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General Motors in Serious Trouble

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posted on Mar, 22 2006 @ 09:26 PM
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"What's Good for GM is Good for America" - Charlie Wilson, former CEO of GM. I wonder if that famous quote works in reverse? Most people are aware that both GM and Ford have had their corporate debt instruments rated as junk recently but it seems that GM especially is in a heap of trouble and may be closer to the brink than what we have been lead to believe. Three recent news stories about GM...

 



www.telegraph.co .uk
Credit derivatives rocked by loss at GM finance arm
The Telegraph - Business: March 18, 2006

The discovery of huge hidden losses at General Motors's finance arm have raised fresh fears of bankruptcy at the world's biggest carmaker, sending tremors through the credit derivatives markets.

The struggling group asked for a filing delay after admitting to an extra $2bn (£1.1bn) in accounting errors at its finance arm GMAC, raising total losses last year to $10.6bn. The news triggered a sharp spike in the cost of default insurance on GMAC's bonds, rising 75 basis points overnight.

Car-parts supplier Dana Corporation defaulted last week on $2.5bn of debt, following Delphi and Tower Automotive last year.

Concern that General Motors may now be sliding towards the brink - linked to an estimated $200bn in credit derivatives - has renewed fears that the over-heated credit swap market could seize up in a crisis.



Please visit the link provided for the complete story.


For those who don't know about derivatives see this post for an explanation of why this is such a big deal. Warren Buffet has described the derivatives market as a financial "time bomb". When he decided to methodically and prudently unwind Berkshire Hathaway's position in the derivatives market it cost him $400 million in losses. Imaginge what would happen during a panic.


GM to offer early retirement to about 113,000 U.S. workers
CBC News: March 22, 2006

General Motors is offering voluntary buyout packages to tens of thousands of its hourly employees in the United States to speed up its workforce attrition, the automaker said Wednesday.

The company will offer the packages to as many as 100,000 people. Its former subsidiary, auto part supplier Delphi Corp., will extend buyouts to as many as 13,000 hourly employees.

The offers are GM's attempt to speed up its plan to cut 30,000 jobs in North America by 2008. That plan was announced in November 2005 as the automaker grappled with a massive production glut.

Delphi, which is the biggest U.S. auto parts supplier, filed for bankruptcy in October. The company has said it will ask a New York bankruptcy court judge to void its union contracts if it cannot reach a new labour deal with the UAW by March 30.

GM expects to record the cost associated with the early retirement program in 2006.

Share of GM rose one cent on the NYSE, reaching $22.01 US.

Please visit the link provided for the complete story.


The original plan was to cut 30,000 jobs and close 12 plants. They now need to accelerate that by offering 113,000 employees "early retirement". If that's not a sign of trouble on the heals of a $10.6 billion loss at GMAC, I don't know what is.

Meanwhile:


GM increases production of SUVs
BBC News: March 22, 2006

US car giant General Motors is raising production of its largest sport utility vehicles (SUVs), despite fears that such cars are losing popularity.

It will build up to 12,000 extra full-size SUVs, but is cutting spending on its smaller models as buyers switch to more fuel-efficient cars.

Overall US sales of gas-guzzling SUV's have fallen sharply, hit by rising fuel prices and competition from new "crossover" models that are built more like cars than trucks.

The 12,000 extra Chevrolet Tahoe, GMC Yukons and Cadillac Escalades will be built at GM plants in Texas, Wisconsin and Mexico.

Please visit the link provided for the complete story.


Huh?
Either they just don't "get it" (peak oil etc.) or someone is trying desperately to bankrupt that company and the US along with it. If GM goes down there are good chances they take the derivatives market and the world financial markets with them.

Michael Ruppert had something to about this situation today:


This is big. Really big. Not since FTW issued its first economic alert with a detailed description of how derivatives work, has the situation been as dire as Ambrose Evans Pritchard describes here. It looks like the Plunge Protection Team is gearing up for action again. It’s a fool’s paradise for those who cheer at recent highs in the DJIA.

It’s all a smoke and mirrors con game and Delphi may push GMAC over which may threaten to toast every major bank in the country as the derivatives at stake equal 175% of the cash reserves of America’s ten biggest banks.

Our first economic alert was published on September 9, 2001. Of course, two days later came the attacks of 9/11 and a massive inflow of money from the Treasury. We can only wonder what’s coming in March and April of 2006. For any of our readers still in the equity markets, it’s time to cash out… and quickly. – MCR - PPT link added by me


All of these stories are from outside the US. Is this situation being ignored by the mainstream US media?

"What's bad for GM is bad for America"?
.




posted on Mar, 23 2006 @ 12:16 PM
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What do you think, Gools? Do you think that, if GM goes under, we will bail them out as we did with Chrysler?

