Editorial: The Battle At Midday. How America Can Win The War Against GM

Informa Global Markets (IGM) “is a world-class international supplier of real-time news and analysis to market professionals in the fields of foreign exchange, sovereign fixed income and corporate bonds.” It’s the stuff brokerage houses and investment bankers pay a lot of money for in order to look smart with their clients. Would definitely bust TTAC’s budget. Some of my friends in high finance still hold a job, and one of them (you know who you are) was nice enough to forward me yesterday’s IGM “Markets At Midday” issue. Reads like “Markets At Midway.” With the appropriate ending: The bad guys lose.

The issue deals with – you guessed it – our least favorite topic: GM. And what a blow it deals. The usually dryly written report starts with a headline that could have been typed by a tasteless scribe like yours truly: “Forget The TARP, Get A Body Bag”

The piece chronicles yesterday’s plummeting GM share price; it sank to a low not seen since the last Great Depression. It continued to fall to a penny off its all-time historical low: $1.69. That’s what a share of GM was worth on June 4, 1938 (a Hershey bar went for a nickel the same year.) The report further recounts yesterday’s rebound– to $3– on the news that a bipartisan group of Senators from states afflicted by the motor malaise reached a tentative deal on a bailout package. Three bucks a share would have bought 30 packs of Oreos in 1938; we’re talking major value here.

The analyst, and they are paying them big bucks for taking a contrarian view, doesn’t share the newfound optimism that rallied the share. The writer singles-out United Auto Workers boss Ron Gettelfinger. (We take a somehow broader approach, but hey, it’s still a free country.)

“Consider these ironies. According to Mr Gettelfinger, it takes 78 workers to produce 2,500 cars at GM, while at foreign manufacturer’s plant it only involves 33 workers. According to one auto analyst, last year when GM closed a plant in Linden,NJ, they were obligated to carry those idled workers on the payroll for an additional 40 days. It is estimated that every single car that rolls off the assembly line costs US automakers $1,500 to $2,000 in legacy costs.

“Why? Because of the same Mr. Gettelfinger who is figuratively blackmailing the government into expanding the parameters of TARP. The same Mr. Gettelfinger who, while wanting the taxpayers to save the Big Three, is unwilling to renegotiate terms of the union contracts. The same Mr. Gettelfinger who, over the years, has sucked the US auto industry dry to the point that you can no longer get blood from a stone.”

Gettelfinger doesn’t appear to be on the analyst’s Christmas list. And v.v. As bad as it is, all is not lost. Apparently.

“But while there is strong opposition on Capitol Hill to dip into the already-approved loan to jump-start the green, fuel efficient initiative, there are certainly others ways that, if absolutely necessary as Mr Gettelfinger maintains, to, not bail out, but lend aid to the auto industry mired in 20 years worth of mistakes.”

Unlike three private-jet-friendly CEOs we could name, the analyst has a plan to save the industry while appeasing those who are against “lending a helping hand to an industry that has literally driven itself into the ground.” He lays down five “suggestions and requirements for the automakers to receive $25b in aid.”

1) “Let them declare bankruptcy before handing over a dime.” It would keep GM alive, and allow them to reorganize, renegotiate contracts and raise capital. The latter would be a bit tricky, given the dire straits of the credit market. Hence the government loan.

2) “Let, or force, GM and Chrysler, or better yet, all three, to merge.” Cut costs, workforce and eliminate a glut of non-selling models.

3) “Replace top management at all three automakers with turnaround specialists.” Specialists with a proven track record. A track record which the analyst says the current executives don’t have. In other words: Fire them.

4) “Trim the workforce to the level of their foreign competitors (33 versus 78 per vehicle).” This in a last ditch effort to “save most of the 3m jobs that Mr. Gettelfinger says would be lost.”

5)”Instead of trusting the automakers to make good use of the $25b, a government-appointed trustee should dole out the funds.” Some of the bailout bucks should go to dealerships to keep them afloat. Some should be used for a buyer incentive program (the discriminating, but non-discriminatory writer suggests $3k for a hybrid and $1k for a Tahoe.) Some should go into a government-guaranteed warranty program “to quell the fears of consumers buying a vehicle from a bankrupt company.” (Think FDIC for cars.) And, finally, “Take the liability of the pension and health care expenses of retirees off the hands of the automakers.”

[Unwritten, but obvious to the not so innocent bystander amongst IGM’s subscribers in the sovereign funds and private equity field:a company that underwent all five of the above would be a very juicy target for people with real money.]

“Don’t forget the toe tag,” the analyst’s piece ends.

Minutes later, the report was on the desks of market professionals in the fields of foreign exchange, sovereign fixed income and corporate bonds. But even as the analyst typed his last lines (remember, it was a mid-day report), the news broke that the bipartisan boondoggle was dead. GM’s stock promptly shed several Oreo packs (at 1938 prices) and closed at $2.88.