It Finally Happened....GM Bonds Rated Junk

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Can there be a day worse than today for GM car lovers? GM (and Ford) bonds were rated junk today. What a sad day!

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On Thu, 5 May 2005 19:10:51 -0400, "James C. Reeves"

I read somewhere that Kerkorian wanting to buy more GM shares may have been the trigger for the GM junk rating (feared he might try and separate the mortgage & loan part of the business from the automaking side)
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wrote:

I had heard that to. But with only 5% ownership? Must be more to this.
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Are you pro GM or anti GM or just like to bitch about GM? Their bonds have been rated this low many times before and they will recover as will Ford. Kerkorian doesn'r matter much, even at 5% ownership. noyk in Florida
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He has ~4% now, and was trying to buy 5% more. Having that many stocks gives him plenty of power. 5% is ~28,000,000 shares. That's alot of voting power. And it also would make him the 3rd largest shareholder of GM. Maybe it's just what GM needs.
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He would still need to build plenty of alliances to push through what ever his agenda is.
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Undoubtedly he would. And I'm sure he could too if he really needed to. I hope that it puts some pressure on Wagoner to put out some better cars (I know they're equal in terms of reliability, but they leave something to be desired), get into talks with the UAW, use newer technology, take out ads showing how much they've gained over the years, etcetera etcetera.
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They also need some customer (and competitor's customer) focus groups...find out what customers (and potential customers) want and what they don't want (or like) about GM the current vehicles. Then build the cars accordingly.
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Who said I'm anti-GM? The US needs GM. It's like your kid that acts stupid...you give them a good smack. If I didn't think GM was worth the time, I wouldn't even bother to try to change their piss-poor behavior towards their customers. They've received some letters from me as well. The rest of you, get writing those letters of you really care!
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James, James, James - for someone who purports not to be "anti-GM", you seem to revel in their misfortune. This is not the first (and I'm sure not that last!) time that you have quoted bad-news stories about GM. In fact, in the years you have posted withing this NG, I do not recall you ever posting a single good-news story about GM, although there have been many. Perhaps you are not "anti-GM", but you certainly are much more focused on their failures than their successes. Find a balance in your outlook "if you really care!".
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That's because there IS bad news. I'm not making this stuff up. I believe that I included with the post referencing this event that it was a sad day for us GM lovers. It will be even more difficult now for GM to service it's debt with the junk rating on it's bonds. :-(

I most certaintly have. Buick winning the overal quality award a year or so back is one that comes to mind. I either started that post or added to it. What was interesting is that winning the award didn't make any difference in Buick sales (that I noticed, anyway). That tells me that there is something other than product quality concerns keeping people away.
On the flip side, there have been few good items to report lately...unless you count GM's so-called recent initiative to add a GM badge and chrome tail pipes to boost sales (which doesn't dererve "positive" comment, frankly. It's damn idiotic and embarrasing!) As GM customers, we should do our part and take the time to tell them so too!! Write their management and tell them to get some good focus groups going...get some feedback from people not buying their cars. Do SOMETHING becides chrome tailpipes, for pete sake!

And perhaps it's GM management that should be the ones focused on the failures. To do otherwise is a form of denial (management, stockholder or customer alike). Seems, moast in each category is in denial.

I'll try to look for good news...hard to find lately. ;-) I would love to have a good reason to feel good about buying the GM stock I once owned back...AND buy a GM car again. Apparently I have plenty of company at the moment. I'm just one of the few willing to invest the time to speak up about it. Once I see movement, I'll invest some other things. But, not until then.
BTW: how is you Vette running?
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What can be so bad? Take a look at GMs first quarter dividend. More buyers by more GM cars than any other, more buyers by more GM trucks than any other. You make it look like GM is going out of business because they lost money in the first quarter. With all the vehicle manufacturer from all over the world focusing on the US market, where they can make much higher profits than anywhere else in the world, it is no wonder GM has a smaller piece of the ever growing market in the US. The US market is averaging 17,000,000 vehicles. Back when GM owned around 50% of the market the sales were around 7,000,0000. At its current share, GM is selling more vehicle than when ti ahd that 50% share
mike hunt
"James C. Reeves" wrote:

