GM and Ford Death Watch

Back in 2006 when GM started to get into trouble with the rising price of oil and their exposure to derivatives I started a thread about it: General Motors in Serious Trouble

Some people back then dismissed the thought of a GM bankruptcy.

The financial crunch which has been working it's way through the system for the last 18 months has finally started to claim victims. First in the financials such as banks, insurance companies mortgage companies etc and now the contagion is moving into the last of the US manufacturing base.

It seems that both GM and Ford are now in serious trouble (the airlines are also known to be in serious trouble):

GM plunges 31% as outlook dims

After dropping sharply early in the day, GM (GM, Fortune 500) shares hit their lowest point since 1950, closing down 31% to $4.76 a share. Ford (F, Fortune 500) fell nearly 22% to $2.08.

GM said in a statement Friday that bankruptcy protection was "not an option."

But the stock plunge effectively puts both companies on death watch, and it's easy to see why. The ratings warnings followed a new report by Global Insight that shows U.S. auto sales hitting recession levels this year - and then sinking lower in 2009.

It turns out that auto finance companies were as guilty as mortgage lenders in providing loans to subprime borrowers - and their generosity is coming back to haunt them. Lenders dramatically cut standards for credit worthiness at the beginning of 2008 and now delinquency rates have been shooting up to levels not seen in 30 years.

They will attempt to blame their entire mess on the "credit crisis" when everybody nows the problems runs much deeper that that. (See my thread from 2006 linked above about ramping up SUV production just as sales where falling)

The market is drying up before our eyes.

World’s largest Chevrolet dealer files Bankruptcy

Capital One Ends Financing of Car Dealers

Here an interesting note. GM is estimated to have over $1 trillion in credit default swap exposure. The buyout of the Lehman CDSs "only" cost $270 billion with hundreds of bank having to agree to buy them out at around 91 cents on the dollar.

Things are so bad at GM that they are in talks with one of their legendary rivals for a possible merger:

G.M. and Chrysler Explore Merger

General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.

The auto industry is being pummeled from all sides — by high gas prices that have soured consumers on profitable S.U.V.’s, by a softening economy that has scared shoppers away from showrooms, and by tight credit that is making it difficult for willing buyers to obtain loans. Both G.M. and Chrysler have been struggling with product lineups that are out of sync with consumer demand for smaller, more fuel-efficient cars.

General Motors’ stock has fallen from more than $43 a share last year to less than $5, and it is burning through its cash hoard at a rapid rate. Chrysler, as a private company, no longer needs to report its finances.

BTW, whoever decided to take Chrylser private a few years ago is looking like a genius. It's kept them out of the news and a panicky public eye even though they are probably in just as much trouble as the other two companies.

Oh and Chrysler was not their first choice apparently:

GM Said to Seek Merger With Ford Before Chrysler

Before General Motors began exploring a possible merger with Chrysler — talks that first came to light on Friday — G. M. proposed a similar deal with its other cross-town rival, the Ford Motor Company, two people with knowledge of the talks said Saturday.

The behind-the-scenes maneuvering illustrates the mounting pressure on the Big Three Detroit automakers to solve their enormous financial problems and stave off bankruptcy.

Both G. M. and Chrysler are losing market share in the United States and burning through billions of dollars in cash while they scramble to revamp their unprofitable North American operations. But they may be running out of time. With auto sales at their lowest level in 15 years, both companies face the possibility of bankruptcy before their turnaround efforts take hold.

And before anybody gets their hopes up about a merger going through and saving everybody:

Analysts: GM would need cash to acquire Chrysler

For General Motors Corp. to acquire Chrysler LLC and all of its warts, GM would have to get desperately needed cash as part of the deal. Lots of it, according to industry analysts.

With both automakers struggling to survive amid slumping sales, a slowing global economy and an unprecedented credit crunch, it's unclear whether Chrysler's majority owner, Cerberus Capital Management LP, would be willing to pay up, or whether the federal government might even get involved to save one or both struggling automakers.

... "If you put two auto companies together, both that are losing money, both that are losing market share, you've just got an auto company that's losing market share faster and losing more money."

Where is a company that big supposed to find financing in this market?!

Also see:

Job cuts as Ford chief changes gear

&dist=msr_4]Ford reportedly mulls selling Mazda stake

Big changes are on the horizon for automakers and anybody who has a job related to the industry.
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Times they are a changing...

I definitely agree that we are going to see a major change in the market.

It's interesting to note that in all of the car magazines that show advance models of cars soon to be released there seems to be a movement towards smaller cars. Cars that were previously exclusive to Europe are making their way to the United States, including the very interesting possibility of European diesel engines in some of them. Ford Fiesta, Honda Fit, Chevy Cruze, all very small, very European looking and soon to arrive in the States.

For the land of the Suburban and Expedition to be getting these small cars, and with much fanfare, shows that SOME of the companies are finally getting it. The question is, is it too late for the American companies.

I believe it very well might be. There has been too many years of dragging. Why on earth American companies were still marketing and focusing on mega SUVs when it was pretty clear that we were heading towards a fuel price spike is beyond me.

Additionally, if you look at two "economy" companies from the Far East, you will notice that they have both begun to market Luxury cars. Hyundai is releasing the Genesis, which is a stunning car that looks like a Mercedes, and Kia is releasing a high end SUV who's name escapes me at the moment.

The American companies fell behind, royally. A merger of course would be a possible idea, but like Gools pointed out, this is not the best time financially for such transactions.

At this point it time, for GM to be sitting at $5 a share, is not a surprise to me. Many call it a shock, many just figure it as part of the market slide. I don't think it's either.

The question is can they dig out or is this indeed the death knell for this giant of the automotive industry.

