(2) 2008 10 22_kerkorian_jump
1
K CMY DETROIT FREE PRESS | WWW.FREEP.COM WEDNESDAY, OCT. 22, 2008 15A I t’s gut-check time in De- troit, as the highest-stakes game of chicken in automo- tive history hurtles forward. What will become of Chrysler? And of General Motors, for that matter? Chrysler’s 80% owner, Cerberus Capital Manage- ment, desperately wants out of car and truck manufactur- ing, and will soon sell Chrys- ler to GM, merge it into the Renault-Nissan alliance, break it into pieces and pawn them, or just crash the Au- burn Hills automaker into bankruptcy court. GM, careening toward insolvency itself, sees in Cer- berus-Chrysler a wad of cash that may help GM buy enough time to see the promised land of 2010, when the U.S. econo- my is stronger, when retiree health care costs shift to a UAW-run trust, when the electric Volt and other hot, new cars hit the market. Cerberus would prefer to dump — er, trade — Chrysler and some cash to GM in re- turn for the 49% of the GMAC finance outfit still owned by GM. But to make the numbers work, GM would have to va- porize a bunch of plants, scores of Chrysler, Dodge and Jeep dealers, and 30,000 jobs — quickly and ruthlessly. We could label GM man- agement with many adjec- tives, after decades of vanish- ing profits and declining stock value, but quick and ruthless would not be among them. GM’s downsizing under CEO Rick Wagoner and his prede- cessors has been deliberate. And there’s been nothing ruthless about the buyouts of tens of thousands of GM workers with packages that have been generous to a fault. It’s hard to imagine Wag- oner or GM’s board of direc- tors turning suddenly cut- throat about job slashing, especially as they plead with Washington, D.C. — possibly led by a President Barack Obama and Speaker Nancy Pelosi — for billions more federal dollars to survive until 2010. However, if GM does not have the guts to grab and dismantle Chrysler, then GM must live with the most likely alternative … Carlos Ghosn, the super- star chief executive officer who rescued Nissan and cob- bled the Renault-Nissan mar- riage together, still longs for an American automaker to complete his three-legged stool vision of a global alli- ance. Renault-Nissan has made its interest in Chrysler assets known to Cerberus, and Ghosn’s people have made due-diligence visits recently to some Chrysler facilities. The scary part, for GM, of Chrysler-Renault-Nissan would be twofold: French carmaker Renault, which does not currently sell cars in the United States, would suddenly have a large dealer network at its disposal. Both Renault and Nissan have strong models and engi- neering resources in small cars, where Chrysler is weak. Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor, figures that if GM swallows Chrysler, it would operate Jeep and minivan lines and keep about 15,000 hourly workers and 2,000 or 3,000 salaried people. That means more than 30,000 of Chrysler’s 49,000 U.S. work- ers would lose jobs. If Renault-Nissan does a deal with Chrysler, McAlin- den predicts that Dodge Ram pickups and a V8 engine plant would survive, in addition to Jeep and minivans. That would equal about 3,000 more jobs preserved under the Renault-Nissan alternative. These are both bleak sce- narios for Michigan, where more than half of Chrysler’s existing jobs would disappear. There is perhaps a dollop of grim satisfaction to be had from the misfortunes of some highfalutin financial know-it- alls from New York and Las Vegas who thought they could parachute into Detroit and show the dimwitted locals how to make some money in the auto business. Kirk Kerkorian, the Vegas billionaire, is apparently pull- ing up stakes in his latest Detroit foray. After buying 140 million shares of Ford stock for up to $8.50 a share, he’s begun dumping Ford shares for $2.43 a share. David Stockman, former budget director under Presi- dent Ronald Reagan, was a Wall Street hotshot until he ran auto supplier Collins & Aikman into bankruptcy in 2005. He was indicted in 2007 on charges of defrauding C&A investors and is awaiting trial. Lastly, we have the wiz- ards of Cerberus, CEO Steven Feinberg, chairman and for- mer U.S. Treasury Secretary John Snow, and their hand- picked guy to run Chrysler, former Home Depot CEO Robert Nardelli. They vowed a long-term effort, virtually a patriotic crusade, to revive and grow Chrysler. That was just a year ago. Nice job, guys. Contact TOM WALSH at 313-223- 4430 