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SKS Microfinance IPO

August 16, 2010 By Leave a Comment

There was a new IPO unveiled today and it supports a good cause as well. SKS Microfinance (SKSM:IN), an Indian company that provides microloans to the poor saw its first market action today. Microfinance is a severely overlooked area by most financial institutions. For the most part, commercial banks are not interested in getting involved in the microloan industry. The profit margin is not large enough for one and banks do not loan money to the impoverished. So, SKS has little competition from large financial institutions in this market.

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New GM Commercial

June 5, 2009 By Leave a Comment

I just saw the new GM commercial on CNBC. It will be interesting to see if it works or not. It all depends on customers desire to give GM a second chance.

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GM Dropping Pontiac Brand

April 28, 2009 By Leave a Comment

General Motors (GM) will soon stop producing Pontiac automobiles. The troubled US automaker will close down its Pontiac brand by next year. GM is also planning to discontinue its Saturn brand by the end of this year as well. While not an easy decision GM is making the tough decisions that are necessary to become a competitive automaker. General Motors will be down to 4 main brand in 2010 consisting of GMC, Chevy, Buick and Cadillac. This still may be one brand too many as GMC may have to discontinue Buick if the company’s sales are below expectations in future years. Even still it looks like the company is on the right track to becoming relevant in the US auto market again.

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GM CEO Wagoner to step down

March 29, 2009 By Leave a Comment

By TOM KRISHER and KEN THOMAS, Associated Press Writers

General Motors Corp. Chairman and CEO Rick Wagoner will step down immediately at the request of the White House, administration officials said Sunday. The news comes as President Barack Obama prepares to unveil additional restructuring efforts designed to save the domestic auto industry.

The officials asked not to be identified because details of the restructuring plan have not yet been made public. On Monday, Obama is to announce measures to restructure GM and Chrysler LLC in exchange for additional government loans. The companies have been living on $17.4 billion in government aid and have requested $21.6 billion more.

Two people familiar with the plan said Sunday that the Obama administration would give GM enough government aid to restructure over the next 60 days, while Chrysler will get up to $6 billion and 30 days to complete an alliance with Italian automaker Fiat SpA. The officials spoke on condition of anonymity because they were not authorized to make details public.

Wagoner’s departure indicates that more management changes may be part of the deal, but it is still unclear who will be in charge of GM. The automaker recently promoted Fritz Henderson, its former chief financial officer, to become president and chief operating officer. Many in the company thought he would eventually succeed Wagoner.

Detroit-based GM issued a statement Sunday saying that the company expects the administration to make an announcement about the automaker’s restructuring soon but that “it would not be appropriate for us to speculate on the content of any announcement.”

A person familiar with Chrysler’s management said the company has been given no indication that the government will require any changes at the Auburn Hills, Mich., company, which has been led by former Home Depot CEO Robert Nardelli since August 2007. The person also spoke on condition of anonymity because Obama’s plan has not been made public.

The full story can be found here

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Interesting Week

February 22, 2009 By Leave a Comment

This should be an interesting week. The Dow Jones is at 7300 which is its lowest level since the mid 90′s. Financial stocks as a group are beaten down and the question is, Can they continue to go lower?  The government is reportedly thinking of taking a larger stake in Citigroup. The government is expected to announce a plan that will stabilize the banking sector this week.

I will also be keeping an eye on automobile company stocks. General Motor’s market cap is down to 1 billion and the stock is selling for $1.77 a share. Ford may be selling for only $1.58 a share but the company seems to be in better shape than GM. Ford has not yet asked for any government funding and is gaining marker share from GM and Chrysler. Since Ford has not gotten any loans from the government, the company will have greater access to loans than its competitors.

How much lower can these stocks go? Dell is trading for $8 a share and the company announces earnings this week. Dow Chemical is down to $8 a share. At the rate that the stock is dropping the company may be insolvent before it can complete the Rohm & Haas deal. General Electric at $9 is at its lowest levels in 14 years. Can GE drop to $5?

