Hyundai’s fourth quarter profit quadrupled over last year’s fourth quarter results, reports Bloomberg, as net income hit $822m, up from $210m in the same period last year. Operating profit rose 44 percent to $722m. This comes despite an increase in the value of the Won, which has reduced profit on Hyundais exports, which make up half the firm’s revenue. And unlike other automotive firms reaping surprise year-end profits (like Ford), Hyundai’s gains come from increased sales rather than cost-cutting. Hyundai’s overall sales rose 14 percent to 3.2 million units last year, driven by growth in the US and Indian markets. Hyundai finished 2009 with just over five percent of the world market. Hyundai expects sales to rise 11 percent in 2010, and the firm is looking to take advantage of Toyota’s weakness by offering conquest incentives like those now offered by GM, Ford and Chrysler.
The Ford Motor Company [full results in PDF format here] earned net income of $2.7b last year, on pre-tax operating profits of $454m. The company enjoyed a strong fourth quarter with $868m in net income and an after-tax operating profit of $1.6b (excluding special items). Ford Motor Credit [full release in PDF format here] earned $1.3b in net income and $2b in pre-tax operating profit last year. Ford Credit’s receivables were down at the end of 2009 compared to 2008, with $93b receivable compared to $116b at the end of 2008, and leverage of 7.3 to 1.
Here’s a situation in a hypothetical tense for you. If you were the CEO of a car company which never made a profit in 11 years and you offered to pay $74 million for a car company which hasn’t made a profit since 2001 and had a badly damaged brand, how would you expect your share price to go? Trust me, you’re not even close. MarketWatch.com reports that Spyker shares soared as much as 74% when they announced they had reached an agreement to buy Saab from General Motors. Spyker’s market capitalisation is now €107 million, four times more than when GM first put Saab up for sale.
It goes without saying that it’s always good news for a business to be able to raise hundreds of millions of dollars on the financial markets. Just as important as the financial boost, such capital-raising also raises the profile of the company, presenting it as a viable investment and implicitly endorsing its underlying business plan. In the case of Project Better Place’s recent $350m funding boost however, the benefits might be largely limited to the firm’s balance book. Heavy participation by HSBC, Lazard and Morgan Stanley do help raise Better Place’s profile, but HSBC and Lazard are the only new investors in this most recent round of financing: Morgan Stanley, IsraelCorp, VantagePoint and other previous investors make up the rest of the round. This speaks to a fundamental challenge underlining Project Better Place: broadening, rather than deepening its appeal and support.
Shortly after GM’s bankruptcy, we wondered why so many people were still trading “old GM” stock. After all, old GM stock is in a liquidation company with no chance of ever emerging from bankruptcy. In order to clear up any confusion, the SEC forced GM Liquidation (then GMGMQ) to change its ticker to MTLQQ. Apparently that didn’t work. CNN Money reports:
On Jan. 11, the first day of the big auto show in Detroit, about 41.6 million shares of MTLQQ exchanged hands. To put that in perspective, that’s more than the volume of Apple (AAPL, Fortune 500), Google (GOOG, Fortune 500) and IBM (IBM, Fortune 500) combined that day.
Holy fiduciary responsibility, Batman! The report goes on to note that MTLQQ is the ninth most-researched stock of 2010 at CNN Money, beating stocks like Microsoft and ExxonMobile. TTAC has expressed skepticism in the past about GM’s forthcoming IPO on silly grounds like the firm’s lack of profit, turmoil in overseas divisions, weak sales and questionable strategy. Frankly, this news makes us question whether any of these things matter. If a 70 cent (but worthless) stock in a company that has no bearing on New GM can rack up that kind of trading volume, clearly there are some unfathomable dynamics at play. Maybe a $60b GM IPO market cap is possible after all!
