Oh dear. At one time, The Bentley GT Coupe was the UK footballer’s favourite. And it may still be, given that young men with a supernatural ability to play the beautiful game tend to spend orgiastically, ignoring such petty concerns as depreciation. But the fall-off in automotive values during these recessionary times is enough to give their accountant pause. UK auto industry experts HPI report that “the Bentley GT Coupe is depreciating at £500 ($753.37) more per week than it did 12 months ago. This means owners will lose over £67,000 ($100,874.89) in value, which is 56% of its £120,000 ($180,731.64) new price tag, in the first year. “Looking ahead, the huge rate of depreciation means the more affluent consumers will change they way they shop,” HPI’s Martin Keighley predicts. “Luxury models such as Ferrari and Porsche used to have bullet proof residuals, but with consumer confidence at an all time low these once secure purchase items will not seem so attractive. Buyers are going to be looking at how well a vehicle holds its value before splashing out, which doesn’t bode well for high end models.” Make the jump to see the UK’s worst depreciators.
Category: High Finance
Your faithful blogger is suffering this morning. A night of birthday celebration is currently proving that knowledge of moderation (and the mysteries of escrow) do not simply come with age. But compared to the hangover caused by a decade-long cheap credit binge, my suffering seems downright tolerable. Just ask GMAC. The Detroit News reports that GM’s once-captive lender has delayed the delivery date for debt swap deliveries for the fifth time, as it desperately attempts to round up enough capital to achieve bank holding status. Despite improving its offer last week, GMAC still says it needs “significant additional participation” from bondholders to make its goal of $30b in regulatory capital. Luckily the DetN is happy to sugar-coat the pain by headlining the story in as optimistic terms as possible (GMAC closer to raising enough capital to become bank holding company). And though technically true, there’s devils in them thar details.
Autocar [UK] reports that Honda CEO Takeo Fukui slipped this little nugget into his end of year speech: the new NSX is toast. While the fact that Honda has also deep-sixed their plans to introduce the Acura brand to Japan in 2010 (reported by Bertel this morning), the death of the NSX will likely catch the eye of the enthusiast press. It’s something of a climb-down for the HoMoCo CEO, who told Autocar last year that “The new supercar is necessary for Honda.” Of course, that’s so last year, what with Marketwatch reporting that Honda cash flow isn’t. More specifically, Bloomberg tells us “Sales are forecast to drop 13% to 10.4 trillion yen, down from the previous estimate of a 3% drop to 11.6 trillion yen. Operating profit will likely drop 81% to 180 billion yen, worse than the 42% decline to 550 billion yen that had been expected.” In other words, this is Honda’s second revised fiscal outlook in two months. In case you missed that, “The situation is worsening by the day and shows no sign of recovery,” Fukui pronounced at a press conference in Tokyo Wednesday. And this is a business in which we want Uncle Sam to invest?
