GMAC Deal ‘Might Not Happen’
General Motors may have problems selling it’s mortgage division. “General Motors Corp. on Tuesday restated nearly four years of results for its GMAC finance unit, a subsidiary in which it’s trying to sell a controlling stake to raise cash and boost its finances. The company also disclosed that its complex accounting relationships with suppliers are now the subject a criminal probe, in addition to the previously disclosed civil investigation.”
“The finance unit is by far the most profitable operation at General Motors, producing net income of $2.8 billion in 2005, while GM as a whole reported a loss, Reuters reported.”
“GM has been counting on the sale of a 51% stake in General Motors Acceptance Corp. as a way to raise as much as $15 billion in badly needed cash for the struggling automaker. But GM warned anew Tuesday that a deal might not happen.”
“GM had hoped a new parent for GMAC would bring investment-grade credit ratings to the finance business, which was cut to junk status last year alongside its sliding automotive parent.”
“GM’s regulatory filing showed that the company was concerned about the effect of the restatements on its ability to draw from its $5.6 billion standby line of credit, which it could tap if it ran short of cash for operations.’
“While the automaker said it believed that it would be able to make a ‘good- faith borrowing request’ to use the credit line, ‘in view of GM’s recent restatement of its prior financial statements, there is substantial uncertainty as to whether the bank syndicate would be required to honor such a request.’”
And in case you didn’t know why this matters to the housing markets, check these links.
strange that this GMAC business is profitable when they are doing stuff like 110-115% I/O home loans in my country (with no downpayment); I guess they are counting unrealised income somehow?
Let’s hope they go down quickly together with GM (sorry for the GM workers, but this company has no future anyway). That would eliminate a lot of easy money here in Europe as well.
If nothing else, it should bring a chill to the capital markets. From my March 05 post:
‘Bond investors have “grown increasingly uncomfortable..people weren’t being compensated for the risk.’
Add me to the list of smug “I told you so” posters. Next up; Over 2 1/2 yrears of no statements from Freddie and still on the NYSE.
I have no pity for this company. GM was the king of the world for so long, that they got complacent. They started going down hill dast in the 70’s and since then it has only accelerated. IT shows how really bad decision, and management, will take even a good company, and turn it into a clusterf*ck!.
GM is also killing itself right now with a shotgun blast to the forehead. The moment that you outsource your production and parts, think EDS and Delphi, you have lost control of your parts, and operations. Great moves, if you want to shave off some short term cost, but are in the long run killers. Watch how many of these companies that have outsourced survive. Pretty soon everything is being done for them, and they are just a shell. Shells do not make money, unless you are a scientologist.
What automotive company DOESN’T outsource its parts? Bet you didn’t know that Toyota uses Delphi for many of its parts too.
Most companies are doing outsourcing. There is no way around it. Outsourcing by itself is not bad, if you stick to your core business model. My problem is that most of the time, outsourcing is just a way to grease someones hand, and to erect a totally parallel organization a la enron. If you do not belive me on this, let me point you to that bastard child of outsourcing EDS. When you outsource you generate a complete management structure for a function that your company did all by its own. You in some cases double and even triple the cost of the outsourcing compared with providing internal services. This is not aparent to the beancounters at first because, they use some nifty little tricks to make you believe that you are paying less for outsourcing. In fact, the department that outsourced provided added benefits that are not measured, but when outsourced are billed.
When you are doing an IT outsourcing, you bill for the services as a flat monthly fee, generally covering your basic costs. Now, when you have to do an upgrade, you charge for the “project”. A project that used to be done in a couple of hours, now requires a comitee meeting to approve the steps. After the steps are approved, then a plan is made, and after the plan is made, a proposal is presented. All of this time, the meter is running, and you are double billing for employees that are engaged in “support” functions.
Now comes the real deal: Once the “project” is approved by the suckers in the target company, then, you use the people that they are paying for support, and use them in the project, billing happily all along.
