As I wrote in this post in the fall of 2005, I expected at least one of America's Big Three auto makers to have some sort of change of control by 2010. My exact wording was,
"Judging from where GM and Ford appear to be putting much of their energies these days, I’d say we’re going to be shy at least one major US-based car manufacturer before the decade is out. It may involve a merger among onshore rivals, if Congress is afraid to let so many UAW workers lose their jobs at once through a total financial failure of GM or Ford. But I'm willing to bet there will be one less automotive CEO in Detroit when 2010 dawns."
My verbiage was, I suppose, focused on the still-independent companies. My intent was to predict a change of ownership in one of the three, if not bankruptcy.
Today's sale by Daimler, to Cerberus, the private equity group, of its Chrysler unit, in my opinion, qualifies as meeting my prediction.
What puzzles me, though, is how Cerebrus plans to actually operate the weak man of Detroit at a continuing profit, amidst the general consensus about excess capacity in the sector. Sure, they own some suppliers, and maybe even have a few old auto company hands. Does that mean John Snow & Company can turn back the tide of industrial economics in the sector, and restructure and rehabilitate Chrysler's product line, financial situation, and marketing so thoroughly, successfully and quickly as to create value where nobody else could?
We all know that the UAW can break any deal for Chrysler. Or the other two- GM and Ford- for that matter. Whether they can actually make the deal....that's another question.
I have my doubts. So many analysts, including many of today's commentators on CNBC, focus on the labor costs when they discuss these auto makers. But it was the white-collar managers who led GM, Ford and Chrysler to where they are now. I don't think the machinists and assemblers down on the factory floors can remedy those ills.
Of course, once Cerberus gets its hands on Chrysler and drags it behind the impenetrable curtain of its private balance sheet, there's no telling what will come back out, and with what profitability dynamics. I'm eager to see this one come out the other end.
Showing posts with label Predictions. Show all posts
Showing posts with label Predictions. Show all posts
Monday, May 14, 2007
Tuesday, May 01, 2007
GE Breakup Discussion Today on CNBC
In fairness to my post yesterday, there was an accidental, spirited discussion this morning on CNBC regarding its parent, GE, being split up within two years.
Guests on the program, fund manager Mike Holland and Andrew Ross Sorkin, of the New York Times, along with CNBC reporter David Faber, began by discussing whether private equity firms are the new conglomerates. All missed the fundamental difference between the operating models.
Faber waxed nostalgically as to how GE has 'operating acumen,' while private equity funds just 'buy companies cheaply and sell them more dearly.' Not quite, David.
In fact, GE has shown an inability to operate its business units in a manner that has drawn investor reactions which result in consistently superior total returns. In contrast, private equity firms buy ailing or undervalued businesses, make necessary changes to increase their value, then, typically, resell them and reap a return for the value they have added.
Joe Kernen then asked why NBC/Universal should not be sold, and nobody disagreed. Fabe's first comment was 'why are you doing this to me,' followed by some mumbling about losing his job. The video of this whole exchange is available today, for free, on CNBC's site, but I won't paste the link, as it will become inoperable by tomorrow.
Sorkin predicted that GE will sell its entertainment unit after the Chinese Olympics, when its value may be at a maximum. Mike Holland seconded Sorkin, and predicted that it was likely to be sold or spun-off at the end of two years. However, nobody went further, castigating Immelt for failing to create value from the various parts of GE. The focus remained simply on CNBC/Universal, stay or go?
So, my hats off to CNBC's Squawkbox for having the guts to discuss splitting up its parent, beginning with the unit of which the network is a part. However, lets be clear- the conversation topic was one comparing private equity to large corporations, and Kernen simply made a sharp left turn in the discussion to toss out the GE situation. But to their credit, the producers didn't cut suddenly to a commercial and end the segment.
Not surprisingly, since last week, CNBC has covered the alleged call to break up CitiGroup more than the CitiGroup analyst's call to break up GE.
Guests on the program, fund manager Mike Holland and Andrew Ross Sorkin, of the New York Times, along with CNBC reporter David Faber, began by discussing whether private equity firms are the new conglomerates. All missed the fundamental difference between the operating models.
Faber waxed nostalgically as to how GE has 'operating acumen,' while private equity funds just 'buy companies cheaply and sell them more dearly.' Not quite, David.
In fact, GE has shown an inability to operate its business units in a manner that has drawn investor reactions which result in consistently superior total returns. In contrast, private equity firms buy ailing or undervalued businesses, make necessary changes to increase their value, then, typically, resell them and reap a return for the value they have added.
Joe Kernen then asked why NBC/Universal should not be sold, and nobody disagreed. Fabe's first comment was 'why are you doing this to me,' followed by some mumbling about losing his job. The video of this whole exchange is available today, for free, on CNBC's site, but I won't paste the link, as it will become inoperable by tomorrow.
Sorkin predicted that GE will sell its entertainment unit after the Chinese Olympics, when its value may be at a maximum. Mike Holland seconded Sorkin, and predicted that it was likely to be sold or spun-off at the end of two years. However, nobody went further, castigating Immelt for failing to create value from the various parts of GE. The focus remained simply on CNBC/Universal, stay or go?
