By on November 21, 2008

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.

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30 Comments on “Editorial: The Battle At Midday. How America Can Win The War Against GM...”

  • avatar

    “a tasteless scribe like yours truly”

    What refreshing self-awareness!

    There needs to be sacrifice on both sides, management and labor. So far I’ve heard no hint of concessions from labor. We hear that GM needs a loan to get it to the day the new contract kicks in.

    Perhaps that contract needs to be pulled ahead?

  • avatar

    If that $1.69 share price in 1938 had kept up with inflation, a share would cost twenty-five bucks today. In purchasing power, 1938’s twenty-one cents is equivalent to three bucks today. So adjusted for inflation, GM’s stock has fallen well below the level during the Great Depression.

  • avatar

    par value is $1.67. below that the stock is a liability.

  • avatar

    How did Gettlefinger get to Washington?

    It isn’t the US against the Big 3. The Big 3 are the USA. Nothing better represents what the US has become then the Big 3. The economy is going to shatter and the Big 3 are the canary in the coal mine.

  • avatar

    Sadly enough, I don’t believe that US can win the battle. We can just prolong inevitable. Once Obama takes office, Pelosi and Reid will have enough dems on their side and we will not be able to do a damned thing. All GM has to do is wait another 60 days.
    It is harder for Chrysler, but I am sure once GM gets its pound of flesh, Chrysler will not be far behind. And Ford will get its share by default.
    Under normal circumstances, after 3 schmacks performance they should be tossed out, but were given the second chance. Why? How 3 fumbling idiots can drool something better in 2 weeks? Can anyone with third of a brain believe that it takes more then 2 weeks to produce plan to salvage industry that is in ruins? What do they expect a Power Point with typical bullshit? Yes they do, and any crap will do as long as it will state: we will reform and will start building green machines you want us to build and we will do it by May of 2009.
    Does anyone remember Bill Ford promises to Sierra Club to start building green machine and increasing production of monster SUVs next day? He was a darling of theirs and best friend of Al Gore, till 3 years later it came clear that moneys are not going into anything green anytime soon.
    Congressional leaders, seasoned liars under oath, want same skills from our industry leaders, who are actually bound by SOX and whatever they state under oath can (only theoretically) turn into Club Fed vacation.

  • avatar

    Shouldn’t the title be more about how the war against the union can be won based on the articles content?

  • avatar

    I think you missed the point on the # of workers per x cars made. Gettlefingers point was that even though foriegn companies may manufacture cars here, their overall infrastucture is still in their home country. As the Harbour report will tell you, the productivity in the factory is pretty much equal. That is why the “but Nisstoyonda make cars here” argument is pretty weak. They also do not have as many plants or manufacture all their cars here either, which when taken into account makes the delta between the two numbers even greater. That’s why I always laugh when people who buy say, a Camry, justify it by saying “its made in America”. Sure, but you just bought a product that really only contributes roughly 50% to our economy than does even a domestic car made in Mexico…

    That being said, I am still against a bailout before the UAW, CAFE, management (or lack thereof),and trade rule imbalance issues are rectified, or else it’s a poor investment. That means C11 and then a loan with equity and certain strings attached until the loan is paid off. Also, if the govt doesn’t grow some balls and tell the UAW to ease up a bit, then they might as well do nothing, and watch idly by while we become China’s beetch.

  • avatar

    Is it just me or does it seem unfair that Mulally & Ford are getting lumped in to this mess by virtue of association?

  • avatar

    golf4me: I don’t understand how buying a car made in the US (out of mostly American-made parts) by a foreign company contributes to the American economy less than a car made in Mexico (out of mostly Mexican-made parts) by an American company. You know why I don’t understand it? Because it’s not true.

  • avatar

    jakemonO: I agree. However, if you were Ford, how would you play your cards now? It seems to me to be a very complex hand of cards to play. Proclaim that you are different from the two crosstown dolts, and risk watching them get $$$ as a reward for their poor management. or ride the short bus along with them. Remember when the UAW decided that DaimlerChrysler could afford to pay more for their healthcare because they were “healthier”? I bet that was one of the reasons that the Germans dumped Chrysler to Cerberus.

    Farago: This would be a great standalone discussion topic.

