Some FOREIGN company will feed off the corpse, I expect.
Yes, by all means let the cows get into the corn THEN chase them out.
According to the experts I'm listening too, if GM goes down, their suppliers go down then Ford and Chrysler ALSO go down.
The Big 3 - facts and issues
- Thread starter tigerbob
- Start date
Some FOREIGN company will feed off the corpse, I expect.
Yes, by all means let the cows get into the corn THEN chase them out.
According to the experts I'm listening too, if GM goes down, their suppliers go down then Ford and Chrysler ALSO go down.
Yeah, right. Did American or United crumble when Delta failed? No, they didn't, their business picked up, and Delta eventually re-emerged (although my freakin' equity position in the company got wiped out).
I thought you were an advocate for Change We Need but, now that the reality of change is at your door step, it seems to be scaring the shit out of you.
Letting go of the concept that the Big 3 auto companies, one of which is a privately held company, will distroy the country if they fail is ridiculous. Would you build a skyscraper ten stories taller than the maxium stress load of the materials used to build it would support and expect it to stand forever? Probably not.
The fact of the matter is: The Big 3 have gotten TOO BIG for OUR own good. It's time to let the winds of change blow them away, IMO.
As I said before, if GM fails, I believe Ford and Chrysler will suddenly realize that their not as unhealthy as they claim they are. I think they'll suddenly find ways to lob a few stories off those towers.
Like it or not, either we do something about this or we put it on our future generations. I don't need an expert to convience me otherwise.
The good news is, according to the news I've read this morning; The GM bailout is becoming less attractive on the Hill, so perhaps they'll accidently get something right, for a CHANGE.
One more thing that's been bugging me... 6 or 7 months ago GM was telling investors that they had enough money to hold out for another at least another year and that their burn rate was 1B$ a month. Now, apparently all that's changed and their burn rate has doubled.
My question is: Were they lying to us then, or are they lying to us now?
Paulie
Diamond Member
- May 19, 2007
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- Thread starter
- #44
Perhaps it's not quite as black and white as that.
Quite a bit has CHANGED in 6 or 7 months. Perhaps their burn rate has doubled because their position is largely the same as it was in April / May, but their sales forecasts are off by a huge margin and they can't borrow to cover the shortfall because nobody is lending.
Perhaps.
Turboswede
Very Metal
I think folks on the board are misreading the All of the people on the board are getting the wrong impression of the US auto industry. What is happening is that there is a liquidity crisis where the Automakers dont have enough cash coming in to pay their bills. Its not that the industry is ruined; it just needs time to adapt to the current market conditions. The reason that the big 3 are where they are today is:
I will use Ford (again) as an example. If you look at their Financials in 2007 their Auto Production (taken as a separate element) generated sales of $154B with costs of $142B making the Auto Manufacturing segment profitable as a going concern. The problem is the $13B in administrative costs unrelated to auto production and the $5B in losses suffered by Ford Motor Credit, In a Chapter 11 the Admin costs would be gutted, production costs would be lowered and they could liquidate FMC as well.
What you would have is an auto manufacturer capable (at current sales levels) of $155B in sales with about $140B in production and $5-10B in administrative costs. Essentially a leaner FoMoCo would emerge able to generate $5-10B IN A DOWN YEAR.
Asset wise FoMoCo has a $27B liability for retiree medical that could be discharged in a Chapter 11 leaving the company with $118B in assets and about $97B in liabilities for a market cap of $21B or $10 per share.
With the bailout we will still have a bloated and inefficient FoMoCo generating a loss of $4.2B per year (given current sales) so given a $50B bailout we will be in the exact same position in 15 years (give or take). I addition, without discharging or renegotiating its liabilities FoMoCos market cap goes instantly to about $50B or $25 per share but will continue a downward trend until the next bailout.
Who does a bailout help?
SHAREHOLDERS In a Cpt 11 existing equity (stock) goes away and may be replaced by some other instrument (new shares) post bankruptcy. In a successful Cpt 11 the most existing shareholders could expect would be about $10 per share. With a bailout a $50B cash infusion would go directly to shareholder equity and bump the stock price up to $40+ per share. The thing is, as FoMoCo remains committed to a losing business model, there will be an incentive to sell shares now rather than wait as FoMoCo posts additional losses.
