them with a clean start.
Unfortunately, Chapter 11 cannot get them smart management.
eh_political
I agree trade between Canada and the US is a good thing, however, I do not believe trade between Mexico and the US and Canada benefits anyone other than the companies CEO’s and shareholders. Canada and the US have similar social and economic structures. They have unions, somewhat similar wage levels, respect for the individual, etc. Mexico on the other hand has few unions, significantly lower wage levels, little respect for the individual, etc. The US and Canadian workers cannot compete with the Mexican worker on wages and so loses work to Mexico. NAFTA appears to be a one way street with our jobs going to Mexico but no Mexican jobs coming north.
@ Potemkin:
In the longer term, a prospering Mexico is a growing market for all manner of US goods and services. The more prosperous Mexico becomes, the less of an issue illegal migration becomes. A stable, thriving Mexico is of great benefit to America.
Now compare this with China. Wages are a fraction of those in Mexico. Trade is parasitic and mercantilist in nature. This is the real example of a trading relationship that benefits only CEO’s and shareholders…and the politicians they persuaded to go along with this lopsided relationship. The only reason middle and lower class people have not noticed the decline in wages is because of artificially cheap goods from China. It was the classic British method of annihilating competition.
It will be interesting to see how all of this plays out. And by interesting, I mean horrifying. Most of the world will come to mourn the passing of American hegemony. It has been a comparatively uneventful 68 years.