  • avatar


    I’m with you – Mullaly seems to have a track record and has Ford at least going in the right direction. GM and Chrysler are adrift and their management has no clue what to do about it.

  • avatar

    Buickman, sorry to be ignorant but what does “par value is 1.67” mean?

  • avatar
    Gary Numan

    Ford is making a HUGE mistake by joining GM & Chrysler in seeking monies (welfare) from the taxpayers. The Ford team should keep their head down and keep the focus on what they’ve already been doing and further take the high road and seperate themselves from the other two.

    If Ford backs away now and changes their approach and communications immediately, citizens will realize that Ford is actually ahead on their product plan, can tap into their global vehicle portfolio for the states and has more cash…then they’ll respect them for not seeking welfare from those who will make future car purchases and influence others car purchase decisions.

    Let the grossly overpaid execs and UAW sort out their own mess that they created. They are very fortunate to even have something called “Chapter 11” as a tool to begin with. Let them use it.

    The only, only, only sane reason I can surmise that Ford is even joining in on this bad private jet trip to Washington is their quest to quell the UAW jointly.

  • avatar

    I was looking at new Toyota Siennas recently and the (Federally mandated) stickers on the cars said 85% US content, 5% Japanese content, (leaving 10% unspecified.)

    Is this atypical? Or are these cars really and truly made in the US (not just assembled here.)

  • avatar

    bluecon I agree with you… if these 3 fail… the US will be screwed BIG time.

    golf4me mentioned another thing that is true.

    Even when the Japanese and Europeans have factories in the US, some or many of the important components are NOT made in the US. I’ll just take the engine as example. Yes, they have engine factories over there, but…

    When a car is assembled/made in Mexico by Ford or GM or Chrysler the situation is the same, but this time, the components come from the US, not Japan or Europe.

    For the mass production levels of the US markets, I bet almost any automaker has a proper FACTORY, not just an assembly plant.

    And yes, as he said, if nothing is done, you can easily become the Chinese’s biatch. You’re almost there with all the debt you have.

    Ah, and it shouldn’t be a war between GM and America, it’s not a war at all.

    How about a war between Daimler, Siemens, Bosch and VW against the German government. Nice right? What would be the consecuences in Germany of a say, Siemens collapse? or a VW/Audi collapse?…

  • avatar

    Weird question here.

    If $25b is already approved in loans for “green initiatives” at the Shrinking 3, what happens if it is suddenly Shrinking 2, or even 1? Are there provisions in the original loan that establish what happens to that cash if there is no viable corporate entity to loan it to? I know its just chump change for the antics currently consuming Capitol Hill, but man that’s a lot of coin in my realm!

    I could see that money just turning into a pork-slush fund for connected Congressional folks, or helping Obama make a couple of the “green collar” jobs he wants so much. Any ideas on what that cash does if the original debtor ends up DOA?

  • avatar

    Geotpf: Then you don’t understand how the auto industry works. To make a car, you have to first design it. Then, develop it. Then test it. Then certify it. Then manufacture it. Then market it. Having worked in the auto industry for over 15 years, I can tell you firsthand that Toyondaniss do not do all the above on all their vehicles in the USA. Neither does the big three, but they do about 4x as much of it. The only component that a plant in Mexico that is Mexican is the labor. All raw materials, machinery & tooling, and often the plant itself is American made. And the profit from such vehicles comes back to America to support the hapless management and bloated UAW.

  • avatar

    What they need to do prior to federal aid is:
    1. ALL bonus roll employees, not just the CEO, need to reduce their salary to $1 per year (it was fun to listen to Al Mulally say he was “satisfied” with his pay when the senator asked about $1.
    2. The UAW must get rid of the jobs bank OFFICIALLY (I don’t trust what Ron says when he says it’s almost gone now)
    3. No more employee pricing deals, free company cars
    4. No more corporate jets.

    Then we’ll know they’re serious about asking for help.

  • avatar

    Ford is between a rock and a hard place. On the one hand, it is not nearly in as bad shape as GM and Chrysler, leadership is competent, and the company has a viable recovery plan. But, it really can’t afford to let GM go down – if GM declares bankruptcy and does emerge as a leaner, more focused competitor with a lower cost structure, Ford is faced with a new, aggressive, rival.

  • avatar

    “bluecon I agree with you… if these 3 fail… the US will be screwed BIG time.”

