Game over for General Motors?

[Guy Berger]

Kirk Kerkorian has sold all his GM stock. He's probably concluded that GM is caput.

WASHINGTON - Dissident General Motors Corp. shareholder Kirk Kerkorian appears to be walking away from his quest to shape the future of the troubled automaker. The Wall Street Journal, citing a person familiar with the matter, reported Thursday on its Web site that the billionaire investor sold his entire remaining investment in GM — 28 million shares — at $29.95 a share, a transaction worth more than $800 million.

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The newspaper reported that the shares were sold to Bank of America, a key lender to Kerkorian.

Earlier in the day, Kerkorian's investment company, Tracinda Corp., said in a filing with the

Securities and Exchange Commission that it had agreed to sell 14 million shares for $28.75 per share in a private transaction. The move dropped his stake by a third to 4.95 percent, or 28 million shares, for a price of just over $400 million.

Merrill Lynch analyst John Murphy noted that there was a 28 million share block trade in GM stock on the

New York Stock Exchange shortly after the filing.

"It appears that Kerkorian may now be out of his entire GM position," Murphy wrote in a research note.

Tracinda spokeswoman Carrie Bloom said she could not comment on the transaction beyond the SEC filing. GM spokeswoman Gina Proia said the company does not comment on the actions of its shareholders. Both declined further comment on the Journal report. A call to a Bank of America spokeswoman was not immediately returned.

GM shares dropped 27 cents to close at $29.23. Its shares have traded in a 52-week range of $18.33 to $36.56.

By reducing his stake to less than 5 percent, Tracinda no longer faced disclosure requirements for its intentions on GM. Kerkorian would be able to sell off his remaining shares without filing with the SEC.

Tracinda said last week it was reducing its stake to 42 million shares, or 7.4 percent of GM, from 56 million shares, or 9.9 percent. As part of that announcement, Kerkorian's investment company said it offered to buy up to 15 million shares of casino and hotel operator MGM Mirage Inc., tightening its control of the company.

"It has all the appearances that he's unwinding his position," said Peter Henning, a former SEC attorney who teaches at Wayne State University Law School in Detroit. "He's playing it very well. We're just left to guess what he's going to do."

Tracinda's decision follows the resignation last month of Jerome York, a key Kerkorian adviser, from the GM board. York wrote that he had "grave reservations" about GM's ability to compete against Asian automakers.

York resigned shortly after GM decided against joining an alliance with Renault SA of France and Nissan Motor Corp. of Japan. The three companies began discussing a potential three-way alliance after public prodding by Tracinda.

GM has undertaken a massive turnaround plan, cutting production and reducing costs by winning health care concessions from the UAW and persuading about 35,000 hourly workers to leave under early retirement or buyout plans.

The investor's stock sale was reported even as GM announced it has completed a deal announced in April to sell a 51 percent stake in its finance unit, General Motors Acceptance Corp., to private investors for about $14 billion.

That was part of the automaker's plan to gain some financial flexibility as it struggles to compete. GM has lost more than $3 billion in the first nine months of the year, and is slashing its U.S. work force in an effort to cut costs.

GM announced in April that it had a tentative deal to sell a 51 percent stake in GMAC to a consortium of investors led by Cerberus Capital Management, a private investment company. The group also includes Citigroup Inc. and Aozora Bank Ltd.

"This transaction will result in a stronger GMAC, with enhanced access to funding at lower costs and greater opportunities for growth, including leveraging their traditionally strong relationships with GM dealers," Rick Wagoner, GM's chief executive, said in a statement.

Standard & Poor's on Thursday downgraded GM shares to "sell" from "hold." Efriam Levy, the rating agency's autos analyst, said in a note to investors that Kerkorian's sale reduces potential pressure to sell the stock and eliminates a catalyst that could push the stock up.

He also said completion of the sale of a 51 percent stake in GM's financial arm is a concern. While the proceeds will help GM's liquidity, GMAC is expected to remain profitable, diluting GM's earnings per share. Levy's note also said he sees "execution risk" in GM's restructuring plan.

[PHILLYQ]

It could be, but maybe not. Kerkorian's MO is to buy a big chunk of an underperforming stock and then press for changes to get the stock price up. Once that happens, he usually sells, collects a cool profit and goes on to the next battle. He did make around $100mil on GM, so he may have sold just because he saw a profit.

The other scenario, and much more ominous for GM, is that Kerkorian is getting out because he believes that GM can't be saved and that it can't progress any further. One of the changes Kerkorian pressed for were alliances with other automakers. GM rejected that idea, and perhaps Kerkorian saw the alliances as a way to boost GM's profits.

[Guy Berger]

It could be, but maybe not. Kerkorian's MO is to buy a big chunk of an underperforming stock and then press for changes to get the stock price up. Once that happens, he usually sells, collects a cool profit and goes on to the next battle. He did make around $100mil on GM, so he may have sold just because he saw a profit.

