Posted By
MELISSA ANDERSON
on
6/19/2010 8:25 AM
The results of IRN's 2010 materials pricing survey show how the environment has changed since our first survey on this subject in 2008. Suppliers have done a great deal to protect themselves in this area, and with good reason. The report covers what suppliers are expecting in pricing trends; whether they are pursuing cost recovery and in what form; how customers are responding; and other topics. It includes many nuances that will help companies evaluate their own activities and provide insight to interested observers on the dynamics of raw material supply. Order your copy of the report for US$99 by sending an email to survey@think-irn.com.
Posted By
MELISSA ANDERSON
on
5/25/2010
IRN conducted its first material pricing survey in May 2008, when soaring prices created extreme pressure on component suppliers to find solutions. For some, this meant seeking significant and immediate relief from customers. The intensity of their efforts varied, but 25% of the survey respondents indicated that they were willing to stop shipments to force the issue. What will the data in the 2010 IRN Materials Pricing Survey tell us? We are currently analyzing the survey responses and will be presenting the results at an OESA breakfast briefing on June 15, 2010. Visit the OESA website to register for this event.
In appreciation for supplier participation in the survey, a complimentary executive summary will be provided to all participants. The report will also be available for purchase. Check back for details in mid-June.
Posted By
IRN Sales
on
12/16/2009 4:20 PM
This year's pricing survey report, Industry in Transition: The Dynamics of Supplier-Customer Power, is chock full of new information and insight. The study covers all the core questions on price reduction requests that we have been asking since 1997, but it goes far beyond that in presenting a picture of how commercial relationships and power are changing in the industry. Get your copy for only $250. Click here for an order form.
Posted By
KIM KORTH
on
12/2/2009 11:27 AM
For the first time in over a decade, our new supplier pricing survey suggests the top-performing suppliers may be tilting the power equation in their favor. We broadened the study this year to include topics covering financial health, systemic changes as a result of the severe downturn in 2009, and how suppliers are re-balancing the risks and rewards of the automotive industry. Click on Read more for an example of the results.
The IRN report, titled Industry in Transition: The Dynamics of Supplier-Customer Power, addresses the ways that suppliers are dealing with their customers and their competitive position during these extraordinary times for the industry. For example, we asked suppliers how successful they have been in reducing their cost structures, given the significant decline in production volumes in 2009. More than 20% of respondents said they had reduced their cost structure by more than 30%. Almost 40% of respondents have achieved a reduction of 20-30% in their costs, and almost the same number chalked up 10-20% cost improvement. We will be presenting detailed results of the survey on December 10th - click at the top of the page to go to the event registration site.
Hear details of how suppliers accomplished this and how much of these savings they expect to preserve as the industry turns up again. Register for the OESA Executive Breakfast Briefing highlighting IRN’s survey results, to be held on Thursday, December 10, 2009 from 8 am to 10:15 am at the Hotel Baronette in Novi.
Please contact Alicia Kolhoff at our offices if you have any questions (616-785-5175 ext. 1011 or via e-mail at AliciaK@think-irn.com).
Posted By
KIM KORTH
on
11/23/2009 9:16 AM
While much of the attention surrounding Chrysler has focused on whether or not the new Fiat/Chrysler entity would survive long term, most of the conversations I have had with suppliers over the last few weeks have been about the extremely high (some suppliers referenced “astronomically high”) releases they are getting for December-February production. In many instances, the numbers have been high enough that many suppliers will need to bring back laid-off workers, something they are loathe to do given the uncertainty surrounding Chrysler. Here is our take on the situation.
Reasons to Believe Them
Chrysler still has a fair amount of pipeline filling to do in order to restock their dealer inventories. In addition, they are just starting on a much more aggressive advertising and incentive campaign that should correct at least a portion of their huge sales decline of the last six months. Lastly, Chrysler is planning on major refreshes of every single product line this year in order to drive showroom traffic and maintain sales levels until the new Fiat product begins arriving in late 2011.
Reasons Not to Believe Them
Suppliers have been seduced into supporting high numbers in the past only to see wild gyrations in production levels that look nothing like the releases they received. Our guess is that the high numbers currently out for the first few months have some degree of inventory build in them (in case all those launches don’t go so well) so we would anticipate that production could fall off dramatically in the late February-March timeframe to adjust. In terms of annual production expectations, Chrysler is saying a little over 1.5 million, but some forecasters that have been as low as the low 700K’s recently adjusted upward. We think a prudently conservative planning number is 1.1-1.2 million units.