or [email protected]. MERGER OUTLOOK Sorting through automakers’ mayhem TOM WALSH Executive Officer Alan Mulal- ly, who came to Ford in 2006 from Boeing Co. at the behest of Bill Ford, the great-grand- son of company founder Henry Ford and the company’s exec- utive chairman. Officially, Tracinda gave this explanation: “In light of the current economic and mar- ket conditions, it sees unique value in the gaming and hospi- tality and oil and gas industries and has, therefore, decided to reallocate its resources and to focus on those industries.” Erich Merkle, director of automotive forecasting at IRN Inc. in Grand Rapids, said he was surprised to see Kerkor- ian pulling out of Ford when the share prices were so low. However, he said the dis- tressed economy has exposed a lot of opportunities where there might be easier upside than in the auto industry. “It could be other opportu- nities,” Merkle said. But few seemed willing to take the statement from Ker- korian at face value, in light of other goings-on at Ford and merger talks between General Motors Corp. and Chrysler LLC. Kerkorian is well known in Detroit for his failed takeover attempt of Chrysler Corp. in 1995 and his frustrated efforts to push GM into an alliance with Renault SA and Nissan Motor Co. in 2006. Turbulent times It was already a turbulent time at the 105-year-old Dear- born automaker. On Oct. 10, Don Leclair, Ford’s chief financial officer and an associate of Jerome York, Kerkorian’s trusted ad- viser on automotive issues, an- nounced his sudden retire- ment, effective Nov. 1. That day, Ford shares, which had traded in the mid- teens just four years ago, closed at $1.99. A week later, two board members resigned, citing oth- er responsibilities related to the global economic crisis. Ford, which has lost almost $24 billion over the last 2 1 ⁄2 years, is close to releasing its third-quarter results. The au- tomaker is expected to post about $2 billion in losses, ex- cluding onetime charges, ac- cording to estimates from ana- lysts reporting to Thomson One Analytics. High-level Ford executives have insisted to the Free Press that there is no management discord at the company. Ford issued this statement Tuesday in response to Tracin- da’s filing with the U.S. Securi- ties and Exchange Commis- sion: “We remain confident in and focused on our plan to transform Ford into a lean global enterprise delivering profitable growth for all.” Kerkorian’s next move With all of Ford’s challeng- es and the buzz over at GM and Chrysler, some industry watchers were also speculat- ing that perhaps Kerkorian would pull his money out of Ford and use it to make anoth- er run at GM or Chrysler. “There may be something there,” said Mark Warnsman, an automotive analyst and the former controller for product development finance for Ford’s Jaguar and Land Rover operations. “There may be a role for him to play in helping to get a deal done.” With markets depressed, Kerkorian might be under fi- nancial pressures himself. Kerkorian, who owns 148 million shares of MGM Mirage, for a controlling 54% stake, has watched the value of that com- pany’s stock plummet this year: from more than $50 a share this spring and to closing Tuesday at $14.41. Aaron Bragman, an auto analyst with Global Insight in Troy, said he thinks Kerkorian is reducing his stake in Ford because of MGM. “I think this has more to do with his personal financial situ- ation,” Bragman said. While Kerkorian has long been seen as an unwelcomed instigator in Detroit, there is an unfortunate aspect to his apparent pullout from Ford, if he follows through on the sale. Kerkorian had been seen as a possible source of cash for Ford if the automaker began to run short and found creditors unwilling to lend. Contact SARAH A. WEBSTER at [email protected]. STOCK PRICE Detroit Free Press Source: Free Press research Ford Motor Co. Kerkorian buys in and cashes out $9 8 7 5 6 4 3 2 0 1 April May June July August September October March Sept. 15: Alan Mulally tells Reuters that Ford has no plans to seek additional investment from billionaire investor Kerkorian or to press the UAW for additional concessions. Close: $4.74 Tuesday: Tracinda announces it sold 7.3 million shares at an average price of $2.43 and may sell the remaining 133.5 million shares. Close: $2.18 April 2: Tracinda Corp. quietly begins buying Ford shares. Close: $6.13 April 28: Kirk Kerkorian announces he had purchased 4.7% of Ford