BREAKING NEWS - XM AND SIRIUS AGREE TO MERGE
Some said it couldn't be done, and maybe it can't, but they're going to try anyway. The two major satelite radio networks, XM and Sirius have agreed to a "merger of equals." Apparently they saw that it worked so well for Chrysler.
Monday, February 19, 2007
GM May Ask for Extension to File Annual Report
Rumors that GM may take over Chrysler are flying, and they are largely overshadowing the fact that General Motors has not yet filed its 10k annual report. The latest news reports that GM may ask for a short extension of time to file, bringing the deadline from March 1 to March 16. The same news story reports that GM's figures will include restatements to past year's reports that cumulatively bring GM's retained earnings up by $700 million. This may or may not be significant depending upon GM's other disclosure when the report is issued.
Rumors that GM may take over Chrysler are flying, and they are largely overshadowing the fact that General Motors has not yet filed its 10k annual report. The latest news reports that GM may ask for a short extension of time to file, bringing the deadline from March 1 to March 16. The same news story reports that GM's figures will include restatements to past year's reports that cumulatively bring GM's retained earnings up by $700 million. This may or may not be significant depending upon GM's other disclosure when the report is issued.
Thursday, February 15, 2007
Chrysler on the Auction Block and Chopping Board
13,000 Layoffs through 2009
Chrysler Division being Prepped for Sale - To General Motors?
As I reported last week, Daimler Chrysler announced plant closings and layoffs. The total number will be 13,000, somewhat more than originally announced, but an overall smaller percentage than in recent restructurings by General Motors and Chrysler.
The over-all tone of the announcement suggests that German management isn't just pruning deadwood, it's prettying up the yard to sell the house. Daimler Chrysler stock has surged in recent months as speculation surrounding a US - Chrysler spinoff has escalated. In today's Wall Street Journal, there is an analysis that argues that the Chrysler division is a net drag on DCX stock such that even if Daimler Chrysler gets nothing in return for getting rid of Chrysler, it's still worth doing.
The Detroit News speculates that a variety of entities would be interested in buying Chrysler. Renault-Nissan is the first one that comes to my mind. Renault is interested in entering the U.S. market, and that company has had long historic ties to Chrysler. To a certain degree, Renault was involved with the design of the first generation Chrysler minivans and the Omni/Horizon subcompacts. (See www.allpar.com for more details.)
A GM - CHRYSLER MERGER
Here's the good part, though. There are rumors of a GM purchase of Chrysler. How could nearly-bankrupt General Motors buy its former-Big-3 rival? Why would General Motors buy Chrysler? Doesn't GM already have too many models and dealers? At first look, the idea seems ridiculous. But, after giving it a little thought, I think you could construct a deal that would be a win-win proposition.
First, you have to figure that GM would not actually pay any cash for Chrysler. The key to making the deal work would be an investment by Daimler into GM in exchange for GM stock. Most likely, the stock would be a new class of convertible-preferred stock, coupled with a debt issue secured by Chrysler assets. Prior to all this happening, Daimler would have to get Chrysler ready for sale, and that's what the announced restructuring is leading to. The plant closings essentially prune high-cost light-truck capacity. General Motors already has plenty of truck models. While some would disagree, the market has determined that GM trucks are better. Chrysler has some stars though. The Jeep product line is profitable and isn't duplicated by any GM division, Hummer notwithstanding. GM would love to have the 300 series rear-wheel-drive models. GM has given up on minivans, and Chrysler still sells a third of a million a year of them. A GM purchase of Chrysler could be structured such that GM and Daimler would end up with a structure like a Japanese Keiretsu.
In a smartly structured deal, Daimler could be positioned to pick up the juicy bits in the case of a General Motors bankruptcy. In fact, selling Chrysler to GM on the eve of a General Motors bankruptcy might allow Daimler to get back key Chrysler assets without being burdened by union contracts and dealer obligations. I thought Carlos Ghosn was positioning Renault/Nissan for a post-bankruptcy GM when a GM deal was being bandied about last year. In response, Rick Wagner & Co. responded with a Pythonesque "I'm not dead yet", and squashed any hope of a deal.
Anyway, if there's a GM-Daimler Chrysler deal involving secured debt and a new stock class issuance, you heard about it here first. I'll take my corporate finance endowed and tenured university chair in red velvet please. You'll know that there's something to this GM talk if the next big announcement from Daimler Chrysler involves a massive reduction in the number of dealers. On the other hand, if Dieter Zetsche really wants to take advantage of a GM bankruptcy, he may not worry about the dealer network at all prior to making a deal. The dealer network becomes GM's problem, a problem easily resolved in bankruptcy.
