GM downgraded to junk bond status
05-05-2005, 03:43 PM
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GM downgraded to junk bond status Quoted from Marketwatch.com
S&P cuts GM's bond rating to junk
By Shawn Langlois, MarketWatch
Last Update: 4:29 PM ET May 5, 2005
SAN FRANCISCO (MarketWatch) - Ratings concern Standard & Poor's, in a widely expected move, cut its credit rating on General Motors Corp. to "junk" status Thursday, a day after the automaker's shares turned in a historic rally.
GM's stock (GM: news, chart, profile) finished the busy trading day down $1.94, or 5.9%, to close at $30.86 after jumping 18% on Wednesday in reaction to Kirk Kerkorian's bid to double his stake in GM.
"The downgrade to non-investment-grade reflects our conclusion that management's strategies may be ineffective in addressing GM's competitive disadvantages," S&P said in a note.
General Motors and all related entities had their ratings cut two notches to BB from BBB.
The move affects about $300 billion of debt from the world's biggest car maker. Labeling GM's bonds non-investment grade will also drive up the company's cost of doing business, making it more expensive for it to borrow money in the financial market.
"GM is firmly committed to improving its performance as quickly as possible, and today's decision will not deter GM from achieving its objectives," said GM spokesman Jerry Dubrowski.
The downgrade follows months of slumping sales, shrinking market share, and a share price that had fallen to a 12-year low, pushing the yield on GM's long-term bonds to their highest level in two years.
GM, the biggest issuer of corporate bonds in the U.S., has taken steps ranging from shuffling the top brass at its North American operations to pleading with union officials about reducing health-car costs to pulling its ads from the Los Angeles Times when it didn't like what the newspaper had to say.
Ahead of the downgrade, the move had been mostly priced in to the bonds, which for months have been trading in line with other issues rated as "junk". In some cases, spreads for GM bonds have even been wider than other "junk" bonds. See full bond story.
The company's bonds will likely feel increased pressure as investment-grade portfolio managers could be forced to unload their General Motors holdings since they no longer meet their standards.
By Shawn Langlois, MarketWatch
Last Update: 4:29 PM ET May 5, 2005
SAN FRANCISCO (MarketWatch) - Ratings concern Standard & Poor's, in a widely expected move, cut its credit rating on General Motors Corp. to "junk" status Thursday, a day after the automaker's shares turned in a historic rally.
GM's stock (GM: news, chart, profile) finished the busy trading day down $1.94, or 5.9%, to close at $30.86 after jumping 18% on Wednesday in reaction to Kirk Kerkorian's bid to double his stake in GM.
"The downgrade to non-investment-grade reflects our conclusion that management's strategies may be ineffective in addressing GM's competitive disadvantages," S&P said in a note.
General Motors and all related entities had their ratings cut two notches to BB from BBB.
The move affects about $300 billion of debt from the world's biggest car maker. Labeling GM's bonds non-investment grade will also drive up the company's cost of doing business, making it more expensive for it to borrow money in the financial market.
"GM is firmly committed to improving its performance as quickly as possible, and today's decision will not deter GM from achieving its objectives," said GM spokesman Jerry Dubrowski.
The downgrade follows months of slumping sales, shrinking market share, and a share price that had fallen to a 12-year low, pushing the yield on GM's long-term bonds to their highest level in two years.
GM, the biggest issuer of corporate bonds in the U.S., has taken steps ranging from shuffling the top brass at its North American operations to pleading with union officials about reducing health-car costs to pulling its ads from the Los Angeles Times when it didn't like what the newspaper had to say.
Ahead of the downgrade, the move had been mostly priced in to the bonds, which for months have been trading in line with other issues rated as "junk". In some cases, spreads for GM bonds have even been wider than other "junk" bonds. See full bond story.
The company's bonds will likely feel increased pressure as investment-grade portfolio managers could be forced to unload their General Motors holdings since they no longer meet their standards.
05-05-2005, 03:50 PM
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Outch. Definately not good. Not to say that things can't be turned around, but now the urgency as well as the strategy will have to be seriously looked @.
05-05-2005, 04:11 PM
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I don't know if everyone can appreciate what this all means, but it means that we will probably see a major restructuring of GM that may be precipitated by a takeover attempt. Kerkorian could very well be the catalyst for major changes. Maybe sales of certain assets as well, that's where he can make some money. Not to mention he might be able to get some folks on the board or force some folks off of it.
