71-year old Mercury is being killed off. Why?
Oldsmobile cost General Motors about a billion dollars to close. How much will it cost Ford to close Mercury?
These are questions that need to be answered when you are allowed a certain amount of money in stock and you have to decide if you want to diversify some of your Ford stock into the new General Motors IPO.
Ford vs. General Motors
If you were allowed to only hold so much stock in automotive holdings would you buy Ford Motor Company (F: NYSE $11.77) or a stock that is about to come out with General Motors?
Ford Motor Company will not die because of their stock price. Howe’ver, if General Motors has a bad IPO and a bad third quarter General Motors could be in for a rough ride.
Ford has $27.3 billion in automotive debt.
Ford has two brands:
Ford (up 27% in sales as of 7/2010)
Lincoln (up 4.1% in sales as of 7/2010) is promising seven new or significantly improved Lincolns in the next four years
Ford will be closing down Mercury at an unknown cost to Ford.
dumped by Ford:
GM has only $8.1 billion after shedding much of it’s debt in a bankruptcy reorganization last year.
$2.2 billion in the first half of 2010
GM got a $50 billion bailout, of which $43.3 billion still needs to be repaid.
The Government owns 304 million shares of General Motors stock.
General Motors has four brands:
General Motors has closed all the brands it intends to close.
Eliminating the government stake, and word, in “Government Motors” is critical for General Motors and the Obama administration.
dumped by GM:
Pontiac, Saturn, Saab and Hummer
You got to know when to hold ’em, know when to fold ’em
So GM’s Ed Whitacre is leaving after two quarters of profitability, but before an IPO comes out. In the conference call today Whitacre said, “My public duty was to return this company to greatness, and I didn’t want to stay a day beyond that.”
General Motor’s conference call was full of surprises today when they announced the quarterly numbers. Even more surprising was that Ed Whitacre was going to step down as CEO effective September 1, 2010 and step down as Chairman of the Board and a board of director effective December 31, 2010.
First the numbers
Droll as they might be, compared to the rest of the news, the numbers are good.
General Motors Revenue for the 2nd quarter.
General Motors profit for the second quarter. This number is earnings before taxes (EBIT), so look for the next number, which is
While profit is good, net income is better. General Motors posted the best net income they’ve had since 2004. This number parlays out to $2.55 earnings per share.
The difference in loss between the first quarter and second quarter for GM Europe. GM Europe had a loss $200 million in the second quarter, an improvement of $300 million from the first quarter.
Unfortunately, GM International Operations earned $700 million in the second quarter, down from $1.2 billion in the first quarter.
$2.8 billion in free money!
Oh, alright maybe it was $2.8 billion in free cash flow. Not really free money, but all money is good and spent with equal glee. GM closed the second quarter with $32.5 billion in cash and marketable securities.
Does General Motors still have challenges that need to be resolved?
According to an article written by Michelle Krebs for Edmunds.com, using Edmunds.com data, General Motors has met some challenges, still has a way to go to be at U.S. industry standards.
– Today most GM vehicles sell for an average of 15.7 percent off sticker price; the industry average is 13.7 percent. During first quarter, GM’s discount was 13.9 percent and the industry’s was 13.2 percent. In second quarter of last year, GM’s discount was 16.6 percent and the industry’s was 15.5 percent.
– GM dealer inventory is at 47 days to turn, down from 53 in first quarter and from 117 in the second quarter of last year, demonstrating GM, indeed, has skillfully maintained discipline in matching supply to demand.
– GM’s True Cost of Incentives (TCI), Edmunds’ proprietary calculation of incentives, for second quarter is $3,691 per vehicle sold; the industry average is $2,672. GM’s incentives have climbed an average of nearly $400 per vehicle since first quarter of this year while the industry average rose only $66 per vehicle sold. This time last year, GM incentives averaged $776 higher than industry average; currently GM averages $1,018 higher.
– Of all new GM financing deals, 14.8 percent are leases; this is the highest lease penetration rate for GM since July 2008.
Why is Whitacre leaving?
No one knows why he is leaving before an IPO is out. They can conjecture that Dan Akerson might be better for the IPO job and has had more experience as a CEO, but this was not said.
As I talked to people inside General Motors over the last year they have all said the same thing. Whitacre talks to people, he shows up unannounced and talks to the guy on the line. He talks to people inside General Motors that he thinks will tell him what needs to be changed.
Whitacre has acclaimed himself as a non-car guy. He has to listen to people working inside General Motors in order to find out what needs to be done. But he does that. He makes the changes, changes the people, changes the “frozen middle” of a hundred year old company that knew it had to be changed, but was still risk averse.
In a briefing with analysts and media Whitacre said, “We’ve positioned the company for success and things look good. There’s a foundation in place, a good foundation. I see no reason to delay.”
The fairly consistent part of Whitacre’s regime was change. As one GMer put it, “if things weren’t changing, one started feeling nervous”.
Is Akerson the right person for the job?
In an Associated Press interview Bob Lutz, a former vice chairman of GM who retired earlier this year, said in an e-mail that Akerson doesn’t need auto experience to run GM because it has a solid management team of industry experts. But he does need to listen to that team, Lutz said
“He’s (Akerson) very strong, very opinionated, not always right, and needs to work on listening skills,” Lutz said. “If he can bring himself to trust his now-outstanding senior executive group and lead rather than direct, I think he’ll do an outstanding job.”
Whitacre, Lutz said, had no industry experience but focused the company on designing and building world-class cars and trucks.
When you think of a board of director you think any one of those people should be able to step in and be CEO of the company they are a board of director for. Dan Akerson’s been a Board of Director since July, 2009.
According to Akerson’s bio he appears to be the right person to take the company public. The government owns 61 percent of General Motors, and an IPO is supposed to pay the Government back.
The question is, will he be another interim CEO, or an ongoing concern CEO? Akerson, 61, will be GM’s fourth CEO in 18 months.
Think about that. Think about how frazzled you would be if every 4 months you had a new boss. A new boss that was brought in the with express intent of thawing out and thinning out the old regime.
According to Carlyle’s website, Akerson’s bio is a plethora of CEO and Chairman jobs sprinkled in with some Board of Director
Akerson has been Chairman, Chief Executive Officer or President of several major companies, including General Instrument, MCI, Nextel and XO Communications.
Akerson is a member of the Board of Directors of the American Express Company, Booz Allen Hamilton, Freescale Semiconductor and General Motors Company.
Will Akerson need to step down as board of director for these other companies when he becomes CEO of General Motors?