Archive for June, 2009

• S&P Nears Seven-Month High
  Eddy Elfenbein, June 1st, 2009 at 12:55 pm

  The S&P 500 is currently over 945. If it holds up, this will be the highest close since November 5, the day after election day.
  
  Also, if today’s gains hold up, the S&P 500 will be above its 200-day moving average for the first time in 18 months.
  

• “What’s Good for General Motors Is Good for America”
  Eddy Elfenbein, June 1st, 2009 at 11:02 am

  One of great urban myths of American business history is that the head of GM once said “what’s good for General Motors is good for America.”
  That line is once again getting a lot of press today. There’s one problem — it’s not true.
  Here’s what happened. In 1953, President Eisenhower nominated GM’s CEO Charles “Engine Charlie” Wilson to be Secretary of Defense. I’ll turn it over to Wikipedia:

  During the hearings, when asked if as secretary of defense he could make a decision adverse to the interests of General Motors, Wilson answered affirmatively but added that he could not conceive of such a situation “because for years I thought what was good for the country was good for General Motors and vice versa.”

  Gee, that’s kinda different. So what’s often portrayed as the ultimate in corporate arrogance that defined the atavistic nature of American capitalism was instead a humble statement of public spiritedness.

• After 84 Years, GM is Booted from the Dow
  Eddy Elfenbein, June 1st, 2009 at 9:37 am

  GM (GM) and Citigroup (C) are out, Travelers (TRV) and Cisco (CSCO) are in.

• GM Goes Bust
  Eddy Elfenbein, June 1st, 2009 at 9:03 am

  What used to be the largest corporation in the world is now bankrupt.
  This isn’t exactly a surprise. Here’s what I wrote in 2006:

  Whither GM?

  In 1979, the British economy was in free fall. Inflation was spiraling out of control. The unions were demanding commensurate pay increases, and when they didn’t get them, they struck. The country that had stood up to the Luftwaffe was failing apart. The garbage men went on strike and soon piles of “rubbish” dotted the countryside. Even the gravediggers went on strike and corpses were gruesomely left unburied.
  The winter of 1978-79 was called the Winter of Discontent, echoing the opening lines of Richard III. The situation was so bad that Her Majesty’s government had to apply for a loan from the IMF. This was back in the days when that had some sense of shame to it. You were even expected to pay it back.
  A reporter asked the Prime Minister, James, Callaghan, his opinion of the “the mounting chaos in the country.” Callaghan said: “Well, that’s a judgment that you are making. I promise you that if you look at it from outside, and perhaps you’re taking rather a parochial view at the moment, I don’t think that other people in the world would share the view that there is mounting chaos.”
  That was it. British socialism died right there. The commanding heights were nothing more than a literal heap of trash. The next day, The Sun’s headline read: “Crisis? What Crisis?”
  I can’t help but think of the similarities between British socialism and General Motors (GM). Once upon a time, GM ruled the world. Today, it’s an embarrassment. What’s good for GM, is largely irrelevant to America.
  For reasons unclear, billionaire Kirk Kerkorian sunk a good part of his fortune in GM’s stock. His investment has been a disaster. Now’s he’s sent his aide, another son of York, Jerome York to be exact, to Detroit to tell the automaker everything they’re doing wrong. The New York Times quotes York as saying: “The time has come to go into crisis mode and act accordingly.”
  No, the time to go into crisis mode has long since past. GM is a fiscal black hole. The company burns through $24 million a day. That’s more than the Yankees. Yet the company still pays out $566 million a year in its dividend. Crisis? What Crisis?
  Talk about unburied corpses. I honestly don’t think GM will survive this decade. Even if it does, it will hardly be recognizable. Any future GM will merely be a Commonwealth living in the shadow of a by-gone Empire. York’s plan is to get rid of the dividend and reduce the pay of senior management. Well…that’s a nice start, but I think GM will have to go a lot further; perhaps ditching some of its key brands like Hummer.
  The New York Times quoted Frederick A. Henderson, GM’s new CFO:

  “To be honest, I am in crisis mode. So I agree with him,” Mr. Henderson said. In December, he succeeded John M. Devine, now a G.M. vice chairman, who accompanied him to Mr. York’s speech. Like Mr. Devine, Mr. Henderson watched impassively while Mr. York spoke.

  Impassively? Ha! I bet they were ready to toss him out the window. I’d actually feel much better if GM were really in crisis mode. They’re not. They’re sleepwalking. Perhaps now, they’re sleeprunning. This is a company that plainly refuses to see reality. They’d be plenty happy to go on ignoring the mess they’ve made, but high oil prices forced the issue. The long-run was much shorter than any of us expected.
  The idea that GM can discount its way home is a foolish illusion. The facts are clear. Every GM car carries about $1,500 in health care costs. The employees’ health care trust has over $20 billion, and GM had to tap it twice recently. For $1 billion each time. Retirees outnumber current U.S. employees 2.5 to 1. The company has stopped providing earnings guidance.
  GM’s problem isn’t cars or legacy costs. Companies can deal with those. What GM has is a leadership crisis. They need to make major changes soon. If not, the Winter of Discontent will last a very long time..