    We don’t agree at all.
    The Big 3 have already failed.
    The US government is also bankrupt.

    The next bubble to burst will be the bubble of huge expensive government.

    If the government gives the automakers 75 billion what difference will it make if nobody is buying their product?


    If you really work in the US auto industry it would be difficult to not be aware that the US auto companies buy a large percentage of raw materials, machinery & tooling from overseas.

  • avatar

    If you really work in the US auto industry it would be difficult to not be aware that the US auto companies buy a large percentage of raw materials, machinery & tooling from overseas.

    Exactly, that is what confuses buyers when we talk about domestic content. The GM management line is we’re a ‘Global Corporation’ when they buy parts, but ‘American’ when selling cars.

    Everyone knows North American Content means Canada, USA, Mexico, Jamaica, Honduras, etc. Therefor the only real difference between transplants and big 2.8 plants in the US is who gets the executive bonus’

  • avatar

    This whole if GM gets lean, Ford is screwed thing is half-true at best.

    If Ford can’t compete against a lean GM, how on earth is supposed to compete with Honda & Toyota? Or is the assumption that there is a pool of nativists that will only buy from GM or Ford?

    If Ford has to get government loans or go bankrupt to hope to compete against a unfucked GM then it has to do those things anyway if its to have any hope against Toyota, Honda, or Hyundai/Kia, because as the last 30 years have proven, even the nativists will bail given the right economic incentives.

    Which is it?

  • avatar

    toxicroach: The Government is not proposing a handout to Honda and Toyota. They are being asked to reward GM and Cerberus at the possible expense of Ford. That is a very different scenario.

    It is obvious that all 3 ultimately have to compete with the best in the industry.

    Why should Ford have tried to fix its business itself if a huge bailout was in the offing?

  • avatar

    As some wise guy suggested on today’s NY times, it is really the time for big oil companies, like ExxonMobile, to take over the Detroit 2.8, 2.5 or whatever. Definitely a “win-win” situation: the Detroit 2.8 or whatever can retool all their production lines to make gas guzzlers exclusively!

  • avatar

    If GM and Chrysler go C11 and break the union contract then Ford is screwed unless it can do the same without C11. Its costs would be significantly higher. That is why it is at the table with the 2 bozos. Ford can’t allow them to fail. C11 is not going to happen with Ford because of the Ford family stock. Having said that Larry(Ford) is in better shape than Darryl and Darryl.

  • avatar

    Yes ford looks in a better position, but is it? why the need to sell off more of its mazda stake? Its keeping its head below the parapet and letting the others take the hits and the grief from the nation, but really theyre no better. At their rate of cash burn and market loss they cant be that far behind the others, yes they maybe ahead but theyre catching up quickly. Good management or not.

    Whats scary is people just don’t get the consequences of these companies going down, if it needs complete change of managment to rectify and allow the loans to go through then fair enough, but they cannot be allowed to go under, under any circumstances.

  • avatar

    People, people, people. Look at Delphi to see that the union contracts will not be scrapped. They will be barely modified. Get that out of your head, will ya?

  • avatar

    Lost in all this is how we, customers and taxpayers, are supposed to buy these cars? What are they going to do, make us but them? We are talking about product here, not a civil right to anything.After the Messiah gets done raising our taxes we are not going to have enough left over to buy a new anything, much less a car that drops by 75% in value after 3 years.

  • avatar

    If the recession continues, especially if a depression arises, and it lasts long enough, i expect more folks to lose their housing, even if they are renting.

    Watch van and pick-up sales rise, new and used.

    Also watch small travel trailer and camper shell/topper/whatever term used in thine area to increase.

    Gym memberships, the basic low-cost type, will increase so folks have a place to clean up.

    Dumpster diving will become a family activity.

    Long-term low-cost parking firms may also benefit as folks seek places to park and sleep where the jack-booted thugs will not roust them.

    Anything is better than being truly homeless… and living in a vehicle IS better than a homeless shelter or on the streets.

  • avatar

    Can someone explain to me why it was OK for the government to essentially give away $500 billion to investment banks and insurance companies with no demands on management, employee, or shareholder compensation…

    …but when the government is proposing to loan $25 billion to the Detroit 3 automakers, it is suddenly imperative that the union be smashed and the executives starved?

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