I am a bit of a purist, as anyone who has read my U.S. Consitution writing, but as this is so, I am not sure about such bail-outs. As a purist, I say no bail-out, but since this will help some workers, I am not sure if I am correct.



posted on Mar, 23 2006 @ 12:41 PM
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... and you know who gets to pick up the tab for those pension programs when GM goes under right?

Yep, the US Taxpayer does.



posted on Mar, 23 2006 @ 01:05 PM
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#1 reason I bought a Pontiac last week instead of a Nissan.

Being in MI, this hits extra close to home. Our state is already about a nose-hair away from mini-depression. Our big automaker's collapse would end all hope of a rebound.

I'm moving to friggin mexico. Im gonna be a dirt farmer. A drunk dirt farmer.



posted on Mar, 23 2006 @ 01:36 PM
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Judging by the lack of activity and vehicle movement at the local Ford dealer, I'd say GM has some company.

And I'll continue to buy Hondas or Toyotas. They're just better vehicles.



posted on Mar, 23 2006 @ 02:17 PM
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But they are soooo small. I was so close to buying a nice v-6 accord coupe, but I felt like a giant in a clown car. As nice as it was, I still like my Grand Prix better. And we are catching up on engineering and mpg. My 200 horse v6 gets 31 mpg. Thats pretty darned good for a 4000 lb car.



posted on Mar, 23 2006 @ 02:23 PM
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DaFunk13:

I understand the size issue, but it isn't a problem for my husband (Landis) or me. One thing I don't like about American cars is that they all seem to look alike.

The retro GTO died a quiet death because, although it was hot under the hood, it looked too much like a Grand Am. IMHO, that was a pretty dumb move on Pontiac's part.

Retro muscle cars are a package deal. I'm one of those people who want the power and the original look. That's one reason I never bought one of the new Camaros/Trans Ams.

I have to admit the retro Mustangs are nice though!



posted on Mar, 23 2006 @ 07:20 PM
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I don't know TC. How much are you willing to pay with your taxes so a company who has no clue about where the auto industry is going can be saved?

That last story about them ramping up SUV production when the market is taking a nose dive says it all IMO. Companies that can't adapt should go under. The future is in hybrids and right now the Japanese (again) are way ahead of the game. Crysler almost went under when the first wave of Japanese imports hit the market and they recovered only by producing ultra cheap crap like the k-cars (I owned a "Reliant" - it wasn't).

The problem is that GM is a huge part of what is left of the manufacturing base in the US. GM and all of it's related industries account for tens of thousands of jobs (car parts, service, insurance, gas stations, steel manufacturing etc.)

There are already three companies that have declared bankruptcy or defaulted on their debts related to GM, if GM does go under they may be labeled as "too big to fail" and the requisite government bailout will follow. Something you and your government can ill afford with record deficits and debts. A good point was already made about the pension fund. The Feds (read - your tax dollars) will be left to pay the bill.

I've been following and studying the financial situation of our economies for about two years now, and I'm convinced it's just a matter of time before the whole ponzi scheme implodes on itself. The failure of GM just may be the straw that finally breaks the financial camel's back.
.



posted on Mar, 24 2006 @ 12:51 AM
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Originally posted by Thomas Crowne
What do you think, Gools? Do you think that, if GM goes under, we will bail them out as we did with Chrysler?

I am a bit of a purist, as anyone who has read my U.S. Consitution writing, but as this is so, I am not sure about such bail-outs. As a purist, I say no bail-out, but since this will help some workers, I am not sure if I am correct.


No TC you are correct. I say if GM goes under, let it go. It's the free market, some Japanese automakers are also facing tough times, Isuzu being the biggest. If GM cannot compete then let die. If GM does fold whose to blame? The workers? No, The Management? No, I put the blame squarely on the shoulders of the car designers. They were laxed in understanding the drivers wants and desires, the Japanese and Germans were all to willing to fill the void and predict market shifts and by the time the American manufacturers realized it, they had already lost significant market share and are playing catch-up. It appears too little, too late.

Having said that, you know the government will not let GM go belly up.
However, if I can slip this in, prediction: Toyota buys GM



posted on Mar, 24 2006 @ 02:19 AM
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Governments shouldnt bail out failed corprations.
Correct me if Im wrong but I doubt the US government would bail a out a small - medium business.
Why should GM get special treatment ?

[edit on 24-3-2006 by xpert11]



posted on Mar, 24 2006 @ 03:29 AM
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General Motors has been "in trouble" for a long time. I clearly remember when, in the mid '80s, H. Ross Perot , a member of the General Motors Board of Directors, was bought out by GM to the tune of $700 million for his scathing criticism of the company and their management policies.

