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]

Just spoke to my broker regarding GM - said it was very hard to borrow and he had to call Goldman to borrow some. Very weird since short interest is only 15% of the float as of March 10th. His guess is that someone has been doing a lot of shorting over the past few days.

[HenryTo]

GM down 1.7% in AH trading on this latest development:
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Unions reject Delphi's latest contract proposal
Tuesday March 28, 7:37 pm ET
By David Bailey

CHICAGO (Reuters) - Unions representing nearly all of Delphi Corp.'s (Other OTC:DPHIQ.PK - News) U.S. hourly workers on Tuesday rejected the bankrupt auto parts maker's latest proposed wage and benefit cuts, expressing doubts deals could be reached by the company's self-imposed deadline this week.

Delphi has said it must reach at least the framework of an agreement with its unions by Thursday, or it will file court papers the following day to start the process of rejecting its contracts and changing retiree benefits.

Such a filing would not immediately permit unions to strike Delphi, but could poison talks between Delphi and its two major unions, the United Auto Workers and the International Union of Electrical Workers-Communications Workers of America.

A bankruptcy court hearing would start May 8 if Delphi files those motions on Friday. A strike at Delphi could quickly disrupt production at General Motors Corp. (NYSE:GM - News), which spun Delphi off in 1999 and remains its largest customer.

UAW Vice President Richard Shoemaker on Tuesday told local UAW leaders it was possible to reach an agreement before the deadline, but "highly unlikely," according to a union official who attended a meeting with Shoemaker in Detroit.

Shoemaker told local leaders the UAW would have to decide the best timing to take strike authorization votes if Delphi files, said the official, who asked not to be identified. The UAW represents about 24,000 Delphi U.S. hourly workers.

DELPHI OFFER 'LIP SERVICE'

The Delphi proposal, offered one week before the deadline differs significantly from prior proposals and rests on still unknown economic forecasts, the IUE-CWA said.

"In that context, your assertion that you hope to reach an agreement this week on a new agreement is ludicrous," Henry Reichard, chairman of the IUE-CWA's automotive conference board, said in a letter to Delphi on Tuesday.

"Your letter is nothing more than lip service to the idea of negotiations while you prepare your motion to rip up these contracts," Reichard said in the letter released to reporters.

Union leaders have not disclosed details of the proposals.

UAW spokesman Paul Krell would say only Shoemaker told local leaders a Delphi filing would impede future talks and the contract as proposed would have a "devastating impact on their workers, their families and their communities."

A UAW local unit from Kokomo, Indiana, on its Web site said Delphi's proposal matches most of a mid-November proposal and increases wage rates contingent on GM providing financial assistance to Delphi, something GM has not yet agreed to.

Wage rates for current production would be cut to $22 per hour on July 3 from about $27 per hour and to $16.50 per hour in September 2007, the local said. Other sources said the offer includes a $50,000 buy-down to workers at plants Delphi keeps.

Delphi spokesman Lindsey Williams declined to comment on the union statements, reaffirming the company's position it hopes to reach agreements out of court if possible.

The UAW and the IUE-CWA both said they would continue to negotiate with Delphi. Most of the IUE-CWA units previously authorized union leaders to call a strike if necessary.

Delphi, which filed the biggest bankruptcy in U.S. automotive history last October, has said it must slash wages, benefits and jobs to reorganize its U.S. operations. Many of those job cuts could come through attrition.

The company on March 22 announced a plan with GM and the UAW to make about 13,000 Delphi UAW workers retirement-eligible and allow 5,000 to return to work at GM. Delphi hopes to make 4,000 more U.S. workers retirement-eligible at other unions.

