llana Mercer Says A GM Bailout Is About...

...bad economists and politcal pimps.

I second that and extend that to say, all micro-managing of an economy is about bad economists and political pimps.

GM Reports $2.5B 3Q Loss, Says Running Out of Cash

GM said its cash burn for the quarter accelerated to $6.9 billion, and government aid will be "essential" because of the slow economy and credit crisis.

According to GM, the results reflect losses in GM North America (GMNA) driven by industry volume decline of nearly 20 percent, and shifts in product mix. In addition, Europe saw rapid auto market contraction, leading to sharply lower GM Europe (GME) sales volume in the third quarter. GM Asia Pacific (GMAP) results were down due to commodity hedging charges and moderating demand in key markets including China, Australia and India. These losses were partially offset by very strong results in the GM Latin America, Africa and Middle East (GMLAAM) region. GM's automotive results in the third quarter include $1.5 billion of expenses related to mark-to-market changes in the value of GM's commodity and foreign exchange hedging contracts, due almost entirely to falling commodity prices.

GM sold 2.1 million vehicles worldwide in the third quarter, down 11 percent year over year. Sales in GMNA were down 19 percent compared to third quarter 2007. GM global market share was 13 percent, down 0.7 percentage points compared with the third quarter of 2007, due largely to weakness in North America and Western Europe.

G.M. and Chrysler Explore Merger

General Motors is in preliminary talks about a possible merger with Chrysler. NYT reports that two people close to the process said the chances of a merger were "50-50" as of Friday and would most likely still take weeks to work out.

This is like a blind man and a deaf woman considering marriage to each other.

A New Boondoogle Is Born

Peter Gordon explains:

On July 2, the WSJ's Holman W. Jenkins, Jr., wrote "What is GM Thinking?" I have to admit that it took Jenkins' column to get me to see the light. GM's investment in its 2010 Chevy Volt is a political and not a market move.

Now we see that during NBC's Olympics coverage, GM runs a strange ad for its 2010 Chevy Volt. I cannot buy it for a while (and Holman suggests I would not want to anyway), so why are they not using valuable air time to push their 2009 models?

This morning's NY Times includes "Automakers to Seek More Money for Retooling Vehicle Plants". Aha! It's the politics, stupid. With politicians of both parties honing their "investing in energy alternatives" message, the ailing Detroit automakers can smell the pork.

Combine two sentiments du jour ("too big to fail", "end our addiction to oil") and, presto, a new boondoggle. I finally get it.

Murdered Fayed Wanted to Cooperate With Prosecutors

About a month before she was stabbed to death in a parking garage in Los Angeles, CA in an area known as Century City, which is a high rent district consisting of office towers for high-priced lawyers and the like (Robert Shapiro has office space in one of the towers.),Pamela Fayed notified federal prosecutors that she wanted to cooperate in a criminal probe into the international gold trading business she owned with her estranged husband, James Fayed, according to documents filed Tuesday in federal court by Assistant U.S. Atty. Mark Aveis.

The government has been investigating the couple's business as a possible Ponzi scheme. They operated under the names, Goldfinger Coin and Bullion Sales and an associated Internet firm, e-Bullion.

At a hearing Monday, Aveis told a federal magistrate judge that an SUV linked to the attack on Pamela Fayed was rented with a credit card bearing James Fayed's name. Aveis also said that Fayed had previously threatened his wife, with whom he was going through a bitter divorce, and said that he could have her killed "and my hands would be clean." Citing this and other evidence, Aveis asked U.S. Magistrate Judge Ralph Zarefsky to detain Fayed without bail.

But Zarefsky denied the request, citing "pretty thin" evidence connecting the murder charge to the federal case, and set bail for Fayed at $500,000. But he also ordered Fayed held until today to allow prosecutors to appeal his decision.

Aveis told the court on Monday that the Fayeds had taken in some $20 million in what he termed a "Ponzi scheme". $3 million in gold was seized from James Fayed's house on Friday. There has yet been no public accounting as to how much is still owed to depositors of the $20 million that the couple originally took in, and how much, outside of the $3 million seized, can be accounted for.

UPDATE: We are now reading the latest filing from Assistant U.S. Attorney Mark Aveis, according to the filing James Fayed has $2.2 million in real estate equity and $7 million in assets.