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More Layoffs

February 10, 2009 By Leave a Comment

You know that the economy is getting bad when Wal-Mart is laying off employees. The nation’s largest retailer announced that it will be laying off between 700 and 800 employees at its Bentonville, Arkansas headquarters. The cuts will be at both the Wal-Mart and Sam’s Club headquarters. Most of the jobs are in the apparel, health and real estate departments. Wal-Mart is also scaling back on the number of new store openings this year. Wal-Mart may open 40 fewer stores as compared to last year’s openings.

General Motors announced that the company will be cutting 10,000 additional jobs this year. Most of these positions are white collar jobs. These cuts are probably only the beginning at GM until the company finds a way to become profitable. I have said before that I expect that 1 of the Big 3 will not survive to see 2010. This could be through a merger, acquisition target or through bankruptcy. If GM and Ford are struggling this badly, I just don’t see how Chrysler will survive. The alliance with Fiat is not enough to save them. Chrysler has the weakest cash position and the worst sales numbers of the Big 3.

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Massive Job Losses

January 26, 2009 By 8 Comments

Wow. They just kept coming one after another. A number of Fortune 500 companies announced job layoffs today.

Caterpillar(CAT) announced that they will be cutting 20,000 jobs. Caterpillar, the largest manufacturer of construction equipment, has seen global demand for machine equipment fall off the map.

Home Depot(HD) is eliminating 8,000 more jobs and closing 125 stores. The housing market has not yet bottomed and sales are not improving at the nation’s largest home retailer.

GM(GM) is laying off 2,000 people and cutting vehicle production amid reduced demand for its automobiles. It’s a bad time to be an auto manufacturer.

Sprint Nextel(S) is cutting 14% of their employee work force by laying off 8,000 workers. Sprint continues to lose market share to Verizon and AT&T.

Pfizer(PFE) will be cutting over 19,000 jobs after the completion of its merger with Wyeth.

Starbucks(SBUX) may be cutting as many as 1,000 employees.

Photo by texas_mustang

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Is the government trying to force the auto companies into bankruptcy?

December 17, 2008 By Leave a Comment

It appears that the federal goverment is holding off assistance to the automakers in order to drive them into a prepackaged bankruptcy. Two of the big 3 auto companies need cash immediately or they could go belly up. If the government does not provide funding to GM and Chrysler by January 1st these two companies will probably have to declare bankruptcy. Ford has a strong enough cash position that they should be able to survive into the new year.

In an effort to stave off bankruptcy and slow down their cash burn rates, the big 3 auto manufacturers have announced cost cutting moves today. Chrysler announced that it will close all 30 of its plants for one month beginning December 19th. Ford announced that it is closing 10 plants for three weeks until January 12th. General Motors has suspended construction on a new engine plant. GM will probably be shutting down more plants soon. 

The White House does not want to bail out the automotive companies but the President doesn’t want them to fail during a time of economic crisis and rising unemployment. The President prefers that the companies obtain funding through a prepackaged bankruptcy. The President feels that a prepackaged bankruptcy would allow the companies to renegotiate contracts with employees, suppliers and lenders. The government would like concessions from the United Auto Workers on wages, legacy costs and benefits. The government wants to reduce the equity position of shareholders and debt holdings of bondholders.

The Big 3 do not want to go through a prepackaged bankruptcy because they believe that bankruptcy would lead directly to liquidation. GM, Ford and Chrysler believe it would be nearly impossible to sell cars in bankruptcy. Consumers would not want to make such a large purchase from a bankrupt company. The auto companies think that going through bankruptcy would cost even more than the federal funds that they are requesting. According to Bloomberg, a GM bankruptcy would cost 40 to 50 billion dollars in government financing alone.

There are no easy answers to this problem. The best solution is for a compromise outside of the bankruptcy courts but that’s easier said than done. It is troubling that the financial companies had a much easier time receiving 750 billion dollars in federal funds from the government than the automakers have had in trying to get 20 billion dollars.

