Is GM going bankrupt?

[Ted Striker]

What's bad about this it the ripple effect it will have on the Great Lakes states, which have been supplying GM with raw material and specialty parts for many years. It's the lifeblood of that region and why cities like Detroit and Cleveland have parts that are completely burned out.

I can only imagine what will happen when the rest of the place goes under. That's gotta hurt.

[Ned]

Ted, I wonder if other companies will buy the plants and continue to produce at least the more popular GM cars. I can hardly imagine a world without a Corvette or a Cadillac.

[Ted Striker]

I can see that scenario happening.

[JohnT]

Some interesting tidbits from GM's latest 10-k:

Debt has exploded since 2001, increasing from $147 billion to $300 billion.

Pension and other post-retirement obligations exceed $165 billion. $80 billion is pension obligations, $85 billion is other (medical obligations, etc.)

Oh, btw, the total amount of 2004 pension and other post-retirement benefit contributions by all worldwide GM employees was... drumroll... $22 million.

These two items alone explain why GM is a near-$200 billion/year operation that is worth "only" $15 billion.

In regards to the pension issues, I threw together some BS ratios and came up with the following:

... If GM wanted to fully fund their pension obligations this year, they'll have to cough up over $910,000 per North American employee.

... If they wanted to fund it buy increasing car prices, they would have to increase the price on their average model $27,000 - on their entire worldwide fleet!

Also, GM stopped accounting for "goodwill" a couple of years ago. Now "goodwill" has always been one of those accounting items that, to me, has always seemed a little shifty - a means for the accountants to say "We don't know why our stock price is so exceeding our actual valuations - we'll just call it 'goodwill' and book it as that." Regardless, it does exist for many companies and is an actual accounting line item.

Just not for GM. Not anymore.

[JohnT]

Well, well, well... look at who is sniffing around this dog...

http://www.bloomberg.com/apps/news?pid=10000087&sid=ab_cUI3k071Y&refer=top_world_news

Kerkorian Discloses GM Investment, Plans to Double It (Update7)

May 4 (Bloomberg) -- Kirk Kerkorian, the billionaire who tried to take Chrysler Corp. private a decade ago, said he planned to double a previously undisclosed stake in General Motors Corp. to 8.8 percent after a plunge in GM shares this year.

Kerkorian's Tracinda Corp. offered $868 million for as many as 28 million GM shares at $31 each, raising his holdings in the Detroit-based automaker to 50 million shares, Tracinda said in a statement today. The purchase is ``solely for investment purposes,'' the Los Angeles-based firm said. GM surged as much as 13 percent, putting it on pace for the biggest gain in 17 years.

Kerkorian, 87, who became a billionaire by buying airlines and casinos for less than they turned out to be worth, is investing in GM as its stock market value has fallen to a 13-year low and its share of U.S. auto sales are at the lowest since the 1920s. GM market value fell to $15.7 billion yesterday from $31 billion when Chief Executive Rick Wagoner took over in June 2000.

``He's going to put their feet to the fire like he did Chrysler,'' said John Kornitzer, who manages $5.5 billion at Kornitzer Capital Management in Shawnee Mission Kansas, including GM shares. ``They'll get more lean and efficient. They'll get tougher on the unions. It's good.''

Shares of GM, the world's biggest automaker, have fallen 42 percent in the 12 months through yesterday as profits fell and the Detroit-based automaker lost market share to rivals such as Toyota Motor Corp. GM reported a $1.1 billion loss in the first quarter, its biggest quarterly loss in 13 years, after falling sales prompted it to cut production and spend more on marketing and rebates.

Big Shareholder

The purchase would make Kerkorian GM's third largest- shareholder, according to data compiled by Bloomberg. Tracinda holds a controlling interest in casino operator MGM Mirage. He is ranked 41st on the Forbes list of the world's wealthiest people, with a net worth estimated at $8.9 billion.

GM shares rose $3.47, or 13 percent, to $31.24 at 10:33 a.m. in New York Stock Exchange composite trading. GM spokesman Tom Kowaleski declined to comment.

As part of Kerkorian's offer, stockholders will be entitled to keep GM's 50-cent quarterly dividend, which is to be paid next month. On that basis, the offer is a 13.4 percent premium over GM's closing price of $27.77 yesterday, Tracinda said in the statement.

Kerkorian first bought shares in Chrysler Corp. in 1990 after the automaker had a third-quarter loss of $214 million. He paid $12.37 a share in December 1990 for his initial 22 million shares, then bought 6 million more shares at $10.13 each on Oct. 10, 1991, as the company headed toward a full-year loss of $795 million.

Chrysler Private?

He tried to buy all of the automaker in April 1995 for $21 billion. While the effort collapsed when he couldn't line up the financing, he increased his stake and continued to exert pressure on the company, giving his support to the 1998 combination with Stuttgart, Germany-based Daimler-Benz AG.

Two years later, Kerkorian sued DaimlerChrysler AG and Chief Executive Officer Juergen Schrempp after Schrempp told the Financial Times he'd planned to take control of Chrysler following a deal that was billed as a merger of equals. Tracinda last month appealed a lower court ruling Kerkorian wasn't duped about the 1998 transaction.

Kerkorian faces a 2003 lawsuit from DaimlerChrysler shareholder Donald Johnson claiming Kerkorian wrongfully sold DaimlerChrysler shares after obtaining inside information from a Tracinda employee on the automaker's board. A U.S. District judge in California ruled in August that the suit can go forward. Kerkorian is appealing that ruling.