So, my hats off to CNBC's Squawkbox for having the guts to discuss splitting up its parent, beginning with the unit of which the network is a part. However, lets be clear- the conversation topic was one comparing private equity to large corporations, and Kernen simply made a sharp left turn in the discussion to toss out the GE situation. But to their credit, the producers didn't cut suddenly to a commercial and end the segment.
Not surprisingly, since last week, CNBC has covered the alleged call to break up CitiGroup more than the CitiGroup analyst's call to break up GE.
Monday, April 30, 2007
More on Speaking Truth To Power
Back in the first month or so of this blog, in the fall of 2005, I wrote this post predicting severe, near-bankruptcy conditions for at least one of the Big Three Detroit auto manufacturers.
Shortly thereafter, I wrote this post, wherein I asked,
I now wonder if GM, even in its last acts as a sustainably profitable enterprise, wields enough financial leverage to silence any significant, honest appraisal of its situation.
Do analysts worry that they will be shut out of conference calls if they point to GM’s revenue problems as insoluble? Do the bankers worry that they won’t get invited to participate in any subsequent last-ditch financings? Do the various media outlets worry that they will have seen the last GM ads in/on their medium, should they report candidly about the company’s prospects? Perhaps fund managers are concerned that candid remarks will lose them possible business with GM's pension funds or treasury functions.
It’s now beginning to seem to me that all these parties, “stakeholders,” if you will, literally have more to gain from a fatally bleeding GM than they do from a merged/acquired/failed GM.
Last fall, when I bought a new laptop for my daughters, I wrote this post discussing why I didn't buy one from Dell, and why I thought the company had seriously erred in keeping its business model current. That post garnered a reply from a Dell staffer admonishing me for my comments, and assuring me that the direct sales model was alive, well, and prospering!
It's taken until this past week for Michael Dell himself to announce that maybe the direct sales model needs to be revisited at Dell. In the interim, there wasn't a whole lot of criticism of the firm, other than it changed CEOs. Perhaps the word "gingerly" describes the business media's attitude toward the struggling computer maker during this time of poor performance.
I've written about GE's need to be split apart, back in August of 2006, but it took until last week for an analyst to have the courage to suggest the same remedy. Even then, he's been doubted by most other pundits, or just ignored.
As I discussed this with my partner yesterday, we came to the conclusion that this is simply the result of the structure of business media.
For instance, my partner noted that, because politicians crave coverage and publicity, commentators, analysts, et.al., think nothing of savagely attacking them. In fact, they are paid to do that. The more detailed their criticisms of politicians and elected officials, the better. Their targets don't have enough money to really affect the media covering them, and, besides, the politicians have to have that coverage.
Not so in the business world. Because most business media depend upon advertising revenues, large corporations wield an important, potent weapon. By withholding advertising, as well as refusing to grant interviews or access to events for members of an offending publication, broadcast or cable network, large corporations seem to be relatively immune to honest, factual, blunt criticism.
As my recently-added link to my prior predictions illustrates, there are several instances in which the signs of trouble were obvious for some time (GM, GE, Dell), yet the business media refused to report on the issues.
In GE's case, it's actually laughable, because the company owns CNBC. So when David Faber tried to soft pedal the Citi analyst's report on the air last week, he looked ridiculous. While noting GE's flat performance under Immelt, he never the less alleged that 'some people would say he (Immelt) has actually performed better than his predecessor.' Ha! Who, besides Immelt and his board, believes that?
It seems to me that, anymore, the only really trustworthy business coverage is that which does not require corporate target spending (on, e.g., advertising, consulting, brokerage, underwriting, etc.) to exist. Like....well....blogs!
However, if you are waiting for Wall Street analysts, media columnists, or business television network reporters to break major stories, before the fact, about serious problems at many large companies, don't hold your breath.
Shortly thereafter, I wrote this post, wherein I asked,
I now wonder if GM, even in its last acts as a sustainably profitable enterprise, wields enough financial leverage to silence any significant, honest appraisal of its situation.
Do analysts worry that they will be shut out of conference calls if they point to GM’s revenue problems as insoluble? Do the bankers worry that they won’t get invited to participate in any subsequent last-ditch financings? Do the various media outlets worry that they will have seen the last GM ads in/on their medium, should they report candidly about the company’s prospects? Perhaps fund managers are concerned that candid remarks will lose them possible business with GM's pension funds or treasury functions.
It’s now beginning to seem to me that all these parties, “stakeholders,” if you will, literally have more to gain from a fatally bleeding GM than they do from a merged/acquired/failed GM.
Last fall, when I bought a new laptop for my daughters, I wrote this post discussing why I didn't buy one from Dell, and why I thought the company had seriously erred in keeping its business model current. That post garnered a reply from a Dell staffer admonishing me for my comments, and assuring me that the direct sales model was alive, well, and prospering!
It's taken until this past week for Michael Dell himself to announce that maybe the direct sales model needs to be revisited at Dell. In the interim, there wasn't a whole lot of criticism of the firm, other than it changed CEOs. Perhaps the word "gingerly" describes the business media's attitude toward the struggling computer maker during this time of poor performance.