05-05-2005, 04:50 PM
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Decades of poor to mediocre products have brought GM to this. Hopefully both Ford and GM will undertake some major restructuring to make themselves more competitive again.
05-05-2005, 08:30 PM
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The junk bond downgrade was not unexpected, and reflects serious long term concerns about GM (and Ford for that matter). In the short term, GM is liquid enough to continue operations as normal. But soon, and very soon, GM is going to be hitting the pension and health care nightmares. Many analysts who have looked at this realize that it is going to take a miracle for GM to be able to meet those liabilities.
The upshot is that GM is already at a disadvantage in that it has to compete with automakers globally who do not have these pension and health care liabilities (nor the unions that will not concede these benefits), and now has to pay high servicing costs on any new bonds that it would have to issue for short term costs. If GM has a few unprofitable quarters, the **** is going to hit the fan. And at these gas prices, Tahoes, Yukons, Escalades, etc. are not exactly selling big.
My suspicion is that GM will try for a few years to play catchup with other manufacturers who are making more desireable products at large (like Toyata, though I hate *every* single thing they make), but will inevitably have to do a major restructuring/downsizing in other to survive at a reduced size. Read that as a bunch of middle management/redundant stuff, and even divisions going bye-bye. Workers' unions will also have to concede some stuff or the whole ship goes down, much like what is going on in the airline industry right now.
On the other hand, GM could reintroduce the Camaro, sell a million of them a year, and right their ship
Or at least I wish ...
The upshot is that GM is already at a disadvantage in that it has to compete with automakers globally who do not have these pension and health care liabilities (nor the unions that will not concede these benefits), and now has to pay high servicing costs on any new bonds that it would have to issue for short term costs. If GM has a few unprofitable quarters, the **** is going to hit the fan. And at these gas prices, Tahoes, Yukons, Escalades, etc. are not exactly selling big.
My suspicion is that GM will try for a few years to play catchup with other manufacturers who are making more desireable products at large (like Toyata, though I hate *every* single thing they make), but will inevitably have to do a major restructuring/downsizing in other to survive at a reduced size. Read that as a bunch of middle management/redundant stuff, and even divisions going bye-bye. Workers' unions will also have to concede some stuff or the whole ship goes down, much like what is going on in the airline industry right now.
On the other hand, GM could reintroduce the Camaro, sell a million of them a year, and right their ship
Or at least I wish ...
05-05-2005, 08:43 PM
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Originally Posted by Pro Stock John
I don't know if everyone can appreciate what this all means, but it means that we will probably see a major restructuring of GM that may be precipitated by a takeover attempt. Kerkorian could very well be the catalyst for major changes. Maybe sales of certain assets as well, that's where he can make some money. Not to mention he might be able to get some folks on the board or force some folks off of it.
John...see my thread a few down. It's speculated that he bought more shares of GM for GMAC finance corp. more than any other reason, but you are 100% correct that the convential thinking is he will push for improvements and then shakeups.
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05-05-2005, 08:44 PM
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Originally Posted by TriShield
Decades of poor to mediocre products have brought GM to this. Hopefully both Ford and GM will undertake some major restructuring to make themselves more competitive again.
Ford bonds were also down graded today.
Edit: Ok, didn't really realise it was posted up there.
05-05-2005, 08:49 PM
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Originally Posted by WeatherGuy
The junk bond downgrade was not unexpected, and reflects serious long term concerns about GM (and Ford for that matter). In the short term, GM is liquid enough to continue operations as normal. But soon, and very soon, GM is going to be hitting the pension and health care nightmares. Many analysts who have looked at this realize that it is going to take a miracle for GM to be able to meet those liabilities.
The upshot is that GM is already at a disadvantage in that it has to compete with automakers globally who do not have these pension and health care liabilities (nor the unions that will not concede these benefits), and now has to pay high servicing costs on any new bonds that it would have to issue for short term costs. If GM has a few unprofitable quarters, the **** is going to hit the fan. And at these gas prices, Tahoes, Yukons, Escalades, etc. are not exactly selling big.
My suspicion is that GM will try for a few years to play catchup with other manufacturers who are making more desireable products at large (like Toyata, though I hate *every* single thing they make), but will inevitably have to do a major restructuring/downsizing in other to survive at a reduced size. Read that as a bunch of middle management/redundant stuff, and even divisions going bye-bye. Workers' unions will also have to concede some stuff or the whole ship goes down, much like what is going on in the airline industry right now.