shares. Close: $8.21 May 9: Tracinda officially announces tender offer for 20 million shares. Close: $8.10 June 9: Tracinda reveals that holders of 46.8% of Ford's shares want to sell their stocks. Close: $6.36 June 13: Tracinda says it has “explored, and may continue to explore, the possible infusion of additional capital into (Ford) in order to give (Ford) more flexibility in implementing its turnaround process.” Close: $6.27 FORD ❘ Why is the question as Kerkorian unloads shares From Page 1A 2003 photo by MIKE MERGEN/Bloomberg News Billionaire investor Kirk Kerkorian, center — shown in Wilmington, Del. — was Ford’s largest individual shareholder outside of the Ford family. When General Motors Corp. and Ford Motor Co. an- nounce their third-quarter losses, most eyes won’t be on the bottom-line profits: Inves- tors and analysts will be focus- ing on the automakers’ cash. During the first half of the year, the automakers each burned through more than a billion dollars a month, on average — a blaze that likely intensified as the economy fal- tered over the past few months and prompted the companies to consider once- unthinkable strategic moves, experts told the Free Press. While many think GM and Ford will continue to burn through massive amounts of their reserves through 2009, Himanshu Patel, an automo- tive analyst with J.P. Morgan, said he thinks both are compa- nies “are likely to survive.” When the automakers re- lease their third-quarter fi- nancial results in a few weeks, Wall Street, the auto industry — and Michigan — finally will get to see how much cash the automakers depleted during this ongoing global economic crisis. GM and Ford are expected to report losses of $3.46 a share and 90 cents a share, re- spectively, according to a con- sensus of estimates from ana- lysts reporting into Thomson One Analytics. Given the number of out- standing shares in their com- pany, that is an estimated loss of about $2 billion for each company, excluding special charges for restructurings and other matters. But during these turbulent times, stakeholders will be more closely eyeing the com- panies’ reserves of cash and credit — a reliable gauge of the company’s situation that can help estimate how much lon- ger the automakers can sur- vive in this market without a government bailout or some other form of rescue. On Tuesday, Patel said he expects that cash reserves for the automakers have deterio- rated at an accelerated rate during the third quarter and he revised his long-term cash forecasts. He now estimates that GM and Ford will burn through $20.7 billion and $17.7 billion, respectively, through 2009 to support their operations and restructuring efforts. In 2010, he forecasts both automakers will have break- even or positive cash flows. In all, he lowered his fore- casted cash flows through 2010 by $8 billion for GM and $5 billion for Ford. David Healy, a veteran auto analyst with Burnham Securi- ties, told the Free Press in an interview last week that he ex- pects the cash situation of De- troit’s automakers to be “ugly” when it is revealed in the next few weeks. “I think they have enough to get through 2009,” he said. “Beyond that, they would have to depend on government help, particularly GM.” GM’s troubles Through the first half of the year, GM burned through $1.05 billion a month while Ford went through $1.3 billion. That left GM, which needs between $11 billion and $14 bil- lion to run its business every month, with $21 billion in cash, plus another $7.6 billion in credit, for total liquidity of $28.6 billion, at the end of June. Liquidity is a measure of a company’s cash and other as- sets that can be converted to cash quickly. On July 15, GM also said it is trying to boost its liquidity by $15 billion through 2009, through a variety of cost-cut- ting and other measures. Ford, meanwhile, had $26.6 billion in cash, plus another $11.6 billion in available credit, for a total liquidity of $38.2 bil- lion. But if economic conditions remain as dire as they are now, those cash reserves won’t last long, a realization that has led Standard & Poor’s credit rat- ing agency to put both auto- makers on credit watch for a downgrade with negative im- plications. “Deteriorating industry fundamentals will be a serious challenge to liquidity during 2009,” S&P wrote in notes about GM and Ford on Oct. 9. J.P. Morgan’s Patel fore- casts that GM will fall below the $12.5-billion midpoint of its minimum