I've written about GE's need to be split apart, back in August of 2006, but it took until last week for an analyst to have the courage to suggest the same remedy. Even then, he's been doubted by most other pundits, or just ignored.
As I discussed this with my partner yesterday, we came to the conclusion that this is simply the result of the structure of business media.
For instance, my partner noted that, because politicians crave coverage and publicity, commentators, analysts, et.al., think nothing of savagely attacking them. In fact, they are paid to do that. The more detailed their criticisms of politicians and elected officials, the better. Their targets don't have enough money to really affect the media covering them, and, besides, the politicians have to have that coverage.
Not so in the business world. Because most business media depend upon advertising revenues, large corporations wield an important, potent weapon. By withholding advertising, as well as refusing to grant interviews or access to events for members of an offending publication, broadcast or cable network, large corporations seem to be relatively immune to honest, factual, blunt criticism.
As my recently-added link to my prior predictions illustrates, there are several instances in which the signs of trouble were obvious for some time (GM, GE, Dell), yet the business media refused to report on the issues.
In GE's case, it's actually laughable, because the company owns CNBC. So when David Faber tried to soft pedal the Citi analyst's report on the air last week, he looked ridiculous. While noting GE's flat performance under Immelt, he never the less alleged that 'some people would say he (Immelt) has actually performed better than his predecessor.' Ha! Who, besides Immelt and his board, believes that?
It seems to me that, anymore, the only really trustworthy business coverage is that which does not require corporate target spending (on, e.g., advertising, consulting, brokerage, underwriting, etc.) to exist. Like....well....blogs!
However, if you are waiting for Wall Street analysts, media columnists, or business television network reporters to break major stories, before the fact, about serious problems at many large companies, don't hold your breath.
A New Link to Old Posts
In light of my correct prediction on the structure of Harman International's buyout, noted in this post, today, my partner suggested that I begin to catalogue the cases in which I have been prescient on some issue or company event.
Thus, I've added a link entitled Early Trend & Issue Identifications In This Blog to my link list on the right of the main page. In this post, which, for my own convenience in locating it, I have dated as the first post of the blog, from September, 2005, I will list the issues or topics on which I wrote a clear prediction or conclusion, and the corresponding date and nature of the same realization in the market at large, or among other published pundits/analysts/CEOs, etc.
Thus, I've added a link entitled Early Trend & Issue Identifications In This Blog to my link list on the right of the main page. In this post, which, for my own convenience in locating it, I have dated as the first post of the blog, from September, 2005, I will list the issues or topics on which I wrote a clear prediction or conclusion, and the corresponding date and nature of the same realization in the market at large, or among other published pundits/analysts/CEOs, etc.
Thursday, September 15, 2005
Early Trend & Issue Identifications In This Blog
Topic Date
Link Date
Kraft announces plan to split company along snack/grocery business lines, effectively nullifying the expensive, time-consuming Cadbury acquisition of 2009-2010.
here 24 September 2009
Alcatel Purchase of Lucent To Fail 08 October 2007
here 03 April 2006"Wal-Mart Era" Declared Over in Wall Street Journal Feature Column 03 October 2007
here 20 September, 2005
Michael Dell Admits Direct Sale Model May Be Outmoded 28 April 2007here 15 May 2006
Shareholder Participation in Private Equity Buyouts 28 April 2007here 01 August 2006
GM & Ford Solvency Issues Spring 2006here 06 October 2005
Split GE Into Its Constituent Parts 28 April 2007 (Citi analyst)
here 03 August 2006
Detroit Big Three Change of Control or Ownership 14 May 2007 (Chrysler sale)
here 06 October 2005
Wal-Mart Retail Strategy/Segmentation Failure Fall 2006
here 20 September 2005
Yahoo's Strategic Drift and Looming Crisis Summer 2006
Terry Semel Resigns June 2007here 28 August 2006
Southwest Airlines Strategic Mistake In Pursuing Growth
here 01 December 2005
Link Date
Kraft announces plan to split company along snack/grocery business lines, effectively nullifying the expensive, time-consuming Cadbury acquisition of 2009-2010.
here 24 September 2009
Alcatel Purchase of Lucent To Fail 08 October 2007
here 03 April 2006"Wal-Mart Era" Declared Over in Wall Street Journal Feature Column 03 October 2007
here 20 September, 2005
Michael Dell Admits Direct Sale Model May Be Outmoded 28 April 2007here 15 May 2006
Shareholder Participation in Private Equity Buyouts 28 April 2007here 01 August 2006
GM & Ford Solvency Issues Spring 2006here 06 October 2005
Split GE Into Its Constituent Parts 28 April 2007 (Citi analyst)
here 03 August 2006
Detroit Big Three Change of Control or Ownership 14 May 2007 (Chrysler sale)
here 06 October 2005
Wal-Mart Retail Strategy/Segmentation Failure Fall 2006
here 20 September 2005
Yahoo's Strategic Drift and Looming Crisis Summer 2006
Terry Semel Resigns June 2007here 28 August 2006
Southwest Airlines Strategic Mistake In Pursuing Growth
here 01 December 2005
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