In looking over some history of General Motors, I found a Corporate Governance Case Study on General Motors that clearly illustrates an historical track record of remarkable inefficiency, poor management and a myopic view of market trends and new car development...Corporate Governance Case Study on General Motors



posted on Mar, 24 2006 @ 04:04 AM
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Meh, I've been hearing this story for a while now. I still think Ford is gonna be the one to go under or much more likely, get bought out.



posted on Mar, 24 2006 @ 04:32 AM
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Boring vehicle design, lack of the ability to keep up with new customer demands, and horrible business decisions. This has been a long time coming. GM is great at making cars nobody wants, and they seem to be unable comprehend why they are failing. Like you stated before, they made a bunch of suvs while the market is obviously going in a different direction. Come on, who thought up that brilliant plan? Its weird.

Fall of an icon I guess.


Originally posted by DaFunk13
#1 reason I bought a Pontiac last week instead of a Nissan.


You should have bought a Nissan


[edit on 24-3-2006 by PlausibleDeniability]



posted on Mar, 24 2006 @ 06:11 AM
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Originally posted by PlausibleDeniability
You should have bought a Nissan



Indeed. My Nissan truck was built in Tenn. by non-union American workers who don't look at the company that writes their paycheck as the enemy. If you ask me, part of the reason GM will fall (perhaps followed by Ford) is the advasarial paradigm that labor unions have forced American manufacturing industries to assume.



posted on Mar, 24 2006 @ 10:22 AM
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Originally posted by Thomas Crowne
but since this will help some workers, I am not sure if I am correct.

Hey, those workers could allways move to japan and get jobs in the car industry there. *shrugs* People move from mexico into the US for jobs, and from india to the US for jobs, so, maybe Americans will have to start crossing borders.


xpert
Why should GM get special treatment ?

The autoindustry in the US is strange, the prices of automobiles, for example, is regulated by the Federal government. The industry is seen as especially important, and changes in it, or a collapse, would affect the economy and government as a whole.


As far as GM "going under", that'd be strange, considering that, if I understand correctly, they still hold the largest share of the US atuomarket.



posted on Mar, 24 2006 @ 06:11 PM
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Haha their countries arent stupid enough to take us in and give us free reign like we are here. If you go to their countries and demand instant jobs and healthcare and theyd laugh you right on out, that is unless they shot you first. People are milking us dry here and it makes me sick to see it.



posted on Mar, 24 2006 @ 06:43 PM
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I will only say that if GM goes so a big chunk of an American era will die with it.

The last true American company reminding in the US will be lost for ever.

A very bad think is happening to American we are losing everything that is American and is replaced with foreign names.

Sad, I did put a down payment to their new 2007 Saturn.



posted on Mar, 25 2006 @ 02:58 AM
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Originally posted by marg6043

The last true American company reminding in the US will be lost for ever.



What about ford?



posted on Mar, 28 2006 @ 12:54 PM
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IMO the reason GM is in trouble is their crappy design. There is only one GM I would even consider buying and that is the Impala, but the quality just doesnt seem to be there.

My wife works at Honda here in Ohio at the bike plant, she has been there 20 years this august and overall they have treated her right. The UAW has been trying for YEARS to get in but the associates simply dont want them in there, they know it will ruin a good thing.

The overall quality of Honda, Nissan, and Toyota is much better than GM and Ford. Notice that Dodge/Chrysler is doing just fine now?
They have some nice designs out there that appeal to the consumer. GM and Ford need to wake up and wake up fast before its too late.



posted on Mar, 28 2006 @ 08:21 PM
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I would sell off the existing stock of vehicles at good but not destructive discounts, to recover some money, making sure to make a good profit so as to be able to recover.

I would ask the consumer what they wanted and push for that. Hire people in the design department with "vision" who can bring their ideas to reality. Get rid of the "dead weight" in the company who are just leeches, sucking away valuable money, who refuse to change regardless of attempts to improve their productivity with training and motivation. Produce or get out! Advertise their products like mad, and sell them at competitive prices. Make sure you have a well trained and knowlegeable staff at all levels, and make sure you are sufficiently staffed to get the job done. Don't cut corners by understaffing just to make the "profit" appear better, you want more money, then sell more cars. Don't overpay the people who don't deserve it, if anyone gets a raise, it is those who put their sweat and dedication into their jobs, and make things happen, who deserve the raise.

Basically you want to create a product that people really want, you advertise it over and over, and then you provide the products at an affordable price, while keeping an eye on quality. Look at why Toyota is such a respected name, it was the quality and durability! Shoppers remember that.

Troy



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