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Tuesday, May 12, 2009 11:49 PM


1000 GM Dealerships Forced Out May 15; Executives Dump Shares; Restructuring May Fail


In advance of what now seems to be an inevitable GM bankruptcy, GM Will Notify 1,000 Dealers on May 15 of Franchise Expiration.

General Motors Corp., working to shrink operations to match consumer demand, will notify 1,000 to 1,200 auto dealers on May 15 that they fail to meet franchise agreements.

GM will deliver letters to dealers whose stores fail to meet criteria such as sufficient working capital, sales or customer-satisfaction levels, explaining that GM will not renew their franchise agreements when they expire this year or in 2010, GM spokeswoman Susan Garontakos said.

The largest U.S. automaker said last month it plans to shrink its dealer network to about 3,600 from the 6,200 outlets it operated at the end of last year as part of the restructuring plan it presented to the Obama administration.
Chrysler to cut 800 dealers

YahooFinance is reporting Chrysler to cut 800 dealers on Thursday.
Chrysler LLC plans to fire up to 800 of its 3,200 dealers on Thursday, a lawyer seeking to represent the dealers said on a conference call.

The lawyer, Stephen Lerner, who heads the bankruptcy and restructuring practice of the law firm Squire Sanders, told dealers on the Tuesday call that the automaker plans to reject at least 800 franchise agreements, according to a dealer who listened to the call.

Chrysler will file a list of dealers it wants to retain with the U.S. bankruptcy court, said the dealer, who asked not to be identified because the call was confidential.

Dealers say the company is picking which franchises to keep based on whether they have met sales goals, their profits, how well capitalized they are, the condition of their facilities and whether they have all three brands, Chrysler, Dodge and Jeep.
GM Executives Unload Shares

GM executives are all but stating GM shares are worthless. Please consider GM Falls to 76-Year Low After Executives Sell Stock.
General Motors Corp., facing a June 1 deadline to restructure or file for bankruptcy, fell to its lowest in New York trading since 1933 after the automaker reported yesterday that six executives sold their shares.

GM declined 29 cents, or 20 percent, to $1.15 at 4:15 p.m. in New York Stock Exchange composite trading. The shares touched $1.09 earlier today, the lowest since April 22, 1933, adjusted for splits and distributions, said Bryan Taylor, chief economist at Global Financial Data in Los Angeles.

In regulatory filings after the close of regular NYSE trading yesterday, the company disclosed that the executives sold their shares.

Vice Chairman Bob Lutz, North America President Troy Clarke, Vice Chairman Thomas Stephens and Group Vice Presidents Gary Cowger, Carl-Peter Forster and Ralph Szygenda sold shares, according to the filings.
Restructuring May Fail

It has been clear for a long time that GM was headed for bankruptcy. However, everyone has assumed GM will quickly restructure. That would be a serious mistake according to Edward Altman, a professor of finance at the Stern School of Business and creator of the Z-Score formula that calculates a company’s probability of bankruptcy.

Please consider GM May Fail Even After Bankruptcy Reorganization.
General Motors Corp. will “absolutely” seek bankruptcy and its reorganization plan could fail if the automaker emerges too quickly from court protection, said Edward Altman, a professor of finance at the Stern School of Business at New York University.

“Yes they can come out in 30 to 60 days but I think that would be a mistake,” Altman said today in an interview on Bloomberg Radio. “They’re going to be coming out in the teeth of a severe recession. They probably will not have plugged all the holes necessary. And the very viability of the plan is, in my opinion, still up for grabs.”

Altman, creator of the Z-Score formula that calculates a company’s probability of bankruptcy, also said “they still come up very seriously in the Z score test into the bankrupt zone” after a 30- to 60-day reorganization.

In a separate interview today on Bloomberg Television, Altman the government is treating debt holders of Chrysler and General Motors unfairly. “They’re taking a hard line with respect to the creditors and they’re forcing them to take, in their eyes, a very poor deal,” Altman said.
GM China Venture Looks To Export Vehicles to US

Assuming GM does manage to survive Shanghai Securities News says GM China Ventures May Export Vehicles to U.S.
General Motors Corp. may export vehicles made in China to the U.S., Shanghai Securities News reported, without saying where it got the information from.

GM aims to ship about 50,000 automobiles to the U.S. by 2014, the report said.

Shanghai General Motors Co., GM's joint venture with SAIC Motor Corp., and SAIC-GM-Wuling Automobile Co. could become the first Chinese passenger-car companies exporting vehicles to the U.S., the newspaper added.
Ford raises $1.4 billion in $4.75-a-share offering

Rounding up the auto news, Ford raises $1.4 billion in $4.75-a-share offering.
Ford Motor Co., the only U.S. automaker forgoing federal aid, tumbled the most since November after saying it will sell 300 million shares of common stock in a public offering.

Ford Motor Co. said late Tuesday it has priced its recently announced 300-million-share stock offering at $4.75 a share for total gross proceeds of approximately $1.4 billion.

Ford also said it granted to the underwriters a 30-day option to purchase up to 45 million additional shares of common stock to cover over-allotments.
Ford is wise to raise cash. Will $1.4 billion be enough?

A quick look at Ford's Annual Report shows Ford has $22 billion in cash and cash equivalents, $154 billion in long term debt, and net tangible assets of negative $18.9 billion. $1.4 billion is a drop of liquidity in an ocean of problems. Expect this to be the first of many offerings.

Moreover, GM is likely to come out of bankruptcy with a cost advantage over Ford assuming GM sheds enough debt and forces enough union concessions. A quick look at Ford's balance sheet is all that it takes to conclude Ford is unlikely to be strong enough to weather a significant cost disadvantage to GM and Chrysler. So unless GM quickly fails in restructuring thereby ridding the world of GM's capacity, Ford is likely to follow GM and Chrysler down bankruptcy road. Indeed, Ford's balance sheet is so bad, it is likely to fail anyway.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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