GM Loses Another $16 Billion -- Bankrupt?

[Kontiki]

Looks like Ford is looking for other sources of cash:

http://www.reportonbusiness.com/servlet/story/RTGAM.20081118.wfordmazda1118/BNStory/Business/home

Ford sells Mazda stake to raise cash
JAY ALABASTER

The Associated Press

November 18, 2008 at 7:34 AM EST

TOKYO — Ford Motor Co. is slashing its stake in Japan's Mazda Motor Corp. by nearly two-thirds, joining other struggling U.S. automakers in a fire-sale of prized assets to stay afloat.

Ford, which owns 33.4 per cent of Mazda, will sell about a 20 per cent stake, the companies said in separate statements.

The sale would net Ford 52-billion yen ($540-million U.S.) based on Mazda's closing price Tuesday, barely a quarter of what a 20 per cent stake in the Japanese automaker was worth one year ago. Mazda's shares rose 6.4 per cent to 184 yen Tuesday amid media reports of a coming sale.

Meanwhile, the head of Ford says the company is working hard to “transform” the business into a more profitable one that meets 21st century demands for fuel-efficient vehicles.

Ford's chief executive officer Alan Mulally said he'll make that argument to members of Congress Tuesday as the country's Big Three automakers plea again for federal financial assistance. They are scheduled to testify later Tuesday before the Senate Banking Committee.

Mr. Mulally denied on ABC's “Good Morning America” that automakers resisted restructuring their companies to meet current marketing realities.

Mr. Mulally also took exception to charges the company had been badly managed.

Hit by a slump in the U.S., Ford is burning through cash reserves and, along with General Motors Corp. and Chrysler LLC, is seeking a $25-billion government lifeline to weather the deepening economic crisis. On Monday, GM said it would sell its remaining 3.02 per cent stake in Japan's Suzuki Motor Corp. for 22.37-billion yen.

Ford racked up losses of $8.7-billion in the second quarter, its worst result ever, and has used up $11-billion of a cash stockpile in the past year. The share sale was “in line with Ford's plan to strengthen its balance sheet,” it said.

Over the last decade, Ford helped engineer a turnaround at once-struggling Mazda, sending executives and sharing technology and auto parts to cut costs.

Ford and Hiroshima-based Mazda, which makes the RX-8 sports car and Miata roadster, said they will maintain their strategic relationship. Ford said it will remain Mazda's largest shareholder and they will continue to share core design platforms and key components.

Mazda said it will buy up to 6.87 per cent of its own shares for as much as 17.9-billion yen through an off-hours trading system on Wednesday morning and several “strategic business partners” will mop up the rest.

The company was mum on the identities of the other buyers, but media reports mentioned Japanese companies including regional Hiroshima Bank, trading houses Sumitomo Corp. and Itochu Corp., insurance firms including Tokio Marine Holdings Inc. as well as auto parts maker Denso Corp., as purchasers.

[KrazyHorse]

Mazda's shares rose 6.4 per cent to 184 yen Tuesday amid media reports of a coming sale.

Is Ford's corporate governance that bad?

[Asher]

BEST NEWS EVER. I no longer feel a bit dirty for owning a Mazda.

[Ramo]

Originally posted by DanS


To me, it's an article that tries its best to appear even-handed, but just repeats talking points.

For instance, Detroit still has its "job bank" where nearly ten thousand people are paid almost full wages not to work. You're kidding yourself if you think these folks can be saved from themselves.

This isn't a matter of tsk, tsk. It's a matter of Detroit misappropriating capital on a gargantuan scale. To be honest, I feel somewhat insulted by articles like this. The tone strikes me as condescending.

In the absence of a peer reviewed study, any article is going to be repeating "talking points."

The basic reasoning seems sound. There's probably not enough liquidity in the financial markets for the Big Three to go about doing a Chapter 11 reorganization, and a huge drop in employment is exactly what we don't need. If we let Detroit drop, we'd end up putting whatever bailout money we would've appropriated, and then some, into an even bigger fiscal stimulus. And we'd lose some key institutional knowledge, like plug-ins. OTOH, this is the perfect opportunity to ram everything we need down Detroit's collective throat with minimal political resistance.

