“Our ‘CC’ corporate credit rating on GM continues to reflect our opinion that there is a high likelihood that the company will undergo a distressed debt exchange (which we would consider tantamount to a default under our criteria) or file for bankruptcy protection toward the end of May or shortly thereafter.
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Category: High Finance
Late last Friday, GM revealed in a regulatory filing with the Securities and Exchange Commission that its employee stock fund manager, State Street Bank and Trust Co., has unloaded all company shares. According to the Associated Press (AP), “The plan’s financial manager said it began selling off shares of the Detroit automaker in late March ‘due to the economic climate and the circumstances surrounding GM’s business.'” This may help to explain the dead cat bounce GM’s stock experienced today.
The New York Times reports (and GM CEO Fritz Henderson’s comments at this morning’s press conference confirm) that the US treasury has plans to “own” GM. If the current bondholder offer goes through, “the Treasury and the UAW would own up to 89 percent of the company’s outstanding shares, while bondholders would hold no more than 10 percent and current shareholders would hold 1 percent. The Treasury would hold more than half of G.M. on its own and therefore have control over the election of its board of directors and other matters requiring the approval of shareholders.” A reporter brought up the fact that bondholders’ $10 billion debt swap would buy them 10 percent of the new GM, while the unions would get 39 percent for their $10 billion haircut. Fritz declined to address this issue—probably because there’s not a damn thing he can do about it. Of course, the offer won’t go through. But the principle will be established. And then, according to The Wall Street Journal, consummated in federal bankruptcy court.
Newsflash: the United Kingdom has just raised their top tax rate from 40 to 50 percent. That’s before (after?) the country’s 17.5 percent VAT on virtually everything a resident buys—save petrol, alcohol, cigarettes and other items covered by “sin taxes,” which are WAY higher. And council tax. And the rest. Which includes the tax on new car purchases. For company director types, that little item was calculated at 35 percent for the first £80K. After that, nada. But now, it’s 35 percent on the whole schmeer: the complete purchase price. The Times reports that “The move left some luxury-car makers fuming, in particular Bentley, which is owned by Volkswagen but has its factory in Crewe.”
Ah, the suspense of a spaghetti western: Chrysler Vice Chairman Jim Press and sales chief Steve Landry told U.S. dealers on a conference call to hold their breath until they turn blue because “the automaker expected talks aimed at clinching an alliance with Italy’s Fiat to run all the way to an April 30 government-imposed deadline,” says Reuters.
In the meantime, Fiat’s bid for Opel is running into a phalanx of counter-fire and looks deader by the minute. According to Das Autohaus, the powerful metal workers union is “strictly against” Fiat. Also the Opel dealers are not enthused: “We want a strong partner for Opel, and that’s not Fiat” said Thomas Bieling of the Opel Dealer Council. Opel Supervisory board member Schild has compared Opel and Fiat to “two sick parents” who would not create a viable ensemble.
Until a few weeks ago, Porsche’s Wiedeking and his CFO, Holger Härter, were feted as the masters of the universe and Jesus Christ rolled into two. After pulling off the impossible feat of showing more profits than sales twice in a row, the two were said to be able of walking on water while turning it in to wine. Now, they are busy updating their résumés. Or maybe even their last wills.
Download this pdf to get the 411 on a new GM-on-the-brink compensation scheme, sent to us by a member of TTAC’s Best and Brightest. The program has been activated by GM’s recent decision to shut down production for nine weeks over the summer. How’s this for reassurance? “SDPA salary will be paid on a semi-monthly basis. The current percentage established by this policy is 75%. Leadership reserves the right to terminate, modify, suspend, increase or decrease salaries and benefits provided under this policy.” Equally worrying (for some), employees getting free vehicles form GM will have to pay for their own fuel during the downtime. “Fuel expenses incurred during the entire paid downtime period are at the expense of the employee (similar to when on vacation or Holiday). All other vehicle expenses (e.g., oil changes, etc.) will continue to be covered in accordance with the PEP/ECVP rules and terms in effect throughout the paid downtime period(s).” Every 3000 miles?
One of our Best and Brightest sent me a link (farago@ttac.com) to an article in The Charlotte Observer about GMAC’s move away from the Bank of America (BofA) and into the credit card business. As one of the few media commentators who knows enough not to report stories about which I don’t have a fucking clue, I pinged our man William C. Montgomery for some analysis. In addition to reviewing cars for TTAC, Bill works for a large credit card company. He knows his onions. While his reply reveals that there’s nothing untoward here, and TTAC’s core concern is GMAC’s car loan biz, I thought it sufficiently interesting to share with you, our highly informed (now more so) audience. Forgive the digression.
Let me tell you the state of the credit card industry right now. We expect the default rate this year to be about 15% (up from about 6% during normal years). This means that for every dollar we lend, only eight-five cents will get paid back. Plus, it costs us about another 6% to borrow the money, print and mail statements, maintain customer service call centers, etc. In other words, we’d need to be earning 21% in finance charges just to break even. On top of this, new credit card lending rules make it much harder to raise interest rates. In other words, no bank want’s to be in the credit card business right now. Just about every bank I know of is looking to unload their credit card receivables so that they can lesson their exposure to the sky high credit losses we are experiencing in the current economy.