[HenryTo]

Here it is - another offer for GMAC - from KKR, naturally. Stock is up 2.9% in pre-market trading. Wonder how the (put) options will do today?
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KKR Submits Nonbinding
Bid for GMAC Stake

Offer Gives GM Alternative
To Cerberus-Led Proposal;
Possibility of Declining Both
By DENNIS K. BERMAN and MONICA LANGLEY
March 15, 2006; Page A3

A group led by Kohlberg Kravis Roberts & Co. and some big banks submitted a nonbinding bid of $12.5 billion to $13 billion to purchase a majority stake in General Motors Acceptance Corp., the financing arm of General Motors Corp., said people familiar with the matter.

The proposal, which GM is considering, gives the auto maker a possible alternative to what is considered the leading bid for the GMAC stake: An offer led by private-equity and hedge fund group Cerberus Capital Management. But indications are that GM is cool to the KKR proposal because of some of its finer details, and could decide against a sale to either party, people familiar with the situation said.

Instead, GM could decide later this month to seek bids for GMAC's residential mortgage and insurance units while keeping the auto-financing arm, these people said.

The fate of GMAC is critical to the overall health of its parent company, and could have significant impact on the world's bond and derivatives-trading markets, where GMAC plays an outsized role. GM's board is expected to convene in about two weeks to evaluate its GMAC plan.

GM's primary objective is to separate GMAC's flagging credit rating from the "junk" level credit rating of its parent. By selling off a majority stake to outside investors, GMAC's ratings likely would improve, and would remain stable should GM's overall financial condition continue to sour. The hope is that GMAC's credit rating would rise to investment-grade territory.

An improved and stable credit rating is key to minimizing GMAC's borrowing costs. Cheaper money would help GM make better profits on any remaining stake it retains in the financing unit. Moreover, it would help GM offer low-cost or no-cost financing on its cars.

Standard & Poor's Ratings Group, which downgraded GM's credit rating deeper into junk status in December, said that an investment-grade rating for GMAC would be "feasible" if GM sold the unit to a financial institution with a high credit rating and a long-term strategic commitment to GMAC's business.

On first glance, it would appear that the KKR proposal would meet those objectives, and at an attractive price. The New York private-equity firm has brought in financing from deep-pocketed equity participants including Wachovia Corp., Merrill Lynch & Co., General Electric Co. and Bank of Nova Scotia. The offer, in both cash and securities, is higher than the GMAC stake's book value of roughly $11.5 billion, which has been widely viewed as its going rate.

But nothing is simple in dealing with GMAC, said people familiar with the process. For one, the KKR group's proposal is nonbinding, which means it can still back out. GM has questioned whether the offer will be "fully baked" in just a few weeks time, said people familiar with the process.

There also is significant concern at both GM and KKR about how to handle GMAC's future liabilities. Part of the debate is centered on "lease residuals," essentially cars that come onto GMAC's books when customers' leases expire. KKR is concerned that should GM declare bankruptcy, these residuals would decline in value and create a big loss. As a result, it doesn't want to take responsibility for them. But GM would prefer that any buyer assume the bulk of the liabilities.

The reluctance means that the KKR group isn't as willing as Cerberus to assume future liabilities. The KKR group has offered $4 billion in notes to help cover these liabilities, but wants to stay away from assuming them outright, these people said.

That leaves the Cerberus offer front-and-center. Directors this month will have to judge how well Cerberus improves and stabilizes GMAC's credit rating. Early indications are that not all three of the main credit-ratings agencies will give an investment-grade rating to GMAC. The Cerberus group is arguing that it could secure an investment-grade credit rating within about six months.

If the GM board determines that it can't fetch a stable and investment-grade rating with a GMAC stake sale, it could decide to sell off the residential mortgage and insurance units instead. GM expects strong interest for these nonauto units.

A GM spokeswoman declined to comment. A spokeswoman for KKR declined to comment, as did representatives for Bank of Nova Scotia, Merrill Lynch and Wachovia. GE didn't return a phone call.

