(Reuters) - General Motors Corp said it burned through $10.2 billion in the first quarter as it relied on a federal bailout to ride out a sharp decline in global sales that overwhelmed its cost-cutting efforts.
Revenue dropped by almost half to $22.4 billion as the company cut production by about 900,000 vehicles and worked to run down costly inventories in the United States and Europe.
The results showed the extreme pressure on GM with just four weeks remaining for the embattled automaker to win deals to slash debt and operating costs with its major union and bondholders to avoid bankruptcy.
"Results were awful, as expected, however, GM's cash burn was even worse than we were expecting," Kip Penniman of KDP Investment Advisors said in a note for clients.
Chief Financial Officer Ray Young said there was evidence consumers were scared away from GM cars and trucks because of concern the automaker was headed for bankruptcy.
GM cut $3.1 billion in operating costs in the first quarter, including just over $1 billion in North America, but the latest push in a four-year campaign to cut costs failed to keep pace with the plunge in sales.
"You could not offset the revenue implosion that we experienced here," Young told reporters following release of the quarterly results on Thursday.
GM's North American operations, where it plans to cut 21,000 factory jobs and close and close more than 2,600 dealerships, posted a loss before interest cost and taxes of $2.5 billion.
European operations, which Italy's Fiat SpA has proposed taking over, posted a loss on the same basis of $1.2 billion as vehicle sales in the region dropped 29 percent.
GM still hopes to complete a debt restructuring out of court but is readying plans for what it expects would be a quick bankruptcy if that proves necessary, Young said.
He said GM expects to draw on the experience of Chrysler LLC, which filed for bankruptcy last week under the supervision of the Obama administration.
"We are very, very cognizant of this issue of revenue perishability and how consumers react to the threat of bankruptcy," Young said.
Young said GM would make a decision at the end of this month on whether an offer to extinguish $24 billion in bond debt in exchange for new shares had garnered enough support for the company to avoid a bankruptcy filing.
Read more here
Thursday, May 7, 2009
Wednesday, May 6, 2009
Cisco sees signs of a turnaround
(CNNMoney.com) -- Cisco Systems Inc. on Wednesday reported a drop in quarterly profit and sales from a year ago, but the network equipment maker said parts of its business are beginning to turn around.
"For the first time in many quarters, many of our global customers are describing business momentum and seeing stabilization," said Cisco Chief Executive John Chambers on a conference call with analysts. "We are going to be very aggressive this year to position ourselves for the eventual upturn."
Chambers cautioned that economic headwinds would continue to pressure the company, but he said he is encouraged by customers' renewed optimism. He said the company has "a very bright future" ahead.
Read more here
"For the first time in many quarters, many of our global customers are describing business momentum and seeing stabilization," said Cisco Chief Executive John Chambers on a conference call with analysts. "We are going to be very aggressive this year to position ourselves for the eventual upturn."
Chambers cautioned that economic headwinds would continue to pressure the company, but he said he is encouraged by customers' renewed optimism. He said the company has "a very bright future" ahead.
Read more here
Tuesday, May 5, 2009
SEC charges money market fund with fraud
(CNNMoney.com) -- The Securities and Exchange Commission has filed fraud charges against the operators of the Reserve Primary Fund for failing to provide important information to investors and trustees about the fund's exposure to Lehman Brothers.
By bringing the case, the agency is trying to get the company to release the $3.5 billion it is withholding from shareholders until all lawsuits against the company are resolved.
The money market fund "broke the buck" on Sept. 16, the day after Lehman Brothers filed for bankruptcy, meaning its net asset value fell below $1 a share. Investors seek out money market funds as conservative investments because they are designed to maintain their $1 per share value. Companies also rely on them to purchase short-term corporate debt.
The Primary Fund, however, held $785 million in Lehman-issued securities, which lost most of their worth in the bankruptcy, the SEC said. This dragged down the fund's net asset value.
