GM's story doesn't make any sense ($1.3 billion profit & four CEOs)

The official GM story doesn’t make any sense. GM just reported a quarterly $1.3 billion profit. So that $100 billion auto bailout was just wonderful–and go out and buy GM’s IPO! The company’s going great! Just trust our fourth CEO in two years!

If you knew nothing else about a baseball team except that it’s changed managers four times in two seasons, you’d know that team probably has been losing a lot. Here’s the story:

GM CEO Ed Whitacre Steps Down After $1.3 Billion Profit
by Jeff Gilbert, WWJ AutoBeat Reporter
General Motors posting it’s best profit in six years, and getting its fourth CEO in two years.

“Effective September 1st, I will step down as CEO of GM,” the announcement from Chairman and CEO Ed Whitacre, at the end of a conference call to discuss the company’s $1.3 billion dollar second quarter earnings.

Whitacre will be replaced by Dan Akerson, who’s currently a General Motors board member. Akerson, who’s 61, is currently a managing director with the Carlyle Group, a public equity firm. He had served as chairman and CEO of Nextel.

Akerson has been on the General Motors board of directors since the company emerged from bankruptcy last summer.
Analysts say that Akerson and Whitacre share one common trait, no auto industry experience.

“That may not matter for right now,” says WWJ’s John McElroy. ”GM’s gotta do its IPO. It’s gotta get the government to sell all it’s stock. It’s got to incorporate this credit firm they just bought. Those are all the kinds of things that somebody with a good background in finance and banking ought to be able to do. “

They’re replacing one guy with no car experience with another guy with no car experience? Using the baseball analogy again, would you be confident in a baseball team that had four coaches in two seasons–and two of them were football coaches with no baseball experience? You’d question the team’s owners, which in this case, unfortunately, are me and you. And we don’t call the shots, only Barack Obama does.

Whitacre was called out of retirement to become GM’s chairman last summer. He took over as CEO, when Fritz Henderson was ousted by the board of directors in November.

“It was my public duty to help return this company to greatness, and I didn’t want to stay a day beyond that, really,” said Whitacre.

Really, Mr. Whitacre? That’s your reason for quitting? “GM’s turned it around! I quit!” Does anyone believe that?

Do you believe official numbers or do you believe your lying eyes? They say unemployment’s under 10%, but they take long term unemployed out of the unemployment numbers. I’m trying to sell a house here in Texas, a state with a supposedly booming economy. We can’t sell it. We bought a brand new HVAC unit. We replaced the fence. We have new floors. We have Anderson windows. We’ve lowered the sales price again and again and again. No one’s buying our house. We drive through the neighborhood and can recall “FOR SALE” signs that have been up for over a year.

No one has jobs, no one’s making much money, absolutely no one’s buying houses, “Cash for Clunkers” is over, and people are buying GM cars in droves? What are people doing with their brand new GM cars? Driving it to the homes that they don’t have from the jobs that they don’t have?

“We’ve obviously taken costs out of the system,” said GM Chief Financial Officer Chris Liddell. “We’ve restructured our balance sheet. We’re doing a number of different thing. There’s no one single thing that’s allowed us to post these results.”

Yes, GM has shed a lot of costs during the bankruptcy. GM’s shareholders were stiffed and Uncle Sugar came along with a big pot of money.

On April 22, 2010, I posted here “GM repaid all of its TARP, you say? (Auto Bailouts=FAIL).” The now-departing Ed Whitacre made a television commercial to fool viewers into thinking that GM had repaid all of its government assistance, when it had merely taken more government assistance to repay some other government assistance. Iowa Senator Charles Grassley called it a “TARP moeny shuffle.” It was a sham.

On July 30, 2010, I posted here “Friday NY Times rare gem: ‘G.M.’s Electric Lemon’ (Chevy Volt).” GM had just announced a product that no one wants to buy, even with the government senselessly kicking in a $7,500 a car rebate.

