Are Ad Dollars Influencing Auto Bailout Coverage?

The Detroit News was recently involved in a controversy surrounding a negative Chrysler 200 review by auto critic, Scott Burgess. Jalopnik.com reported that after receiving a complaint by an advertiser identified as a Chrysler dealership, the Detroit News softened the criticism on an online version of the review. Mr. Burgess displayed journalistic integrity by resigning over the incident. Since that time, the Detroit News has apologized and Burgess has returned to his position. This affair may just be a small scale indicator of a much wider flaw in the quality of journalists’ coverage of the auto industry, particularly regarding General Motors.

Multiply the ad revenue received by the Detroit News by thousands and you get a glimpse of how much money is spent by GM to market their vehicles. The majority of ad spending goes to major television networks that are responsible for news coverage of the auto sector. There …

UAW Threat Looms as GM Struggles

As if General Motors did not have enough challenges to contend with, the UAW is now offering up some bellicose talk regarding upcoming labor contract negotiations. I discussed this issue last night with Neil Cavuto on Fox Business Network.

UAW Local 900 Plant Chairman, Bill Johnson, states, “If they don’t restore everything (union workers) gave up, the membership is going to knock it down. The bonuses that were just announced are just ridiculous.” While Johnson’s comments may be aimed at Ford, the UAW is signaling it will take a hard line stance in negotiations at GM as well. Union leaders are meeting this week to prepare for this summer’s negotiations on contracts that expire Sept. 14th.

It is debatable that the UAW sacrificed so much in the GM bankruptcy proceeding, particularly compared to GM bondholders who unwillingly subordinated their legal …

Consumer Reports Puts GM, Chrysler at Bottom; Chevy Volt ‘Doesn’t Make Sense’

auto breakdownThe media may want to take a break from its rooting for General Motors, not to mention its hype surrounding the Chevy Volt. USA Today recently summarized Consumer Reports’ ranking of automakers based on performance and reliability. Of the 13 automakers receiving report cards, GM and Chrysler received the worst rankings.

The number one performer according to CR was Honda, followed by Subaru. Strong reliability contributed to the high overall scores. GM was number 12 on the list with only Chrysler receiving a lower score. It should not come as a surprise that the bottom two performers were the automakers that ended up bankrupt and receiving taxpayer funded bailouts.

Almost two years after the bailouts, it appears there are still underlying areas of concern regarding quality and new product launch. It seems the fact that the Obama Administration chose to be advised by bankruptcy experts and Wall Street fat cats …

Wall Street’s Non-Objective GM Coverage

The past few days have seen an approximate 7% rise in General Motors’ Stock.  Much of this gain is attributed to Wall Street investment banks initiating positive coverage on GM. A further review of the coverage reveals a wide divergence in opinion between big banks that are profiting from the GM IPO and analysts who did not.

Investment Banks that currently have a “Buy”, “Outperform” or “Overweight” rating on General Motors include, Citi, RBC Capital, JP Morgan, Morgan Stanley, Credit Suisse, Barclays, Bank of America, Deutsch Bank and Goldman Sachs. Every one of these firms has earned a minimum of $22.5 million from the GM IPO and stand to earn much more, particularly if GM’s share price rises.  Price targets from these optimistic analysts range upward to $50 a share. It is interesting that Investment Banks who recommended offering taxpayer owned shares of GM at $33 less than two months …

UAW Will Cash In on GM Stock Dilution

GM UAW logosEarlier this month, General Motors made a $4 billion cash contribution to its UAW pension fund. Reports state that an additional $2 billion worth of GM common stock will be contributed to the fund. What is not being reported is where the stock is coming from.

In addition to public ownership since the IPO, GM common shares are currently held by the US Treasury, Canadian Government, the UAW and Motors Liquidation Company (creditors of Old GM). Unless the US Treasury is giving away taxpayer shares, new shares will have to be issued for an additional $2 billion worth of common shares to fund UAW pension plans.

Any new stock issuance is dilutive to existing shareholders and lowers the value of GM stock. Considering that US UAW benefit plans are still under-funded by $17 billion (as mentioned in reports) and overseas obligations under-funded by $10 billion (not mentioned in reports), it …

Is GM Using Inventory to Fudge Earnings?