Posted By
MELISSA ANDERSON
on
11/3/2009 10:25 AM
Moody’s Investors Service announced last week that it was changing its outlook rating from “negative” to “stable” for US auto parts makers’ business, since next year is likely to be better for the industry (they refrained from noting that it could hardly be worse). The Q3 results being reported by suppliers, and what we are seeing in the results of our biennial supplier survey, back up that position.
A quick scan of public companies’ recent announcements shows that suppliers are regaining their footing:
“American Axle posts first quarterly profit in two years”
“Autoliv Q3 shows first profit in a year”
“BorgWarner posts Q3 profit, expects gains in Q4”
“Federal-Mogul Q3 profit more than doubles”
“Gentex profit beats forecast; shares jump”
“Johnson Controls profits surge”
“Tenneco quarterly results beat estimates”
“European suppliers post stronger Q3 results”
Of course, the recovery is still a work in process, and many other companies have yet to turn that corner. Suppliers that are already seeing improvement cite the effects of their cost cutting, such as reducing retiree benefits in the case of American Axle, or Federal-Mogul’s 22% headcount reduction, or a combination of myriad initiatives that add up to a new low, in breakeven point, that is. The benefit of all that pain is that it does not take much of a boost in industry sales to get into profitable territory for these companies, and we are starting to see that already.
Posted By
MELISSA ANDERSON
on
10/19/2009 1:49 PM
According to the most recent OESA Automotive Supplier Barometer (September 2009), smaller suppliers (with $500 million or less in revenue) are experiencing tightening financial constraints in many cases. The survey results are consistent with what we have been hearing from clients and other industry participants. Business is picking up, and that is good, but managing the upswing and ongoing volatility of the industry means that survival is still no sure thing. See below for some of the supporting data.
Here are some of the supporting data points from the survey:
50% of respondents from smaller companies said that the cost of credit lines had tightened somewhat or considerably;
46% said that their commercial loan interest rates and covenants had tightened somewhat or considerably;
17% are not sure that they will be able to access required levels of capital at appropriate costs for inventory financing or accounts payable financing;
41% are not sure or lack confidence that they will be able to access required levels of capital at appropriate costs for plant and equipment investment.
If you haven’t heard us say this lately, we highly recommend membership in the Original Equipment Suppliers Association. It is a great organization that provides industry information and analysis, value-added services, and a voice for suppliers in Washington. Join now and attend the OESA 2009 Outlook Conference on Nov. 9, where Kim Korth will be one of the featured speakers.
Posted By
MELISSA ANDERSON
on
10/6/2009 8:48 AM
You can’t help but root for Remy. Part of the industry since the ‘horseless carriage’ days, a GM division from 1918 to 1994, a quick trip through Chapter 11 bankruptcy in 2007 - the company has weathered many a storm and unlike many of its fellow former GM parts businesses, seems to be riding the waves rather well at present.
In 2008, the company experienced a net loss from continuing operations of $5.8 million on $1.1 billion in sales, a respectable result based on sales mix, price actions, aggressive cost controls, and savings from consolidating facilities, closing 14 facilities, and reducing headcount 20%. In addition to solid management in response to the industry downturn, Remy has also been maneuvering to benefit in this era of regulatory activism, scoring a $60.2 million grant from the US Department of Energy to establish a standardized platform of hybrid electric motors and controls. Automotive News is reporting today that Remy has signed deals with six automakers for electric drive motors for electric and hybrid vehicles.
While we at IRN have a measured view of the upside potential for alternative vehicles (that’s a subject for a separate blog post), it is good to see an example of a company that is evolving and figuring out how to remain relevant in a sea of change. We hope that the market, in turn, will continue to support Remy.
Posted By
ALICIA KOLHOFF
on
9/23/2009 2:45 PM
We have been reviewing some of the preliminary results from our 2009 pricing survey. One of the questions we asked is "What is your biggest financial concern for your company over the next 12 months?" Interestingly, there have been a number of responses that indicate the biggest fear is the financial stability of other suppliers. This sentiment is being expressed by small and large suppliers alike.