13,000 Layoffs through 2009
Chrysler Division being Prepped for Sale - To General Motors?
As I reported last week, Daimler Chrysler announced plant closings and layoffs. The total number will be 13,000, somewhat more than originally announced, but an overall smaller percentage than in recent restructurings by General Motors and Chrysler.
The over-all tone of the announcement suggests that German management isn't just pruning deadwood, it's prettying up the yard to sell the house. Daimler Chrysler stock has surged in recent months as speculation surrounding a US - Chrysler spinoff has escalated. In today's Wall Street Journal, there is an analysis that argues that the Chrysler division is a net drag on DCX stock such that even if Daimler Chrysler gets nothing in return for getting rid of Chrysler, it's still worth doing.
The Detroit News speculates that a variety of entities would be interested in buying Chrysler. Renault-Nissan is the first one that comes to my mind. Renault is interested in entering the U.S. market, and that company has had long historic ties to Chrysler. To a certain degree, Renault was involved with the design of the first generation Chrysler minivans and the Omni/Horizon subcompacts. (See www.allpar.com for more details.)
A GM - CHRYSLER MERGER
Here's the good part, though. There are rumors of a GM purchase of Chrysler. How could nearly-bankrupt General Motors buy its former-Big-3 rival? Why would General Motors buy Chrysler? Doesn't GM already have too many models and dealers? At first look, the idea seems ridiculous. But, after giving it a little thought, I think you could construct a deal that would be a win-win proposition.
First, you have to figure that GM would not actually pay any cash for Chrysler. The key to making the deal work would be an investment by Daimler into GM in exchange for GM stock. Most likely, the stock would be a new class of convertible-preferred stock, coupled with a debt issue secured by Chrysler assets. Prior to all this happening, Daimler would have to get Chrysler ready for sale, and that's what the announced restructuring is leading to. The plant closings essentially prune high-cost light-truck capacity. General Motors already has plenty of truck models. While some would disagree, the market has determined that GM trucks are better. Chrysler has some stars though. The Jeep product line is profitable and isn't duplicated by any GM division, Hummer notwithstanding. GM would love to have the 300 series rear-wheel-drive models. GM has given up on minivans, and Chrysler still sells a third of a million a year of them. A GM purchase of Chrysler could be structured such that GM and Daimler would end up with a structure like a Japanese Keiretsu.
In a smartly structured deal, Daimler could be positioned to pick up the juicy bits in the case of a General Motors bankruptcy. In fact, selling Chrysler to GM on the eve of a General Motors bankruptcy might allow Daimler to get back key Chrysler assets without being burdened by union contracts and dealer obligations. I thought Carlos Ghosn was positioning Renault/Nissan for a post-bankruptcy GM when a GM deal was being bandied about last year. In response, Rick Wagner & Co. responded with a Pythonesque "I'm not dead yet", and squashed any hope of a deal.
Anyway, if there's a GM-Daimler Chrysler deal involving secured debt and a new stock class issuance, you heard about it here first. I'll take my corporate finance endowed and tenured university chair in red velvet please. You'll know that there's something to this GM talk if the next big announcement from Daimler Chrysler involves a massive reduction in the number of dealers. On the other hand, if Dieter Zetsche really wants to take advantage of a GM bankruptcy, he may not worry about the dealer network at all prior to making a deal. The dealer network becomes GM's problem, a problem easily resolved in bankruptcy.
Monday, February 12, 2007
Valance Technology
Can't Miss Technology - Can Miss Investment
I've been keeping an eye on Valance Technology, a company that trades on the NASDAQ market as VLNC. Valance's claim to fame is a battery technology that supposedly makes lithium batteries safer. This is exactly what hybrid vehicles need, a high density, relatively low-weight battery that does NOT catch on fire easily. Can't miss? right?
Well, based on the 5 year performance of Valance, maybe you can miss. Five years ago, Valance was trading at around $5.00 per share. Now it is trading at under $2.00 per share. So if you would have bought the stock five years ago, you would have lost over half your investment.
The moral to the story: beware of story stocks. It's not enough to have a hot product, you have to be able to deliver the hot product at a price and in a quantity that the market demands and at which you can make a profit. It wouldn't hurt if you can do it better than everybody else.