This is a new story from Bloomberg.com:

GM’s Akerson Will Struggle Convincing IPO Investors Europe Unit Is Fixable
By Cornelius Rahn and Keith Naughton – Aug 15, 2010 5:01 PM CT
General Motors Co. incoming Chief Executive Officer Dan Akerson’s biggest challenge in selling investors on the company’s initial public offering may be convincing them he can revive the unprofitable European unit.

In Europe, the Detroit-based automaker’s only unprofitable region, losses totaled $637 million before interest and taxes in the first half. Its updated Astra compact failed to reverse a drop in market share and unions still are stinging over plans to close Adam Opel GmbH’s factory in Antwerp, Belgium.

Akerson’s appointment last week erased one of the biggest questions over the IPO, giving investors a long-term chief instead of 68-year-old Ed Whitacre. Possible buyers now want to know whether Akerson has a plan to stem the losses in Europe, investors said. GM may seek to raise as much as $16 billion in the offering, a person familiar with the situation has said.

The article says that, industrywide, more vehicles were sold in Europe last year than in China or the United States. GM must not be doing well in China or elsewhere internationally. From the NY Times’s Dealbook Blog: “Nearly all of G.M.’s business reported improving results, though the carmaker’s international non-European operations reported a steep 42 percent slide in net income.”

Back to the Bloomberg story for some IPO talk:

GM’s IPO may be the second-largest in U.S. history, behind Visa Inc.’s $19.7 billion initial offering in March 2008, and would come at a time when share sales haven’t rewarded buyers or sellers.

Eight of the last nine American companies to complete their initial offerings took discounts to sell their shares, while half of the IPOs this quarter have left buyers with losses, data compiled by Bloomberg show.

“This is an investment based on hope, not on economic reality,” said Matthew McCormick, money manager at Cincinnati- based Bahl & Gaynor Inc., which has $2.7 billion in assets that do not include auto holdings. “This IPO is designed to meet the government’s needs, not investors’ needs. No one is clamoring for a GM IPO right now. This is not Facebook.”

Money line: “This IPO is designed to meet the government’s needs, not investors’ needs.”

Who will buy the IPO? Hey, Ben! Ben Bernanke! Why don’t you print some money and buy GM! You can’t say no! Or why don’t you give your banking friends and hedge fund friends more free 0% interest money to buy GM? The records of who buys this government-issued crud will show just how messed up our financial system is.

Michael Moore (of Roger & Me fame) seems to have noticed that Obama’s bailouts have exactly helped American employment:

August 13th, 2010 2:10 PM
Profits Up at GM! And You’re Still Unemployed
By Michael Moore
So General Motors is back to making billions in profit. And if the past is any guide, we know what that means: time for some layoffs!
During the first half of 2010, GM made $2.2 billion in profit, yet according to The Wall Street Journal, they’ve only added 2,000 jobs in all of North America, taking their workforce from 113,000 to 115,000.

And what’s true for GM is true for the country. The government stepped in with trillions of dollars in cash and guarantees to keep Corporate America from collapsing due to its own stupidity, short-sightedness and greed. And it worked—for Corporate America.

GM is doing so well with your money these days, it’s giving that money directly to Democrats. From the Washington Post:

The Influence Industry
GM donates $41,000 to lawmakers’ pet projects

By T.W. Farnam
Thursday, August 5, 2010
When General Motors went through bankruptcy last year, it suspended its political donations. Now that it’s owned by the U.S. government, it’s donating to lawmakers’ pet projects again.

The carmaker gave $41,000 to groups associated with lawmakers, the vast majority of it — $36,000 — to the Congressional Black Caucus Foundation, the company reported on a disclosure form last week. The CBC Foundation is a charity with 11 members of the Congressional Black Caucus on its board.

