General Motors claims profit -- but only if discounts its expenses

Maybe it was naive to have assumed that General Motors, the top U.S. automaker, would have been required to stop playing games and be upfront about its finances as a condition of being saved from the junkyard by billions of dollars from U.S. taxpayers. Well, at least the naivete was short-lived. Today's release of its first detailed financial statement since emerging from bankruptcy protection shows that GM has not forgotten the sleight-of-hand that enabled it to pretend to be solvent for years despite epic mismanagement that caused what was then the world's largest automaker into bankruptcy. Focusing on what it called "positive cash flow of $1 billion since its bankruptcy," GM -- now known as General Motors Co., instead of General Motors Corp. -- said it wasn't counting the more than $4 billion it has to spend to settle with the United Auto Workers union to pay with retiree health benefits, according to the New York Times. If this is an example of what the company called its "fresh start" accounting principles since bankruptcy, it looks like there was nothing learned from its near-collapse as well as nothing to be learned from its official reports. Maybe what GM is doing is standard practice for bailed-out businesses, but it's no more reassuring -- especially since the company is now more than 60 percent owned by the U.S. government. “We don’t need to make that much improvement to get to profitability,” GM Chief Financial Officer Christopher Liddell told analysts and reports in a conference call, the Times said. “It’s getting close to break-even if you get rid of those one-off items that happened in the fourth quarter.” Well, any company would post a profit if it left losses off its balance sheet, right? But would that paint an accurate picture of its financial health? Still, many analysts said GM was considerably healthier than a year ago. “It would be a really impressive achievement if they were able to make a profit,” Rebecca Lindland of IHS Global Insight told the Times. “They’ve been able to do an awful lot, and all of those things should lead to a profitable picture.” GM said it would finish repaying $8.3 billion in loans from the U.S. and Canadian governments by June. The other U.S. automaker that took billions in bailout cash from the government, Chrysler Corp., is expected to release its first financial statement since its bankruptcy later this month, the Times said. Narayanan Jayaraman, a finance professor from Georgia Tech's College of Management, told the Times that he thought GM's prospects were better than Chrysler's. “Between G.M. and Chrysler, if I had to place a bet, I would place it heavily on G.M.,” Jayaraman said. “They seem to be doing the right things. They have some headwinds, so help from the economy would be good, but even in the absence of that they can do well.” He said the government could begin selling the millions of dollars in GM shares no earlier than 2011, after GM has "two or three quarters of profitability." GM's bankruptcy wiped out $83 billion in liabilities, the Times said.

GM announces shutdown of Hummer

Just when it seemed that General Motors had started down the yellow brick road to solvency comes word that a deal to sell its money-losing Hummer brand to a Chinese company had collapsed. Sichuan Tengzhong Heavy Industrial Machines said Thursday that it was pulling out of an agreement reached eight months ago to buy Hummer, the builder of large sport utility vehicles modeled after the military's Humvee troop transport vehicle. The Chinese company said it was unable to get approval from the Chinese government for the $150 million deal, according to the New York Times. General Motors, which has been trying to sell off subsidiaries in an effort to emerge from bankruptcy protection, said it would close the brand. GM finally was successful this week in selling Saab, but has already announced the closure of Pontiac and Saturn. Had the deal been approved, Tengzhong would have been the first Chinese company to sell vehicles in North America, the Times said. "Tengzhong worked earnestly to achieve an acquisition that it believed to be a tremendous opportunity to acquire a global brand at an attractive price,” Tengzhong said in a statement.
“We have since considered a number of possibilities for Hummer along the way, and we are disappointed that the deal with Tengzhong could not be completed,” said John Smith, G.M.’s vice president for corporate planning and alliances. “G.M. will now work closely with Hummer employees, dealers and suppliers to wind down the business in an orderly and responsible manner.” Hummer caused a splash after its introduction in 1992 with celebrity endorsements, including by California Gov. Arnold Schwarzenegger, who owned several of the powerful-looking SUVs. GM bought the company in 1999. But rising fuel prices dimmed demand for the vehicles, and it became a symbol of inefficiency because of its gas mileage. Hummer sold only 265 vehicles in the United States in January and just over 9,000 last year, a decline of 67 percent, the Times said.

