"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...
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
GM to offer early retirement to about 113,000 U.S.
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.
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.
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"?