In better times (or in Canada), it'd be a different matter. But we've got some issues...

[KrazyHorse]

Originally posted by Ramo
The basic reasoning seems sound. There's probably not enough liquidity in the financial markets for the Big Three to go about doing a Chapter 11 reorganization

a) DIP
b) I don't think the automakers' inability to get a loan has anything to do with the credit market as a whole

[Ramo]

According to the article:

Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

[KrazyHorse]

Again, nonsense. The scale of the problems which GM and co face would make it difficult for them to secure DIP financing even in normal times.

**** 'em. This has been a long time coming.

[KrazyHorse]

Also, if the problem is that DIP money is not forthcoming and we grant the ridiculous hypothesis that they would get it without difficulty in normal times then why shouldn't they be forced to go into Chap. 11 BEFORE getting bailout DIP money from the fed. gov't?

[Ramo]

I don't think they'd necessarily get the DIP money that they need under normal circumstances, but they'd be able to get some amount of credit, which would lessen the impact on the greater economy. The issue isn't just the lack of credit, but the employment situation in general. Let's say that the collapse of Detroit increase unemployment by ~0.5%, or an output gap of ~1% of GDP. For that kind of slack, we could hope that ~0.5% GDP stimulus (~$70 billion) could close it. Which is a pretty large chunk of change...

OTOH, we could pump somewhat less into the auto industry (they seem to be asking for $25 billion), refashion it into something that looks a lot saner, and perhaps stave off a drastic reduction till the economy in general is on sounder ground...

[KrazyHorse]

a) The 0.5% number is ridiculous.

b) There is value returned to taxpayer from fiscal stimulus (either tax rebates or public works)

[DanS]

This DIP financing argument lacks grounding in reality, because GM definitely would secure the funding. Even though most of its $110 billion in assets are phantom, undoubtedly there's several tens of billions of dollars in there as good collateral. Remember, DIP financing is the most senior.

Furthermore, all sorts of sad ass companies get DIP financing, even in this dislocated DIP market. If GM can't even secure DIP financing, it would be the financial equivalent of a black hole and would be salvageable under no circumstances anyway.

[Kidlicious]

Originally posted by Ramo
I don't think they'd necessarily get the DIP money that they need under normal circumstances, but they'd be able to get some amount of credit, which would lessen the impact on the greater economy. The issue isn't just the lack of credit, but the employment situation in general. Let's say that the collapse of Detroit increase unemployment by ~0.5%, or an output gap of ~1% of GDP. For that kind of slack, we could hope that ~0.5% GDP stimulus (~$70 billion) could close it. Which is a pretty large chunk of change...

OTOH, we could pump somewhat less into the auto industry (they seem to be asking for $25 billion), refashion it into something that looks a lot saner, and perhaps stave off a drastic reduction till the economy in general is on sounder ground...

That's a very good point. I think Krazy missed it.

[Ramo]

a.) I have no idea what a reasonable number is, but that seems to be near the geometric mean of the numbers thrown around (not 3 million, but not a couple hundred thousand either).

b.) There's returned value as long as there isn't a total collapse. Chapter 11 might be viable in a couple years, with enough strings attached to the current round of loans.

[KrazyHorse]

Originally posted by Ramo
a.) I have no idea what a reasonable number is, but that seems to be near the geometric mean of the numbers thrown around (not 3 million, but not a couple hundred thousand either).

That's because the benefits of a bailout are concentrated (in people who therefore "exaggerate") but the costs are dispersed, so the unconcerned estimates are realistic while the concerned estimates are retarded.

[KrazyHorse]

Originally posted by Ramo
b.) There's returned value as long as there isn't a total collapse. Chapter 11 might be viable in a couple years, with enough strings attached to the current round of loans.

25 billion isn't going to last very long, Ramo. Not at the rate they're throwing it into a hole.