Meet the Montauk Monster

Look at what washed ashore on Long Island. Personally, I haven't seen anything that curious-looking come out of Long Island since Billy Joel.

When the corpse was found, bystanders asked "What could make it wash up on shore like that?" A local Teamster had the answer: "He couldn't keep his mouth shut."

GM's CFO Says Cash Position is Better than Expected

In the wake of GM's $15.5 billion 2nd quarter loss, Chief Financial Officer Ray Young told the press that the company's cash situation was a little better than expected. According to Mr. Young, GM had a net cash loss of about $3.6 billion in the period, and the company currently sits on cash reserves of $21 billion with $5 billion in credit. I postulated in my last post that GM's cash burn could be 2-3 times the $1 billion per month that had been commonly reported. At $3.6 billion for the quarter, cash burn is still 20% higher than a billion a month. The other losses must have been absorbed in other balance sheet items such as declines in other current and long-term assets or increases in long-term liabilities.

source: Reuters

Breaking News: GM's Latest Bad News Friday
GM's Quarterly Loss = $15.5 Billion

For some time now, General Motors has been saving its bad news press releases for Friday, preferably the Friday before a holiday. Since GM couldn't stretch the announcement of 2nd quarter financial results until Labor Day, it announced the bad news today. Led by "one time charges" of $9.1 billion, GM announced a net loss of $15.5 billion. Excluding the one time charges, GM's net loss was $6.3 billion or $11.21 per share. As I write this, Yahoo finance is reporting GM's share price as $10.42. I think when a company's quarterly loss is greater than the total value of all its stock, its a significant event.

Of the one time charges, $3.3 billion went to employee buyouts, and $1.1 billion went to lease write-downs. In that later category, the devil may be in the details. If the write-downs were only for leases that expire soon, then the "one time charges" could be a regular event.

Prior to this earnings report, it was widely reported that GM was burning cash at the rate of about a billion dollars per month. With regular operations accounting for $6.3 billion loss and other true cash outlays, including billions in buyouts, accounting for much more, the billion-a-month may be off by a factor of three or more.

In terms of sales, GM's sales were down 20% in North America, but were up 10% outside of North America. In fact, 65% of GM's total sales were outside North America.

To put this quarter's loss in perspective, you might recall that last month, General Motors announced a two-year plan to boost its liquidity by $15 billion. IF that plan is successful, it will bring GM back to where it was, oh, I don't know, 3 MONTHS AGO. The liquidity plan does not change the market forces that have pushed GM into its current corner.

Primary source: thetruthaboutcars.com

The Linda Richmond Scenario
How Picking Hillary C as Vice President could be "Like Buttah"

Now that talk about Barack Obama's vice-presidential choice is the talk of the town, I'm finally going public with a scenario that I came up with several months ago.

Here's the scenario. Obama picks Clinton as a running mate. They win. The governor of Illinois fills Obama's seat with Oprah Winfrey. The governor of New York fills Clinton's seat with Barbra Streisand. The result: Linda Richmond gets verclemped. Talk amongst yourselves.

GM Employee Discounts to be Eliminated?

Thetruthaboutcars.com reported today that GM is on the verge of eliminating employee discounts, at least those on car models that are selling reasonably well, such as the Chevrolet Cobalt. There is nothing official about this, but thetruthaboutcars has a pretty good track record with its rumor reports. The effective date for this? August 8, next Friday.

Chrysler Leaves Leasing
GMAC & Ford Motor Credit - Kind of

Following a trend in the auto industry to announce bad news on Friday, this Friday Chrysler announced that it would be ending the consumer leasing business as of August 1. Apparently this decision was leaked to the Wall Street Journal and some other sources before it was disclosed to the dealer network. Chrysler has the most Truck and SUV heavy line-up in the Detroit 3, and in the wake of rising gas prices Chrysler has been hammered by low trade-in values of its models. The low trade-in values have killed the lease residuals.

Maybe Chrysler didn't have much of a choice, but this decision seems like a critical mistake by Chrysler. Even if it could not continue to make the leases, a public disclosure that it was suddenly leaving the leasing business flashed to the public a stunning lack of confidence in the value of its products. Witness the front-page headline in the New York Times: Plummeting Resale Values Lead Chrysler to End Leases.

It would have been smarter to simply continue to offer leases (in theory) but price those leases so high that nobody would want them. Apparently, that's just the route that Ford is taking. GM is apparently going both ways, GMAC will no longer write leases in Canada (where leases comprise over 40% of the market thanks to GST (sales) taxes of up to 18%), while leases will be harder to come by in the US.