Here are a few comments from the Huffington Post:

Auto Industry Goes From Gloom To Economic Bright Spot
First Posted: 08-14-10 11:25 AM | Updated: 08-14-10 11:25 AM
daultman463 3 hours ago (7:17 PM) 46 Fans
When GM pays back the other 43 billion dollars and doesn`t have the govt. giving 4 billion dollars to gmac to run 0% on everything then i will be impressed with gm.

A HuffPo comment citing my RedState article about GM’s TARP:

hypnotoad72 11 hours ago (11:02 AM) 714 Fans
Granted, those are from April and May. Do you have any links to articles between May and now that can prove they paid off their loans, beyond a shadow of doubt? (Granted, their continuing to offshore, replacing middle class-paying jobs with slave wages, perhaps they were able to inch closer to paying back…)

Here’s a HuffPo comment questioning the NY Times:

phoenixbc 06:48 PM on 8/14/2010 103 Fans
This NYT article is a nice bit of PR for the Autos, and I’m sure that they paid a healthy sum for it, but it’s a bunch of crap.

First, Detroit, and Michigan in general, are not an auto manufacturing economy anymore. Headquarters for the Big Three are here, but that is ceremonial. The jobs are gone, and, as GM repeatedly reminded us, they are not coming back. The boards of the Big Three saw to that, as they lobbied Congress to change import-export laws and allow them to have their foreign subsidiaries sell products to their American parent companies free of sales tax and other taxes.

Second, nothing mentioned in the article is remotely close to being a “bright spot” for Michigan or for the country. There are no significant jobs, no significant cost-of-living wages, and no new technologies for our state.

Oh, sure, they talk about this great battery industry that has begun here. Unfortunately, it is a packaging facility, where the batteries are bound and wired together. The parts are manufactured in China, and manufacturing is where the real work and wages are found. Perhaps one day they might possibly be made here, but for now and the foreseeable future, Michigan is the sales clerk for the Chinese/Big Three conglomerate.

Someone commented that the Chevy Volt is a failure, and another comment said that we shouldn’t be rooting for failure. Phoenixbc made another good comment, adding that the press is far from objective:

phoenixbc 07:01 PM on 8/14/2010 103 Fans
No one is rooting for it to fail. The comment simply is illuminating the fact that the fluff from the Big Three is just fluff. Expensive cars don’t sell in the quantities necessary to move the economy. It makes no sense to kid ourselves reading an article which is low on facts and high on advertising.

Much of the so-called “reporting” on the Big Three is generated from press reports. Here in Michigan, newspapers use the press reports as gospel, and I have that on authority from some of the writers for the papers. The editors bow to the advertisers (i.e., the Big Three, unions, health care systems, insurance companies) and report sanitized versions of the real stories. I can’t imagine why we should think that their sphere of influence stops at the Michigan border.

About Toyota:

Corrupt Government08 03:21 PM on 8/14/2010 0 Fans
The federal government has a great investment strategy. Buy a company. Defame its competitors by fabricating data, and then sell out after the stock rises.

In case you have been living in a barn, those stories of Toyota vehicles “malfunctioning” were all user errors.

Over at the The Daily Beast is an article so stupid I don’t have time to deconstruct, but I’ll let one comment do that:

Obama Saved Detroit
by Peter Beinart
Bailouts, it seem, work.
Turning GM into “FrankenCo” by artificially propping up the carcass of a dead animal does not a “saving” make. All of the problems that GM faced before the Obama take over are still there: The bloated retiree commitments, the unrealistic union contracts and, of course, the poorly designed lemons (hello, Volt).

GM should have filed for bankruptcy protection and gone into reorganization. Shedding some debt, cutting the fat and dead weight, and curbing the UAW would have been the natural course and GM would have emerged ready to fight for the right to exist. As it stands now, it will never truly succeed until the government gets out of the way and the market decides if they should live or die.