Perhaps we can temper those concerns with the news that while most suppliers feel that their own company is in a weaker financial position than they were two years ago, only 1 company of the 104 who have responded thus far considers itself "At Risk". See remaining responses in the chart below...
Let us know where your company stands and what your biggest concerns are by participating in our 2009 survey. The link to the survey can be found at the top of our homepage at www.think-irn.com. Final results and analysis will be published in December 2009.
Posted By
KIM KORTH
on
9/14/2009 10:09 AM
On Friday, General Motors finally ended months of speculation and agreed to sell Opel to a consortium led by Magna. The consortium will receive 55% of Opel with GM retaining 35% and the Opel union getting 10%. Most analysts believe that the German government played hardball at the end to make sure that this deal went through vs. the competing bid by RHJ out of Belgium or the possibility that GM would keep Opel. According to most sources, the Magna deal includes an agreement to keep open all of their German facilities in exchange for continued significant loans from the German government. Several other countries that now face Opel plant closings as a result (e.g. Spain, the United Kingdom) are considering going to the EU to attempt to block any favoritism for jobs in Germany as a violation of EU law. While it probably will not scuttle the deal, it will cause Opel and Germany some major headaches as they try to show that there are no “guarantees” as the result of this sale. Which is obviously not true, but they will figure out some politically correct way of not admitting they are lying. More interesting in the long term is what this does to Magna’s core supplier business.
Frank Stronach, head of Magna, has had a long-term desire to get into the car-building business as evidenced by his previous bid to acquire Chrysler when they were sold to Cerberus. As the automotive industry becomes more global, it is hard to see how Opel will not eventually compete with the traditional car manufacturers outside of Europe or how some of GM’s technology will not leak to outside players. We have already heard of some OEMs beginning to investigate re-sourcing big chunks of Magna’s business as they become more concerned about Magna’s long-term strategic intent. We view this as a continuation of the first phase of a mutation between traditional OEMs and a few of the larger Tier One players that started with Tata’s purchase of Jaguar. What the supply chain looks like in ten years could be fundamentally different than today.
Posted By
KIM KORTH
on
9/8/2009 8:49 AM
Lots of stories have been appearing over the weekend regarding the continued distress in the supply base. In many instances, however, they have been semi-positive as some suppliers begin to emerge from Chapter 11. Consider this a “grab bag” of stories relating to suppliers:
• GM got final approval from the anti-trust department to “re-acquire” 4 divisions of Delphi, the most significant being Delphi’s steering division. GM believes this now means that Delphi can really, for sure, almost, dear God we hope so, emerge from bankruptcy by the end of this month. We are quite confident that the debacle that turned out to be Delphi’s bankruptcy process will be studied for years. Do you think Steve Miller might like to re-write a few chapters of his book?
• Both J.L French, a casting supplier, and Hayes Lemmerz, the wheel producer, were approved to emerge from bankruptcy this month. Given the massive reduction in debt both companies were able to accomplish while in Chapter 11, the outlook for both is quite positive.
• The Canadian government has announced a financial aid program for Canadian suppliers to help them order materials and re-hire workers as production levels start to improve. This is something many supplier support groups like the Original Equipment Suppliers Association (OESA) have been pushing for unsuccessfully in the United States. With the continued lack of capital for most U.S. suppliers, we anticipate a number of additional bankruptcy announcements over the coming months, unfortunately.
Posted By
KIM KORTH
on
8/21/2009 12:15 PM
On Tuesday, General Motors announced that they are willing to give American Axle over $200 million to avoid a probable bankruptcy filing. Does this seem like the blind leading the blind to you? (O.k., so the analogy is a bit off but the meaning is the same.) Does it make you feel good about how your tax dollars are being spent? Here is the proposed deal, and our theories on why GM is being so generous:
The specifics of the proposed deal are still being finalized but there are two major chunks.
• GM will pay approximately $110 million to help make up for monies that were due when GM filed bankruptcy.
• GM will loan American Axle up to $100 million. In addition to whatever interest rate they agree on, GM will get an option to purchase 7.4% of the company’s shares. If American Axle draws down the entire $100 million, GM would have another option to buy an additional 12.5% of the company.