It's clear that all of the Detroit 3 are taking billions of dollars worth of losses in lease residuals due to the falling used car values. Now they are having trouble attracting money to underwrite leases at any cost. What is coming out of this looks like a feedback loop of falling sales causing increased discounts, causing lower residuals, causing lower trade ins and lease residuals, causing falling sales, and so on. At some point another variable comes into the picture and adds to the downward spiral, and that is diminished consumer confidence in the viability of the brand.

What will it take to get them out of this? Some external force. It may be an improved economy. It could be a hot new model. (If you see one, let me know.) A sharp decline in gas prices MIGHT do it. I don't think a federal hand out will have any significant effect, at least not at the $300 million proposed by Senator McCain or the $4 billion level Senator Obama has suggested.

I wonder what I can get for my leased Canyonero?

Ford's Bad News Day:
New Small Car Strategy announced along with $8.7 Billion 2nd Q. Loss

Last week Ford prepared the markets for bad news in its second quarter 2008 financial statements. Today the figures were released. The bottom line figure is a $8.7 billion quarterly loss. Most of that is an accounting adjustment for written down assets; however, most troubling is the disclosure that Ford's cash on hand went dropped $10.8 billion from this time last year to $26.6 billion total. This 28.8% cash drop is after Ford mortgaged most of its assets to build the cash hoard in the first place. It sets up a race against time for Ford to get new models out and make them successful before the cash runs out.

Ford's North American operations lost $1.3 billion, for the quarter, about double what the European division posted as profit. Speaking of Ford Europe, the biggest product news is that Ford is planning on building a number of European models in the US, converting three truck plants to do so. This is a strategy that armchair pundits (including me) have been advocating for years. In fact, it is the presence of a ready-to-go line-up of efficient cars that gives Ford the best chance of the Detroit 3 to survive over the longer term. Here's the product information as quoted from autonews.com.

The company also reconfirmed that it will:

• Add the European Transit Connect small van to the North American lineup in mid-2009.

• Add a new Lincoln seven-passenger crossover. It will arrive in 2009, Ford said today.

• Add the European Ford Fiesta in sedan and five-door hatchback versions in early 2010.

• Switch over to a new European Ford Focus in sedan and five-door hatchback versions in 2010.

• Build a unibody version of the next-generation Ford Explorer. It will arrive in 2010 and improve fuel economy by up to 25 percent.

Note that none of these products will be available before 2009. Ford doesn't say it will build the Transit Connect in the US. If you read between the lines, the Lincoln 7-passenger crossover will likely be a rebadged and gussied up Ford Flex, which in its second month in the showrooms is already setting the world on fire - NOT. Ford cancelled the planned 3rd shift at the plant that makes the Flex and the Edge. The European Fiesta and Focus should be hits based upon current reviews; however it remains to be seen if Ford can make sell them profitably over here. There was no announcement about some lauded European models that I would like to see here, the Mondeo, Cmax, and Galaxy. (The new Mazda6 is closely related to the Mondeo, and it should be here in a month or two.) Ford's major new products in the meantime include a redone F-150, a made-over Fusion/Milan, and not much else.

Mr. Ranger is hardier than the average bear. The old man of Ford's line-up, the Ranger small pick-up has cheated death more times than Indiana Jones. Since Ranger sales are only down 3% this year, despite no significant updates since 2001, Ford has decided to keep the Ranger at least through 2011. In so doing, Ford granted a stay of execution to the St. Paul, Minnesota plant that builds the Ranger.

To save cash, Ford is putting together a buy-out package for many of the unionized employees in Michigan and Ohio. The Ohio cuts especially will likely result in a reduction of the membership of our AFSCME Local 3357.

Primary Source: Autonews.com (free registration required)

Countrywide Has Over $2 Billion in Foreclosed Homes For Sale

Read all about it, with a state-by-state breakdown at this link.

Blog Spotlight - Caveat Emptor

If you have an interest in consumer law, check out the excellent Caveat Emptor blog. The original movers & shakers of the blog were two Minnesota consumer attorneys, Sam Glover and Nick Slade. More recently, they have been joined by two bloggers from AFFIL (Americans for Fairness in Lending), Jim Camper and Sarah Byrnes.

Flint Michigan Says No to Crack


Even though Flint Michigan has been hemoraging auto industry (and other) jobs for decades now, apparently the biggest problem in Flint involves butt cracks.

According to the Detroit Free Press, the city of Flint has declared war on baggy pants. If you show your underwear, you'll get a warning. If your pants sag to the point where your underwear is exposed to the (covered) buttocks, you'll be cited for disorderly conduct. If your pants sag and your buttocks show, look out, that's indecent exposure. The ACLU is thinking about getting involved, because apparently these cases only come around once in a blue moon. Until the ACLU gives Flint a whipping, don't get cheeky in Flint.

How will people get their Norge refrigerators repaired?