OFFICERS AND DIRECTORS In a Chapter 11 the equity holdings of officers and directors (the main way they are paid) may end up worthless, in addition the pensions for officers are not backed by the PBGC and may be used as assets to pay creditors. Employee Pensions are protected in trusts that are NOT subject to creditor claims as they meet specific ERISA, and IRS rules.
Employees will not be any more negatively impacted by a Chapter 11 than a bailout because FoMoCo is a viable concern and employee benefits are protected. With or without the Bailout FoMoCo will need to institute reductions in force, but mostly in areas that are not profitable (Ford Motor Credit, Administration, etc.) which should not have a significant impact on FoMoCos suppliers.
Just think about it, If FoMoCo has 500,000 industrial workers and generates a profit of $5B from auto production that equates to about $10,000 profit per employee per year. Given the absence of a significant capital investment, cutting 10,000 industrial jobs will result in a $100M reduction in profits, thats just cutting off your nose to spite your face!
- All made huge profits in the 90s on light truck sales
- Invested huge profits in mortgage markets (higher return than expanded production)
- Sales slump in the 00s led to losses, covered by barrowing against assets
- Asset values tanked because to mortgage & market collapse
- Still in sales slump and can no longer barrow against assets
- Liquidity Crisis
I will use Ford (again) as an example. If you look at their Financials in 2007 their Auto Production (taken as a separate element) generated sales of $154B with costs of $142B making the Auto Manufacturing segment profitable as a going concern. The problem is the $13B in administrative costs unrelated to auto production and the $5B in losses suffered by Ford Motor Credit, In a Chapter 11 the Admin costs would be gutted, production costs would be lowered and they could liquidate FMC as well.
What you would have is an auto manufacturer capable (at current sales levels) of $155B in sales with about $140B in production and $5-10B in administrative costs. Essentially a leaner FoMoCo would emerge able to generate $5-10B IN A DOWN YEAR.
Asset wise FoMoCo has a $27B liability for retiree medical that could be discharged in a Chapter 11 leaving the company with $118B in assets and about $97B in liabilities for a market cap of $21B or $10 per share.
With the bailout we will still have a bloated and inefficient FoMoCo generating a loss of $4.2B per year (given current sales) so given a $50B bailout we will be in the exact same position in 15 years (give or take). I addition, without discharging or renegotiating its liabilities FoMoCos market cap goes instantly to about $50B or $25 per share but will continue a downward trend until the next bailout.
Who does a bailout help?
SHAREHOLDERS In a Cpt 11 existing equity (stock) goes away and may be replaced by some other instrument (new shares) post bankruptcy. In a successful Cpt 11 the most existing shareholders could expect would be about $10 per share. With a bailout a $50B cash infusion would go directly to shareholder equity and bump the stock price up to $40+ per share. The thing is, as FoMoCo remains committed to a losing business model, there will be an incentive to sell shares now rather than wait as FoMoCo posts additional losses.
OFFICERS AND DIRECTORS In a Chapter 11 the equity holdings of officers and directors (the main way they are paid) may end up worthless, in addition the pensions for officers are not backed by the PBGC and may be used as assets to pay creditors. Employee Pensions are protected in trusts that are NOT subject to creditor claims as they meet specific ERISA, and IRS rules.
Employees will not be any more negatively impacted by a Chapter 11 than a bailout because FoMoCo is a viable concern and employee benefits are protected. With or without the Bailout FoMoCo will need to institute reductions in force, but mostly in areas that are not profitable (Ford Motor Credit, Administration, etc.) which should not have a significant impact on FoMoCos suppliers.
Just think about it, If FoMoCo has 500,000 industrial workers and generates a profit of $5B from auto production that equates to about $10,000 profit per employee per year. Given the absence of a significant capital investment, cutting 10,000 industrial jobs will result in a $100M reduction in profits, thats just cutting off your nose to spite your face!
- Thread starter
- #46
So now would be a good time to buy Ford stock (a $2 share bought today would be worth $10 after Chapter 11 or $40 after a bailout).
No, there's a better than good chance that the common shareholder will get wiped out if they file chapter 11.
- Thread starter
- #48
Sorry - I was joking.
Turboswede
Very Metal
- Thread starter
- #50
Sure...and I have a bridge you might be interested in buying too
Bridge to nowhere by any chance?
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