Even Detroit’s fiercest defenders allow that The Big 2.8 should have thought a little further ahead than a single financial quarter– although they’re sure that Wall Street’s responsible for the shorter-termism. Hey! Anyone remember when Cerberus said they’d be better owners for Chrysler than anyone ’cause they didn’t have to report to Wall Street? You know: we’re quick! Less bureaucracy! More selling! Turn on a dime! Well, a dime’s about all they have left and former ToMoCo Prez Jim Press has dibs on that bad boy. Anyway… even though Toyota isn’t $30b in debt, the Japanese automaker is in full crisis mode. Yesterday, the Prius plant plotzed and they shit-canned executive bonuses. Today, we hear that the diesel engine project with Isuzu is DOA– minus the “OA.” You know that $1m ho’ down the Toyota used to throw for its dealers in Sin City? Gone. Seriously, talk all you want about misplaced Tundras, but these guys don’t dance this mess around. Just-auto {sub] reports that Toyota’s UK Managing Director reckons it could be as long as five years before the automaker’s biz recovers to last year’s level. “We have our forecasts for the next 24 months,” Miguel Fonseca revealed. “But it is very difficult to forecast further. After two years I think there will be a slow recovery, but my own belief is that it will be five years before we are back where we were.” And here’s something The Big 2.8 might have said, I dunno, ten years ago…
Once upon a time, GM’s captive finance unit GMAC was the engine of its success, pouring billions and billions and billions of dollars into the General’s corporate coffers. At some point, the tail wagged the dog: cheap credit and lax lending practices fueled an unsustainable growth in new car sales. A bubble that recently burst (in case you hadn’t noticed). Meanwhile, GMAC’s mortgage unit ResCap pursued the same no-loans-barred policy, only worse. Then, in his endless (seemingly, at the time) pursuit of propping-up GM’s bottom line with asset sales, CEO Rick Wagoner sold 51 percent of the soon-to-be-troubled finance unit to, of all people, Cerberus (owners of Chrysler and Chrysler financial). Which brings us to today’s GMAC, which is about to go tango uniform, hoisted by its own retard. The only way out: change itself into a bank and scarf some major bailout bucks. Only there are rules for that sort of thing…
In an SEC filing today, GMAC Financial Services warns that it may back away from its bank holding company status application, due to its inability to refinance some $38b in debt. That bank holding company status would make GMAC eligible for TARP funds, but without a federal rescue many see GMAC heading for bankruptcy court says Automotive News [sub]. Including GMAC. The Cerberus-owned finance firm warned that if it doesn’t receive holding company status by December 31, “it would have a near-term material adverse effect on GMAC’s business, results of operations and financial position.” Meaning it will be forced to sell of more assets (with no buyers lining up) and miss 2009 debt payments. To meet the Fed’s requirement, GMAC said it needs about 75 percent participation in its debt-swap offer. So far, participation is just over 20 percent. The good news? If you’ve got $20b or so rattling around and you want in, GMAC has extended its debt-swap deadline until December 12. Deep Throat breaks down the bad news thusly: “GM would have to write down its investment in GMAC likely to zero. The big problem is the floorplan issue for dealers. There are few replacement lenders right now, and those that will step up will offer harsher terms, curtailments, etc. That means less ability for GM to stockpile cars at dealer lots. OTOH, it’s possible that other captives, like Toyota’s finance arm, could seize an opportunity to play… especially if a GM dealer is also a Toyota dealer. But again, terms will be critical, and depends how much exposure these guys want and how much capacity they have. What’s interesting is that the bonds trade high with only 10-15% discounts from par. This is due to the recovery from finance assets being much better than from manufacturing assets.”
Fiat boss Sergio Marchionne has been schmoozing with Automotive News Europe [sub]. “By the time we finish with this in the next 24 months, as far as mass-producers are concerned, we’re going to end up with one American house, one German of size; one French-Japanese, maybe with an extension in the U.S.; one in Japan; one in China and one other potential European player,” Sergio predicts. And now, the WQOTD: “Companies can only survive if they produce at least 5.5 million cars a year.” So, someone special, who will it be? Someone special like… “Toyota, General Motors, Volkswagen, Ford Motor and Renault-Nissan.” Note: we could have gone another way on this one. In the same article, the thoughts of Jürgen Pieper, analyst at Metzler Bank in Germany, gets major play. Herr Pieper opines “Size in the current situation is what matters.” Small and nimble gets subsumed by big and… stupid? Stimt. “Daimler has been scarred by its experience with Chrysler, BMW bought Rover but sold it again after high investments failed to pay off. Analysts say both episodes showed that synergies between premium and volume carmakers are elusive.” “Elusive” as in non-existent?