required cash range in mid-2009, while Ford will breach its minimum level of required cash reserves, which he estimates at $9 billion near the end of 2009. “GM is rapidly running out of options because of their cash drain,” said Aaron Brag- man, a research analyst with Global Insight in Troy. The automakers, of course, are doing whatever they can to raise or preserve their own cash reserves. GM is talking to Chrysler LLC about a merger, in addi- tion to other actions. There is speculation that Ford, which already has sold Jaguar and Land Rover, is considering un- loading its stakes in Mazda and Volvo. The automakers also are reportedly ramping up their lobbying for an additional $25 billion in government loans, on top of the $25 billion they re- cently were promised. Bruce Clark, senior vice president at Moody’s Inves- tors Service, told the Free Press on Monday that both GM and Ford were caught off guard by the current market environment and both face a delicate cash situation. “Once you get into 2009, mid-2009, it looks pretty diffi- cult” for both automakers, Clark said. Contact SARAH A. WEBSTER at [email protected]. 3RD-QUARTER PREDICTIONS Outlook gets worse for Ford, GM cash reserves Ford’s cash reserves In billions In millions 3rd quarter Ending cash TOTAL LIQUIDITY $47.6 NET INCOME -$380 Available credit and other funding sources Available credit and other funding sources $35.6 $12.0 4th quarter $46.6 -$2,753 $34.7 $11.9 1st quarter $40.6 $100 $28.7 $11.9 2nd quarter $38.2 -$8,667 $26.6 $11.6 2008 2007 GM’s cash reserves In billions In millions 3rd quarter TOTAL LIQUIDITY $30.0 NET INCOME -$38,963 $30.0 4th quarter $27.3 -$722 $27.3 1st quarter $30.9 -$3,251 $23.9 $7.0 2nd quarter $28.6 -$15,471 $21.0 $7.6 2008 2007 Ending cash Detroit Free Press Source: Free Press research By SARAH A. WEBSTER FREE PRESS BUSINESS WRITER F15A_22_0D_X#color#broad#single
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Transcript of (2) 2008 10 22_kerkorian_jump
KC M Y
DETROIT FREE PRESS | WWW.FREEP.COM WEDNESDAY, OCT. 22, 2008 15A
It’s gut-check time in De-troit, as the highest-stakes
game of chicken in automo-tive history hurtles forward.
What will become ofChrysler? And of GeneralMotors, for that matter?
Chrysler’s 80% owner,Cerberus Capital Manage-ment, desperately wants outof car and truck manufactur-ing, and will soon sell Chrys-ler to GM, merge it into theRenault-Nissan alliance,break it into pieces and pawnthem, or just crash the Au-burn Hills automaker intobankruptcy court.
GM, careening towardinsolvency itself, sees in Cer-berus-Chrysler a wad of cashthat may help GM buy enoughtime to see the promised landof 2010, when the U.S. econo-my is stronger, when retireehealth care costs shift to aUAW-run trust, when theelectric Volt and other hot,new cars hit the market.
Cerberus would prefer todump — er, trade — Chryslerand some cash to GM in re-turn for the 49% of the GMACfinance outfit still owned byGM. But to make the numberswork, GM would have to va-porize a bunch of plants,scores of Chrysler, Dodge andJeep dealers, and 30,000 jobs— quickly and ruthlessly.
We could label GM man-agement with many adjec-tives, after decades of vanish-ing profits and declining stockvalue, but quick and ruthlesswould not be among them.GM’s downsizing under CEORick Wagoner and his prede-cessors has been deliberate.And there’s been nothing
ruthless about the buyouts oftens of thousands of GMworkers with packages thathave been generous to a fault.
It’s hard to imagine Wag-oner or GM’s board of direc-tors turning suddenly cut-throat about job slashing,especially as they plead withWashington, D.C. — possiblyled by a President BarackObama and Speaker NancyPelosi — for billions morefederal dollars to survive until2010.
However, if GM does nothave the guts to grab anddismantle Chrysler, then GMmust live with the most likelyalternative …
Carlos Ghosn, the super-star chief executive officerwho rescued Nissan and cob-bled the Renault-Nissan mar-riage together, still longs foran American automaker tocomplete his three-leggedstool vision of a global alli-ance.
Renault-Nissan has madeits interest in Chrysler assetsknown to Cerberus, andGhosn’s people have madedue-diligence visits recentlyto some Chrysler facilities.
The scary part, for GM, ofChrysler-Renault-Nissanwould be twofold:
French carmaker Renault,which does not currently sellcars in the United States,would suddenly have a largedealer network at its disposal.