There are competitors in the advanced battery market. It's too early to determine which technology will win out.
Can't Miss Technology - Can Miss Investment
I've been keeping an eye on Valance Technology, a company that trades on the NASDAQ market as VLNC. Valance's claim to fame is a battery technology that supposedly makes lithium batteries safer. This is exactly what hybrid vehicles need, a high density, relatively low-weight battery that does NOT catch on fire easily. Can't miss? right?
Well, based on the 5 year performance of Valance, maybe you can miss. Five years ago, Valance was trading at around $5.00 per share. Now it is trading at under $2.00 per share. So if you would have bought the stock five years ago, you would have lost over half your investment.
The moral to the story: beware of story stocks. It's not enough to have a hot product, you have to be able to deliver the hot product at a price and in a quantity that the market demands and at which you can make a profit. It wouldn't hurt if you can do it better than everybody else.
There are competitors in the advanced battery market. It's too early to determine which technology will win out.
Friday, February 09, 2007
Toyota Workers Made More than UAW Workers in 2006
But . . .
Thanks to $6,000 to $8,000 bonuses paid to its workers in Georgetown, Kentucky, Toyota workers in the non-union Georgetown plant made more than similarly-situated UAW auto workers. Toyota pay worked out to $30/hour or $60,000 per year for a 2,000 hour year. UAW workers made $27/hour or $54,000 on average last year. Source Detroit Free Press via Autoblog.com.
Toyota workers may find that the gravy train may soon skid off the tracks. In an internal Toyota memo that was discovered by the Detroit Free Press, a Toyota executive complains that the company's U.S. manufacturing wages are rising faster than company profits. (Toyota made record profits last year, by the way.)
Traditionally, to forestall unionization efforts, Toyota and the other "transplant" foreign automakers have paid wages close to the UAW wages for the same jobs. The transplant automakers have nevertheless enjoyed substantial savings due to less generous benefits, more flexible work rules and a younger work force. The age of the workforce is of huge importance. The transplants have virtually no retirees to care for, and the health insurance for younger workers is much cheaper.
With the decline of the UAW, Toyota may change its wage strategy, thinking that unionization efforts are less of a threat. In the memo referenced above, the Toyota executive suggested pegging its wages at the prevailing industrial wage for the area. In the South, where Toyota and the other transplant companies base their plants, the prevailing industrial wage may be $15.00 per hour or less.
But . . .
Thanks to $6,000 to $8,000 bonuses paid to its workers in Georgetown, Kentucky, Toyota workers in the non-union Georgetown plant made more than similarly-situated UAW auto workers. Toyota pay worked out to $30/hour or $60,000 per year for a 2,000 hour year. UAW workers made $27/hour or $54,000 on average last year. Source Detroit Free Press via Autoblog.com.
Toyota workers may find that the gravy train may soon skid off the tracks. In an internal Toyota memo that was discovered by the Detroit Free Press, a Toyota executive complains that the company's U.S. manufacturing wages are rising faster than company profits. (Toyota made record profits last year, by the way.)
Traditionally, to forestall unionization efforts, Toyota and the other "transplant" foreign automakers have paid wages close to the UAW wages for the same jobs. The transplant automakers have nevertheless enjoyed substantial savings due to less generous benefits, more flexible work rules and a younger work force. The age of the workforce is of huge importance. The transplants have virtually no retirees to care for, and the health insurance for younger workers is much cheaper.
With the decline of the UAW, Toyota may change its wage strategy, thinking that unionization efforts are less of a threat. In the memo referenced above, the Toyota executive suggested pegging its wages at the prevailing industrial wage for the area. In the South, where Toyota and the other transplant companies base their plants, the prevailing industrial wage may be $15.00 per hour or less.
Thursday, February 08, 2007
The Mortgage Lender IMPLODE-O-METER
Chronicling the Opening Shots of the Great 2007 Depression
In the news today, giant British Bank HSBC announced that it was going to make a financial reserve against expected losses in the range of $10.6 billion. That amount is the same order of magnitude as the cost of the 25,000 troop "surge" in Iraq. HSBC's stock has taken a 2% hit on the news. In fact, HSBC's $10 billion charge is just the tip of the iceberg when it comes to financial losses relating to bad mortgage loans. For years now, the mortgage industry has played loosey-goosey with other people's money writing loans that no thinking person would write: no-doc loans, 120% loan-to-value, 100% subprime with exploding interest rates . . . the list goes on.