So why is GM being so generous? We believe there are two reasons:
1.) American Axle is a huge supplier to GM on many critical components. They don’t want to risk disruptions in quality or supply if they go through a bankruptcy filing.
2.) They are highly confident they can make money on the deal. After having seen the creditor groups in both Delphi’s and Metaldyne’s bankruptcies gain ownership of the companies by turning their debt into equity at pennies on the dollar (maybe dimes), our guess is that GM felt the core business of American Axle is very solid and they might as well profit from this situation and have greater control over their short term decision-making.
Our biggest criticism of American Axle over the last 10 years has been their inability to reduce their dependency on GM. In this instance, that dependency appears to have been their savior.
Posted By
KIM KORTH
on
8/17/2009 9:12 AM
Over the past 7-10 days, the news on automotive sales and production has continued to improve. Ford announced yesterday, for example, that their production would be 11% higher in the third quarter and 30% higher in the fourth quarter than last year. That is a significant improvement in the outlook from just a month ago and in line with IRN’s long-held belief that production would be considerably higher in the second half of this year. This is great news for suppliers, right? As further evidence of what a weird year this has turned out to be, the improvement in production may actually put more pressure on an already fragile supply base.
Many analysts and industry observers have been surprised at the relatively few supplier bankruptcies in 2009. That may change over the next few months. As we have noted before, many suppliers have been hanging on by their fingernails and as production starts to improve, they may not have the capital to support these new levels of production. We have heard of many suppliers that are having difficulties maintaining their current lines of credit with their banks let alone getting access to additional lines of credit to buy materials, re-hire workers, etc. Unless the banking environment improves dramatically for suppliers (e.g. they are in a tie with commercial real estate as most loathed industry by most banks) there is likely to be a series of negative announcements over the next few weeks.
Posted By
KIM KORTH
on
8/4/2009 8:20 AM
After lengthy negotiations with their various lenders and creditors, Cooper-Standard finally threw in the towel yesterday and filed for bankruptcy protection. As we alluded to several weeks ago, this scenario is likely to play out with depressing regularity over the next 4-6 weeks as many suppliers fail to avoid court protection. Cooper-Standard is owned in equal parts by Goldman Sachs and the private equity firm Cypress Group LLC and is reputed to have over $1 billion in bank and bond debt. Like so many other Tier One suppliers in the same position, Cooper-Standard has been in negotiations with their creditors and lenders for months as they hoped to avoid a Chapter 11 filing.
When the Obama administration turned down a request for additional government aid for suppliers last month, one of their major reasons was the availability of Debtor in Possession (DIP) financing for situations like Cooper’s. Unlike Chrysler and General Motors that would have found it impossible to get funding for a Chapter 11 proceeding, it is clear that the supply base is going to experience a much more traditional and painful restructuring process than their OEM customers. These filings are likely to accelerate over the next few weeks as automotive production starts to improve and suppliers on the edge find it impossible to get working capital to re-hire workers and order materials. While a few of these suppliers may not come out the other side (e.g. forced sale or liquidation), most of them will successfully restructure and remain as significant automotive suppliers in the future. With a strong position in sealing and fluid handling systems, we would expect Cooper-Standard to be one of those survivors.
Posted By
KIM KORTH
on
7/22/2009
We changed the title of this section from ‘Bailout Blues’ to ‘Supplier Stress’ once it was clear that Chrysler and GM had survived their recent near-death experiences. Now we realize that the original heading (unfortunately) was still appropriate; the focus has just shifted from the OEMs to the suppliers. Some of you may have read the announcement today that the Auto Task Force has reduced the supplier bailout from the original $5 billion to $3.5 billion “at the request of GM and Chrysler.” Given how strapped most of the supply chain continues to be, this doesn’t seem to make any sense. As usual, the story is more complicated than it appears.
First, no one likes the bailout program because it is too expensive. We believe that the OEMs have figured out there is a cheaper way to help their key suppliers than formally participating in this program. How are they going to do that? By using some of the bailout money they have received to assist their suppliers. This is a lot less expensive than the current program and comes with far fewer strings attached.
Second, the program only applied to companies in a Tier One position with the OEMs. This didn’t really address the distress that is happening at the Tier 2 and 3 levels. Again, more traditional approaches (e.g. accelerated payment programs, partial payments on tools, etc.) are more effective than the government program.