U.S. regulators let CIT Group go under despite $2 billion investment

Why would the government allow a 100-year-old lender that provided funds to hundreds of thousands of small and medium-sized businesses fail while bailing out large sectors of the financial system? That was the obvious question Sunday when CIT Group Inc. of New York filed for bankruptcy under the weight of nearly $65 billion in debt, according to the Reuters international news service. The bankruptcy is the fifth largest in U.S. corporate history, and sidelines, at least temporarily, a major source of financing for a sector of the economy responsible for nearly half of the nation's jobs. CIT said in a statement that it hoped to eliminate $10 billion of debt in bankruptcy and emerge quickly. The company has $71 billion in assets. “The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” CIT's chairman and CEO, Jeffrey Peek, said in a prepared statement. “This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence. We also acknowledge our constructive working relationship with our regulators and look forward to their continued guidance as we move through this process.” Analysts said the 101-year-old company was a victim of the global credit crisis, Reuters said, as its loan porfolio suffered heavy losses and it ultimately was unable to raise enough money by selling bonds. In a letter to customers on Nov. 1, CIT said none of its subsidiary businesses, such as CIT Bank of Utah, would be affected by the bankruptcy filing. But the U.S. taxpayer is affected, since CIT received $2.33 billion from the Troubled Asset Relief Program in December. The government will only be repaid now if any money is left after banks and bond investors are paid because it is considered a preferred stockholder. Holders of CIT's common stock will not be repaid, Reuters said.

Dealership closure decisions prompt Congressional investigation

The extraordinarily complex undertaking that is the restructuring of the U.S. automobile industry was in full view today when a subcommittee of the House Judiciary Committee opened hearings on dealership shutdowns negotiated by General Motors, Chrysler and the Obama administration. At issue is both the thinking behind the decisions to close more than 3,000 dealerships and a pending bill that could reverse all or many of those decisions, according to Cable News Network (CNN). The head of the administration's Task Force for the Auto Industry, Ron Bloom, a former investment banker, testified today that the closures were critical to the restructuring effort, CNN said. But some members of the subcommittee have objected to some of the individual shutdowns and raised the specter of unfairness or worse. "They had a criteria, but I don't know what their criteria was, what the data was," said Rep. Steve Cohen (D-Tennessee), according to CNN. "Some were profitable, and there's even concern that there might even be others open in areas where they closed them." Given the unfortunate tendency of Washington politicians to speak in semitruths, it is difficult to tell whether the Congressional concerns are legitimate or just part of seemingly relentless Republican Party efforts to discredit the administration. Indeed, Rep. Lamar Smith (R-Texas), said his concerns included some of the closures but went beyond them to the future of the U.S. economic system. "Every day, I guess I get a little more concerned about what the administration is doing in regard to the GM and Chrysler bankruptcies," he said. "It seems to me that literally the administration is declaring war on capitalism." Rep. Dan Maffei (D-New York), who authored the bill, said he was concerned about the owners of the dealerships that were ordered to close. "It's really an issue of fairness and whether these dealers, given that they've got these big taxpayer-paid-for bailouts for GM and Chrysler, whether the dealers who employ 50 people each on average and are big parts of local communities, shouldn't have some sort of say over how these dealer networks are going to be reorganized," Mattei said, according to CNN. "We felt it was not fair for these dealers, given that the bankruptcy was negotiated in part by the federal government and with federal money, that the dealers would have to not be able to have their rights." Not all dealerships forced to close were left with nothing, CNN said. GM offered its franchises up to $1 million in closing payments and gave them over a year to sell their inventories. GM also reversed dozens of closing decisions after dealers appealed to the company. But Chrysler didn't offer any payments, forced dealerships to shut down within three weeks and had no appeal process.