This “turnaround” is artificial and no matter how hard President Obama waves his magic wand and no matter how many times shills like Peter want to believe it is so….it is not, sorry.
10:32 pm, Aug 15, 2010

From a comment on the Drudge Retort:

“its profits are now solid enough that the demanding CEO will step aside”

I have never heard of a company about to go public, and announce the CEO was quiting, in SiliconValley that would be enough for the deal to fall through…….

Isn’t this the same CEO that said “Obama Motors”?

“Aren’t you glad 1,000,000 jobs were saved in the American auto industry?” – AU

Interesting choice of words, you think because of one quarter’s results the company is “saved”? I am happy they had a good quarter, but GM is choosing to build a plants elsewhere, do the math.

“Because the money comes from taxpayers, out of the private economy, it destroys other jobs.” – Ray

It sometimes amazes me that people just don’t understand this, it is like taking productive money from productive people and putting it into buggy whip manufacturing.
#13 | Posted by AndreaMackris at 2010-08-12 10:42 PM

Mcauleysworld’s Weblog nicely does a rare article debunking:

GM Prepares IPO While UAW Jobs Continue Exodus To Red China
Posted on August 12, 2010 by mcauleysworld
GM posts $1.33 billion profit, a sign of strength?
General Motors Co. said Thursday it made $1.33 billion in the second quarter, a sign it’s getting healthier as it prepares to sell stock to the public.

It was the second straight quarterly profit for GM, which made $865 million in the first quarter.

CEO Ed Whitacre said last week that the company is eager to sell shares in an initial public offering so it can end its dependence on the government and pay off $43.3 billion in bailout funds that were converted into a majority stake in the company. [The GM finance arm, previously known as GMAC, now rebranded as ALLY Bank, owes $17 billion in bailout funds for a total of $60 billion owed to U.S. taxpayers – the Federal Governments “official” TARP website reports a total of $57.6 billion owed, “with the U.S. government investing a total of US$57.6 billion under the Troubled Asset Relief Program”]

Whitacre said the company plans to file paperwork in the near future for the IPO. But it’s unclear if the recent record of profits – $2.2 billion for the first half of 2010 – is enough to convince investors. GM lost $88 billion in the five years before it filed for bankruptcy protection last June. [GM lost far more than $88 billion – GM wrote off 100’s of billions in debt in Bankruptcy – at present GM has $40 billion in unfunded pension and medical liabilities]</blockquote>
Read the whole thing. Here some more, and it’s devastating:

McAuleys World Commments:
I’ve never read more blatant BS in my life… GM’s entire “alleged” profit came from its increased sales in Communist China… GM sold 1.8 million cars in 2009 in Red China compared to 1.9 million cars in the US. http://www.huffingtonpost.com/2010/01/04/gm-china-sales-up-67-perc_n_410252.html GM’s sales increase in Red China was nearly an 70% increase. http://www.businessweek.com/news/2010-07-02/gm-s-first-half-china-sales-surge-past-the-u-s-.html

GM hasn’t brought its overdue payments to the UAW Health and Welfare Fund current since bankruptcy … (The UAW Welfare Fund owns 12% of GM)… GM has not kept current with it’s obligations to fund its retiree pensions either – GM’s underfunded pension and medical payments have grown from $20 billion to $40 billion since bankruptcy …. a $20 billion dollar increase in just over 1 year … despite the rapid growth in Red China.

This was not supposed to happen. If GM went bankrupt, the creditors would have at least gotten their proper day in court–without being strong-armed by their government. GM might have re-emerged stronger, or it might have been sold to other companies. Markets work like they do.

Government has no business bailing out anybody. Maybe Peter Beinart can write that “bailouts work,” but really Peter, if bailouts always work, don’t you think the private sector would do them? Did you see the rush for anyone else to buy AIG and pay 100% of its claims to Goldman Sachs?

What the heck is GM doing paying off the Congressional Black Caucus?

Why are there four CEOs for GM in two years? Why does no news story report who pulled the trigger, and how much Ed Whitacre is being paid off for being a poor front man?

To be continued, probably.

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