And lastly, are we the only ones that are really worried that GM and Chrysler, using taxpayer dollars, get to play God in determining who wins and who loses in the supply base? There are too many potential conflicts of interest/hidden agendas to list here. Unfortunately, the government doesn’t care about the power they have given to these OEMs so long as they are in a position to eventually pay back their loans. It will be very interesting to see what happens to some of the struggling larger names in the supply industry over the next few months as this scenario plays out.
Posted By
KIM KORTH
on
7/13/2009
With the not so subtle biblical reference, General Motors officially came out of bankruptcy Friday in 39 days, 3 days faster than Chrysler and light years faster than any one predicted just a few months ago (including IRN). While there have been numerous reports in the press, we thought it would be helpful to give the sound bite version.
• The New GM has successfully cut its debt by over $40 billion and left behind all of its non-performing assets. The new company starts with a debt load of $11 billion plus $9 billion in preferred stock
• The “old GM” will now be known as Motors Liquidation Inc. It has 16 plants that are shut down or in the process of being mothballed as well as a slew of other miscellaneous assets. The estimation is it will take at least 18-24 months to liquidate all of these old assets.
• Ownership of the new GM will be made up of:
o United States Government – 60.8%
o UAW Trust -17.5%
o Canadian/Ontario Government -11.7%
o Previous GM shareholders -10%
• As reported in a previous posting, the executive ranks at GM will be shrunk by almost 35% and the overall company is being completely re-structured. GM’s Automotive Strategy Board, for example, which historically has been comprised of regional presidents and functional leaders has been replaced by a much smaller executive committee which will be the primary executive decision-making group. The position of North American president (held by Troy Clarke) has been eliminated and Fritz Henderson has alluded to numerous personnel changes to be announced over the coming weeks.
• Bob Lutz has been talked out of retirement and will be the Vice Chairman of Creative Design, Brands, Marketing, and Communication. We think this means he will be primarily responsible for coordinating GM’s “go to market” strategy. Sales will now report directly to Fritz Henderson.
What does this mean in the short term? Lots of organizational uncertainty as departments are consolidated and people and positions change. While this is probably a really good thing for the future of GM, over the next 2-3 months it will probably require a significant amount of time and attention by suppliers to determine how it affects their short and near term work with GM. Stay tuned.
Posted By
KIM KORTH
on
7/8/2009
Steve Rattner, head of Obama’s auto task force gave a press conference on Monday and there were a number of comments we found interesting. First is the target of taking GM public sometime in 2010, preferably in the first half according to Mr. Rattner. That seems like an extremely aggressive target, particularly given the current state of the IPO market and the likely “wait and see” attitude many investors may have regarding GM’s likelihood of long term survival. The obvious conflict between maximizing current shareholder returns (i.e. you and me, the taxpayer) and the pressure to get the government out of running GM as quickly as possible is likely to be a difficult call. For lots of reasons, we are assuming that a public offering probably won’t happen until at least late in 2010.
More interesting were Mr. Rattner’s comments regarding the organization and leadership structure of the new GM. While nothing has been announced yet, he referenced a 35% reduction in the top leadership group at GM, from approximately 1300 today to just under 850 in the new organization. This dramatic reduction will obviously affect the overall organization design as well as the headcount. While we are supportive of streamlining the new organization, a reduction of this scale may delay some key decisions (e.g. programs) as departments are merged/eliminated and decision-makers change. This is an issue suppliers should at least factor into management of their GM relationship over the next six months.
Last but not least were his comments regarding Fritz Henderson. When asked about his likelihood of remaining at the head of the new GM, Mr. Rattner stated, “Henderson is the CEO, he serves in exactly the same capacity as every CEO in America serves, which is to say at the pleasure of the Board.” Not exactly a ringing endorsement. Given that they are also changing over the Board of Directors, we would anticipate a search for a new leader once the new Board is in place.
Posted By
MELISSA ANDERSON
on
6/25/2009
US Bankruptcy Judge Robert Gerber appears to share his colleague Arthur Gonzalez’ philosophy of making quick work of automaker Chapter 11 proceedings, with his approval today of access for GM to the proposed $33.3 billion in financing from the US and Canadian governments. Alas, poor Delphi – it can only look on in awe.