On the other hand, GM could reintroduce the Camaro, sell a million of them a year, and right their ship Or at least I wish ...
The upshot is that GM is already at a disadvantage in that it has to compete with automakers globally who do not have these pension and health care liabilities (nor the unions that will not concede these benefits), and now has to pay high servicing costs on any new bonds that it would have to issue for short term costs. If GM has a few unprofitable quarters, the **** is going to hit the fan. And at these gas prices, Tahoes, Yukons, Escalades, etc. are not exactly selling big.
My suspicion is that GM will try for a few years to play catchup with other manufacturers who are making more desireable products at large (like Toyata, though I hate *every* single thing they make), but will inevitably have to do a major restructuring/downsizing in other to survive at a reduced size. Read that as a bunch of middle management/redundant stuff, and even divisions going bye-bye. Workers' unions will also have to concede some stuff or the whole ship goes down, much like what is going on in the airline industry right now.
On the other hand, GM could reintroduce the Camaro, sell a million of them a year, and right their ship
Or at least I wish ...Again, see a few threads down about the Mr. K deal (I don't remember how to say his name let alone spell it) about spinning off the divisions to be full blow companies instead of subsidiaries.
05-05-2005, 09:57 PM
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Originally Posted by Pro Stock John
There has been an internal rumor that GM might sell GMAC.
That would not surprise me at all. I've also heard through the internet grape vine, if this continues, Toyta...????
05-05-2005, 11:01 PM
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I dont think they are right to say its junk..GM isnt junk, its a huge company that deserves a better rating then that..plus in a way thisa is good news because if there has ever been a time to buy gm stocks....its NOW!!!
05-05-2005, 11:58 PM
#14
no surprise there. Everytime I pass by a Chevrolet dealership, I have to hold back the vomit when looking at their ugly cars (except the Vette). Look how well Dodge is doing with all their RWD V8 cars, and they don't even have a 2-door. Chevrolet cars are just plain boring and ugly. Ford is kicking *** with the new Mustang, and we are even thinking of buying one simply because there aren't any other pony cars left to choose from on the new market.
quit building ugly front-drive cars GM!!!!
quit building ugly front-drive cars GM!!!!
05-06-2005, 12:44 AM
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Originally Posted by Nine Ball
no surprise there. Everytime I pass by a Chevrolet dealership, I have to hold back the vomit when looking at their ugly cars (except the Vette). Look how well Dodge is doing with all their RWD V8 cars, and they don't even have a 2-door. Chevrolet cars are just plain boring and ugly. Ford is kicking *** with the new Mustang, and we are even thinking of buying one simply because there aren't any other pony cars left to choose from on the new market.
quit building ugly front-drive cars GM!!!!
quit building ugly front-drive cars GM!!!!
yes!!!! That is what is wrong GM cars really are ugly so nobody wants them, why didn't the camaro and trans am sell that well?? because they don't look as good as the stangs and the majority of people don't function as "function type" of people but rather as "form type"
If they would just start making some cool cars they would sell again.
05-06-2005, 02:43 AM
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Surprise, surprise. A lack of intuitive products + cutting corners = junk bond status. Corvette is fine. I like what has been done with Cadillac, but everything else is simply vanilla. Nothing neither exciting nor refined like a G35, 3 series, or Accord. No power in much of their car. Still shity interiors. The closest thing to a muscle car is the GTO... which GM gets a "C" for effort in my book. Like a teacher telling little Ryan the retard that he did a good job on his HW, when really it's just a bunch of chicken scratch.
The krauts and japs keep hammering out cars that look great and perform, while GM and Ford sit around with their thumbs up their rears.
Where is the new Camaro? That would be a great start...
SSR
Cobalt
Aveo
GTO
Malibu
Monte
Impala
And so on, and so on...
The krauts and japs keep hammering out cars that look great and perform, while GM and Ford sit around with their thumbs up their rears.
Where is the new Camaro? That would be a great start...
SSR
Cobalt
Aveo
GTO
Malibu
Monte
Impala
And so on, and so on...
05-06-2005, 08:47 AM
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Originally Posted by Brains
I thought GM already sold GMAC??
