Next Steps in GM Turnaround Set

[Croc]

Next Steps in GM Turnaround Set More job cuts and plant closings coming to GM. by Joseph Szczesny (2005-10-18) Struggling General Motors Corp. has put the company's crown jewels on the auction block as part of a broader restructuring of the company that includes a deal with United Auto Workers to reduce healthcare costs and a new round of plant closings. Richard Wagoner, GM chairman and chief executive officer, disclosed that GM is prepared to sell a controlling interest in its storied and profitable finance arm, General Motors Acceptance Corp., which has been consistently been the most profitable part of the company for the better part of two decades. The decision to put GMAC up for sale was driven by the precipitous decline in GM's credit rating, which is likely to continue in the wake of the company's dismal third-quarter financial report. GMAC's credit rating was downgraded right along with GM's to junk status earlier this past spring, making it harder for GM's big finance subsidiary to raise money. Wagoner, however, didn't offer any kind of timeline for the sale and also suggested they want to review any offer carefully before moving forward. GM also will insist any purchaser operate GMAC as a stand-alone entity and enter in a close strategic partnership with GM's automotive business, he said. John Devine, GM's chief financial officer, noted for potential suitors, GMAC is a strong vibrant business and any new venture with GM will have to be bold. Nonetheless, the reduction of GM's credit rating over the past six months has shaken GMAC and forced the automaker to review its options, Devine said. Meanwhile, Moody's Investors Service, citing the potential for a shift in GMAC's ownership, changed its rating review status on GMAC to "direction uncertain" from a review for a downgrade. A "direction uncertain" indicates that ratings may be raised, lowered or affirmed. Ratings of GM remain on review for a possible downgrade, Moody's said. Fitch and Standard & Poor's also made nearly identical announcements. Wagoner also announced that GM's cost-cutting efforts will get a substantial boost from the tentative agreement with the United Auto Workers that will help reduce the amount the automaker spends on healthcare for both employees and retirees. "This is a huge move and we're glad to see it today,'' Wagoner said in a news conference at GM's Detroit headquarters at which the deal with the union was announced. "We believe it is clearly in the best interests of UAW-GM active workers, retirees and their families,'' UAW President Ron Gettelfinger and chief GM negotiator Richard Shoemaker said in very brief statement issued several hours after Wagoner's press conference. The changes are significant enough to announce that GM's future liability for retiree healthcare will be reduced by as much as 25 percent or $15 billion, Wagoner said. In addition, it also will reduce GM's annual cash outlay for health care by $1 billion annually, GM said. Neither the company nor the union offered any specifics about the changes to the proposed plan but it expected to include larger co-pays and deductibles for almost all kinds of healthcare services as well as well a reduction in choice. Wagoner also said GM is preparing to announce a major reduction in manufacturing capacity before the end of the year. The reduction in capacity will be in line with GM's plans to eliminate the jobs of 25,000 hourly workers by the end of 2008. Wall Street analysts had expected some sort of deal with the UAW and generally reacted positively to the news. However, some suggested the healthcare agreement may not be enough to deal with the challenges from nimble Asian automakers and huge pension obligations, which are expected to swell with the addition of Delphi's unfunded pension obligations to the mix. In fact, in return for healthcare cuts, the UAW appears to have won an agreement from GM to take on even more of Delphi's post-retirement liabilities. www.thecarconnection.com

[Clownzilla]

Although it may seem bad for many people, selling GMAC is a VERY neecissary move for GM. GM will have access to cheaper money, and in the long run will be able to make more money selling vehicles by geting that cheaper money (if they make vehicles that the import buyers want). The $14 bil. + won't hurt either. People must be objective in the reasoning of this decision.

[Ultra Magnus]

Unless they can get GMAC back through some kind of put option, GM shouldnt sell your only money making operation in North America. That makes absolutely no sense to me. I know they need to regain a strong investment rating but that is insane.

[usa1]

Although it may seem bad for many people, selling GMAC is a VERY neecissary move for GM. GM will have access to cheaper money, and in the long run will be able to make more money selling vehicles by geting that cheaper money (if they make vehicles that the import buyers want). The $14 bil. + won't hurt either. People must be objective in the reasoning of this decision.

[post="31065"]<{POST_SNAPBACK}>[/post]

How will GM have access to cheaper money? It will cost GM more money to get it on the market since they will bleed more red ink without GMAC. Their crediting rating will go down, not up. GM's auto business is dragging GMAC down more than anything else.

The $14B from selling GM would HAVE to turn GM around. If it didn't, GM would have nothing left to sell or mortgage that anyone would want.

The only advantage to selling GMAC, other than the tempory cash infusion, is that it will absolutely force them to make money selling cars. They are a car company after all.

Mark

[haypops]

GMAC's profitability has come from the refinancing of home mortgages through ditech.com. Since the feds have incresed interest rates 11 consecutive times in the last two years, the refinancing business is quickly drying up. The profits from this operation will not be going foward.

[Cadillacfan]

This may also lead way to Kerkorian's sudden and "coincidental" loss of interest in GM. We all know GMAC was what he was really going for, now that GM has cut it loose, he has no point to continue the charade.

[goblue1999]

How will GM have access to cheaper money?  It will cost GM more money to get it on the market since they will bleed more red ink without GMAC.  Their crediting rating will go down, not up.  GM's auto business is dragging GMAC down more than anything else.

The $14B from selling GM would HAVE to turn GM around.  If it didn't, GM would have nothing left to sell or mortgage that anyone would want. 

The only advantage to selling GMAC, other than the tempory cash infusion, is that it will absolutely force them to make money selling cars.  They are a car company after all.

Mark

[post="31110"]<{POST_SNAPBACK}>[/post]

There is the underlying assumption that GMAC, being controlled by a third party, will continue to provide funding to GM's automotive business. That seems like a reasonable assumption, that is, until the new "controlling owners" realize that they can get a much better return on their assets somewhere else..........

[CaddyXLR-V]

There is the underlying assumption that GMAC, being controlled by a third party, will continue to provide funding to GM's automotive business.  That seems like a reasonable assumption, that is, until the new "controlling owners" realize that they can get a much better return on their assets somewhere else..........

[post="31168"]<{POST_SNAPBACK}>[/post]

Unless those controlling owners also have a substantial interest in GM.......

[goblue1999]

Unless those controlling owners also have a substantial interest in GM.......

[post="31186"]<{POST_SNAPBACK}>[/post]

NOw you get it.

GM execs are trying to structure a deal that would allow GM to retain enough contol (49.9999%) to ensure that the newly "independent" GMAC doesn't cut and run. The new controlling partners would certainly have some other material interest in continuing to fund the auto business, like say, a big chunk of GM common or some type of convertible security. The 50.0000001% interest would be for the express purpose, obviously, of meeting a wall street /sec requirement that allows the ratings agencies to rethink the junking.

[Petra]

This may also lead way to Kerkorian's sudden and "coincidental" loss of interest in GM.

We all know GMAC was what he was really going for, now that GM has cut it loose, he has no point to continue the charade.

[post="31134"]<{POST_SNAPBACK}>[/post]

...Then, isn't this a golden opportunity for him to get what he wants? Furthermore, what do you suppose the next move will be if he chooses to go ahead and buy these shares of GMAC? http://www.cheersandgears.com/public/style_emoticons/<#EMO_DIR#>/AH-HA_wink.gif

[Member55]

If GMAC goes public will all GM shareholders get some of the new shares? I want some too. :D