Both Renault and Nissanhave strong models and engi-neering resources in smallcars, where Chrysler is weak.
Sean McAlinden, chiefeconomist for the Center forAutomotive Research in AnnArbor, figures that if GMswallows Chrysler, it wouldoperate Jeep and minivanlines and keep about 15,000hourly workers and 2,000 or3,000 salaried people. Thatmeans more than 30,000 ofChrysler’s 49,000 U.S. work-
ers would lose jobs.If Renault-Nissan does a
deal with Chrysler, McAlin-den predicts that Dodge Rampickups and a V8 engine plantwould survive, in addition toJeep and minivans. Thatwould equal about 3,000 morejobs preserved under theRenault-Nissan alternative.
These are both bleak sce-narios for Michigan, wheremore than half of Chrysler’sexisting jobs would disappear.
There is perhaps a dollopof grim satisfaction to be hadfrom the misfortunes of somehighfalutin financial know-it-alls from New York and LasVegas who thought they couldparachute into Detroit andshow the dimwitted localshow to make some money inthe auto business.
Kirk Kerkorian, the Vegasbillionaire, is apparently pull-ing up stakes in his latestDetroit foray. After buying140 million shares of Ford
stock for up to $8.50 a share,he’s begun dumping Fordshares for $2.43 a share.
David Stockman, formerbudget director under Presi-dent Ronald Reagan, was aWall Street hotshot until heran auto supplier Collins &Aikman into bankruptcy in2005. He was indicted in 2007on charges of defraudingC&A investors and is awaitingtrial.
Lastly, we have the wiz-ards of Cerberus, CEO StevenFeinberg, chairman and for-mer U.S. Treasury SecretaryJohn Snow, and their hand-picked guy to run Chrysler,former Home Depot CEORobert Nardelli. They voweda long-term effort, virtually apatriotic crusade, to reviveand grow Chrysler.
That was just a year ago.Nice job, guys.
Contact TOM WALSH at 313-223-4430 or [email protected].
MERGER OUTLOOK
Sorting through automakers’ mayhemTOM WALSH
Executive Officer Alan Mulal-ly, who came to Ford in 2006from Boeing Co. at the behestof Bill Ford, the great-grand-son of company founder HenryFord and the company’s exec-utive chairman.
Officially, Tracinda gavethis explanation: “In light ofthe current economic and mar-ket conditions, it sees uniquevalue in the gaming and hospi-tality and oil and gas industriesand has, therefore, decided toreallocate its resources and tofocus on those industries.”
Erich Merkle, director ofautomotive forecasting at IRNInc. in Grand Rapids, said hewas surprised to see Kerkor-ian pulling out of Ford whenthe share prices were so low.
However, he said the dis-tressed economy has exposeda lot of opportunities wherethere might be easier upsidethan in the auto industry.
“It could be other opportu-nities,” Merkle said.
But few seemed willing totake the statement from Ker-korian at face value, in light ofother goings-on at Ford andmerger talks between GeneralMotors Corp. and ChryslerLLC.
Kerkorian is well known inDetroit for his failed takeoverattempt of Chrysler Corp. in1995 and his frustrated effortsto push GM into an alliancewith Renault SA and NissanMotor Co. in 2006.
Turbulent timesIt was already a turbulent
time at the 105-year-old Dear-born automaker.
On Oct. 10, Don Leclair,Ford’s chief financial officerand an associate of JeromeYork, Kerkorian’s trusted ad-viser on automotive issues, an-nounced his sudden retire-ment, effective Nov. 1.
That day, Ford shares,which had traded in the mid-teens just four years ago,
closed at $1.99.A week later, two board
members resigned, citing oth-er responsibilities related tothe global economic crisis.
Ford, which has lost almost$24 billion over the last 21⁄2
years, is close to releasing itsthird-quarter results. The au-tomaker is expected to postabout $2 billion in losses, ex-cluding onetime charges, ac-cording to estimates from ana-lysts reporting to ThomsonOne Analytics.
High-level Ford executiveshave insisted to the Free Pressthat there is no managementdiscord at the company.