The other scenario, and much more ominous for GM, is that Kerkorian is getting out because he believes that GM can't be saved and that it can't progress any further. One of the changes Kerkorian pressed for were alliances with other automakers. GM rejected that idea, and perhaps Kerkorian saw the alliances as a way to boost GM's profits.

I assumed it was scenario 2, but perhaps I was too hasty.

I was discussing this with Conn500 over the weekend and my theory is that over the next 50 years, the GM brand (the only thing that's still valuable about the corporation) will be sold to a European- or Asian-based company.

Guy

Edited December 5, 2006 by Guy

[Scott Dolan]

I think it's a shame to see what's happening to both Ford and Chevy. But the unfortunate bottom line is that they are pretty much putting out crap these days.

Their truck lines are still pretty rock solid, but the rest of their fleets are sorely lagging behind their Asian competitors.

The Chrysler group seems to be trying mightily to turn the corner, but their sales have been lagging lately as well. Though their biggest problem is that they have gone back to making what made American cars great in the past. Big engines with huge amounts of HP. Unfortunately, the price of gas has really hamstrung them in that dept. People simply can't see spending $30k+ on cars that are going to beat them to death at the gas pump.

American muscle cars are quite a treat until you realize you can actually see the gas guage moving left when your foot is on the gas pedal.

Edited December 5, 2006 by Scott Dolan

[J Larsen]

I thought this was an interesting article when it was published:

http://www.newyorker.com/talk/content/arti...talk_surowiecki

I wasn't aware of this aspect of the US auto industry before reading this.

[Guy Berger]

I thought this was an interesting article when it was published:

http://www.newyorker.com/talk/content/arti...talk_surowiecki

I wasn't aware of this aspect of the US auto industry before reading this.

Interesting article.

Guy

[Big Wheel]

Yeah, I find Surowiecki boring/obvious sometimes, but this was one that I enjoyed reading quite a bit.

[Brownian Motion]

Given his age--81--Kerkorian may not feel he can wait for the GM turnaround, even if he suspects it's coming.

[Guy Berger]

Given his age--81--Kerkorian may not feel he can wait for the GM turnaround, even if he suspects it's coming.

Kerkorian's not that young. I think he is 89 or 90.

Guy

[etherbored]

you know what i say? if gm can't evolve and compete in the global marketplace, then i say good riddance. note to american car manufacturers: this is the 21st century and consumers are way past taking what you give them just because its there. we now have choices. design and engineer *better*.

-e-

Edited December 5, 2006 by etherbored

[John Tapscott]

you know what i say? if gm can't evolve and compete in the global marketplace, then i say good riddance. note to american car manufacturers: this is the 21st century and consumers are way past taking what you give them just because its there. we now have choices. design and engineer *better*.

-e-

Yep, not even even Hillary or Gore or Obama or Pelosi will be able to save those UAW jobs. The irony is that right now the American company quality and design is pretty close to that of the Asian and European makers (apparently even better in some cases). But the reputation of the American companies is so bad that many people won't go near a dealership. Years of fat-cat, complacent mismangement by the companies and huge demands and inflexible work-rules by the unions have done it . Plus shoddy product for many years, of course - the attitude was just get 'em into the hands of the consumers and we'll fix 'em later, maybe. Using paying consumers to test your product and help you get the bugs out is a BAD idea.

[J Larsen]

Maybe Kirk Kerk just needed the dough to bid on the VU acetate.

[The Magnificent Goldberg]

Ford export engines from just down the road here to the USA. Something about them being better, I understand.

The world car business has been in the shit for a good few years. Ford and a few others, and their component suppliers here, have been sold the notion of continuous quality supply chain improvement, from design onwards. Suppliers are now doing Ford's, GM's, Toyota's etc R&D in teams. The supply chain is now crucial to reducing development time for new models and, thus, the improvement in the quality of cars and, in particular, their usefulness to the public.

MG

[BERIGAN]

I thought this was an interesting article when it was published:

http://www.newyorker.com/talk/content/arti...talk_surowiecki

I wasn't aware of this aspect of the US auto industry before reading this.

Interesting article.

Guy

This article mentions how "analysts" always are talking how GM should "need to slim down the company and get rid of less popular brands." It seems incredibly stupid to cut down on the makes GM produces. They did that with Oldsmobile. True, sales were down 75% from 15 years before, but still when you kill a brand, your company likely loses all the customers that always bought that brand. Has GM done any better since dropping Olds in 2000? I'm not arguing that GM and Ford don't put out completely bland, white bread cars. But in the past, when Pontiac, Olds or Buick had a stodgy image, and several other competing makes sold better than them, GM infused the brand with money, and new ideas. They might be 9th in sales beforehand, then with hot new designs/Engines, etc, 3-4 years later they would be up to 4th in sales. That is what used to happen at GM. Guess it just can't be done today with all the technological advances they have other the folks who just put pen to paper, or carved a hunk of clay. Now, they just kill brands. Or models. LeSabre was the best selling Full size American car thru 2005. So naturally, you kill the name that had been used since 1959, and slap on the name Lucerne. We want younger customers, screw the loyalists!

