Tuesday, April 19, 2005

GM Falls On Earnings

General Motor reported earnings this morning and the stock price fell over 4%. The news will almost certainly cause the ratings agencies to lower the firms bond quality to junk, and have a big impact on mortgage markets.

13 Comments:

At 9:08 AM, Blogger John Law said...

http://www.washingtonpost.com/wp-dyn/articles/A64599-2005Apr18.html

good GM article.

I'm sure some will blame the Unions if GM ever goes, but they are just in a bad biz and made bad decisions. Look at Stelco steel, they were in bankruptcy I think, there were Union problems and the increase in the price of steel bailed them out a bit. not so for GM.

 
At 9:22 AM, Blogger Ben Jones said...

John,
Good article.

"Any market economist would tell you that things that are 'free' are overconsumed" ie the pensions.

Lots of US firms are in this boat.

 
At 9:31 AM, Anonymous Anonymous said...

It's amazing to me that you have to go back to 1982 to see GM's stock at it's current price. This is an ominous omen for sure. I doubt that GM will even exist in 5 years.

I think the unions have a very large share of responsibility in this mess. You can't manufacture automobiles competitively when you have such huge retiree liabilities. However, union greed will ultimately consume all of their jobs anyway.

My big concern is that the tax payer will end up footing the bill for the retiree pensions vis a vie the Pension Benefit Guarantee Corporation.

It infuriates me when the tax payer ends up paying for corporate welfare. The unions and/or corporations need to be held accountable for their pensions not the US tax payer!

Regardless, GM will file for Chapter 11 and, just like the airlines, get an indirect government bailout of their pensions.

Effect on real estate: more competition for debt (higher rates) as the government issues more treasuries to fill the corporate feeding trough.

 
At 9:33 AM, Anonymous Anonymous said...

I don't buy it! The Unions in conjunction with the Federal Gvt. have pretty much destroyed the manufacturing base of the U.S. economy.

 
At 9:34 AM, Anonymous Anonymous said...

"It's amazing to me that you have to go back to 1982 to see GM's stock at it's current price. This is an ominous omen for sure. I doubt that GM will even exist in 5 years."

Will be interesting to see if this portends the future of the stock market. Dow 800 anyone?

 
At 10:04 AM, Blogger John Law said...

(I think the unions have a very large share of responsibility in this mess. You can't manufacture automobiles competitively when you have such huge retiree liabilities. However, union greed will ultimately consume all of their jobs anyway.)

GM wasn't forced into those agreements, seems like they did it probably to make the company appear more profitable in the short-term. the problem is GM can't produce efficiently. they don't make good cars.

Stelco Steel was in bankruptcy and was blaming unions. suddenly the price of steel goes up and they post a profit! it's the business. GM can't raise prices similar to a steel company getting more $ for it's steel.

I'm reading Lowenstein's "Origins of the Crash."
he seems to blame wall street and the companies themselves for the deindustrialization of America. during the 80s and 90s Wall Street wanted companies to be "asset-light." meaning, I think, basically a company should close manufacturing(etc.) or sell it off. he gave GE as an example. GE's profits are heavily based on finance!

 
At 10:28 AM, Blogger Ben Jones said...

The trend over the past few years of corporations morphing into the industry of the day explains GM's situation. GM is a bank now and a bank can't support pensions for an army of retires.

Remember how AT&T became a cable company? Those overpaid corporate suits have really messed up these firms.

 
At 12:17 PM, Anonymous Anonymous said...

GM wasn't forced into those agreements, seems like they did it probably to make the company appear more profitable in the short-term. the problem is GM can't produce efficiently. they don't make good cars.

I have to respectfully disagree with you Mr. Law. Management doesn't have free choices to treat the union members like normal employees. The unions blatantly extort management to limit the freedom of choice that they are entitled to as employers. You can't produce decent cars by increasing R&D if you don't see the manufacturing business as profitable. That's why GM was chasing profits elsewhere.

IMO If labor costs were reasonable then they would still be producing competitive products.

 
At 1:08 PM, Blogger John Law said...

GM is not forced to accept Union demands. they enter into those contracts. under certain conditions, even non-union jobs could have those high wages. it seems they entered into those agreements for short-term purposes and didn't account for pension costs like they should have. bottom line, GM made promises it should live up to.

 
At 1:18 PM, Anonymous Anonymous said...

For your information I just spoke to my broker based in Qu├ębec, about the debt quality of the auto stocks makers like GM and FORD. Want to know how bad the situation is at Ford and GM ? Well. The brokerage house has abvised their brokers that if clients want to buy debt securities of these companies, the client must sign a discharge letter where he confirms he knows the whole risks implied and fully accepts 100 % of the responsability of buying THE JUNK !! And GM and Ford were considered two years ago as blue chip stocks !!!

 
At 5:55 PM, Anonymous Anonymous said...

bottom line, GM made promises it should live up to.

Should is the key word here. It CAN'T live up to them. So why should the tax payers suffer as a result?

 
At 7:05 PM, Anonymous Anonymous said...

If the government didn't guarantee those union pensions, the UAW might just be a little more interested in seeing GM continue as a healthy enterprise. As it is, I think most of them don't care whether GM fails or not. The last laugh will be on them though. If GM goes bankrupt, their pensions will be cut by half (at least, just like the steel workers) and they will lose all health care. The bulk of those retirees are not even eligible for Medicare (aid?) or SS yet. IIRC more than half are younger than 62.
There are a half a million people living off of GM as current and former employees. That plus the suppliers that will be affected. If GM goes bankrupt, it will be ugly.

 
At 9:17 AM, Anonymous Anonymous said...

IT IS UGLY. THE FUTUR IS NOW !

 

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