Ford issued this statementTuesday in response to Tracin-da’s filing with the U.S. Securi-ties and Exchange Commis-sion: “We remain confident inand focused on our plan totransform Ford into a leanglobal enterprise deliveringprofitable growth for all.”
Kerkorian’s next moveWith all of Ford’s challeng-
es and the buzz over at GM andChrysler, some industrywatchers were also speculat-ing that perhaps Kerkorianwould pull his money out ofFord and use it to make anoth-er run at GM or Chrysler.
“There may be somethingthere,” said Mark Warnsman,
an automotive analyst and theformer controller for productdevelopment finance forFord’s Jaguar and Land Roveroperations. “There may be arole for him to play in helpingto get a deal done.”
With markets depressed,Kerkorian might be under fi-nancial pressures himself.
Kerkorian, who owns 148million shares of MGM Mirage,for a controlling 54% stake, haswatched the value of that com-pany’s stock plummet thisyear: from more than $50 ashare this spring and to closingTuesday at $14.41.
Aaron Bragman, an autoanalyst with Global Insight inTroy, said he thinks Kerkorianis reducing his stake in Fordbecause of MGM.
“I think this has more to dowith his personal financial situ-ation,” Bragman said.
While Kerkorian has longbeen seen as an unwelcomedinstigator in Detroit, there isan unfortunate aspect to hisapparent pullout from Ford, ifhe follows through on the sale.
Kerkorian had been seen asa possible source of cash forFord if the automaker began torun short and found creditorsunwilling to lend.
Contact SARAH A. WEBSTER [email protected].
STOCK PRICE
Detroit Free PressSource: Free Press research
Ford Motor Co.
Kerkorian buys in and cashes out
$9
8
7
5
6
43
2
0
1
April May June July August September OctoberMarch
Sept. 15: Alan Mulally tells Reuters that Ford has no plans to seek additional investment from billionaire investor Kerkorian or to press the UAW for additional concessions.Close: $4.74
Tuesday: Tracinda announces it sold 7.3 million shares at an average price of $2.43 and may sell the remaining 133.5 million shares.Close: $2.18
April 2: Tracinda Corp. quietly begins buying Ford shares.Close: $6.13
April 28: Kirk Kerkorian announces he had purchased 4.7% of Ford shares.Close: $8.21
May 9: Tracinda officially announces tender offer for 20 million shares.Close: $8.10
June 9: Tracinda reveals that holders of 46.8% of Ford's shares want to sell their stocks.Close: $6.36
June 13: Tracinda says it has “explored, and may continue to explore, the possible infusion of additional capital into (Ford) in order to give (Ford) more flexibility in implementing its turnaround process.”Close: $6.27
FORD � Why is the questionas Kerkorian unloads shares
From Page 1A
2003 photo by MIKE MERGEN/Bloomberg News
Billionaire investor Kirk Kerkorian, center — shown in Wilmington, Del.— was Ford’s largest individual shareholder outside of the Ford family.
When General MotorsCorp. and Ford Motor Co. an-nounce their third-quarterlosses, most eyes won’t be onthe bottom-line profits: Inves-tors and analysts will be focus-ing on the automakers’ cash.
During the first half of theyear, the automakers eachburned through more than abillion dollars a month, onaverage — a blaze that likelyintensified as the economy fal-tered over the past fewmonths and prompted thecompanies to consider once-unthinkable strategic moves,experts told the Free Press.
While many think GM andFord will continue to burnthrough massive amounts oftheir reserves through 2009,Himanshu Patel, an automo-tive analyst with J.P. Morgan,said he thinks both are compa-nies “are likely to survive.”
When the automakers re-lease their third-quarter fi-nancial results in a few weeks,Wall Street, the auto industry— and Michigan — finally willget to see how much cash theautomakers depleted duringthis ongoing global economiccrisis.
GM and Ford are expectedto report losses of $3.46 ashare and 90 cents a share, re-spectively, according to a con-sensus of estimates from ana-lysts reporting into ThomsonOne Analytics.
Given the number of out-standing shares in their com-pany, that is an estimated lossof about $2 billion for eachcompany, excluding specialcharges for restructuringsand other matters.