Now, you see why companies that outsource are doomed? They are paying 2 or 3 times what they should normally be paying if they did their own thing. Remember that outsourcing companies need to pay their consultants top dollar so that they can afford those armani suits, and ferragamo shoes. Above all they have to show a profit!
I just tried the NMN links. Sometimes they take you to Q4 2005 and sometimes they don’t. The point is GMAC is one of the largest prime and subprime lenders in the US; losing its investment-grade rating will have an impact.
Here’s an update on the Lennar story:
‘Stuart Miller, Lennar’s chief executive, said the company is offering incentives to buyers and sales agents and reducing prices in certain markets to deal with the softening real estate market in South Florida and nationwide. Homes sold in Lennar’s first quarter were ordered about six months ago, before the market started cooling. Milleradded that the company has limited cancellations by regulating the number of investors and speculators. Last week, the Florida Association of Realtors said sales of used homes across South Florida fell by more than 20 percent in February. Price increases also appear to be leveling off.’
‘The housing market will get worse before it gets better,’ said James Wilson, director of research for JMP Securities.’
OT:
LA Times article “Economists Predict State Slowdown”
http://tinyurl.com/pa7gq
Thornberg from UCLA again quoted as saying housing won’t plunge. Funny quote from Pacific PHD . . . not a “bubble” but a souffle. LMFAO.
Souffles are full of egg, and if Thornberg is not careful, he will end up with it all over his face…
To most people, this guy is a HUGE bear about housing . . . obviously this is relative. He’ll be able to later claim that he saw this bubble coming, but misjudged it’s “magnitude”. He’ll be a talking head genius before you know it.
The trick he has mastered is to talk out of both sides of his mouth. He will recount whichever version of the future turned out to be correct, and cash in big time…
It sounds like this is being misunderstood. Soft landings are still landings. The big difference is they do damage over a long period of time. You will feel the difference when we reach the calling the bottom stage. People will really be wishing the landing were harder at that point.
The souffle comparison is more apt than you are giving it credit for. Instead of simply bursting a souffle fall consumes large amounts of resources and planning and labor and keeps hopes up until the very last moment and which point the result is a mess that cannot be absorbed that everyone will be guaranteed to walk away from. And this is a rosy scenario how?
We would be best served by staying away from the reactionary cheerleader role and keeping an eye to reality and the future. Hard or soft will only ever amount to footnotes to the fact that this mess is coming down and that will hurt many.
I liked your souffle explanation. I think most of the metaphors used have some bearing or relationship to what we are going to see, but probably are so vague that anyone can later claim that they were correct.
Per GetStucco: Absolutely. Vague sounding, but entirely plausible explanations which can be “revised” to conform to something he might have said at some point.
But this is why the man everyone loves to hate Alan Greenspan speaks in such measured language. He may have done most of the work to get us where we are, but his concision is admirable.
‘Vague sounding, but entirely plausible explanations which can be “revised” to conform to something he might have said at some point.’
Religions around the world have used this approach successfully for thousands of years…
I guess that LO will still be losing more deals to DiTech.
I remember seeing those DiTech commercials and seeing the rates they advertised, which were always 1/4 to 3/8 lower than what we were offering. If they will telling the truth, they couldn’t have been making much money on them. I had a conversation with our MI rep and he said as a joke he called DiTech to see what they were like. The rates they quoted were only good for 10 days. Good luck getting appraisal, title, loan underwritten in that time frame, especially in 2003 when everybody who had a mortgage was refinancing. I also heard they had really bad customer service, probably because they were too swamped trying to process all these loans they had. High advertising costs and no profit margin doesn’t justify high market share after all.
Woo hoo! I shorted GM last week (for the second time).
Northern VA inventory is skyrocketing.
March 1: 11818 available listings
Today: 14420
That’s a 22% increase in less than a month - an average growth of 93 properties per day.
The inventory on March 28, 2005 was 2,561 >> 260% increase YOY
GMAC Mortgage has sleaze for loan officers who always use the local number hitter for all their appraisals.
Guy in my region was king of the home loan rackeeters.
Short a number on this guy and you were done doing work for GMAC, no matter what your qualifications or tenure.
They’re as bad, if not worse than Ameriquest or Countrywide.
Anybody who purchases this operation is buyin’ a mine field.
GMAC may be a leading example of a mortgage-backed asset which will not sell…
Could any of our readers who are competent in technical analysis please offer comment on the likely future course of these two venerable stock market dogs?
GM http://tinyurl.com/ecw4m
FORD http://tinyurl.com/z8koe
F! Wrong crash…
http://tinyurl.com/jnvgr
GM http://tinyurl.com/ecw4m
Any technical analysts who read here? Please offer comments on these GM and F charts…
Today on MSNBC they were talking about the Fed bring out a 50yr long bond. There is an interesting story on this at the following ( …..March 20, 2006 issue - One of the rules of Wall Street is “when the ducks quack, feed them.” In other words, give the customers what they want…..I’m a T-bond junkie (there, my secret’s out). And as a taxpayer and the father of taxpayers, I think the United States would save lots of money by selling 50-year bonds (as England did in January) while the bond market’s acting strange.
Here’s the strangeness. When last I looked, the yield on 30-year Treasury bonds was lower than on its 10-year notes. (The yield is a security’s interest payment divided by its market price.) Thirties yielding less than 10s? Not supposed to happen. Longer-term securities generally yield more than shorter ones because the more years a bond is outstanding, the more damage inflation does to the value of the security holders’ original investment. In fact, the reason offered by the Treasury for killing the 30-year bond was that the interest on 10-year notes was significantly lower.
50 yr government bonds are a really bad idea, but acknowledge what is going on already.
Thomas Jefferson argued for the term of a federal bond to be one generation. No generation has the right to encumber future generations. If they did the world would belong to the dead not the living.
Things could be looking real bad for GMAC retirees. If you work for a company and retire with 5 yrs of them filing BK your pension can be realigned so many who thought they were safe may find their retirement cut by half or more. Not something to wish on someone who worked hard for a living.
Their own retirees are the tip of the pension iceberg. Think of all the lemmings known as pension fund managers who have loaded up on GMAC debt obligations in the conservative part of their portfolios…
“I guess that LO will still be losing more deals to DiTech.”
I always pass the big glass building in Irvine when I am on the 405 with the big DiTech sign on it. I wonder how long before they scrape off the DiTech sign and lease the building to another company.
“Lost another one to DiTech!”
OT
Ben thought you would like this from the frontpage of the LA Times business section:
Economists Predict State Slowdown
The effect of a cooling housing market will last for the next two years, a UCLA forecast says.
http://www.latimes.com/news/local/la-fi-uclaecon29mar29,0,3188306.story?coll=la-home-headlines
oops sorry, didnt see that someone else posted this earlier..
The issue I have here is the whole “may not happen” language is typical CYA language in any SEC filing for any company. They’d be stupid not to do it because every schiester lawyer out there would sue the hell out of them if they didn’t warn the public. You’ll see that Google probably talks about the risk of competition (I’m assuming - never checked)…but you don’t see that spooking the market.
Just trying to bring some reason back to an overblown statement IMO.
Getstucco said
“The trick he has mastered is to talk out of both sides of his mouth. He will recount whichever version of the future turned out to be correct, and cash in big time… ”
I was thinking of a way to say that, and you said it perfectly…
so you guys think this is it for GM?
Yes, John, I think they’re toast. Strangled to death by their own workers.
Don’t forget the brilliant managers and CEO’s since the late 60’s. This goes back a long way.
the fall of GM is not only the workers. GM has been losing market share since forever, no? the problem is management made big healthcare promises and didn’t realize how much they cost. plus they didn’t make cars people wanted to buy. I read that if they had the same marketshare as they used to, they’d have no problem meeting it’s obligations. it’s bad management.