No. Quite frankly it's not in their best interest right now either to sell or spinoff as this is the only division that is making money and provides a fair amount of cash flow. Same thing with ford.
http://www.detnews.com/2005/autosins...A01-173553.htm
The one thing that is driving me nuts about these threads...they always turn into the "we need another camaro thread" but it's almost true. GM needs a few dynamic HITS to turn itself around.
While spinning off the finance arm might not be the best thing in the world, perhaps doing so with some of the divisions might be.
Aaron's 5 step plan to turning GM around...
1) Dump Saab, Saturn, Opel, and remaing lines that are sattled with bad goodwill, aging model lines and a thin target market.
2) Spinoff Caddy, Hummer, as well as Pontiac and Buick. Caddy and Hummer have shown they are pretty good at being self sufficent, see if Pontiac and Buick can do the same. Spinningoff allows current shareholders to receive X # of shares or purchase them cheaply which gives them a chance to make big returns IF they do well. With some of the autonomy in the latter two brands, we could possibly see a resurgance if they do things right. Spinning off would cut most of the politics out of new products and redesigns. Also, there's still the aliance with the general for R&D partnerships.
3) Revitalise the remaining brands still under the GM umbrella. Do this by getting back to what you know, CARS and PEOPLE. Simple enough right? So do it.
4) Don't be looking to grow any more. The things like the Fiat deal, slap the execs
and then 
them out!5) Nurcher (sp?) Holden more. The Aussies are somewhat like the Americans but with their own flair. Leverage this with the next GTO and move it forward even more.
05-06-2005, 03:00 PM
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Originally Posted by sb427f-car
No. Quite frankly it's not in their best interest right now either to sell or spinoff as this is the only division that is making money and provides a fair amount of cash flow. Same thing with ford.
http://www.detnews.com/2005/autosins...A01-173553.htm
The one thing that is driving me nuts about these threads...they always turn into the "we need another camaro thread" but it's almost true. GM needs a few dynamic HITS to turn itself around.
While spinning off the finance arm might not be the best thing in the world, perhaps doing so with some of the divisions might be.
Aaron's 5 step plan to turning GM around...
1) Dump Saab, Saturn, Opel, and remaing lines that are sattled with bad goodwill, aging model lines and a thin target market.
2) Spinoff Caddy, Hummer, as well as Pontiac and Buick. Caddy and Hummer have shown they are pretty good at being self sufficent, see if Pontiac and Buick can do the same. Spinningoff allows current shareholders to receive X # of shares or purchase them cheaply which gives them a chance to make big returns IF they do well. With some of the autonomy in the latter two brands, we could possibly see a resurgance if they do things right. Spinning off would cut most of the politics out of new products and redesigns. Also, there's still the aliance with the general for R&D partnerships.
3) Revitalise the remaining brands still under the GM umbrella. Do this by getting back to what you know, CARS and PEOPLE. Simple enough right? So do it.
4) Don't be looking to grow any more. The things like the Fiat deal, slap the execs and then them out!
5) Nurcher (sp?) Holden more. The Aussies are somewhat like the Americans but with their own flair. Leverage this with the next GTO and move it forward even more.
http://www.detnews.com/2005/autosins...A01-173553.htm
The one thing that is driving me nuts about these threads...they always turn into the "we need another camaro thread" but it's almost true. GM needs a few dynamic HITS to turn itself around.
While spinning off the finance arm might not be the best thing in the world, perhaps doing so with some of the divisions might be.
Aaron's 5 step plan to turning GM around...
1) Dump Saab, Saturn, Opel, and remaing lines that are sattled with bad goodwill, aging model lines and a thin target market.
2) Spinoff Caddy, Hummer, as well as Pontiac and Buick. Caddy and Hummer have shown they are pretty good at being self sufficent, see if Pontiac and Buick can do the same. Spinningoff allows current shareholders to receive X # of shares or purchase them cheaply which gives them a chance to make big returns IF they do well. With some of the autonomy in the latter two brands, we could possibly see a resurgance if they do things right. Spinning off would cut most of the politics out of new products and redesigns. Also, there's still the aliance with the general for R&D partnerships.
3) Revitalise the remaining brands still under the GM umbrella. Do this by getting back to what you know, CARS and PEOPLE. Simple enough right? So do it.
4) Don't be looking to grow any more. The things like the Fiat deal, slap the execs
and then them out!5) Nurcher (sp?) Holden more. The Aussies are somewhat like the Americans but with their own flair. Leverage this with the next GTO and move it forward even more.