The agency says that the Reserve Management Company Inc., its chairman Bruce Bent Sr., vice chairman and president Bruce Bent II and Resrv Partners Inc. misled investors and "significantly understated" the volume of redemption requests. They also failed to provide trustees with accurate information about the value of the Lehman securities.
Reserve also said it would provide the money needed to maintain the fund's share value when it "had no such intention," according to regulators.
"Fund managers have serious obligations to keep their trustees and investors informed in both good times and bad, and cannot choose to reveal only favorable facts," said James Clarkson, acting director of the SEC's New York regional office.
The company said in a statement that it intends to defend itself vigorously.
"Since we created the money fund in 1970 we have operated and grown our business by putting our shareholders' interests first," said Bruce Bent Sr. "The Lehman Brothers Bankruptcy filing created an unforeseeable and out-of-control condition for many parties and the results were serious...We remain confident that we acted in the best interest of our shareholders."
There are at least 29 different lawsuits pending against the company, according to the SEC. The agency hopes to bring all claimants together in this case and have it settled together.
The Primary Fund is currently being liquidated. Last month, the company said about $46.1 billion, or approximately 90% of fund assets as of Sept. 15, 2008, has been returned to investors. Approximately $4.5 billion remains in the fund, which once had a value of $60 billion.
The fund's independent trustees, who oversee its operations, said in a statement that they would work with the agency.
"The trustees will continue to fully cooperate with the Securities and Exchange Commission to expedite the distribution of the remaining assets to shareholders and to ensure that all decisions are made in the shareholders' best interest," the trustees said.
Read more here
By bringing the case, the agency is trying to get the company to release the $3.5 billion it is withholding from shareholders until all lawsuits against the company are resolved.
The money market fund "broke the buck" on Sept. 16, the day after Lehman Brothers filed for bankruptcy, meaning its net asset value fell below $1 a share. Investors seek out money market funds as conservative investments because they are designed to maintain their $1 per share value. Companies also rely on them to purchase short-term corporate debt.
The Primary Fund, however, held $785 million in Lehman-issued securities, which lost most of their worth in the bankruptcy, the SEC said. This dragged down the fund's net asset value.
The agency says that the Reserve Management Company Inc., its chairman Bruce Bent Sr., vice chairman and president Bruce Bent II and Resrv Partners Inc. misled investors and "significantly understated" the volume of redemption requests. They also failed to provide trustees with accurate information about the value of the Lehman securities.
Reserve also said it would provide the money needed to maintain the fund's share value when it "had no such intention," according to regulators.
"Fund managers have serious obligations to keep their trustees and investors informed in both good times and bad, and cannot choose to reveal only favorable facts," said James Clarkson, acting director of the SEC's New York regional office.
The company said in a statement that it intends to defend itself vigorously.
"Since we created the money fund in 1970 we have operated and grown our business by putting our shareholders' interests first," said Bruce Bent Sr. "The Lehman Brothers Bankruptcy filing created an unforeseeable and out-of-control condition for many parties and the results were serious...We remain confident that we acted in the best interest of our shareholders."
There are at least 29 different lawsuits pending against the company, according to the SEC. The agency hopes to bring all claimants together in this case and have it settled together.
The Primary Fund is currently being liquidated. Last month, the company said about $46.1 billion, or approximately 90% of fund assets as of Sept. 15, 2008, has been returned to investors. Approximately $4.5 billion remains in the fund, which once had a value of $60 billion.
The fund's independent trustees, who oversee its operations, said in a statement that they would work with the agency.
"The trustees will continue to fully cooperate with the Securities and Exchange Commission to expedite the distribution of the remaining assets to shareholders and to ensure that all decisions are made in the shareholders' best interest," the trustees said.
Read more here
Monday, May 4, 2009
‘Great Recession’ Will Redefine Full Employment as Jobs Vanish
(Bloomberg) -- Post-recession America may be saddled with high unemployment even after good times finally return.
Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.
This restructuring -- in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” -- is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.
Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”
That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5 percent as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit -- which will top $1 trillion for the first time this year -- by reducing tax revenue and pushing up spending on unemployment benefits.
A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation.
Unemployment Report
The government may report May 8 that the jobless rate jumped to 8.9 percent in April, the highest since 1983, from 8.5 percent in March, according to economists surveyed by Bloomberg.
Laurence Ball, an economics professor at Johns Hopkins University in Baltimore, says unemployment may peak at 10 percent, and “it will be a long time before we see 5 percent” again.
The more time workers spend without a job, the less attractive they become to potential employers, Ball says. That in itself helps keep the unemployment rate elevated.
“If you’re unemployed” for an extended period, “you’re not keeping up with new technology,” he says. “You become discouraged and you change your lifestyle.”
A burst of productivity growth starting in the mid 1990s helped lower the natural rate of unemployment to around 5 percent from 6 percent, as profit-flush companies took on more workers. Now the fear is that will be reversed as industries downsize.
Read more here
Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.
This restructuring -- in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” -- is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.
Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”
That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5 percent as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit -- which will top $1 trillion for the first time this year -- by reducing tax revenue and pushing up spending on unemployment benefits.
A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation.
Unemployment Report
The government may report May 8 that the jobless rate jumped to 8.9 percent in April, the highest since 1983, from 8.5 percent in March, according to economists surveyed by Bloomberg.
Laurence Ball, an economics professor at Johns Hopkins University in Baltimore, says unemployment may peak at 10 percent, and “it will be a long time before we see 5 percent” again.
The more time workers spend without a job, the less attractive they become to potential employers, Ball says. That in itself helps keep the unemployment rate elevated.
“If you’re unemployed” for an extended period, “you’re not keeping up with new technology,” he says. “You become discouraged and you change your lifestyle.”
A burst of productivity growth starting in the mid 1990s helped lower the natural rate of unemployment to around 5 percent from 6 percent, as profit-flush companies took on more workers. Now the fear is that will be reversed as industries downsize.
Read more here
Sunday, May 3, 2009
India's recovery hopes grow
India's economy, buffeted by the global meltdown, could start recovering by mid-year amid signs of revival in business confidence, manufacturing and credit growth, economists forecast.
The upbeat outlook, boosted by expectations of a healthy harvest fuelling consumer spending, has driven India's benchmark Sensex share index to a six-month high as fund managers switch their country ratings to "overweight" from "underweight."
The "domestically driven Indian economy will begin to recover palpably from mid-year onwards," Rajeev Malik, economist at Australia's Macquarie Securities, said.
Indices measuring early changes in economic activity and business confidence and forecasts published by global financial houses in recent days suggest that India's economy is set to turn the corner.
However, the potential emergence of a politically unstable ruling coalition after general elections end on May 13 could disrupt the scenario, analysts warn.
Nevertheless, Swiss bank UBS said its "base case scenario" was for the Indian economy and corporate earnings "to bottom out by the second half of 2009/10 and for full recovery in 2010/11."
There's a "strong likelihood of an upturn in industrial activity by June," UBS economist Philip Wyatt said.
Britain's Barclays Capital has gone so far as to bullishly declare "the slump in activity in emerging Asia is over" - driven by India and China.
"Domestic leading indicators such as business sentiment are showing signs of stabilisation and the next few months of data are likely to see an upturn in most (Asian) countries," it said.
Read more here
The upbeat outlook, boosted by expectations of a healthy harvest fuelling consumer spending, has driven India's benchmark Sensex share index to a six-month high as fund managers switch their country ratings to "overweight" from "underweight."
The "domestically driven Indian economy will begin to recover palpably from mid-year onwards," Rajeev Malik, economist at Australia's Macquarie Securities, said.
Indices measuring early changes in economic activity and business confidence and forecasts published by global financial houses in recent days suggest that India's economy is set to turn the corner.
However, the potential emergence of a politically unstable ruling coalition after general elections end on May 13 could disrupt the scenario, analysts warn.