Write to Dennis K. Berman at dennis.berman@wsj.com and Monica Langley at monica.langley@wsj.com

[rffrydr]

Derivatives taking the sting out of BK:

http://www.bloomberg.com/apps/news?pid=10000085&sid=ajZmEd0TdAKo&refer=europe
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

A confirmed sale of GMAC should be good for a pop in GM's stock price - but probably one that we should sell into. At the same time, this bid for GMAC by Cerberus could be the "signature deal" that finally signals the top of the private equity bubble.
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Cerberus's GMAC Bid
Gathers Steam

Portfolio Firm is Expected
To Chip in Funds for Offer
Estimated to Hit $11 Billion
By DENNIS K. BERMAN
March 13, 2006

Cerberus Capital Management has found another pool of funding to help back its bid for General Motors Corp.'s financing arm, say people familiar with the matter. The investor is Japan's Aozora Bank Ltd., in which Cerberus holds a majority ownership stake and which is expected to contribute about $1 billion to a total purchase price that is estimated to hit roughly $11 billion.

Aozora Bank's involvement was approved by a credit committee independent of Cerberus, a person familiar with the matter said. But its participation underscores the breadth of influence for Cerberus, which already sits on $18 billion of capital and can ask like-minded institutions for funding assistance.

New York-based Cerberus, which has hedge-fund and private-equity investments, has also received funding commitments from Citigroup Inc.'s private-equity arm and another Japanese bank, Norinchukin Bank. Another one of Cerberus' portfolio companies may also invest in a deal, the person familiar with the matter said, but its involvement is still uncertain.

A GM spokeswoman declined to comment. A Cerberus spokesman didn't respond to repeated requests for comment.

Just 10 years ago Cerberus was a small investment fund making scores of small loans, including to the likes of Penthouse magazine founder Bob Guccione, who put up his art collection as collateral. Now it stands to write what will be one of the largest single private-equity checks in history.

As described by people with knowledge of the matter, Cerberus plans to gather the bulk of the cash from its existing funds and from additional contributions from investors in those funds. Neither it nor any of its outside investors are expected to take on debt, which could harm GMAC's ongoing credit rating.

In recent years, Cerberus has accumulated interests in Mervyn's, a former retail unit of Target Corp.; a paper business from MeadWestvaco Corp., and the LNR real-estate business that was once part of home builder Lennar Corp. In 2003 it won a controlling stake in Aozora, formerly known as Nippon Credit Bank.

The mechanics of the financing will have a big impact on whether GM's board chooses to sell the majority stake in GMAC, the 87-year-old entity that writes loans for such things as GM cars, college tuitions and home mortgages.

GM began contemplating the sale in hopes that it could improve GMAC's credit rating, which is hampering its ability to profitably finance cars at the low interest rates that consumers have come to expect.

Despite GM's troubles, GMAC has remained highly profitable, reporting $2.8 billion of net income in 2005. Much of that strength came from selling home mortgages and insurance, businesses that aren't closely tied to selling Cadillacs or Chevrolets.

People close to the process say that GM's board is hoping to come to a decision on a potential Cerberus deal over the next few weeks. But the board still isn't certain on what course to pursue, as each choice carries risks.

The risk in the Cerberus deal is the GMAC credit rating may not improve enough to justify a separation of GMAC from its parent. The Cerberus group is arguing that it could secure an investment-grade credit rating within about six months, a possibility that has won Cerberus some backers within GM.

That a Cerberus majority-owned company is investing alongside the parent fund could carry some risks for Cerberus. Even with its independent credit-approval process, Aozora could be perceived as first serving the interests of its parent, something banking regulators monitor closely. One factor that could mute such criticism is the fact that the bank employs Bank of America's former chief credit officer, Michael Rossi, as its chairman and chief executive.

Write to Dennis K. Berman at dennis.berman@wsj.com

[HenryTo]

Stock initially spiked up on this rumor. Looks like it is now heading back down. In a world of tightening liquidity, GM is one of the perfect stocks to short-sell.
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UAW says not close to deal with Delphi, GM
Thursday March 9, 11:57 am ET

DETROIT (Reuters) - The United Auto Workers union on Thursday said it was not close to a cost-cutting agreement with bankrupt auto parts maker Delphi Corp. (Other OTC:DPHIQ.PK - News) and automaker General Motors Corp. (NYSE:GM - News), dimming investor hopes that a quick deal to avert a risk of a costly strike was near.