But during these turbulenttimes, stakeholders will bemore closely eyeing the com-panies’ reserves of cash andcredit — a reliable gauge of thecompany’s situation that canhelp estimate how much lon-ger the automakers can sur-vive in this market without agovernment bailout or someother form of rescue.
On Tuesday, Patel said heexpects that cash reserves forthe automakers have deterio-rated at an accelerated rateduring the third quarter andhe revised his long-term cashforecasts.
He now estimates that GMand Ford will burn through$20.7 billion and $17.7 billion,respectively, through 2009 tosupport their operations andrestructuring efforts.
In 2010, he forecasts bothautomakers will have break-even or positive cash flows.
In all, he lowered his fore-casted cash flows through2010 by $8 billion for GM and$5 billion for Ford.
David Healy, a veteran autoanalyst with Burnham Securi-ties, told the Free Press in aninterview last week that he ex-pects the cash situation of De-troit’s automakers to be “ugly”when it is revealed in the nextfew weeks.
“I think they have enough toget through 2009,” he said.“Beyond that, they would haveto depend on governmenthelp, particularly GM.”
GM’s troublesThrough the first half of the
year, GM burned through$1.05 billion a month whileFord went through $1.3 billion.
That left GM, which needsbetween $11 billion and $14 bil-lion to run its business everymonth, with $21 billion in cash,plus another $7.6 billion incredit, for total liquidity of$28.6 billion, at the end ofJune.
Liquidity is a measure of acompany’s cash and other as-sets that can be converted tocash quickly.
On July 15, GM also said it istrying to boost its liquidity by$15 billion through 2009,through a variety of cost-cut-ting and other measures.Ford, meanwhile, had $26.6billion in cash, plus another$11.6 billion in available credit,for a total liquidity of $38.2 bil-lion.
But if economic conditionsremain as dire as they are now,those cash reserves won’t lastlong, a realization that has ledStandard & Poor’s credit rat-ing agency to put both auto-makers on credit watch for adowngrade with negative im-plications.
“Deteriorating industry
fundamentals will be a seriouschallenge to liquidity during2009,” S&P wrote in notesabout GM and Ford on Oct. 9.
J.P. Morgan’s Patel fore-casts that GM will fall belowthe $12.5-billion midpoint of itsminimum required cash rangein mid-2009, while Ford willbreach its minimum level ofrequired cash reserves, whichhe estimates at $9 billion nearthe end of 2009.
“GM is rapidly running outof options because of theircash drain,” said Aaron Brag-man, a research analyst withGlobal Insight in Troy.
The automakers, of course,are doing whatever they can toraise or preserve their owncash reserves.
GM is talking to ChryslerLLC about a merger, in addi-tion to other actions. There isspeculation that Ford, whichalready has sold Jaguar andLand Rover, is considering un-loading its stakes in Mazdaand Volvo.
The automakers also arereportedly ramping up theirlobbying for an additional $25billion in government loans, ontop of the $25 billion they re-cently were promised.
Bruce Clark, senior vicepresident at Moody’s Inves-tors Service, told the FreePress on Monday that bothGM and Ford were caught offguard by the current marketenvironment and both face adelicate cash situation.
“Once you get into 2009,mid-2009, it looks pretty diffi-cult” for both automakers,Clark said.
Contact SARAH A. WEBSTER [email protected].
3RD-QUARTER PREDICTIONS
Outlook gets worse forFord, GM cash reserves
Ford’s cash reservesIn billions
In millions
3rd quarter
Ending cash
TOTALLIQUIDITY $47.6
NET INCOME-$380
Availablecredit and otherfunding sources
Availablecredit and otherfunding sources
$35.6
$12.0
4th quarter
$46.6
-$2,753
$34.7
$11.9
1st quarter
$40.6
$100
$28.7
$11.9
2nd quarter
$38.2
-$8,667
$26.6
$11.6
20082007
GM’s cash reservesIn billions
In millions
3rd quarterTOTALLIQUIDITY $30.0
NET INCOME-$38,963
$30.0
4th quarter
$27.3
-$722
$27.3
1st quarter
$30.9
-$3,251
$23.9
$7.0
2nd quarter
$28.6
-$15,471
$21.0
$7.6
20082007
Ending cash
Detroit Free PressSource: Free Press research
By SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
F15A_22_0D_X#color#broad#single
