Back in 2004, perfectionist homemaker and well known TV personality Martha Stewart was charged with insider trading. As presented, the facts in the case were simple. Martha owned stock in a medical research company called ImClone and, like a lot of people who invest in tech firms, she was hoping for a big payout when their product, a promising new cancer treatment, went on the market. Unfortunately, the FDA chose not to approve the drug and the value of the stock looked set to take a beating once the decision was announced. According to the charges initially brought against her, Martha and many of the company’s top executives learned of the FDA’s decision though their inside connections the day before it was publicly announced and were able to sell their shares before they crashed. That’s against the law and many of the people caught up in the scandal, including Martha who was convicted on the charge of making false claims to a federal investigator, ended up going to jail. Read More >
Category: General Motors Zombie Watch
Facing tough German competition, the people at General Motors come up with a large-displacement supercharged contender that outpowers but also out-weighs the BMW-and-Benz-powered entries. The look of their new model is controversial, but we’re told that it has to be that way due to existing platform constraints. And, of course, they’ll need a massive cash injection from the United States Government to make the whole thing happen, and they’ll get it, even though the aforementioned government wants them to build something completely different.
Wait a minute. Did you think I was talking about the CTS-V? Pas du tout! Set the wayback machine for the big band era, and let’s hear a story about how General Motors (allegedly) sabotaged the strategic plans of the United States in order to further their own economic interests.
Now that GM’s acquisition of the subprime lender AmeriCredit has had 24 hours to sink in, howls of protest are starting to surface. The charge is being led by Senator Chuck Grassley, who has requested a review of the deal from the SIGTARP, saying
If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first. After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.
And though Grassley’s criticism could be read as mere partisan gamesmanship from a leader of “the party of no,” there are a number of very good reasons for opposing the deal.
After ending the first quarter of this year with $35.7b in cash and equivalents, GM was in the best position it’s enjoyed in decades. And yet, with an IPO prospectus looming, The General is seeking a $5b line of credit and trotting out EBITDAPRO as its in-house measure of financial success. Both of these tactics are hallmarks of companies that are doing poorly, and GM has already learned how problematic loading up on debt and sliced-and-diced financials can be. So why is The General inviting criticism from outlets like Edmunds Autoobserver, which characterizes GM’s push towards an IPO as the rebirth of old bad habits? The simple answer: “business execution.” In other words, GM may have a lot of cash, but it’s got nearly as many demands on its resources as well… and these cash drains hardly add up to a coherent strategy.
Despite having more cash than debt for the first time in decades, GM is going back to Wall Street in search of fresh debt. Over the weekend, The General has been in talks with several banks to secure a $5b revolving line of credit to shore up its liquidity position ahead of an IPO that’s rumored to take place in August. At $5b, GM’s desired line of credit would essentially replace the $5.8b the automaker has repaid to the Treasury, and will help it deal with a number of pressing cash needs to maintain its shaky global empire. But with so many pressing uses for the cash, and political pressure mounting for a rapid IPO, can GM deal with its issues and take on more debt and be worth what the government wants it to be worth? Troublingly, the answers to these questions are not to be found on GM’s balance sheet.
As yesterday’s sales graph proves, this is not the greatest time to be re-launching an entry-luxury brand. With Kias and Fords offering the kind of tech gadgets once found only in the upper echelons of true luxury brands, and with well-regarded import luxury marques moving into the front-drive, mass-market, the so-called “premium” brands are finding themselves caught in the middle and losing sales. But in spite of these damning dynamics, GM is moving to overhaul its entry-luxe Buick brand at top speed. Why? Because it can…
GM’s government-installed Chairman/CEO Ed Whitacre hasn’t been wildly popular with Detroit insiders, earning dismissive raspberries from more than a few corners of the industry’s peanut gallery. But now that his reign of executive terror is over, Detroit seems to be learning how to stop worrying and love the former AT&T man. As Whitacre prepares for his first visit to Washington DC as head of GM, the local media and other members of “Team Detroit” are making their peace with Whitacre. So what lies beneath the new united front?
News that GM is selling a control-shifting single share in GM Shanghai to its Chinese partner SAIC was the toads-from-heaven flourish at the end of an epic week for the RenCen. The day after the last of GM’s lifer CEOs left the building, Opel’s CFO followed suit. One management re-organization and a rough LA Auto Show later, came this symbolic surrender of GM’s largest market for a measly $85m. Accompanied by news that The General would buy out Suzuki’s stake in CAMI for an estimated $46.5m, no less. Oh yeah, and something about India. Freshly-minted CEO and notorious rattlesnake killer Ed Whitacre isn’t about be accused of not trying to shake things up. The only question is where will everything land?
Recently, it’s become popular to believe that when a zombie loses its head, it dies. With today’s resignation of Fritz Henderson, the reanimated corpse of General Motors is testing that theory. Henderson was the latest in a line of GM lifers to hold the company’s reigns, hand-picked by ousted CEO Rick Wagoner and put in place by a presidential task force that couldn’t say no to another insider. In theory, Henderson’s resignation shouldn’t come as a surprise, let alone a disappointment. In practice though, the move leaves the zombie GM in a precarious position at a challenging moment. For the first time since (your guess here), GM is in the hands of an outsider.
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GM’s first post-bankruptcy financial data has arrived, underscoring in red ink the folly of the government “investment” in the shambling zombie once known as General Motors. Bankruptcy-driven improvements in cost structure have not prevented GM from turning a non-GAAP-certified loss since emerging from Chapter 11, and GM is already warning that 4th quarter results will be even less attractive. More importantly, beneath all of the interpretation of this latest batch of weak results, rests the biggest lie of all: GM will be paying back the taxpayers. GM has simply defined the terms of its debt as $6.7b, or about half the amount remaining in its $16b bankruptcy-present escrow account. The plan is to have the taxpayers pay off GM’s debt to the taxpayers, and collect the remaining $6b or so for operating cash. When called on the ruse, GM CEO Fritz Henderson has only one defense: Taxpayers will receive their just reward only when GM’s IPO relieves them of their 60 percent equity stake. But even with the goalposts moving up in hopes of a PR win, there’s little evidence that GM will come close to paying off their full bailout bill.
OK, so, GM is a nationalized automaker. I know, I know: nationalization is for third world dictators. But there it is. Thanks to outgoing president George Bush, the feds used $50 billion from the Troubled Asset Relief Fund to bail out General Motors, in exchange for majority ownership. So no matter what W’s political successor says about his administration’s “hands off” non-management of Government Motors, he who owns the gold makes the rules. And when it comes to running a federal-funded organization, Uncle Sam plays by different rules than, say, any private enterprise extent. The bottom line is that there is no bottom line. Amtrak, the U.S. Postal Service, Medicaid—they’re all run at a tremendous, ongoing loss. Which means there’s zero sense of accountability. Which means they will never, ever be able to fully and fairly compete with privately held corporations. Why should GM by any different? Answer: it isn’t.
Back in the day, GM really pissed me off. As the American automaker continued its inexorable slide into bankruptcy, executives, analysts, journalists, loyalists and camp followers scoffed at the prospect of disaster. Their scorn fueled my anger or, as Angus Mackenzie would have it, pompous indignation. When the feds bailed-out and then nationalized GM, the company’s refusal to overhaul (keelhaul?) its executive “talent” kept my ire alive. A few months and $50b-plus dollars later and I’m rapidly approaching the point where I couldn’t give a NSFW. How many times can you sing the chorus of “Where have all the flowers gone?” without saying FTS and cranking-up the MC5? Before I abandon this pursuit entirely, here’s a quick rant about GM’s inability to realize American’s favorite mantra: hope and change.