GM Death Watch

[TRS]

http://www.thetruthaboutcars.com/editorials.php

GM is up about 19% in the last couple of weeks, BUT fundamentals IMO have not changed.

http://www.thetruthaboutcars.com/editorials.php

[HenryTo]

Breakdown of April and YTD sales for GM:

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060502:MTFH40496_2006-05-02_18-01-07_N02285529&symbol=GM.N&rpc=44

[HenryTo]

Prospects of a strike are still looming for Delphi - no new developments in the negotiations that I have seen so far:
-------------------------------------------------------------------------------------
Delphi official says can't rule out US strike
Tuesday May 2, 12:48 pm ET

NEU ISENBURG, Germany (Reuters) - A senior executive at bankrupt U.S. auto parts maker Delphi Corp (Other OTC:DPHIQ.PK - News) would not rule out the prospect of a strike in the United States, but said intense negotiations are still going on.

"You cannot say that the danger of a strike is gone," Volker Barth, president of Delphi Europe and vice president of the group told reporters on Tuesday.

Barth, who is also a member of Delphi Corp's strategy board, said negotiators from Delphi, its union and former parent General Motors (NYSE:GM - News) were trying to find a solution that could include one-off payments to workers.

A U.S. judge is supposed to rule next month on whether Delphi can proceed with a reorganization plan that would let it cut pay and jobs and sell or close non-core businesses.

Delphi has said that steep wage and benefit cuts for hourly workers in the United States and significant cuts in facilities are key to its plan to emerge from bankruptcy protection in the first half of 2007.

Ultimately, Delphi expects to cut 27,000 of its 33,100 U.S. hourly workers by the end of 2010.

[HenryTo]

Next year sounds probable but there are tons of variables which could advance it into this year, such as a further spike in gasoline, a partial strike at Delphi, and yet higher interest rates which would not only put a lid on consumer spending, but will further drive down margins at GMAC as well.

Not to mention more foreign competition. Even as GM and Ford have pulled back on their incentives, others (such as Chrysler and Toyota) have increased them:

http://www.freep.com/apps/pbcs.dll/article?AID=/20060428/BUSINESS01/604280334/-1/BUSINESS07

For Toyota, this is an opportune time to stick it to GM and further increase market share.

[rffrydr]

It's not really a "run on the bank" if suppliers are running themselves into the ground doing so. Game of "chicken more to the point.

Sold my GMX and other GM bonds yesterday--just to remember what it feels like to ring the cash register.

I don't know about the next blowup--but I can't deny your instincts about GM. I think we have a few more rounds of pessimism/optimism though--rounds that may take us well into next year.

[HenryTo]

FYI, April sales numbers are due next Tuesday:

http://www.freep.com/apps/pbcs.dll/article?AID=/20060427/BUSINESS01/604270605

[HenryTo]

Make no mistake - GM's time is running out. They could only "channel stuff" their dealers and spin the accounting numbers for so long:

http://www.fool.com/news/mft/2006/mft06042120.htm

Quote: "And keep in mind that some of the rest of the "better" performance comes from nifty accounting. For instance, GMAC did 4.5% more revenues this quarter than in the year-ago period, yet the provision for financing and insurance losses dropped. That juiced the bottom-line results there by $186 million pre-tax, which may be appropriate, but it sure doesn't represent what I'd call "high-quality" earnings. And lest you think that number is peanuts, remember the reported net loss for all of GM this quarter was $323 million."

Given higher mortgage rates and a slowing housing market, I would not be surprised if GMAC's profit continues its decline going forward. In fact, it should be pretty much a given. And:

http://www.thetruthaboutcars.com/content/1146097124154135570/index.php

Quote: "The Financial Times reports that Tier One supplier Yorozu America recently threatened to stop making suspension components if the automaker didn't fork over $3.7m in disputed payments. More worryingly, Yoruza also demanded an irrevocable letter of credit for at least three times its average monthly turnover with GM, roughly $75m. Deep Throat reports that another, much larger US-based supplier is also demanding up-front payment from GM. As reported here, if this trend takes root, GM faces a "run on the bank" scenario that would capsize the corporate mothership-- whether they like it or not."

[rffrydr]

Domestic IS foreign. Making the front page in the Sunday Times:

http://www.latimes.com/business/la-fi-gm23apr23,0,4022771.story?coll=la-home-headlines

Radical idea: negative equity....just like our newfangled mortgages. But not this year.