Bloomberg reports that Ford is seeking $6b for its Volvo division, and is “counting on the strength of the brand to draw bidders”. Dearborn has hired JP Morgan to advise in the sale of the final remaining brand from Ford’s erstwhile Premiere Auto Group. But even with a Wall Street heavyweight easing the deal along, Ford isn’t likely to get anywhere near that much. “Anything other than a heavily discounted sale seems unrealistic,” says Ferdinand Dudenhoeffer of Gelsenkirchen University. “For a buyer it’s the best time that one could wish for. But it’s not ideal for Ford.” With the global players facing a sales downturn, Dudenhoffer figures that only cash-rich Chinese automakers, buyout firms, or a group of investors backed by the Swedish government might be interested at all. Bloomberg quotes a mysterious “person familiar with the situation” as saying Texas-based TPG Inc may be interested in Volvo. TPG, which has more than $50 billion of capital under management, was among four private-equity companies to make preliminary approaches for Jaguar and Land Rover last year before Ford sold the businesses to Tata Motors. SAIC and Dongfeng are among the Chinese firms that could bid on Volvo.
Porsche CEO Wendelin Wiedeking knows a thing or two about dealing with hedge funds. In fact his company’s relationship with the hedgies of the world has inspired more NSFW-bombs per TTAC headline than nearly any other topic. Anyway, The Guardian reports that Wiedeking tore into American automakers, singling out GM in particular for “openly threatening” the US government with bankruptcy for bailout bucks. Oh yeah, and “driving the industry to the brink of ruin.” Wiedeking went on to state that it could be only a matter of time before hedge funds took majority control of one of the US car manufacturers that had “inflicted damage on themselves with ruinous discounts and hugely subsidised leasing rates.” If that sounds familiar, it’s because Wiedeking was echoing a theory recently outlined by our own Ken Elias. We’ll be watching.
In a report to appear Monday, the German magazine Der Spiegel will write that “several law firms are compiling material for lawsuits to hold Porsche liable. They are working for hedge funds which had lost billions of Euros.” That’s news to Porsche CFO Holger Härter. He says he hasn’t heard of anybody who wants revenge or restitution. “I don’t even know who might have been hurt.” On Sunday, FAZ will publish an interview with Härter. First question: “When will the hedge fund called Porsche close its sheet metal factory?” Härter’s answer: “Our core business is and remains the automobile.” Everybody knows: not true. Porsche made more profits than sales in the last fiscal year. Of €8.6b in profits, only €1b were generated in that sheet metal factory. €7.6b were generated with derivatives. That was in the last fiscal year, which ended July 31. God, Härter and Wiedeking only know how much the Porsche hedge fund generated in the months thereafter, when the VW stock went wilder than girls at Mardi Gras. Härter now says they didn’t really mean it. Here is Härter’s version:
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Bloomberg reports that Fitch has cut Toyota’s credit rating amid a tanking US new car market, the first such cut for Toyota in ten years. Toyota was cut from AAA to AA, with a negative outlook; still comfortably above the sub-junk ratings of some automakers. However, the increased borrowing costs associated with a cut credit rating could bring an end to Toyota’s zero-percent financing incentive program. But according to Fitch, this rating cut is simply a sign of the times, rather than eing based on some specific Toyota wrongdoing. “The negative developments in the industry are so substantial and fundamental that even the strongest player — Toyota — can no longer support a `AAA’ rating,” according to Fitch director Tatsuya Miyuno. For some analysts, Toyota’s position is strong enough to weather the storm. “Toyota’s financial foundation is solid, and I don’t think there has been such a drastic change to warrant a two-level downgrade,” says Yasuhiro Matsumoto of Shinsei Securities. “I don’t see an impact on the company’s new bond issues.” The rating cut leaves only five companies left with an AAA rating from Fitch: Exxon Mobil Corp. and Johnson & Johnson in the U.S. and Regie Autonome des Transports Parisiens, Reseau Ferre de France and Societe Nationale des Chemins de Fer Francais in France.