Whatever ends up happening, I think we can all be quite assured that in the next few years Detroit will be a changed city.

Speaking from first-hand experience, Detroit is changing. It's actually getting worse.

I do a great deal of contract work for one of these "Big Three" automakers. And while I'm grateful for the work in these most-challenging times, it is certainly getting tight for us all.

On the point of newer models, the majority of what I do involves promoting the latest cars and trucks. Already this season, we're seeing a lot less people who are looking to buy...if they can even get financed!

I was in San Antonio last week, one of the few major American cities with a stable-enough economy [maybe it's the proximity to Fort Hood], and even truck sales are way down. In Texas!

The American automakers' arrogance has helped put them in this position.

And Detroit? Detroit is New Orleans, without needing a Katrina.

Originally posted by Gools
Where is a company that big supposed to find financing in this market?!

Why, Mr. Gools, I do believe you indicated the answer to that question a few days ago!
The gov't doesn't want to see GM or Ford fail. The psychological blow to the American psyche if either company went out of business would be...horrible. It'd be watching an American institution fall.

There is also this: Many folks, due to raising gas prices, have tried to trade in / sell their gas guzzlers (i.e. SUVs) for cheaper cars, and found that SUVs and like vehicles, took a huge tumble in value. They took such a dive, that many couldn't even consider it. So they are stuck with their vehicles. I know some folks that actually bought a second incredibly cheap car, and parked their SUV indefinantly. But many can't afford this, so instead of buying a new car, they are stuck with what they have. I don't know if or when falling oil prices will help the situation. One guy I know from a dealership I talked with said it would probably be the only time in history that bluebook values went UP for vehicles... when and if it finally happens. So this can't be helping car purchases either.

Boardwalk and Park Place with 1 Hotel and 4 Houses.

Almost there. The Monopoly of every industry into the hands of the fedand PTB

It does look like the next to burnout from the derivatives meltdown will be the auto makers. Since credit is locking up and the bond market is betting that GM and Ford will file for bankruptcy, it looks like the US auto industry is toast.

Credit Swaps Show Fear, Not Reality, Executives Say

General Motors Corp. saw its credit default swaps rise to a record after the automaker said Sept. 19 it was going to draw down the remainder of a $4.5 billion revolving credit line to preserve cash because of the instability in the financial markets. Detroit-based GM, the largest U.S. carmaker, has lost almost $70 billion since 2004.

GM's Last Fatal Mistake

The most interesting thing about GM is the fact that there is $1 trillion in credit default swaps speculating on the demise or lack thereof of this dog. To put things into perspective, the market cap of GM is $9 Billion and over $1 trillion is bet on whether or not it survives. Anyone who tells me these bets are hedged, please tell me how. There is not enough stock or bonds to hedge with. By the way, that $1T figure is over a year old. Anyone with a more current number, please send it my way.

reply to post by Gools


I say let them go into the toilet! Let them file for bankruptcy, under new ownership, then you can clean house; beginning with everyone in management, then break the UNIONS. Let someone who knows how to run a company take over. Why have taxpayer money be thrown to a company that has not been able to adapt in the marketplace?

[edit on 12-10-2008 by Gateway]

reply to post by Regenmacher


Burnt toast, that's the way I like it. Burnt toast, you really gotta try it..

That's great. The only toast image I have is the one of the Virgin Mary that sold on e-Bay years ago for like 20K or something.

Of course, by destroying the "UNIONS", the corporations will have even less to keep them in check.

And to heck with all the thousands of employees of these American car companies, right?

It is beyond unfortunate what is happening in Detroit. And the blame, of COURSE, falls at the feet of all involved. Labor. Management. Finance. Congress. Et al.

But your slash-and-burn attitude shows little consideration for the human beings involved in this mess.

It is really no surprise. Ford and GM have not made any decent cars in 20 years.

bdub85, that may very well be what your dad says, but how many American cars have you driven in the past 5 years? Which ones? Can you tell us what you didn't like about them? How did they handle? Were they efficient?

OR, are you just another angry young man who likes to impress himself by spouting off about whatever happens to piss him off in the moment...even though all that misdirected anger really is because of something, or should I say "someone" else?

Here's the real point: the domestic automakers have a LOT of catching up to do. And thousands and thousands of jobs [and livelihoods!] are at stake here. So trite and lame comments like yours do VERY little to push the issue in a positive direction.

Go to your local UAW hall and take it up with them.

Or better yet, come out to Detroit.

Originally posted by anachryon
Why, Mr. Gools, I do believe you indicated the answer to that question a few days ago!

heh. At least somebody is paying attention!

More news:

GM Announces Plant Closures; More Cuts Coming

More downsizing moves are expected from General Motors Corp. (GM) in the weeks and months ahead as the auto maker - burning cash and unable to borrow money - is left with cost cutting as its main tool to pare massive losses.

A Wisconsin truck factory and a Michigan stamping plant on Monday became the latest causalities of GM's race to shrink its operations in the face of slipping U.S. sales, especially in pickup trucks and sport-utility vehicles.

The auto maker said it will close a metal stamping plant near Grand Rapids, Mich. in December 2009. Also, a Janesville, Wisc., SUV plant will close Dec. 23, earlier than planned, the second time in 10 days GM announced accelerated plant closings. Another SUV plant, in Moraine, Ohio, will close Dec. 23.

On the Ford front:

Ford Official Plays Down Talk of Mazda Sale

Ford Europe Sales Down 12.3% At 161700 Vehicles

Ford Australia 'to axe 500 more jobs'
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Not a surprise. The Execs at the Big 3 have been caving in to the UAW for decades now. The UAW and the Corp. get what they deserve. UAW's will learn the hard way that taking a cut wa a lot better option than no work at all. The cars have been inferior for a number of years as well.