We hear a lot about “too big to fail,” but Delphi has been caught in the middle of the tennis court – too big to fail, too big to completely bail. Lingering in bankruptcy since October 2005, almost emerging before getting caught in the economic downturn, Delphi is on the cusp of resolution once again thanks in part to the hand of the US Treasury’s auto task force. Current lenders say that there hasn’t been a fair opportunity to see if they can get a better offer. Will the presiding Judge Robert Drain agree or will the Delphi deal keep its momentum going? The odds for the big mo' are looking pretty good. The next hearing is set for July 23. Stay tuned.
Posted By
KIM KORTH
on
6/16/2009
A few weeks ago, we warned of the likelihood of more distress in the supply base in the next 30-90 days as a result of the need for working capital as suppliers start to see a modest improvement in their releases from their customers. In an attempt to address this issue, the Original Equipment Suppliers Association (OESA) applied to the Auto Task Force to get a commitment for another $8-10 billion in supplier support/funding. Unfortunately, they had to announce today that the Task Force was not receptive to the proposal and suppliers will have to seek other means to help them out of their current cash crisis.
While we were supportive of OESA’s proposal, we are not surprised that the Task Force said no. In their minds, they have given more than may have been politically prudent and committing additional money to another automotive rescue package was just not going to happen.
It is possible that some other private sector solution may be found, but it is more likely that we will see an increase in supplier bankruptcies (or should we say liquidations) over the summer just at the point that the industry begins to recover. Coupled with the increase in production is the fact that many suppliers’ commercial banking relationships are timed to the automotive production year, so a flood of annual loan renewal requests is likely to take place over the next three months. Best case is that suppliers will probably pay more (sometimes obscenely more) to retain their current access to credit. Worst case is that some of them will find it very difficult to get their lines renewed at all.
Posted By
MELISSA ANDERSON
on
6/8/2009
The first poll question on our redesigned home page asked how quickly people expected Chrysler to emerge from bankruptcy. At the time of its Chapter 11 filing on April 30th, the desire for a quick exit was clear, but the feasibility was uncertain. Of our poll respondents, 16% were confident that the thirty-day goal would be met, while 23% were at the other end of the spectrum – more than 120 days. The highest number of respondents, 36%, voted for the cautiously optimistic 60 days, while 19% said 90 days and 7% said 120 days. “A Chrysler Bankruptcy Won’t Be Quick,” read an op-ed column of the Wall Street Journal on May 1st, with some pretty persuasive rationale. Today is Day 39 (pretty darn close to Day 30) and The End is Near (we think).
The US bankruptcy judge approved the plan to sell most of Chrysler’s assets to Fiat on Sunday, May 31st, with a four-day waiting period before the sale could take effect. The last stumbling block is of the nature cited in the op-ed piece – a group of Indiana pension and construction funds appealed to the 2nd Circuit Court of Appeals (which approved the deal) and now to the US Supreme Court. Justice Ginsburg granted a stay today, Monday, June 8th, pending further order. The funds in question represent only 1% of the $6.9 billion in secured loans, but they are arguing a fundamental point, that the case runs contrary to long-standing bankruptcy law and that secured creditors should be higher in the payment pecking order than unsecured creditors (unions). Everyone so far has been willing to bend on that basic principle in light of the alternative.
In spite of the stay granted today, we believe the final answer will be closer to 30 than 60. Does haste make waste or does haste make value? Whether the final legal decision on the case is made on Day 39, 49, 59, or whenever, Chrysler has a huge challenge ahead of it to make the relationship with Fiat bear fruit. Let’s get on with it.
6-9-09 UPDATE - THE US SUPREME COURT ISSUED AN ORDER DECLINING TO HEAR THE CHALLENGE TO THE CHRYSLER BANKRUPTCY SETTLEMENT.
6-11-09 UPDATE - 42 DAYS, FINAL ANSWER.
Posted By
KIM KORTH
on
6/1/2009
Early this morning, General Motors declared bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. This follows months of trying to avoid taking this step but it became clear that this was the only way that GM could effectively improve their debt structure to become a healthy and sustainable company in the future. While there will be a million stories on this today, we wanted to give a few pertinent highlights:
• Over the weekend, GM gained agreement with the UAW on a structure that is supported by the Auto Task Force. One of the keys to the agreement is the UAW’s commitment not to strike GM until 2015. Our favorite line from the announcement on the agreement was the reference to the retirees giving up some medical benefits such as dental and vision programs and “coverage for medications to help ulcers and erectile dysfunction.” Apparently that particular medication was one of the biggest line item expenses.