General Motors’ Pathetic Balance Sheet

Karen De Coster and Eric Englund speak truth to Wall Street, about the desperate state of GM's financial situation:

For Wall Street analysts to claim “surprise” at GM’s massive deferred tax asset writedown, during fiscal year 2007, and to finally discuss (in mid-2008) General Motors’ financial condition in terms of a possible bankruptcy, indicate that low-level fluff is easily passed on to Main Street “investors” under the guise of serious analysis. At the very least, earnest auto industry analysts should have been sounding the negative-outlook alarm after General Motors published its December 31, 2006 annual report – yet Wall Street was shouting “buy, buy, buy.” One must wonder, again, if any of Wall Street’s analysts are even capable of reading a financial statement. If the answer is affirmative, then honest analysts would have drawn the same conclusion as Eric Englund did in his July 9, 2007 essay. Here is an excerpt:

To analyze General Motors’ 12/31/06 FYE financial statement is to understand that this once great company is likely heading towards bankruptcy. Here are the gruesome details:

GM’s "as stated" net worth is negative $5.4 billion

By fully discounting intangible assets, which includes deferred tax assets, GM’s net worth is arguably negative $48.5 billion (refer to Note 13 of GM’s 12/31/06 financial statement)

GM’s as stated working capital is negative $3.7 billion

By fully discounting current deferred tax assets, GM’s working capital drops to negative $14 billion

General Motors’ total liabilities amount to a staggering $190.4 billion
GM’s net loss, in 2006, was nearly $2 billion

With GM’s September 30, 2007 third-quarter writedown of $38.3 billion in deferred tax assets, GM’s financial condition – at fiscal year-end December 31, 2007 – validates Eric’s above-shown analysis. Accordingly, GM’s 12/31/07 as stated working capital and net worth positions stood at negative $10.2 billion and negative $37.1 billion, respectively. Then, at March 31, 2008 (GM’s most recent filing), the company’s financials reveal a negative net worth of $41 billion. To compound this company’s downward spiral, with the latest quarterThese are the financial indices of a company on the verge of bankruptcy.ly loss of $15.5 billion, GM’s net worth arguably stands at negative $56.5 billion.

Their full commentary is here.

GM Posts $15.5 billion 2nd-Quarter Loss

General Motors today announced its financial results for the second quarter of 2008, which include significant charges and special items. The reported net loss was $15.5 billion or $27.33 per share for the second quarter, including these charges and special items, compared with net income from continuing operations of $784 million or $1.37 per share in the second quarter of 2007. On an adjusted basis, GM posted a net loss of $6.3 billion or $11.21 per share, compared with net income from continuing operations of $1.3 billion or $2.29 per share in the same period last year.

GM's second quarter results were primarily driven by several factors: significant losses in GM North America (GMNA) due to continuing U.S. industry volume declines and shifts in vehicle mix, the long strike at American Axle and large lease-related charges; a number of special charges associated with GM's ongoing restructuring actions; continued losses at GMAC Financial Services (GMAC) and updated estimates regarding recoveries and expectations of assumed benefit obligations in the Delphi bankruptcy.

GM recorded $9.1 billion of special items, predominantly non-cash in nature for the current quarter or near-term periods.

On a standalone basis, GMAC reported a net loss of $2.5 billion for the second quarter 2008. Affecting results were continuing large losses at Residential Capital, LLC (ResCap) related to asset sales, valuation adjustments and loan loss provisions, as well as a $716 million pre-tax impairment of lease assets in the automotive finance business as a result of lower used vehicle prices, particularly for SUVs

NYU Prof: General Motors, Ford Could Go Bankrupt

General Motors Corp. and Ford Motor Co. could go within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business, Bloomberg is reporting.

"Both are in very serious shape and the markets reflect that,'' Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are ``on the verge of bankruptcy," he said.

The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said.

"The thing that triggers a default in almost all cases is running out of cash and not being able to refinance,'' Altman told Bloomnerg."You're not going to go bankrupt as long as you can refinance short-term liabilities. You will go bankrupt if you can't."

GM Chief Executive Officer Rick Wagoner said in an interview July 15 that the company has the ability to raise cash, and he called bankruptcy ``a bad idea.'' Ford has said it had access to $40.6 billion in funds as of March 31, including credit lines.

"I would not put money with GM right now because the downside is so great relative to the upside, relative to the yield,'' said Altman, speaking in New York. ``Your downside is probably 60 percent on the debt. The risk reward ratio is pretty poor."