While the real estate market was hot, the bad loans could be covered by increasing home values. Now that the market isn't hot, stupid loans can turn a burst bubble into a death spiral in many areas. Bad loans result in foreclosed and abandoned properties, which results in lower home values for neighboring properties, which causes an inability to refinance, which causes more defaults and foreclosures, etc. etc. etc. Ultimately, the total cost of the bad loans could exceed the cost of the Iraq war. In fact, I've heard the number TRILLION seriously discussed in relation to this mess.
All of this gets to the central link of the post. A guy named Aaron Krowne runs a blog called the Mortgage Lender Implode-O-Meter. This blog is an excellent source of information and perspective on the troubles in the mortgage industry. Since December 2006, Aaron has tracked news stories announcing the demise of 19 mortgage lenders. It's amazing that this subject has gotten less attention in the press than Britney's style of exiting a limo.
Right now there are hearings in Congress concerning possible legislative remedies for abusive mortgage loans, but as far as the current crisis goes, that's like closing the barn door after the cow has escaped. It looks like the economy is just going to have to take its lumps. I just have a bit of concrete advice. Get out of any financial services mutual fund that you may have, and watch your bond funds carefully. If you have a bond fund that invests heavily in mortgage-backed securities, get out now.
Chronicling the Opening Shots of the Great 2007 Depression
In the news today, giant British Bank HSBC announced that it was going to make a financial reserve against expected losses in the range of $10.6 billion. That amount is the same order of magnitude as the cost of the 25,000 troop "surge" in Iraq. HSBC's stock has taken a 2% hit on the news. In fact, HSBC's $10 billion charge is just the tip of the iceberg when it comes to financial losses relating to bad mortgage loans. For years now, the mortgage industry has played loosey-goosey with other people's money writing loans that no thinking person would write: no-doc loans, 120% loan-to-value, 100% subprime with exploding interest rates . . . the list goes on.
While the real estate market was hot, the bad loans could be covered by increasing home values. Now that the market isn't hot, stupid loans can turn a burst bubble into a death spiral in many areas. Bad loans result in foreclosed and abandoned properties, which results in lower home values for neighboring properties, which causes an inability to refinance, which causes more defaults and foreclosures, etc. etc. etc. Ultimately, the total cost of the bad loans could exceed the cost of the Iraq war. In fact, I've heard the number TRILLION seriously discussed in relation to this mess.
All of this gets to the central link of the post. A guy named Aaron Krowne runs a blog called the Mortgage Lender Implode-O-Meter. This blog is an excellent source of information and perspective on the troubles in the mortgage industry. Since December 2006, Aaron has tracked news stories announcing the demise of 19 mortgage lenders. It's amazing that this subject has gotten less attention in the press than Britney's style of exiting a limo.
Right now there are hearings in Congress concerning possible legislative remedies for abusive mortgage loans, but as far as the current crisis goes, that's like closing the barn door after the cow has escaped. It looks like the economy is just going to have to take its lumps. I just have a bit of concrete advice. Get out of any financial services mutual fund that you may have, and watch your bond funds carefully. If you have a bond fund that invests heavily in mortgage-backed securities, get out now.
Tuesday, February 06, 2007
From the WTF File: No Bull
Ford Five Hundred to Change name to Taurus
Exit Taurus, enter New Taurus. I'm at a loss to explain this one. I'll grant you, the name Five Hundred sucks. It has nothing to do with anything. Supposedly though, Ford had lots of reasons for not naming the car Taurus to Begin with. The existing Taurus was still Ford's most popular car, but it had a lousy resale value that might risk blowing the profitability of any successor. In the past week the major Ford-related headline was that Ford surrendered 3rd place in market share domestically to Daimler Chrysler. Ford's sales fell 19% in January. A big part of that was the retirement of the Taurus, the car that was Ford's top selling passenger car from the day it was introduced until the day it died. Perhaps Ford was irked that you could go to your local Ford dealer and buy TWO barely-used 2007 Ford Taurii for the $24,000 cost of a well-equipped Fusion or a moderately equipped Five Hundred. At $24,000 the Taurus couldn't cut it. At half that price, the Taurus is a steal. One of my coworkers may be picking up a pair of them fairly soon.