• Also over the weekend, the majority of bondholders voted to approve the latest offer from GM for a debt to equity swap. This is following a similar pattern to Chrysler where the minority bondholders will be under much greater pressure to settle now the majority has agreed to the new offer from the Obama task force. Keep in mind, however, that GM has a much more complicated structure than Chrysler, and it is likely to take a lot longer to work through all the details.
• According to reports, the “New GM” can make money at an annual North American industry sales level of 10 million units. Since everyone predicts the market will return to at least 12-13 million units next year, GM’s fortunes could improve rapidly under this new cost structure.
Posted By
KIM KORTH
on
5/21/2009
Following the Chrysler Dress Rehearsal - The UAW announced that it has reached an agreement with GM and the Treasury Department regarding additional contract concessions and, equally importantly, a way to fund the VEBA (the UAW’s retiree health care trust). While the specific details will be released once union members get a chance to vote on the contract (probably this weekend), this is a big step forward for GM and it puts additional pressure on the bondholders as the June 1st government viability deadline grows closer. While it is still possible that GM can avoid a bankruptcy filing, it is more likely that they are forging agreements with as many constituencies as possible to accelerate their restructuring once they enter bankruptcy.
This is starting to look a lot more like the Delphi bankruptcy of a few years ago where the process was aggressively managed both before and during bankruptcy in order to cause the least disruption to suppliers and customers. What is not clear is whether they will also follow the Delphi model and have an equally difficult time emerging from bankruptcy.
Posted By
KIM KORTH
on
5/11/2009
Chrysler’s probability of successfully leaving bankruptcy in 60 days took a big leap forward Friday with the collapse of the dissident shareholder group of bondholders who had initially rejected the Obama administration’s debt for equity swap, thus forcing the company into bankruptcy. Going under the Orwellian title of "Chrysler’s Non TARP Lenders" (for those of you who are Harry Potter fans, it reminded me of "He-Who-Shall-Not-Be-Named"), they tried in vain to keep their identities a secret. The group shrank dramatically when their identities started to leak out and completely collapsed with the withdrawal of several key members over the last few days. When Oppenheimer Funds released an announcement on Friday that "the senior creditors can no longer reasonably expect to increase the recovery rate on the debt they hold by opposing the task force’s restructuring plan", the rest of the dissident group withdrew their opposition to the restructuring plan they had refused to support just a week earlier.
Since Chrysler is definitely a dress rehearsal for General Motors bankruptcy process, this is a clear warning to the GM bondholders and it will probably embolden the Obama administration to stick to their current offer. There is significant anger in the country toward financial institutions, regardless of the legality of their claims in the Chrysler situation. As Stuart Rothenberg, a Washington based policy analyst put it, "I don’t think there is a pro-hedge fund constituency at the moment, except maybe their families."
Posted By
KIM KORTH
on
5/4/2009
Etiam nec mi sapien. Donec ac risus felis, at porta lectus. Morbi augue nisl, laoreet eget pretium sed, vehicula non sem. Ut elit eros, suscipit sit amet fringilla vitae, lobortis ac massa. Sed nec lectus ligula, sit amet interdum elit. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nullam euismod fringilla est.
Et malesuada massa posuere sit amet. Etiam gravida laoreet sapien at bibendum. Sed a eros orci. Nam dapibus lorem sed libero scelerisque laoreet. Sed a turpis quis dolor vehicula pretium. Nulla metus nisi, tincidunt eget accumsan ac, cursus nec elit. Integer sollicitudin elit id massa dignissim porta.
In ornare lorem non purus viverra id interdum tortor lacinia. Vivamus iaculis sem in erat dictum pellentesque. Sed rutrum, turpis eget blandit feugiat, leo eros tristique tellus, in consequat nibh eros sit amet ipsum. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Integer aliquam est nec lorem tincidunt eu condimentum justo commodo. Nulla facilisi. Vivamus rhoncus, eros non dictum vestibulum, arcu sapien aliquet ero
|
|