With the economy desperately looking for signs that a bottom has been reached, news that Fisker has raised $115m in new funding might indicate that (if nothing else) the money markets are back to their good old speculative selves. At least it might if there weren’t so many darn extenuating circumstances. On the one hand, Fisker seems like the kind of business that has little business attracting much, well, business. Its $90k+ Karma brings little more to the table than some competition for Tesla in the EV-glamor-bauble segment, and like Tesla it’s trying to leverage its first model into ever cheaper, higher-volume vehicles. So why are VC firms giving Fisker the time of day?
An interview with Forbes the boss of the Korean Development Bank, which GM-Daewoo still owes several billion dollars, reveals that GM’s South Korean unit had a debt-to-equity ratio of 912 percent as recently as last June. GM “rescued” its crucial small-car development center by buying up all $413m of GM-Daewoo’s recent share offering, keeping the the KDB from imposing its will on the automaker. That was enough to keep the wolf from Daewoo’s door in the short term, but if Daewoo is ever going to develop a new generation of GM small cars and global products, it will have to address its $2b KDB debt and raise additional funds. For now though, GM-Daewoo is just hoping to keep a little momentum going.
The TARP bailout of GM finance partner GMAC is being criticized by a congressional oversight panel [full report in PDF format here], reports the Detroit Free Press. The panel alleges that the Treasury
has not yet articulated a specific and convincing reason to support the company… It has never stated that a GMAC failure would result in substantial negative consequences for the national economy. If Treasury has made such a determination, then it should say so publicly.
With the Japanese Yen hovering around the 91 to 1 U.S Dollar exchange rate, a bullish VW focusing on boosting their market share in North America and Ford rising up, Toyota are probably a bit depressed. Business Week reports that, for the second year in a row, Toyota have resigned themselves to the notion that their North American division will post a loss this fiscal year. This will, almost certainly, have a knock-on effect in Toyota’s ability to turn a profit in the North American market, even after more cost cutting. “The finance company is having a solid year, so if you include that it will be so much easier to say positive things,” Yoshimi Inaba, Toyota’s North American chief executive, told reporters in Detroit. “We are still trying hard to improve (sales and manufacturing operations).”
Despite Ford’s surging stock price, new models and rising customer confidence there’s always been that one bone of contention which had divided peoples’ opinion: debt. $35 billion of it. Though they’ve tried to restructure it, selling new shares and raising cash throughout 2009, it’s still a problem. But apparently it’s becoming less of a problem. ABC news report that Fitch Ratings upgraded their assessment of the risk of Ford defaulting on its debt obligations, basing their optimistic view on a better economic environment, the company’s stronger margins, increased market share and cash position. Oh yes, and a small matter of $5.9b in federal DOE retooling loans [full Fitch release here]. Ford’s Credit unit also received a hearty slap on the back from Fitch because of its improving access to capital, as its rating was raised from “CCC” to “B-“. But let’s not get carried away. While this is a positive step in Alan Mulally’s vision of a sustainable Ford, the rating still qualifies Ford debt as non-investment grade.
The underlying cause of GMAC’s failure was no different than so many other American financial institutions: giant bets on risky mortgages at the height of a real estate bubble. And though that error alone would have qualified GMAC for a bailout rescue along with the other failed banks, The WSJ reports that the ongoing support for GMAC is “reflects the troubled company’s importance to the revival of the auto industry.” And man, it had better be important. The GMAC bailout has been one of our least-favorite of the season, rewarding poor practices in auto and mortgage lending, and exposing taxpayers to inordinate risk. But, as TTAC warned back in the pre-bailout days, once the camel gets a nose into the tent, good luck getting it out. And so, GMAC will be receiving another $3.8b in TARP support, on top of the $12.5b it has already received. As a result, the US taxpayer’s stake in GMAC is expected to rise above the current 35 percent stake, just in time for more write-downs planned for the next week. The cash injection is said to prime GMAC for a profitable Q1 2010, erasing some giant losses in the bank’s ResCap mortgage unit. And of course the move will help GMAC continue to underwrite the leases that Chrysler and GM so desperately need, but can’t afford due to plummeting resales. GMAC’s bailout often doesn’t get marked up in the auto industry bailout tally, but at over $16b so far, it’s one of the crucial pieces keeping the zombie automakers shambling along. Now, about repayment…
According to the Financial Times General Electric’s in-house virtual bank, GE Capital, has agreed to give JLR (Jaguar-Land-Rover) new financing secured by vehicles as they come off the production lines. Cash flow wise, JLR will get money almost instantly upon completion of production rather than later on down the road when the dealers and/or their banks pay for the vehicles. GE Capital says it looks forward to helping other European automakers free up working capital by borrowing against “underutilised assets”. This new kind of financing gives companies a powerful incentive to build cars for the “Sales Bank” even if no firm dealer commitments are in hand. Rut Row!