GM isn't the only one to do this. Lincoln tried like hell to kill the Town Car. There will forever be people 60+ that want a car like that, but hey, lets try to push a smaller car that looks like every mid size Japanese car on earth!

And to truly show how stupid Ford is, they killed the Taurus, even thought it was selling well(around 250,000 a year) off a little from it's peak, but still fords best selling car, even without being in dealerships for a few years. Fleet sales. Guess Ford didn't need the money. Plus, they closed the plant in Atlanta that made both that, and the Mercury Sable. So what? Shit happens. True, but this plant according to a 2005 report, ranked number one in productivity for American assembly plants. But, it was old fashioned. Onward and upward, and all that.

While doing some checking on the web, I saw that the Fusion, one of the cars to replace the Taurus will will be built in Mexico, along with the Mercury Milan and Lincoln Zephyr.

[BERIGAN]

GM does have good news from sales in China though......

http://www.msnbc.msn.com/id/12801549/

[Jim Alfredson]

Another problem with getting rid of entire brands, like Oldsmobile, is that GM had to pay Oldsmobile dealers (who are francisees) large sums of money for pulling the plug on their businesses. It actually cost GM a shitload of money (like, in the billions) to get rid of Oldsmobile. I doubt they will do it again to another brand anytime soon.

[Scott Dolan]

Jim, I didn't really keep up with the Olds saga that much. How did GM handle warranties after that?

[Jim Alfredson]

I think you can still get warranty work done at any GM dealer. They discontinued the line in 2004, most new vehicles had a maximum three-year warranty on them, so they'll all be out of warranty by 2007.

Funny enough, you can still go to the Oldsmobile website where "The innovation of Oldsmobile lives on through GM." Uh... yeah.

Olds roolz!

I think it was downright dumb to get rid of Olds. The Aleros and Intrigues (and their minivan... the Sillouhette?) were really nice cars. My wife has an Intrigue, although it was one of the first production years and has some issues. But the later ones were really nice. She had a Bravada before that, and that was a nice car, too.

[Aggie87]

I'd bet the Olds brand will be brought back in a couple of years anyway, much like they've done with Buick.

[Jim Alfredson]

I'd bet the Olds brand will be brought back in a couple of years anyway, much like they've done with Buick.

They can't. Its dead. They would have to get all new franchisees and that ain't gonna happen. Frankly, they should've gotten rid of Buick before Olds, imo. Then again, what would the old people who can't afford Cadillacs drive? They gotta have something to ram into your rear-end with.

[Rooster_Ties]

I'd bet the Olds brand will be brought back in a couple of years anyway, much like they've done with Buick.

They can't. Its dead. They would have to get all new franchisees and that ain't gonna happen. Frankly, they should've gotten rid of Buick before Olds, imo. Then again, what would the old people who can't afford Cadillacs drive? They gotta have something to ram into your rear-end with.

Would they really have to get all new franchisees?? No car dealership I've seen in years sells just one make of car any more. Yeah, hell if I've been in a new car dealer for any American brand in years -- but as far as I can see from local car dealership ads, dealers that carry GM product mostly carry all GM products (all the lines). Most Ford dealers I can think of sell Lincolns, Mercury, etc... (Or, rather, I can't think of any "Lincoln only" dealers, or "Chevy only" dealers anymore --- where back when I was a kid, I think there sure were such "one make only" dealerships.)

"Olds" is just another nameplate -- and it wouldn't be that hard to bring back, I wouldn't think.

(Whether they'd want to is an entirely different discussion.)

[Guy Berger]

It wouldn't surprise me if Olds comes back at some point, given our culture's fascination with retro. That said, the new producer might not be an "American" company.

Guy

[Rooster_Ties]

BTW, and FWIW -- speaking of American cars, I pretty much can't stand Pontiac.

Can't stand their cars. Can't stand their advertising. Can't stand the people they portray in their advertising. I even usually can't stand the music they use in their advertising. Pretty much anything Pontiac is the bottom of the barrel, from my perspective.

Ugliest vehicle I can think of in recent years?? You guessed it -- a Pontiac.

[Jim Alfredson]

Yeah, Pontiac would've been a better choice for the axe, too imo. But those damn Grand Ams keep selling, ugliness and all.

[Guy Berger]

BTW, and FWIW -- speaking of American cars, I pretty much can't stand Pontiac.

Can't stand their cars. Can't stand their advertising. Can't stand the people they portray in their advertising. I even usually can't stand the music they use in their advertising. Pretty much anything Pontiac is the bottom of the barrel, from my perspective.

Ugliest vehicle I can think of in recent years?? You guessed it -- a Pontiac.

I take it you haven't seen one of these: