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GM Death Watch 83: End of Days

Robert Farago
Saturday, July 1, 2006

From www.thetruthaboutcars.com

Relax. The news that GM stockholder Kirk Kerkorian has been playing footsie with Renault/Nissan doesn't represent some kind of paradigm shift for GM or global capitalism. When assessing Kirk's secret plan 'selling a minority share in GM to the Franco-Japanese automotive alliance' remember whose interests The Quiet Lion serves: his own. This is not about GM. It's about Captain Kirk's spectacularly bad investment in the world's largest automaker. But don't take my word for it. "Sometimes the news in itself is already the purpose," DaimlerChrysler's CEO announced upon hearing the news. In other words, multinational automotive conglomerator Dieter Zetsche thinks Kerkorian is just talking-up GM's stock price.

Lest we forget, the octogenarian investor has lost about a billion dollars since he started buying-up GM stock. (I don't care how many billions you've got stashed in Swiss bank accounts and offshore trusts, one less thousand million has GOT to hurt.) Anyway, mission accomplished. Despite the fact that GM-friendly Wall Street analysts have just celebrated the fact that GM is getting smaller (BUY!), the investment community is, let's face it, a size queen. The news that Captain Kirk has been busy whoring GM to dubious foreigner carmakers' I mean discussing the possibility of GM entering into a mutually beneficial strategic alliance sent GM's stock price soaring. On Friday (always a good day to hit the market with a surprise), GM shares closed at $29.79 up $2.35.

On the other hand, if Wall Street catches wind that Kerkorian is unloading a chunk of his 9.9% GM shareholding, the company's stock price swan dives. So it's not entirely impossible that Kirk's play is what it seems: an attempt to save GM's bacon. And yet, on the face of it, a GM - Renault/Nissan hook-up makes no sense. Even The Detroit News' resident optimist sees no benefits to the deal. "GM has spent the past 15 years pushing to achieve what the megadeal would purport to achieve," Daniel Howes wrote yesterday. "Economies of scale in purchasing, common manufacturing and product development processes, global leadership in developing world markets. These megadeals seldom, if ever, deliver the 'synergies' their highly paid outside architects say they will.'

Of course, there is one important benefit to Captain Kirk's bold moves: cash. If you take a close look at what's been proposed, Kirk wants Nissan/Renault to partner-up, then "seal the alliance" by buying 20% of GM's common stock for $3b. Three billion dollars doesn't seem like a lot of money in the GM scheme of things. It's almost a billion less than GM CEO Rabid Rick Wagoner recently spent paying 37k union workers not to work. But it's not chump change either, especially when you consider the fact that GM is running on fumes. Remember the extension of GM's accounts payable and the new secured line of credit? Cerberus does.

The fire sale of The General's GMAC finance unit to Cerberus Capital Management is the last bit of family silver The General has left to flog. And it's only two credit downgrades away from implosion. Without GMAC cash, the show's over. In fact, it may already be too late. GM's vehicle sales are in the doldrums, there's no Hail Mary in the pipeline, market share (dealer income) has gone south and a bunch of humongous downsizing bills are coming due. Not to mention the possibility of an August strike at GM's mission critical ex-subsidiary, bankrupt parts supplier Delphi (yes that). Avoiding Delphi's cyanide pill may require another billion or so from GM's threadbare corporate pockets.

If you doubt that GM could be so cash-starved that The Quiet Lion would be allowed to sell the company's soul to Renault/Nissan, consider this. TTAC commentator Finance Guy recently alerted us that GM is offering its zero percent new car financing deal to anyone with a pulse. More specifically, FG has resurrected 10 dead deals. No wonder: GMAC will now buy down on credit tiers A to E (prime to non-prime buyers). Cutoff is around a 590 FICO. Typically people in that range can't get a new car without a substantial down payment. Obviously, GM is opening the floodgates. There's one word for that: Mitsubishi. The Japanese carmaker's US fortunes foundered on the rocks of easy credit, as hundreds of thousands of come-on-down loans blew-up in their face.

In short, the idea that GM would contemplate joining a Renault/Nissan "alliance" is a sign of the Generals desperation, not its ability to seize an international opportunity (wither Fuji, Fiat and Suzuki). Viewed from another angle, depending on what the Franco-Japanese contingent want for their money, you might even say that GM's breakup has already begun. In any case, it's yet another one of the bizarre episodes we've been predicting for some time: the end of days at GM.