GM plans to repay the United States, Canadian and Ontario government loans in quarterly installments from escrowed funds, beginning next month with an initial $1.2 billion payment to be made in December ($1.0 billion to the UST and $192 million to the EDC), followed by quarterly payments. Any escrowed funds available as of June 30, 2010 would be used to repay the UST and EDC loans unless the escrowed funds were extended one year by the UST. Any balance of funds would be released to GM after the repayment of the UST and EDC loans.
Though this sounds like positive news, don’t let it fool you. GM’s financials only acknowledge $6.7b in government debt, a sum that barely scratches the surface of the taxpayer “investment” in The General (let’s use $52b as a baseline). The escrow fund in question contains $13.6b of the final $30b GM was given as it exited bankruptcy. Having burned through nearly half of that princely sum, GM now plans on using at least part of the rest to pay off the “outstanding $6.7b.” The escrow account expires in June 2010, at which point whatever is left unpaid of the $6.7b will be returned to the government, and GM will keep the rest. GM will then declare victory and pretend like it has squared up with the tax paying public, when in fact the public will have merely paid itself back a paltry fraction of what GM actually owes. This “repayment” will then be dutifully reported without question by the mainstream media, and the stain of bailout will be symbolically lifted. Except, of course, it won’t. GM and the government are playing a classic shell game, taking advantage of the public’s inability to keep the billions straight. Shameful.
Were you looking forward to GM’s first post-bankruptcy financial report, set to be released on Monday? We sure were. Right up until we read that the earning statement won’t be compliant with a little something called Generally Accepted Accounting Principles. Automotive News [sub] reports that GM will use so-called “managerial accounting,” (do we have an accountant in the house?) until Q1 2010 results are filed using SEC-approved “fresh start accounting.” The SEC is apparently aware that GM is still transitioning to the post-bankruptcy accounting system, and has reportedly approved GM’s timetable for compliance. Meanwhile, GM’s 3rd quarter results will be announced in two parts, for the period it was in bankruptcy (June 1- June 9) and after (June 10- September 30). GM’s spokesperson is kind enough to explain:
In some cases, it’s not comparable to do a year-to-year comparison. Anything with a cost component to it, won’t be comparable. For sales and revenue, it will be comparable. It’s going to be kind of complicated this time around. There’s no way around that. It’s not a standard situation.
Don’t you just hate it when that happens? You try and you try to be transparent, and then your financial results come out all unintelligible because it takes the better part of a year to switch accounting systems. No wonder Whitacre is downplaying talk of a Summer 2010 IPO.
If there’s one thing that can be counted on in the world of investment, it’s that someone is bound to copy Warren Buffett’s latest move. The Oracle of Omaha has reportedly made a billion bucks in less than a year on his $230 mil investment in BYD, and that firm’s soaring stock price has other investors taking notice. Bloomberg reports that Goldman Sachs is looking at buying $250 mil worth of convertible bonds and warrants in Geely, in hopes of repeating Buffett’s success. With major global automakers (specifically GM, VW and Toyota) solidifying their dominance of the Chinese domestic market, Chinese automakers see the low-cost segments in other markets as their opportunity for growth, and Geely is no exception. The firm hopes to boost overseas sales to 66 percent of its annual sales by 2015, a goal that justifies its current pursuit of the Volvo brand (update from Thor Johnsen coming soon). Though a name-brand backer like Goldman could help Geely break into foreign markets, there are challenges aplenty for the planned investment.
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