Fiat, the great Italian hope for the American auto industry, has a lot of expectations to live up to right now. Not only are the Torino boyz tackling the miasma of despair that was the Chrysler corporation, but Automotive News [sub] reports that Fiat could “form an alliance with General Motors’ core operations in Europe and Latin America.” Italian-American Leyland, anyone? Fuhgeddaboutit. According to anonymous sources, talks with GM are in the “early phases,” which means that nobody has suggested that an allied Chrysler, Fiat, Opel/Vauxhall and GM Latin America might be too much concentrated fail for one corporation to handle. And Fiat’s got the usual unnamed competition for Opel to contend with. “More than six people have expressed interest, serious people,” says GM CEO Fritz Henderson of his firm’s unwanted Opel/Vauxhall operations. Why so serious? Did previous offers come from folks wearing giant shoes, tiny hats and rubber noses? More importantly, if one of these “more than six serious people” comes from Fiat, might it not be time for a reality check on that firm’s transformative power?
Daimler’s Zetsche won’t have to worry explaining the T&E for his trip to the Shanghai Motor Show. He might come back with a big chunk of Chinese money. According to the German Handelsblatt, “Daimler is negotiating with the Chinese sovereign wealth fund about selling shares and doesn’t rule out a Chinese engagement in Stuttgart.” Zetsche put on his best poker face: “We have had talks in the past with possible investors in China, and the talks are still on-going.” Looks like there is more to it: On Tuesday, Zetsche will travel to Beijing to meet with representatives of the Chinese government. Asked whether he would also meet representatives of the Chinese government fund CIC, Zetsche gave a definitive “no comment.” If they buy, China will be in good company:
One of our Best and Brightest offered the following observation:
Isn’t there another problem lurking for Presidential Motors?
Is my grasp of history wrong (or did I just live for a while in the wrong part of the country) but is not there a perception or urban legend or canard, how to put this gracefully, that Fords were for rednecks, and that Ford dealers were rednecks, and that GM, especially Pontiac and Cadillac, was much more open to the idea of having minority-owned dealerships, and that that went back to the early days of both Ford and GM?
When I lived in the South, I was told “Pontiac” meant “Poor Old N[egro] Thinks It’s a Cadillac.”
What if “too many” of the dealers whose contracts are about to be impaired outside the bankruptcy process and in clear violation of the clear text of the Constitution, turn out to be minorities?
The left-leaning US Public Interest Research Group (US PIRG) has issued a report entitled “Private Roads, Public Costs” that questions the benefits of using private tolls to construct or maintain roads. The report examined all fifteen completed road privatization projects in the US along with 79 known proposals nationwide. “Though these privatization deals seem to offer state officials a ‘quick fix,’ they often pose long-term threats to the public interest,” the report found. “The economics of these deals are such that the upfront concession payments are unlikely to match the long-term value of the higher tolls that will be paid by future generations and not collected for public uses.”
Just kidding. I mean, both parts of the story are true: Daimler workers are protesting and Mercedes is NSFW-canning the 6.2something liter version of the M3-chasing CLK. In the case of the Daimler workers, they’re doing what German workers do: take to the streets to protest the slightest roll-back in pay or bennies. Oh, did you think this was a union protest? Nein. “Workers wearing cardboard masks of chief executive Dieter Zetsche’s face carried collection boxes as they protested against pay cuts of up to 14 per cent for the company’s 73,000 white-collar staff. They are also being asked to reduce their working week by up to five hours.” As for Daimler’s assembly workers, they’re being gummed to death. “The car maker has also put 50,000 factory workers in automotive production on shorter working hours, and plans the same for another 18,000 commercial vehicle workers after Easter.” Same money, less hours? Yeah, that’ll work. Meanwhile, back to the Galactica! It looks like AMG’s maximum thrust models (apologies to Peter North) are due for a major cutback.
Following a ruling by the Supreme Court of Victoria, Australia, a 27-year-old will have a chance to shut down the A$4.8 billion Airport Link toll road next Tuesday. The BrisConnections toll project, built upon highly leveraged shareholder debt, fell apart as the credit crisis hit and the share price plunged to just A$.001. This allowed a young Internet entrepreneur, Nicholas Bolton, to snap up 73,100,993 shares representing eighteen percent of the company with an initial investment of just A$47,923. That cheap initial purchase price, however, came with a catch. The BrisConnections stock is a “partly paid security” that requires a A$1 per-share payment on April 29, 2009, and a second A$1 payment on January 29, 2010, for the shares to become fully paid.
TTAC’s Ken Elias was well pleased when Ford announced that it had trimmed $9.9 billion from its debt mountain by “convincing” investors to exchange debt for cash and stock. More specifically, Ford Motor Credit will use $2.4 billion in cash and stock to buy back the debt once the offer closes Wednesday. Ford agreed to pay investors about $380 in cash and stock for every $1,000 in bonds, or 38 cents on the dollar, according to company officials. As the BBC reports, removing call-it-ten-billion from Ford’s $25.8 billion debt lowers The Blue Oval Boyz’ interest payments by $500M per annum. FoMoCo’s stock rose sixteen percent on the news. Yes, well, Fitch Ratings isn’t planning a fiesta just yet. The Wall Street Journal reports that the agency isn’t impressed with Ford’s cash burn. Or rather they are, just not in a good way. And who can blame them? Last year, Mulally’s minions torched . . . ready? $20.7 billion. Remember: all the really bad news arrived at the end of ’07. Fitch analyst Mark Oline was sanguine. “Using liquidity reduces any buffer which they could need if the sales markets don’t improve in 2010.” If? Standard & Poor’s is also non-plussed . . .
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