[Prospero]

Isn't it normally the case that what's bad for one company is bad for the sector (broadly speaking?). That's certainly what GM's stock price suggested today (though maybe some 'profit taking' since yesterday too).
But anyway, interesting point Goodfella - in a battle for scraps maybe normal rules don't apply.

[nodoodahs]

any loss to F or GM north american market share is a gain for the Japanese, Koreans, and Chinese.

Long the foreigns, short the domestics (if you can find shares to borrow) ...
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Goodfella]

maybe ford biting the dust could save GM. One falls one prospers what you reckon

[HenryTo]

Perhaps, we will just need to see. At this point, overbought and ovesold indicators may be useful for trading GM - but traditional technical analysis such as support levels, etc, may not be too useful going forward, given GM's very unique position today.

On a sidenote, we have previously discussed the hugely underfunded pension and OPEB plans of GM and how FASB rule changes later this year will affect their balance sheet. Following is courtesy of TRS from an earliest post on April 13:

8:28AM General Motors: Dividend in reverse - WSJ (GM) 20.03 : WSJ reports next year proposed accounting-rule changes would force the co to recognize a massive deficit in its pension and other retiree-benefit plans as a liability on its balance sheet. Right now, that deficit is laid out in the notes to the financial statement, but not officially counted as a liability. The action could swing the co's measure of shareholder equity from nearly $15 bln at the end of 2005 to negative $43 bln, or worse. The proposed accounting change, likely to be enacted by the FASB later this year, could weigh against the div, which the co already halved earlier this year. Under Delaware law, which applies to GM, cos can pay a div only if they have something known as a statutory surplus, which is a lot like shareholder equity. The co notes it could still pay a div if it generates net profits, however it lost $10.6 bln last year.

So that is one thing - another thing which folks have not previously talked about is the amount of "deferred tax assets" on their balance sheet. If this isn't used (that is, if GM does not report a pre-tax profit) they will ultimately go unused and will expire. This alone will also cause stockholders' equity to decline to below zero at GM. Quoting directly from their 10-K:

As of December 31, 2005, we had approximately $21.6 billion in U.S. net deferred tax assets. These deferred tax assets include net operating loss carryovers that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. However, many of these deferred tax assets will expire if they are not utilized within certain time periods. At this time, we consider it more likely than not that we will have U.S. taxable income in the future that will allow us to realize these deferred tax assets. However, it is possible that some or all of these deferred tax assets could ultimately expire unused, especially if our GMNA restructuring initiatives are not successful or if GMAC’s income declines. Furthermore, if GMAC’s U.S. pre-tax income declines or if a significant portion of GMAC’s U.S. pre-tax income were to no longer be available to GM, because of the sale of a controlling interest in GMAC or otherwise, a substantial valuation allowance may be required, which would materially increase our expenses in the period taken and adversely affect our business. If we were required to record a valuation allowance against all of our U.S. deferred tax assets as of December 31, 2005, our resulting total stockholders’ equity would have been negative.

[Prospero]

Up 10% today on an earnings report off the triple bottom. A triumph for TA or a time to heed the 'Buy the rumour, sell the fact' slogan?

[HenryTo]

"GM's hot products selling out":

http://motorsports.autoblog.com/2006/04/14/gms-hot-products-are-selling-out/

Quote: "In a speech to the Swiss American Chamber of Commerce earlier this week, Lutz took a swipe at everyone from President Bush ("GM is going to have to learn to compete.") to Fortune Magazine ("In product design, [GM] lost the magic long ago.") by pointing to the success of GM's latest "awful, boring products"-- not only its sports cars, but also its new SUVs and the Chevy Impala, which is the third-best selling car in the U.S. at 250,000 units per year."

The Impala is definitely up there on the charts, but get this:

http://www.bloomberg.com/apps/news?pid=10000039&sid=aFXVDT_noz08&refer=columnist_levin

Quote: "George Peterson, president of AutoPacific Inc., an automotive consulting firm in Tustin, California, said GM floods the market with too many of some models. Because retail demand isn't sufficient, GM sells the overflow to daily-rental companies -- where boring design doesn't matter to the person who needs the car for a day or two.

"``Styling at GM hasn't gotten to the point where GM is building head-turning cars,'' Peterson said. Among the offenders: the Chevrolet Impala, a favorite of rental fleets."

[HenryTo]

Latest editorial from thetruthaboutcars.com:

http://www.thetruthaboutcars.com/content/1145028457233791529/index.php

[rffrydr]

And imagine the consequences if this were more generally applied to the market!

Still long the GXM from DEC. would like to short the stock against it at some point.