“the problem is management made big healthcare promises and didn’t realize how much they cost. ”
No. The reason is that they though “we are so profitable, instead of setting this money aside for pensions and medicare and not touching it, instead they dipped into it with the idea, lets spend it now on something else and let the future GM come up with an idea on how to pay it back. well ‘borrow’ from the pension and medical funds and pay it back later.”
The GM story provides good insight to just how long crashes can last before they hit bottom. Here is a reference which provides good insight:
The Reckoning
by David Halberstam
ISBN: 0688048382
(An excerpt from an amazon.com review is included below):
The book provides remakable insights into how the two reacted to the ’70s oil crisis. Walking down the streets in US, and counting the ‘Non US’ cars, confirms how correct Mr. Halberstam was in assessing the ‘reckoning’. The financial performance of GM and Ford futher confirm it. The book clearly shows how the finance and number oriented ‘whiz kids’ at Ford, led by Robert McNamara, destroyed the soul of car lovers whose passion was cars. It also shows how the Japanese overcame tremendous challenges to win the Auto war.
GM for years has sold outdated, ugly models of inferior quality. They have survived giving away the product and making the profit on the back end or through the financing. They are the largest healthcare provider in the WORLD.
They cannot continue to lose market share with their fixed costs. The premiums being assigned to their corporate paper against default is at the same level of other companies that have gone CH. 11. I put the risk of them declaring Ch. 11 in the next year at 60%, given the new accounting revelations. You cannot lose 11 billion and stay in business. If Delphi or the UAW strike, then the likelyhood of GM going under will greatly increase. Gm has around $19 billion in cash, but they will burn through $5 billion per month with a strike. They have stated they will need at least $10 billion for a BK workout.
Watch the prices on the bonds. That will tell you where this is going.
I’m reading very ominous statements from the Delphi workers in the press…they don’t like this proposal at all. They didn’t like the 40% pay cut in the least, so Delphi offered them a 50K-a-head bribe to agree to it. The union folk might be getting itchy to take it to the mis-management crowd because I think they’re feeling like it’s all over but the last broken promises anyway. At least if they had a good ol’fashioned strike it would be a proper send-out for the UAW. I think this friday is the deadline for the delphi workers to decide yah or nay. I also think GM has claimed that a strike must be avoided at all costs if they have any hope of not going BK…
And Ford has gone back to enforcing their forever-on-the-books but rarely attended to rules about where you can park if you don’t drive their cars to work…I believe it’s tiered so that if you drive non-big3 you get quite the stroll to the front doors! Needing to pull such stunts is why those front doors are getting sticky…
I think, as some have pointed out, GM is not a healthcare plan that makes cars. it is a bank! same with Ford.
I have to interject some personal info about Ditech.
I have a good friend that works there, and after they fired a few dozen people in January, they switched their advertising focus to fixed rate loans.
From December to March the place was DEAD.
But then in the last month, the phone started ringing off the hook.
People are trying to get into fixed rate loans like crazy, since they know Bernanke isn’t nearly done raising the rate.
People who were scraping to make quota just a month ago are now once again back up over the top.
One of the things my friend told me is that they’re getting a lot of angry Countrywide and Ameriquest customers coming to them, wanting them to get them out of ‘bad loans’.
Ditech’s actually making money.
Odd, but true.
They aren’t doing many purchase loans, however, since no one seems to be buying anything.
When all hell breaks loose in September, and homeowners are calling the local TV stations, whining about how all of us ‘greedy buyers’ won’t purchase their homes- their next step will be to refinance through Ditech- before their equity goes triple digit negative.
The Spring we’re currently in will be called the ‘Slaughter of the Speculators’…
…and the fall will be the ‘Desparation of the Decadent’.
ALL HELL BREAKS LOOSE IN SEPTEMBER.