Nevertheless, Swiss bank UBS said its "base case scenario" was for the Indian economy and corporate earnings "to bottom out by the second half of 2009/10 and for full recovery in 2010/11."
There's a "strong likelihood of an upturn in industrial activity by June," UBS economist Philip Wyatt said.
Britain's Barclays Capital has gone so far as to bullishly declare "the slump in activity in emerging Asia is over" - driven by India and China.
"Domestic leading indicators such as business sentiment are showing signs of stabilisation and the next few months of data are likely to see an upturn in most (Asian) countries," it said.
Read more here
Tuesday, April 28, 2009
Gulfstream, Cessna in 2-Year Slide as CEOs Shun Jets
(Bloomberg) -- Gulfstream and Cessna will need at least two years to revive sales of corporate jets after the public shaming of executives like Elan Corp.’s Kelly Martin.
The Dublin-based drug company chief helped run up a bill of as much as $6 million last year flying to a San Francisco research center in a Gulfstream V. Now he will be lining up at the airport with everyone else after investors campaigned for him to switch to standard airline flights costing $1,000.
With businesses shunning luxury planes costing up to $55 million apiece, manufacturers including Bombardier Inc., General Dynamics Corp. and Dassault Aviation SA are slashing output and shedding 15,000 jobs. Gulfstream maker General Dynamics tomorrow will report the slowest profit growth in more than five years, according to analyst estimates compiled by Bloomberg, and Cessna owner Textron Inc. today said first-quarter profit from continuing operations fell 81 percent.
“Corporate aircraft make commercial airliners look like a safe haven,” said Richard Aboulafia, vice president of the Teal Group aviation consultancy in Fairfax, Virginia. “It’s the market most exposed to the huge downturn in corporate profits and where the economy really hits the tarmac.”
Business-jet deliveries may fall 50 percent this year and next, according to UBS AG. The $22 billion industry has been left reeling after companies and wealthy individuals began scrapping orders and selling business jets last year as the global economy started to contract.
Detroit Three
Pressure to avoid the planes mounted after the CEOs of General Motors Corp., Chrysler LLC and Ford Motor Co. used them to fly to Washington hearings on taxpayer bailouts, prompting Democratic Representative Gary Ackerman of New York to ask: “Couldn’t you all have downgraded to first class?”
GM terminated its leases for two Gulfstream V planes and five Gulfstream IIIs. Royal Bank of Scotland Group Plc Chairman Philip Hampton told shareholders April 3 that keeping its Dassault Falcon 7X jet would be an embarrassment following the company’s rescue by the U.K. government.
The outlook for business-jet manufacturers is bleak. Deliveries, which rose 28 percent last year to 1,138, may fall to less than 600 in 2010, according to New York-based UBS analyst David Strauss. That’s about the level of 2003, when 591 planes were built.
Wichita, Kansas-based Cessna, the largest maker of business jets by aircraft built, is eliminating almost 5,000 posts, or 30 percent of the workforce. The unit last year generated about 40 percent of revenue at parent Textron.
Top Performer
General Dynamics will scrap 1,200 jobs at Savannah, Georgia-based Gulfstream and cut production by one-fifth. The unit was previously the company’s top performer, with an 18.5 percent operating profit margin compared with an average 11 percent at marine, weapons and information-systems divisions.
Textron today said first-quarter profit from continuing operations dropped to $43 million, or 18 cents a share. Excluding some costs, profit was 26 cents a share. Analysts had predicted 1 cent a share. General Dynamics may say profit growth slowed to 3 percent, dropping below 10 percent for the first time since 2003. It lowered the 2009 earnings goal to as little as $6 a share on March 5 from as much as $6.75.
Neither company would comment yesterday prior to announcing their results.
Bombardier, the Montreal-based maker of the Learjet, is cutting almost 4,500 jobs after aerospace sales fell 4 percent in the quarter. The company said April 2 it will deliver 25 percent fewer business jets this year and declined to comment further yesterday.