General Motors emerges from bankruptcy after crash diet

The rich elite in the United States must be different from ordinary folks. How else to explain the behind-the-scenes maneuvering that brought the largest U.S. automaker, General Motors, out of bankruptcy in a lightning-quick six weeks and lighter by tens of billions of dollars in debt. With the completion of the sale of assets Friday to a company set up solely to liquidate them under bankruptcy court supervision, GM returns to the competitive world of automobile designing, building, servicing and selling -- largely under the same management that led the company's decline, according to Cable News Network (CNN). Of course, there'll be some major differences -- GM is now more than 60 percent owned by the U.S. Treasury. In addition, by the end of next year, the new GM will also be lighter by tens of thousands of jobs and thousands of dealerships across the country. "This is an exciting day for General Motors, one that will allow every employee, including me, to get back to the business of designing, building and selling great cars and trucks and serving the needs of our customers," GM Chief Executive Fritz Henderson said, CNN reported. "We deeply appreciate the support we've received. We'll work hard to repay the trust, and the money, that so many have invested in GM." But Henderson, who took over the top spot at GM after the Obama administration forced out then-CEO Rick Wagoner as a condition of loaning the automaker as much as $50 billion, faces a daunting challenge. GM lost most of its market share, now 20 percent of the U.S. market, in the last few decades, was overtaken by Toyota Motor Co. of Japan as the world's largest automaker, and even lost its standing as a component of the Dow Jones Industrial Average. GM also will be losing its Saturn, Saab and Hummer brands, and previously decided to drop Pontiac. Henderson even said that he didn't know if GM would be able to repay the billions it borrowed from the treasury, according to CNN, but probably wouldn't have to borrow more next year. "This is a precious second chance," he said. "There are no third chances." Even if there were, who could afford them? GM has lost $88 billion since 2005 while its debt rose to $54 billion, CNN said. Bondholders who loaned money to GM before the bankruptcy will end up with around 10 percent of the new company, CNN said, but shares will not traded until next year at the earliest.

Industry experts fear GM still stuck in same gear

Nice to hear that automobile industry experts have begun to question General Motors' decision to choose a longtime veteran insider to run the largest U.S. automaker after the federal government made removal of the old CEO a condition of extending billions of dollars in loans. Cable News Network (CNN) said today that "many" industry experts are questioning whether 25-year GM insider Fritz Henderson is the right person to make the major changes needed to turn the largely moribund carmaker around, an issue raised here three months ago. Like the Ford Motor Co. and bankrupt Chrysler Corp., GM has been unable to build fuel-efficient vehicles that could compete on quality with rival Japanese automakers Toyota and Honda, even more than 30 years after the first OPEC oil embargo heralded a sea change in world fuel supplies. GM filed for bankruptcy protection at the urging of the Obama administration on June 1. "The removal of managers and executives has been mainly at lower levels, thinning ranks and taking out layers. It's not replacing people who made the mess and created the culture," said former GM market research and planning executive Rob Kleinman. Now managing director of consulting firm RAK & Co., Kleinman said what GM needs now is a management overhaul if it is to return to profitability. "Most successful turnarounds have been led by outsiders," he said. "The fact that Fritz [Henderson] seems dedicated to keeping the management team in place makes me extremely uncomfortable." In fact, GM's domestic rivals are being run by former industry outsiders, with Ford hiring Alan Mulally from Boeing in 2004 and Chrysler now headed by Fiat CEO Sergio Machionne, who was not in the industry when he was hired by the Italian carmaker in 2004, Reuters said. "You need some fresh blood in there," said industry analyst and consultant Erich Merkle. "The culture is not one that fosters speed, especially speed to market." But Henderson insisted Fortune magazine that he can bring about the necessary changes, CNN said. "I know the industry inside and out; I know the industry well," he told the magazine. "I think that does bring some experiences that can be very helpful in terms of change because I know what needs to be changed." And David Cole, chairman of the Center for Automotive Research, called Henderson a "high-speed decision-maker" who already has made important changes in GM's executive culture, CNN said. But Kleinman said GM was suffering from being out-of-touch with consumers and a decided lack of accountability, things a corporate insider would be unlikely to be able to fix.

New era of capitalism deepens -- Chrysler sale OK'd by high court

The new post-financial system collapse era of American capitalism took off in earnest today when the U.S. Supreme Court lifted its stay and cleared the way for Chrysler Corp. to be acquired by its union and Fiat, the Italian automaker. According to Cable News Network (CNN), the high court voted to turn down an appeal by Indiana state pension funds that had challenged the complex deal, removing the last impediment to the White House-backed sale. The court had delayed the sale Monday, apparently to review last-minute filings from the parties. The ruling means Chrysler, for decades the third-largest U.S. automaker, will emerge from bankruptcy owned primarily (55 percent) by the United Auto Workers trust with minority ownership (20 percent) by Fiat. The governments of the United States and Canada also will own smaller stakes, CNN said. "We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker," the White House said after the Supreme Court order, according to CNN. The quick action by the high court was vital to avoid Chrysler's liquidation, CNN said, because the automaker had shut down operations after its bankruptcy filing last month and was losing $100 million a day.

