I found the stock price drop-off on Thursday surprising. If you'll read my commentary Wednesday you'll see why. I had thought the fall-off earlier in the week was the result of a one-time event: pressure on a lot of hedge funds to liquidate some of their equity holdings in order to satisfy end-of-quarter redemption demands from dissatisfied investors.
I had hoped/expected some levelling off by Thursday. Instead, the DOw fell another 600-plus points.
Allow me then to make the point that this proves how I don't know nuttin'. So don' take this blog (or any other blog!) as a dispensary of investment advice. Please.
My best guess about Thursday is that the market was spooked chiefly by an S&P announcement in the late afternoon Wednesday. Standard & Poor's put General Motors, a US corporate icon if ever there was one, on "credit watch negative."
By the end of the week, Barclay's had lowered its loss-per-share estimate for GM for 2008. It had previously predicted that when this year's books are done, GM would lose $15.68 per share. Now it's guesstimating $15.87.
How has GM responded? Officially, thus: "Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets. But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers."
Unofficially, GM is said to be in talks with Chrysler -- or rather with its parent company -- about a merger. How will that help? Won't that simply absorb badly-needed cash (or strain the credit that S&P just put on watch)? Apparently, the idea is that GM will pay for Chrysler with its remaining interest in its financing arm, GMAC. General Motors spun off GMAC two years ago, selling a bare majority of the equity, retaining 49%. So now it will give Cerberus that 49% and ger Chrysler.
Why? To increase its market share, presumably, though that hardly amounts to a cure to its ills. Chrysler suffers from the same ills, which is why it isn't part of Daimler-Chrysler any more.
The reported talks leave me wondering: why has it still occurred to no one that the most logical business combination of the world would be a takeover of the auto industry by the petroleum companies?
I've raised this before, hoping to get some explanations of why I'm wrong. Still nothing. But it seems to me that the logical model here is that of the shaving-blade industry. Gillette sells the razors at a loss. It can afford to do so, because the economic significance of a razor is to lock a consumer into buying a stream of blades that fit it, and the profit from those blades more than compensates the loss on the razor.
If Exxon-Mobil and its peers bought up the US auto industry, they could afford to sell automobiles for a loss, for the same reason. The economic significance of a car is to lock a consumer into the purchase of fuel.
So get to work, deal makers!
Showing posts with label General Motors. Show all posts
Showing posts with label General Motors. Show all posts
Sunday, October 12, 2008
Wednesday, August 13, 2008
Three Books, briefly
1. I wrote last week of a forthcoming book about the demise of Bear Stearns, BEAR TRAP, and about my efforts to obtain a review copy.
I'd like to report now that I have seen a copy, and that the book is something of a disappointment.
The opening paragraphs, in which the authors compare themselves to Shakespeare and Dreiser, should have been a tip-off. If you have a good story to tell, you can launch right into it and let it tell itself.
2. A more interesting read by far, Joe Nocera's GOOD GUYS & BAD GUYS. The bulk of this book is a "best of" collection of articles and columns going back to the 1980s. The new material generally updates or seeks to draw connections amongst the collected material.
Some oil-industry history: In 1982, when T. Boone Pickens, founder of Mesa Petroleum, offered to buy a much larger company, Cities Service Company, which was more generally known by the name Citgo, the target company responded by offering to buy Mesa. High drama played out in the suites of southern Manhattan for weeks as the two fish struggled to see who would swallow whom.
Neither offer ever actually closed, but the upshot of it was that Pickens made his name as a wheeler-dealer on a very big scale, and Citgo was put "in play" in the markets. By the end of that decade, it had been sold (through steps I won't relate here) to the nation of Venezuela.
Anyway, Joe Nocera got a journalistic coup out of this intense bidding war. He was there, in the hotel suite with Pickens and his brains trust, through the thick of it, and it became the October 1982 cover story for Texas Monthly. That chapter makes a very compelling read and a great jumpstart to this book.
3. Or consider Roger Lowenstein's latest, While America Aged, about (as the lengthy subtitle aptly says), "how pension debts ruined General Motors, stopped the NYC subways, Bankruptcy San Diego, and Loom as the Next Financial Crisis."
The "devil's pack" that too many managements have struck with too many unions over the years in the US is: labor peace in return for unfunded pension promises. The managers who strike this deal may be either private, quasi-public, or fully public. The bargain is the same. It is the sort of bargain that a credit-card addict makes with himself. "I'll save my cash and soothe my spending impulses at the same time by using the plastic."
One neat detail from the San Diego case study: In October 2001, that city's chief of human relations, Cathy Lexin, expressed her growing unease about the pension's earnings numbers vis-à-vis its liabilities in a very eloquent way in an email she sent to the assistant city auditor. The subject line of the email read: EEEK.
I'd like to report now that I have seen a copy, and that the book is something of a disappointment.
The opening paragraphs, in which the authors compare themselves to Shakespeare and Dreiser, should have been a tip-off. If you have a good story to tell, you can launch right into it and let it tell itself.
2. A more interesting read by far, Joe Nocera's GOOD GUYS & BAD GUYS. The bulk of this book is a "best of" collection of articles and columns going back to the 1980s. The new material generally updates or seeks to draw connections amongst the collected material.
Some oil-industry history: In 1982, when T. Boone Pickens, founder of Mesa Petroleum, offered to buy a much larger company, Cities Service Company, which was more generally known by the name Citgo, the target company responded by offering to buy Mesa. High drama played out in the suites of southern Manhattan for weeks as the two fish struggled to see who would swallow whom.
Neither offer ever actually closed, but the upshot of it was that Pickens made his name as a wheeler-dealer on a very big scale, and Citgo was put "in play" in the markets. By the end of that decade, it had been sold (through steps I won't relate here) to the nation of Venezuela.
Anyway, Joe Nocera got a journalistic coup out of this intense bidding war. He was there, in the hotel suite with Pickens and his brains trust, through the thick of it, and it became the October 1982 cover story for Texas Monthly. That chapter makes a very compelling read and a great jumpstart to this book.
3. Or consider Roger Lowenstein's latest, While America Aged, about (as the lengthy subtitle aptly says), "how pension debts ruined General Motors, stopped the NYC subways, Bankruptcy San Diego, and Loom as the Next Financial Crisis."
The "devil's pack" that too many managements have struck with too many unions over the years in the US is: labor peace in return for unfunded pension promises. The managers who strike this deal may be either private, quasi-public, or fully public. The bargain is the same. It is the sort of bargain that a credit-card addict makes with himself. "I'll save my cash and soothe my spending impulses at the same time by using the plastic."
One neat detail from the San Diego case study: In October 2001, that city's chief of human relations, Cathy Lexin, expressed her growing unease about the pension's earnings numbers vis-à-vis its liabilities in a very eloquent way in an email she sent to the assistant city auditor. The subject line of the email read: EEEK.
Subscribe to:
Posts (Atom)