Read more here
The Dublin-based drug company chief helped run up a bill of as much as $6 million last year flying to a San Francisco research center in a Gulfstream V. Now he will be lining up at the airport with everyone else after investors campaigned for him to switch to standard airline flights costing $1,000.
With businesses shunning luxury planes costing up to $55 million apiece, manufacturers including Bombardier Inc., General Dynamics Corp. and Dassault Aviation SA are slashing output and shedding 15,000 jobs. Gulfstream maker General Dynamics tomorrow will report the slowest profit growth in more than five years, according to analyst estimates compiled by Bloomberg, and Cessna owner Textron Inc. today said first-quarter profit from continuing operations fell 81 percent.
“Corporate aircraft make commercial airliners look like a safe haven,” said Richard Aboulafia, vice president of the Teal Group aviation consultancy in Fairfax, Virginia. “It’s the market most exposed to the huge downturn in corporate profits and where the economy really hits the tarmac.”
Business-jet deliveries may fall 50 percent this year and next, according to UBS AG. The $22 billion industry has been left reeling after companies and wealthy individuals began scrapping orders and selling business jets last year as the global economy started to contract.
Detroit Three
Pressure to avoid the planes mounted after the CEOs of General Motors Corp., Chrysler LLC and Ford Motor Co. used them to fly to Washington hearings on taxpayer bailouts, prompting Democratic Representative Gary Ackerman of New York to ask: “Couldn’t you all have downgraded to first class?”
GM terminated its leases for two Gulfstream V planes and five Gulfstream IIIs. Royal Bank of Scotland Group Plc Chairman Philip Hampton told shareholders April 3 that keeping its Dassault Falcon 7X jet would be an embarrassment following the company’s rescue by the U.K. government.
The outlook for business-jet manufacturers is bleak. Deliveries, which rose 28 percent last year to 1,138, may fall to less than 600 in 2010, according to New York-based UBS analyst David Strauss. That’s about the level of 2003, when 591 planes were built.
Wichita, Kansas-based Cessna, the largest maker of business jets by aircraft built, is eliminating almost 5,000 posts, or 30 percent of the workforce. The unit last year generated about 40 percent of revenue at parent Textron.
Top Performer
General Dynamics will scrap 1,200 jobs at Savannah, Georgia-based Gulfstream and cut production by one-fifth. The unit was previously the company’s top performer, with an 18.5 percent operating profit margin compared with an average 11 percent at marine, weapons and information-systems divisions.
Textron today said first-quarter profit from continuing operations dropped to $43 million, or 18 cents a share. Excluding some costs, profit was 26 cents a share. Analysts had predicted 1 cent a share. General Dynamics may say profit growth slowed to 3 percent, dropping below 10 percent for the first time since 2003. It lowered the 2009 earnings goal to as little as $6 a share on March 5 from as much as $6.75.
Neither company would comment yesterday prior to announcing their results.
Bombardier, the Montreal-based maker of the Learjet, is cutting almost 4,500 jobs after aerospace sales fell 4 percent in the quarter. The company said April 2 it will deliver 25 percent fewer business jets this year and declined to comment further yesterday.
Read more here
Monday, April 27, 2009
UAW to own 55% of Chrysler under restructuring deal: WSJ
(MarketWatch) -- Under an agreement struck between the United Auto Workers union and Chrysler LLC, the union would eventually own 55% of the auto maker's stock once the company is restructured, according to a report late Monday from The Wall Street Journal.
The summary of the agreement also shows that Fiat SpA will "eventually" own 35% of Chrysler, and the U.S. government and Chrysler's secured lenders will own another 10% of the company following its reorganization, the report said
Read more here
The summary of the agreement also shows that Fiat SpA will "eventually" own 35% of Chrysler, and the U.S. government and Chrysler's secured lenders will own another 10% of the company following its reorganization, the report said
Read more here
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