General Motors gets rear-ended by its executives

Top executives at General Motors finished running the once-proud automaker into the ground Tuesday as they dumped their remaining shares of stock and watched the company's stock price fall to its lowest since the Great Depression in the 1930s. The stock sank as low as $1.09 on the New York Stock Exchange before closing at $1.13, a 22 percent decline, according to the Reuters international news service. Former GM vice chairman and product chief Bob Lutz and five other execs revealed Monday in Detroit that they were selling their last holdings in the largest U.S. automaker, including $315,000 in stock, Reuters said, as GM approached a government-imposed deadline for reorganizing or filing for bankruptcy protection. It was a humiliating collapse for the carmaker, one of the original members of the NYSE, which for decades symbolized the strength and success of U.S. capitalism. But GM came to stand for corporate atrophy, as the automaker doggedly refused to build energy-efficient small cars to compete with its overseas rivals despite a plunging market share. Instead, GM used its wealth to lobby for tax changes and environmental law waivers that kept profits high in the short term but actually sealed its doom. Few Americans will forget seeing the chief executives of the three largest U.S. carmakers waste tens of thousands of dollars flying to Washington, D.C., in private jets to beg Congress for taxpayer bailouts. Now, that's out of touch! Of the three -- Rick Wagoner of GM, Bob Nardelli of Chrysler and Alan Mulally of Ford -- only Mulally remains in his post. Not coincidentally, Ford is the only one of what used to be known as the Big Three to have refused government loans so far.

Closure of Pontiac shows GM still doesn't get it

Speculation that General Motors plans to kill off its Pontiac brand instead of trying to revitalize it with new models and better values is an indication that the country's largest automaker is still locked-in on a highway to failure. With new leadership at the top and billions of dollars in federal loans, General Motors should be making plans to build better, more-attractive cars across all of its divisions. Instead, the automaker is trying to suck the remaining life out of itself as it careens toward bankruptcy. An official announcement about Pontiac's fate is expected as eartly as Monday, according to Cable News Network (CNN). A GM spokesman, Jim Hopson, declined to comment Saturday on the future of the Pontiac brand, saying the automaker was not prepared to comment at this time, CNN said. Pontiac was GM's third-best selling brand last year, outselling Cadillac and Buick. But Cadillac is the corporation's most-profitable brand and Buick is very popular in China, CNN said. Pontiac once built GM's most exciting vehicles, from the high-performance GTO to the flashy Firebird. The 1964 Pontiac Tempest LeMans GTO is credited with creating a new class of American car, the muscle car.

General Motors is already bankrupt every way but legally

News that General Motors told the Treasury Department this week that it could seek bankruptcy protection comes as a surprise to no one, except maybe the federal regulators who have been propping up the auto giant with billions of dollars in taxpayer money since last year. The admission, the first time GM has openly discussed a bankruptcy filing, appeared in a regulatory filing about its restructuring progam, according to the Reuters international news service. Of course, new GM chief executive Fritz Henderson, who took over the top spot after the Obama administration demanded the removal of former CEO Rick Wagoner, mentioned the possibility earlier in the week after its proposed restructuring plan was rejected by the government. In its report to Treasury, GM said it was trying to restructure out of court but would file bankruptcy if it was unable to reach cost-saving agreements with its bondholders and employee unions. "If the changes needed for long-term restructuring cannot be obtained out of court, the company is prepared and would consider in-court options,” GM said in its filing. The United States has loaned the automaker billions of dollars in an effort to help it recover from the economic downturn, and also has suggested guaranteeing warranties and aiding GM in emerging from bankruptcy after restructuring. But if what GM really wants is to get out of its labor contracts while stalling on new car development and continuing to overpay its executives, maybe it really should get out of the way and let emerging automakers with better ideas take over.