GM is doing whatever it can to tame its cash conflagration this week, as it seeks to survive another few weeks and prove to congress that it’s serious about shaping up. The Wall Street Journal reports that these efforts have crossed over from the sublime to the ridiculous (always closer than they seem), as everything from clock maintenance to escalator operation budgets are being slashed to save cash. So just how tight is GM cinching its belt? GM is eliminating clock maintenance, stopping RenCen escalator operation at 7pm, eliminating voice mail at plants, buying cheaper pencils, and next year it will reduce its press fleet and cancel its “Mark of Excellence” dealer award. Worst of all? “At GM’s metal-fabricating plant in Grand Blanc, Mich., Steve Bean, a union committeeman, said he recently had to tell workers they would have to wait until at least next year to get $270 stipends they were promised in order to buy T-shirts, hats or coats emblazoned with their union local.” On a more… significant front, Bloomberg reports that GM will seek to reduce its $43b in debt and renegotiate elements of its 2007 UAW contract as part of its restructuring plan which is due to Congress on December 2. Should GM exchange debt at levels less than the original value, Standard and Poors would consider those issues in default while not necessarily cutting the automaker’s overall debt rating, according to S&P analyst Robert Schulz. “A financial restructuring, along with government loans, is an alternative to bankruptcy,” says Schulz. “It doesn’t fix the economic environment, though, and it’s the economic conditions that are causing their cash burn.”
Gadzillions of Citibank customers worldwide (the writer of these lines included) were sweating through the weekend, popping Valium, worried that their sleepless bank may go to eternal rest. Then, relief: Citi was bailed out. No hearing, no fuss, $326b total, Wagoner, eat your heart out. But wait: moiré dark clouds on the horizon: “The foundering Detroit automakers owe more than $100 billion to their bankers and bondholders, and Wall Street is starting to wonder how much of that will be paid back,” writes the New York Times. And wait, there is even more exposure, namely to “to automotive suppliers and dealers.”
A lot of the debt is in the way of bonds that have been foisted on hapless 401K holders that had ticked the “conservative” investment goal on their profile. These bonds are now depreciating faster than the junk produced in Detroit. If you have the stomach for it, you can buy GM’s 8.375 percent bonds due in July 2033 for 17 cents on the dollar. Even a Mike Milken wouldn’t have the guts. Flashback: At Milken’s sentencing, Judge Kimba Wood told Milken: “When a man of your power in the financial world repeatedly conspires to violate, and violates, securities and tax business in order to achieve more power and wealth for himself, a significant prison term is required.” This country’s legal system is based on case law, and quite possibly, Kimba’s sentence before the sentence may come up again. This time, for milken tax payers, retirees, and banks alike. Speaking of banks …
Seeking Alpha prides itself “the premier financial website for actionable stock market opinion and analysis.” When it comes to what should happen with GM, they are on our side: “Buyout better than bailout,” writes Seeking Alpha. Roger that. We have been picking-up indications that Chinese automakers SAIC and Dongfeng may have plans to buy assets of GM (and while they are at it, maybe even of Chrysler). China would get what it badly needs for its thriving domestic car industry to become an even more thriving international car industry: accepted brands, a worldwide distribution network and know-how necessary to comply with US and worldwide standards. Apparently, private equity firms are keen to aid this “transfer.” Behind all of this (of course) stands the Chinese government. The People’s Republic owns most of automakers SAIC and Dongfeng, along with a good chunk of the private equity firm Blackstone, a good chunk of Morgan, and a good chunk of T-bills (to the tune of $585b).
CNN Money Editor-at-Large Paul R Monica reckons GM is so Dow, I mean down, on its luck that it should be delisted from the Dow Jones Industrial Average. By Monica’s math, GM has a market cap of less than $2 billion, and its stock price has been treading water near $3. “Normally, when a blue-chip company sinks to such depths of despair,” writes Monica, “it gets tossed from the S&P 500. But not only is GM still a member of that index, it remains a component of the granddaddy of market barometers: the venerable Dow Jones Industrial average.” He reveals that Dow executive director John Prestbo is keeping a close eye on the General and any sign of a bankruptcy in the offing. “A company operating under bankruptcy protection is not on a level playing field,” says Prestbo. “What we try to do is make sure every company in the Dow is operating under the same kind of marketplace.”
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