"Nothing could be further from the truth," the UAW said in a statement on its Web site. "The parties are not close to working out such an agreement.

"There are many, many, significant issues to be resolved," the UAW said. "Overall the situation has changed very little since our last meeting."

GM shares fell back from early highs after the union statement, but were still up more than 4 percent.

The stock has rallied almost 10 percent since the start of the week on signs that the struggling automaker is making progress in cutting pension costs and freeing up cash for a potential settlement with the UAW.

Several newspapers including the Wall Street Journal reported that the three parties were nearing an agreement that could help Delphi cut its unionized staff, pay those remaining a lower wage and encourage thousands of workers to take early retirement.

The UAW confirmed that the three groups had been discussing a retirement incentive program, but said there was no guarantee an agreement could be reached.

"While those discussions have been constructive, there are significant issues still to be resolved," the statement said. "There is no agreement on the retirement incentive program and only time will tell if we will be successful in this regard."

Delphi spokeswoman Claudia Piccinin declined to comment. "We are not providing any updates on our discussions other than to say we remain very focused on reaching a consensual agreement," she said.

In December, Delphi Chief Executive Steve Miller said the parts maker would refrain from commenting on discussions with UAW and GM until it had an agreement to announce, as long as there was progress on the talks.

GM, which spun off Delphi in 1999, could face as much as $12 billion in contract obligations to its former employees as Delphi demands deep pay and benefit cuts from the union.

The world's largest automaker lost $8.6 billion in 2005 and has been trying to reverse market share losses and cut the high labor and benefit costs that put it at a disadvantage compared to Asian rivals.

Delphi's initial demands to slash wage and benefits of hourly workers in the United States angered union leaders, who focused their response on Miller and a proposed executive compensation plan.

Delphi is GM's largest supplier and a strike could shut down GM plants, causing the automaker to burn through billions of dollars a week, analysts have said. A 1998 Delphi strike essentially halted GM's North American operations for nearly two months.

Delphi has said it would file court motions to void its existing labor contracts by March 31 if it could not reach a deal. Delphi has delayed taking that step three times to date.

Separately, GM on Wednesday withdrew a request to be added to the committee representing unsecured creditors in Delphi's bankruptcy.

GM shares were up 88 cents, or 4.31 percent, at $21.30 in late morning trading on the New York Stock Exchange.

[HenryTo]

Hello Prospero,

First of all, welcome to the Board! Hopefully we will see you more often - and thanks for the kind comments as well.

I have been thinking about the same thing about GM - but decided it is just too dangerous to buy it here. While it does seem like that everyone is bearish on the stock, short interest actually DECREASED from 97.6 million shares to 88.0 million shares during the month endind February 15, 2006. The recent GM debt downgrade did next to nothing to the stock price - and I have to wonder: Are some folks covering their short positions here based on the "lack of action" in recent months?

Worldwide financial markets are complacent - given record low emerging market spreads and record low option premiums in everything tradeable. Similar situation to August 1998 - which means it is perfect time for a financial crisis here somewhere in the world (a la 1998 Russian Crisis, LTCM, and so forth).

However, the "usual suspects" of Brazil, Argentina, and the Asian Tigers look good to me at this point in the cycle. Both the S&P and Moody's are still in the midst of UPGRADING those economies. Bear in mind that before the Russian default in late 1998, Moody's actually started downgrading the debt during Christmas 1997. There were several warning signs prior to the default.

So the logical question is: Where will the next financial crisis come from? Not your usual 1994 (Mexico), 1997 (Asian Tigers) or 1998 (Russia and Brazil) suspects. It could very well be a big hedge fund like LTCM but we have no way of knowing at this point.