Unions

GM, which is negotiating with unions to reduce the $5.6 billion it expects to pay for employee health costs this year, on April 19 abandoned its 2005 profit forecast of as much as $2 per share, excluding some expense, because of uncertainty about the outlook for the year, particularly health care costs. It said it can't project earnings until it resolves the ``health-care cost crisis.''

Tracinda's investment ``indicates to me that the headwinds the company is facing seem to Kerkorian to be short-term in nature,'' said Carol Moreno, an analyst at TCW Group, which has $109 billion in assets, including shares of General Motors. ``I would imagine that he has been in contact with management prior to this, and if anything, it gives the impression that there is value to the stock and that management is on the right track.''

GM's 8.375 percent bonds maturing in 2033 rose about 2 cents to 78 cents on the dollar, yielding 10.9 percent, according to Trace, the bond-price reporting system of the NASD. The bonds have weakened since GM cut its annual profit forecast on March 16, falling to 72 cents last month, an all-time low.

The investment ``doesn't solve the problems at GM -- the difficult U.S. market and the difficult problem negotiating with the unions,'' said Roberto Cominotto, a fund manager at Ehinger & Armand von Ernst, AG in Zurich, a private bank that is part of UBS and manages the equivalent of about $16 billion for clients. ``Nothing's changed.''

[Dinner]

Kirk Kerkorian is seeking a 9% share of GM (he currently owns 4%) For those of you who don't know Kirk Kerkorian was formerly the biggest share holder of Chrysler and his tactics of booting existing management at under performing companies often results in big turn arounds. Typically Kerkorian pushes for both labor and management numbers to be cut, mangement pay to be mostly incentive based, and for the target company to invest big time in new product line ups. This could be very good news for GM but bad news for the dirt bags who've run the company into the ground.

[url]http://money.cnn.com/2005/05/04/news/fortune500/gm_kerkorian/index.htm?cnn=yes.[/url

GM's stock is up almost 10% on the news.

http://money.cnn.com/2005/05/04/mark...ex.htm?cnn=yes]

[JohnT]

That's the recent spin.

Kerkorian is also a notorious greenmailer, especially in the 80s. He sure didn't do anything for Chrysler, except sell it to the Germans so that he could be relieved (profitably) of his stake.

[Kidlicious]

Looks like JohnT beat you by 3 minutes Oerdin.

[Kidlicious]

Originally posted by JohnT
Also, GM stopped accounting for "goodwill" a couple of years ago. Now "goodwill" has always been one of those accounting items that, to me, has always seemed a little shifty - a means for the accountants to say "We don't know why our stock price is so exceeding our actual valuations - we'll just call it 'goodwill' and book it as that." Regardless, it does exist for many companies and is an actual accounting line item.

Goodwill means that you've purchased some assets from a company, or purchased a company, and you paid more than they valued the assets on their books.

[JohnT]

That's right. Appreciate it!

[Dinner]

If big companies like GM had half a brain they'd be lobbying Congress for universal health care so costs would be spread out over a larger population. They should also agressively lobby for imports of Canadian, European, and everyone else's medical drugs because the artificially high prices caused by American protectionism are the biggest factor in health care costs. That Republicans wrote laws into the new medicare drug benifit that wouldn't even allow medicare to comparison shop among domestic drug distributors (much less European or Canadian companies) shows how completely corrupt Republicans are as a party. CNN was saying medicare pays alost four times what Walmart pays for the same drugs and it is mostly because medicare must buy at MSRP while NO ONE in the real world pays MSRP.

That's a bit of a side rant but the fed could easily reduce health care costs by providing universal access and by ending the anti-consumer laws along with the anti-foreign protectionist measures the industry lobbiest have constructed. That's what's causing the huge price increases and those costs are killing businesses.

[pchang]

Kerkorian's stake plus what I heard about Pension Benefit Guarantee taking over GM's pension plans is tempting me to go long on GM.

[Dinner]

Don't companies have to declare bankruptcy vefore they can shift all their pension liability off on to the taxpayer?

[Ned]

Originally posted by Oerdin
If big companies like GM had half a brain they'd be lobbying Congress for universal health care so costs would be spread out over a larger population. They should also agressively lobby for imports of Canadian, European, and everyone else's medical drugs because the artificially high prices caused by American protectionism are the biggest factor in health care costs. That Republicans wrote laws into the new medicare drug benifit that wouldn't even allow medicare to comparison shop among domestic drug distributors (much less European or Canadian companies) shows how completely corrupt Republicans are as a party. CNN was saying medicare pays alost four times what Walmart pays for the same drugs and it is mostly because medicare must buy at MSRP while NO ONE in the real world pays MSRP.

That's a bit of a side rant but the fed could easily reduce health care costs by providing universal access and by ending the anti-consumer laws along with the anti-foreign protectionist measures the industry lobbiest have constructed. That's what's causing the huge price increases and those costs are killing businesses.

Oerdin, would make sense if businesses could not offer their employees more than the standard government benefit and if all prior contracts would be voided in favor of the new government program.

[JohnT]

If big companies like GM had half a brain they'd be lobbying Congress for universal health care so costs would be spread out over a larger population.

If companies like GM had half a brain, they'd be lobbying Congress for universal health care so they can wipe $85 billion in obligations off their balance sheet.