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Saving the US Auto Industry

December 5, 2008 By Leave a Comment

Congress is meeting with all three US auto makers to try and help them avoid bankruptcy. This is a necessary step because the economy cannot handle the bankruptcy of all 3 domestic auto companies at this point in time. While there are some issues that affect all three companies such as unfavorable trade agreements and high labor costs that make it difficult to be competitive with foreign competitors. I think Congress is making a mistake though by treating all three as a collective group. These are individual corporations that each face their own unique set of problems. Below is my take on the problems for each company and how we start to fix them.

General Motors

GM just makes too many brands that are not popular. GM needs to drop unprofitable brands such as Pontiac, Buick, Saab and Saturn. Too many GM brands are seen as being an old person’s car. Honda, Toyota and Nissan build sleeker better looking cars. The stronger selling brand names like Cadillac, Chevrolet and GMC should be their core focus. Chevrolet and GMC also need differentation in design. Is there that big a difference between a GMC Yukon and a Chevy Tahoe?  The Hummer brand does have value and should be sold off if possible.

Ford

Ford is in the best position of the 3 auto makers. Ford has already redesigned it plants and started producing better looking more fuel efficient cars. They have reduced their number of brand names by selling Jaguar and Land Rover this year. Ford should retain its interest in Lincoln, Volvo and Mazda while selling off its Mercury brand. Mercury sells less than 200,000 models per year and is similar to other Ford products.

Chrysler

Most of the offerings from Chrysler do very little to inspire excitement. There is not much value in the Chrysler, Jeep or Dodge names. Chrysler needs to merge with another auto company. The government should not extend any financial help to Chrysler. Chrysler is 80% percent owned by Cerebus and 20% by Daimler. Cerebus Capital Management is a private equity firm owned by some of the wealthiest men in the world. They seem to just be seeking financing to keep them afloat long enough to sell Chrysler and redeem their investment. Daimler has already valued its almost 2 billion dollar investment in Chrysler as worthless.

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Chief Excessive Officer

November 20, 2008 By 4 Comments

Why do executives get paid millions of dollars a year to run a company into the ground? Why do these same executives earn hundreds of millions of dollars in bonuses, stock options and golden parachutes after driving these companies into bankruptcy? I was watching CNBC the other day and saw an alarming statistic. The average CEO’s salary is more than 435 times the average worker’s salary. That is unbelievable. I am an advocate of the whole pay for performance philosophy. But not when CEO’s like Richard Fuld of Lehman Brothers, James Cayne of Bear Stearns, Kerry Killinger of Washington Mutual, Martin Sullivan of AIG, Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac were paid hundreds of millions of dollars in salary and bonus packages to drive their companies into Chapter 11 bankruptcy. Why is it that when a company falls into financial trouble the employees are always the ones who have to suffer the losses?

The latest example of poor management can be found in the US auto industry. Richard Wagoner of GM, Robert Nardelli of Chrysler and Alan Mulally of Ford have been paid millions of dollars to fix the three largest domestic auto manufacturers. They have failed miserably. Their companies are on the verge of going out of business. So you would think they would be willing to take a cut in compensation? Of course not. A CEO would rather lay off 30,000 employees then eliminate his own bonus.

The management of GM, Ford and Chrysler have mismanaged the auto companies and are now seeking 25 billion dollars to stay afloat. I think that if Congress does give the auto manufacturers federal assistance that they will keep doing business as usual. This means laying off a significant number of employees in 2009 while management takes no reduction in compensation. Don’t get me wrong. I think the Federal government should help the auto makers but with some stipulations: (1) management needs to be replaced (2) salaries need to be much more realistic (3) management needs to develop a workable business plan. So what happens to the typical corporate CEO after he is let go from a failing company that he has mismanaged? He is given a signing bonus along with a hefty compensation package at another firm and begins the process all over again.

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