And I have to wonder: Could it be GM? That would be the most logical candidate. The company has over $100 billion in debt outstanding (notwithstanding pension and healthcare liabilities) - certainly comparable to an emerging market economy. Their debt has been in a continuous downgrading process since 12 months ago - certainly providing us a lot of warning signs. It now looks like bankruptcy is inevitable - given declining liquidity and their inability to sell GMAC even though the latter looks to be financially viable on its own.

The next candidates may be a couple of countries in the Euro Zone - such as Spain and Italy. Iceland looks to be a potential candidate as well (the Iceland Krona experienced a one-day 10% crash in its currency last week) although the global ramifications look to be small. We will just need to see, but I think folks looking at Brazil or Argentina this time may be barking up the wrong tree, so to speak.

Best of luck,

Henry

[Prospero]

I'll come clean right away. I know next to nothing about the fundamentals of GM, except that it's a company in a big mess.

But from a contrarian perspective, it is starting to look like a buy to me. Every single article is grim about GM's prospects. But the price action looks, (to my eye) like forming a bottom:

http://stockcharts.com/h-sc/ui?s=gm

Anybody else wondered the same thing?

[HenryTo]

Latest fortune article on GM by Carol Loomis:

http://money.cnn.com/magazines/fortune/fortune_archive/2006/02/20/8369111/index.htm

[rffrydr]

How long does it take a dinosaur to die? A long....long...time.

Got into these last month, posted from Yahoo today:

""The fear, of course, is that GM will be forced to declare bankruptcy this year or next, thus reducing its S&P stock rating to low junk status. Equity holders would get killed in a bankruptcy, but as Bary argues, the bondholders could come out whole, recovering values well above current trading levels. Moreover, GM – unlike a lot of other companies – sold a great deal of its debt to retail investors (nearly $30 billion worth), debt which is traded like stock on the NYSE. Such bonds, which were sold for $25 each, currently trade at deep discounts to their face value. (GM's straight bonds (GMS) with a coupon of 7.5 percent maturing in 2044 trade at $16.13.)

The bet here is that – with roughly $16 billion in available cash – the company isn't going to run out of money anytime soon. Moreover, though it's still addicted to selling gas guzzling SUVs and pickup trucks, GM is indeed coming out with some new models that show a glimmer of sizzle. (The Pontiac Solstice – an inexpensive sporty convertible – is largely sold out, with a waiting list of demand.) GM's market share in China is actually expanding, it is slashing and burning costs at a record clip, and could sell all or part of its GMAC asset, worth $20 billion or more, to generate even more cash.

As a result, Bary suggests bond plays such as GM's 4 ½ convertible bond (GXM) that currently trades at $23.35 (it was $21.60 not more than a month ago.! ) Though the bonds mature in 2032, investors have the right to redeem them in March 2007 and get paid the full $25, this on top of any interest earned. Another option is GM's Series B issue convertible bond (GBM) which trades around $16.50 and has a redemption date of 2014.

True, if bankruptcy sets in in the short term, even the bonds will get hit, trading at roughly 40-cents on the dollar. However, for investors who believe that GM's got enough cash and hopefully enough common sense to avoid Chapter 11, the bonds have shown promise and opportunity completely unavailable were investors to play GM's equity side. Though I hardly remain a fan of General Motors, for an interesting debt investment, GM's bonds might be worth a second or third look.


Peter D. Henig
Contributing Writer and Trading Strat! egist
Optionetics.com ~ Your Options Education Site
Questions for Peter? Visit the Optionetics.com Discussion Bo
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Yes, it's a dinosaur. But because of that it is going to take a long time to die. Meanwhile I like the 15% on their bonds vs. any comparative high-yielder.
_________________
Today is the Tomorrow you worried about Yesterday!