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Apples and oranges, really.
You'd might want to take a look at the balance sheet and the P&L statements over the last several quarters....you know, the actual finances of the company. The numbers there don't work long term, even with the most optimistic forward-looking financial forecasts. It will take some drastic changes to get the finances back in balance.
While everything you say may be true, it matters not if all the income earned by all those sales you speak of is insufficient to service the interest on their debt (and that is before paying "junk' interest on the new bonds they will need to issue) and pay current expenses.
Hopefully they will find a way.
By the way...GM can't afford to pay the dividend they are paying. What they paid out in dividends this quarter was borrowed money. I think the dividend is basically paying a equilivant of 7% (or more) to stock price. Even profitable companies can't generally sustain a dividend level that high for very long. Next quarter if GM has to float a junk bond at 8% to cover the dividend, they may decide otherwise. It will be interesting to see if the dividend remains at the level it is at for very much longer.

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That's a lot of IF's, with purely pessimistic slant. Who says that is the way things will actually transpire? ;)
mike hunt
"James C. Reeves" wrote:

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You're right...there are a lot of IF's. IF none of the IF's happen, GM will be out of money in a few months, based on the current financial statements and future income projections. The IF's range from either selling assets to reducing costs to filing bankruptcy (which some financial analysts believe GM will have no choice but to do at some point). But they will likely have to do some or all of the If to pull it out. I guess we'll see over time. Maybe their hydrogen technology will pull them out soon...GM is leading everyone in that area!

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James C. Reeves wrote:

GM will

statements
assets
will
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soon...GM is

You must have a crystal ball. How in the world can you pretend to know what goes on inside of GM's boardroom or it's financial department or it's manufacturing divisions( unless you happen to sweep the floor there). They may very well sell some assets as they have done in the past(EDS, Hughs-Directv, Raytheon, Bank of Detroit, Detroit Diesel, Electromotive to name a few) but thats what huge corporations do in lean times. In good times they buy.
Look into your crystal ball and tell me whats next and give me a time line for these events.
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Simple...GM is a public traded company. As such, their financial information is public information and is required to be by SEC rule. You can go to EDGAR, your broker or many other sources (even Yahoo) for the information. Look it up.
Regarding selling assets. I don't know if they will sell assets or not...only that it's very likely that will need to at the very least. I believe that is what I stated before based on the financials. Specifically what will they sell...beats me! ;-)
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The Crystal Ball response needed some more analysis time. How about this:
GM spins off the GMAC piece of the business as a separate company. Naturally the GM stock holders will automatically get stock in that new company, which would probably be a pretty good deal, actually! That leaves the car business completely insolvent since it is the GMAC piece of the business that has been keeping the whole GM afloat for quite a while now. As a result, the car piece of the business (now separate and unaffiliated with the GMAC piece) goes into bankruptcy protection (no other option). What happens then is up to the bankruptcy judge, but there won't be much to work with without the GMAC piece any longer. The current GM bond holders will likely be left with useless paper, union contracts will likely be in dire jeopardy. The government pension insurance may need to pick up some or all of the GM pension obligations. Stock in the car piece of the business will be worthless, but the stock in the new spinoff company will probably offset most or all of that. The car piece of the business re-emerges from bankruptcy after 2-3 years a mere shell of what it once was, but alive and renewed. Hmmm...it may not be too bad of a deal to be a stockholder if it goes down this way.
How was that for a crystal ball analysis? Of course, anything could really happen, naturally. Just thought of having a little fun with scenarios! Any other crystal balls out there saying something different?
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James C. Reeves wrote:

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Boy, I hope your crystal ball is faulty. I, along with 1000's of other GM retirees will have it tough if your scenario would come even half true. Good thing for us GM won't part with GMAC any more than they would part with Chevrolet.
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Between you and I, I hope it's faulty too. But that is what came up as making the most sense from my perspective when looking at the options (with limited data, admittedly). The bond holders would get the shaft with this deal as well, don't forget. Retirees will likely have the government cover their pensions, so may not be hurt too much. But, financial hardship makes for strange happenings. It's the old preverbal cut off the limb to save the life scenario. And remember, the board of directors is working only for the stockholder. If spinning off GMAC makes sense from a stockholder value perspective, that could be all that really counts. Time will tell.
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