It's one thing to just say no to fleet sales. It's another thing to make up market share and pay fixed costs without fleet sales. For a manufacturer faced with this dilemma, the intelligent solution seems to be to isolate fleet-sales into models that are not marketed at retail. In doing so, low resale values may hit the brand but don't necessarily hit the models you are selling retail. Until last fall, that's exactly what Ford did with the Taurus. As long as you can make even a modest profit on the fleet sales, go ahead and sell the fleet cars. If you don't, your competitors will. If your competitors make the sales, their dealers get the profitable used-car sales that follow, making their dealerships strong.
The big winners on the cancellation of the Taurus are the Hyundai Sonata and the Chrysler Sebring. The new Sebring is not as nice a car as the old Taurus. The Sebring's engine and transmission are barely on speaking terms. It's trunk is too small. Its interior was designed by a committee of blind men. The Sonata is basically an okay car, but it has a vaguely offensive odor to it. Then again, I suppose that in the rental car market, a "vaguely offensive" odor is better than average.
Ford Five Hundred to Change name to Taurus
Exit Taurus, enter New Taurus. I'm at a loss to explain this one. I'll grant you, the name Five Hundred sucks. It has nothing to do with anything. Supposedly though, Ford had lots of reasons for not naming the car Taurus to Begin with. The existing Taurus was still Ford's most popular car, but it had a lousy resale value that might risk blowing the profitability of any successor. In the past week the major Ford-related headline was that Ford surrendered 3rd place in market share domestically to Daimler Chrysler. Ford's sales fell 19% in January. A big part of that was the retirement of the Taurus, the car that was Ford's top selling passenger car from the day it was introduced until the day it died. Perhaps Ford was irked that you could go to your local Ford dealer and buy TWO barely-used 2007 Ford Taurii for the $24,000 cost of a well-equipped Fusion or a moderately equipped Five Hundred. At $24,000 the Taurus couldn't cut it. At half that price, the Taurus is a steal. One of my coworkers may be picking up a pair of them fairly soon.
It's one thing to just say no to fleet sales. It's another thing to make up market share and pay fixed costs without fleet sales. For a manufacturer faced with this dilemma, the intelligent solution seems to be to isolate fleet-sales into models that are not marketed at retail. In doing so, low resale values may hit the brand but don't necessarily hit the models you are selling retail. Until last fall, that's exactly what Ford did with the Taurus. As long as you can make even a modest profit on the fleet sales, go ahead and sell the fleet cars. If you don't, your competitors will. If your competitors make the sales, their dealers get the profitable used-car sales that follow, making their dealerships strong.
The big winners on the cancellation of the Taurus are the Hyundai Sonata and the Chrysler Sebring. The new Sebring is not as nice a car as the old Taurus. The Sebring's engine and transmission are barely on speaking terms. It's trunk is too small. Its interior was designed by a committee of blind men. The Sonata is basically an okay car, but it has a vaguely offensive odor to it. Then again, I suppose that in the rental car market, a "vaguely offensive" odor is better than average.
Toyota Reports Record Sales & Profits for January '07
Toyota reported a 15% jump in sales and 7% jump in profits. Not too shabby.
Toyota reported a 15% jump in sales and 7% jump in profits. Not too shabby.
Hasbro Recalls EasyBake Ovens
Hasbro has recalled almost one million Easy-Bake Ovens. Here's a Hof's blog exclusive comment from an official at the Consumer Product Safety Commision commenting on the dangerousness of the ovens:
Hasbro has recalled almost one million Easy-Bake Ovens. Here's a Hof's blog exclusive comment from an official at the Consumer Product Safety Commision commenting on the dangerousness of the ovens:
The ovens have several problems. First, you have to put the damn
thing together which takes f***ing forever, then you find out that it needs a
lightbulb that they hardly ever make any more, and you don't have one lying
around. Then you need to listen to the little S*** whine that she wants to
bake NOW. So then you're in a Catch-22, either you forget about the
lightbulb and put the thing on the shelf & hope she forgets about it, or
maybe you can regift it, but that's always dangeorus with toys. Or, let's
say you buy the lightbulb and actually try tou use it. That's two hours
you'll never see again for six f***ing cookies. And, if you possibly
manage to suffer through using up the little bit of ingredients that come with
the oven (and live through the gut-busting taste), you get the privilege of
paying $9.99 for four ounces of additional cookie mix. If you're
smart, you realize halfway through putting this toad together that it's just too
dangerous for your precious little darling, and you'll thank God that we
recalled it.
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