GM logoGeneral Motors recently reported that it has a 93 to 95 day supply of vehicles at dealerships in its latest inventory report. This is well above the industry average of a 67 day supply, as well as exceeding analysts recommended 60 day supply. According to Jim Bunnell, general manager of GM’s dealer networks, the reason is because they expect strong demand for vehicles. There is a more likely reason that should be a cause of concern for GM’s new shareholders.

General Motors records revenue when vehicles are shipped to dealerships. While GM has technically sold these vehicles to the dealerships, retail customers haven’t yet purchased the vehicles. This stresses the dealerships as they are paying for vehicles that have not yet been sold.  There are usually incentives (paid by GM) for dealerships to accept the inventory. Once shipped, the inventory is financed (in most part) by government owned Ally Financial. …

Prove GM Success by Getting Taxpayers Out of Ally Financial

Ally Bank photoThe General Motors’ IPO has lead to the Obama Administration declaring victory for a successful GM restructuring. GM executives echo the optimistic view of a now healthy auto company with a “fortress like” balance sheet since the infusion of over $50 billion of taxpayer money. There is still one major test left to see just how healthy GM is.

During the time of General Motors’ recent woes, the US Treasury has sunk over $17 billion of taxpayer money in to Ally Financial (previously known as GMAC) making the US government majority owner. Ally Financial has in turn assured financing for GM and Chrysler vehicle sales and dealership inventories. This taxpayer expenditure is conveniently left out when auto industry bailout costs are calculated. The proclaimed success of GM warrants the demand that taxpayers no longer remain on the hook through backdoor bailouts siphoned through Ally Financial or in the form of …

GM’s Smoke and Mirrors Accounting

GM logoGeneral Motor’s CEO, Dan Akerson, recently proclaimed that GM’s balance sheet was “pristine” and that the company was aiming to have zero debt in the future. I guess the question is, “how do you define pristine?”

The recent prospectus for GM’s Preferred Series “B” share offering gives the following accounting of some of the company’s liabilities: as of September 30, 2010, $10.3 billion of outstanding debt and $9 billion Preferred Series “A” obligations. In addition, there are still under-funded UAW pension obligations of over $20 billion. The Preferred “B” share offering was for another approximate $4.5 billion of shares paying a 4.75% dividend.  This is money that GM already has mostly committed to UAW obligations.

The issuance of preferred shares to pay other obligations is a disturbing reminder of GM’s “smoke and mirrors” approach to public relations. While Akerson boasts about steering GM towards zero debt, the debt obligations are …

Don’t Pop the Corks for GM Just Yet

Most news we hear regarding General Motor’s IPO this week proclaim the event as a huge success.  It would be prudent to consider whether the process leading up to and following the auto industry restructuring should be a template for future restructurings, as Al Koch (head of Motors Liquidation or “Old GM”) has stated. While some may argue the positive aspects of the GM bailout, it is more than just sour grapes or GM hating that contributes to a desire to have a continuing dialogue on the precedent setting procedures that may lead to a subversion of contract law that has governed for over 200 years in this country.

First, there should be recognition that some creditors were favored over others in the GM bankruptcy process.  It can be spun any way apologists want, but the facts are clear that politically favored groups, i.e. the UAW, were favored over bondholders. …

GM IPO Land Mines

GM logoIt would be easy to believe that the GM IPO is an opportunity to make easy money based on the reporting by television news networks. Themes such as allowing retail investors to “benefit” from the IPO imply that GM stock has no where to go but up.  However, under the surface of this optimistic appearance lurk some hazards.

A little research on the web uncovers some of the red flags potential investors in GM should be aware of. Rather than speculate on why it is a “Tale of Two Cities” when it comes to GM reporting by TV networks compared to the internet, let’s focus on one of the major warning signs that the outlook for GM may not be as rosy as expected.

General Motors admits on their S-1 SEC filing that its financial reporting may not be accurate. In GM’s words, “The lack of effective internal controls could …

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