[henry dribble]

interesting phenomenon in the auto-biz these days:
1. for the average driver the cost of the car (paymentys each month) is less than the gas cost to run it each month. it is like that with computers too, the software you need is much more than the computer hardware costs.
2. so will MSFT one day give away the hardware? will CVX buy Ford or GM?
3. with GM and F going the way of the Studerbaker will this finally get the politicians and America to think about rail and mass-transit? if we are no longer making cars then why subsidize them? so we can burn more imported oil?
4. maybe GM should start making passenger trains? will we one day look back at this all as a blessing in desguise?
layta all
Henry D
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henry dribble

[HenryTo]

GM has been hitting its 50 DMA for the last two trading sessions:

http://stockcharts.com/gallery/?gm

Note that the 50 DMA has been huge resistance for the stock over the last five months. Given the oversold condition of GM, however - and given a lack of supply in the absence of more bad news - I am going to sit on the sidelines for now.

While Bill has a point re: GM going down in the face of any news, it is probably not wise to try to be a "hero" here and stick one's neck out for Kirk to chop off. If I think the market will sell off in a significant way at some point, however, then GM will be one of the first stocks that I will sell short.

[TRS]

GM also has their board meeting at the end of this month.

Goldman Sachs comes out and says they see no BK filing for GM.

Kirk Kevorian says he may buy back the shares he sold at the end of 05 for tax reasons. ( what is he thinking ).

[nodoodahs]

Short term positive reactions will happen when:

- they sell part of GMAC
- they sell Hummer
- they sell Saab (actually, there's nothing there to sell but the name. Those morons at GM bought Saab "for their engineering uniqueness" and then fired the design and engineering staff, turned a Chevy into a Saab, borrowed a Subaru to make a Saab, and lost money on all the Saabs they sold, to boot)
- they announce their next round of price cuts
- they reintroduce the Camaro

Of course, each will be followed by a down action. Other down actions will occur when they cut the dividend, and when the Street realizes they are selling the flowers to make money so they can water the weeds.

The Detroit Auto Show is going on today, and some things struck me (not physically, although some readers probably wish that would happen) while I was watching the CNBC bubbleheads get into a Saturn Sky and I thought to myself, "it's just a Pontiac Solstice, for gosh sakes."

One way to have a dominant brand is to have three things going for you: (1) a core product lineup that is competent in all major lines it competes in, (2) a "halo" product that generates "excitement" for the entire brand, and (3) some level of uniqueness in the core product, something that says "look at me, I'm different." A lot of car companies have two of these three things; rarely you see three of them in one car company; GM has, arguably, only one of these things, and that is the Corvette - which doesn't really have that much of a "halo" anymore with anyone I speak to that's younger than me.

For example, the GM lineup of sedans is mediocre, falling well short of the entries from Toyota or Honda, and nowadays, falling short of the Korean entries from Kia and Hyundai (once the butt of jokes like "more powerful than a hill-bound Hyundai!"). Additionally, once you'd driven the GM lineup of Buick, Chevrolet, and Pontiac sedans down a gravel road for a week, you couldn't tell the difference between them until it rained. Cadillac is the only brand they've got with any visual distinction. The same critique applies to their truck lines in terms of competence and similarity - why should I care if I get a GMC or Chevy, when you could squint your eyes and not be able to tell them apart? Meanwhile Nissan is building an American truck, in Tennessee for cryin' out loud, that beats the regular ol' American trucks coming and going.

Enough cracking on GM specifically. Let's crack on Ford and GM together! I see that the Camaro is coming back, complete with "retro" styling. This of course is on top of the Dodge Charger and the "old school" looking Ford Mustang. The ticker on Bloomberg TV suggests that Ford may try a "buy American" advertising campaign. I see this as a tacit admission by the American automakers that nothing they've tried in the last 30 years has worked, so why not recycle ideas from the 60's and early 70's?

Hey, GM and Ford! If you're listening, I've got an idea for a promotion in keeping with your retro revival! It's an incentive plan that gives $2,000 "cash back" to the buyers with the best mullet! Or, you could bring back the El Camino and offer it with astroturf in the back as an option!
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.