Retrenchment - Malaysia vs Overseas

As some of you might know, I am a regular follower of Dali at http://malaysiafinance.blogspot.com/
His recent piece compared how Malaysian local companies did not really bother to retrench, compared to MMCs and foreign companies.

My point of view?

I am SURE that the price of labour has a lot to do with the difference in policy... for local firms, salaries a a much lower percentage. Take Tenaga, Proton, MayBank... what % of the annual revenue/profit do salaries make up? Compare that with General Motors, AIG, Goldman... where even 10% layoffs translated to pretty HUGE savings.
In the UK, an accountant get's like RM240,000 a year. In Malaysia, they get like RM 48,000 a year. So, in order to make the same amount of savings, a malaysian company needs to fire of 5 times the number of workers.
Or take General Motors. According to various reports, the cost of employing a GM factory worker, including wages and fringes, would not be in excess of $72 per hour. A FACTORY WORKER. Our local factory workers are getting RM1000 - RM3000 a month, but these guys are getting RM40,000 a month. Yes, dear dog, no wonder GM is in trouble.


One more thing. A lot of hiring that was going on was due to "optimism". Due to the length of the training cycle, companies have to prepare early for future growth, if you expect business to grow 40% in 2 years, you need to finish hiring 30% extra staff in 1 year. In fact, it wouldn't take a big fall in business for layoffs... in recent overheated job market environment, all it would have required would have been for revenue levels to stagnate for 2-3 years. That would already have been enough to have plenty of idle workers.

GMAC Bond-Equity sorta flops... but they get the money anyway.

http://www.bloomberg.com/apps/news?pid=20601087&sid=am4IwraGSAW0&refer=home

"Dec. 31 (Bloomberg) -- GMAC LLC, the auto lender that’s getting a $6 billion federal bailout, completed a debt swap designed to bolster its capital after falling short of its $38 billion goal.
About 59 percent of its old notes eligible for the swap and 39 percent of the debt from its Residential Capital unit were tendered, according to a statement from Detroit-based GMAC today. The goal was 75 percent. "

"GMAC and Residential Capital had some of their debt rated SD, or “selective default,” by Standard & Poor’s to reflect results of the swap. The downgrade from CC was made because bondholders that signed up for the exchange received less than their original investment, and the swap “left untendered bonds in a subordinated position to the new notes,” S&P said today in a statement. "

"GMAC, responsible for financing about 35 percent of GM’s retail customers last year, said it will now lend to vehicle buyers with credit scores of 621 or higher, compared with a previous standard of at least 700. The higher threshold had excluded about 42 percent of U.S. consumers. "

"GMAC ran short of cash this year after $7.9 billion of losses over five quarters, mostly from record defaults on subprime mortgages, which are made to homebuyers with the worst records. The lender was shut out of credit markets and had to limit lending only to people with the top repayment histories."

...

Well... now GMAC is an investment bank. Question is, what lunatic would deposit money into GMAC now? ... other than government bodies of course.
Still, if the government just keeps giving it money, that's more than good enough, right?

Heh. Looks like GMAC management were not satisfied with getting defaults from subprime loans... they are aiming to get defaults on their car loans too? ... lowering lending standards... well, of course that was part of the Terms and Conditions of that TARP loan, so, they can't help it... but... geez.

... 42% of US consumers have credit scores below 700? ... ok... I need someone to translate to me what that means exactly.

Anyhow... bottom line is:

Problem: US car industry needs people to buy cars. And pay for them.
Problem: Cars are cyclical. And we're entering a natural downturn, even without the recession.
Problem: How many cars does one family need, really?

General Motors Bankruptcy

Hard to tell, at the moment, but my personal bet is that General Motors is going to declare bankruptcy.

TARP aid? You must also realize something... when they say the autos might get TARP aid, they mean they might get it after Obama comes into power. Cause there isn't much money left in TARP currently.

Anyhow, at this point in time, it has come to the stage where it DOESN'T MATTER whether they get bailed out or not. And I think that some people realize this.

GMAC is pretty much dead, and without GMAC, GM can barely make sales. GMAC has always provided inventory funding to the tune of 80% of all new GM vehicles.

GM is going to cut production in the first quarter of 2009 by an additional 30%.

GM has stated that it is over-represented at the dealership level and needs to cut back around 2,000 dealers

It's pretty obvious at this point that GM is basically a failing business, and all their talk of a turnaround is rather far fetched.

They think that declaring bankruptcy will not endear them to car buyers? ... Do they think that taking taxpayer money to cover their own mistakes will make people fall in love with their cars???

Anyhow... this is looking more and more like a big huge delaying tactic... pass the buck onto the new administration, wait for GM to fall apart... BTW, by 5pm GMT we will watch as GMAC's attempt to become a bank fails. At which point, extending a loan to GM will be pointless. Truly truly pointless. Because it will become UNABLE TO SELL CARS, as there will be NO FINANCING.

GMAC's bank holding plan = FAIL

Condensed from: http://www.thestreet.com/story/10452422/1/gmac-extends-deadline-for-tender-offers.html

"NEW YORK -- GMAC Financial Services, the financing arm of General Motors, said Wednesday that it hasn't raised enough capital to become a bank holding company and qualify for aid under the government's $700 billion bank rescue plan.
In a last-ditch effort to raise the needed cash, GMAC extended the early delivery time for its private exchange and cash tender offers by three days, to Friday and warned that a failure to convert to a bank holding company would have a "material adverse effect" on its business.
Wednesday's move marked the third time that the New York-based company, which is majority owned by the private equity firm Cerberus Capital Management LP, has extended the deadline in hopes of drumming up the needed funds.
In order to approve GMAC's application to become a bank holding company, the Federal Reserve has said the company needs at least $30 billion in regulatory capital. In order to meet that requirement, GMAC said it would have to have about 75% participation on its offers.
So far, only about $6.3 billion, or 22%, of the outstanding GMAC notes have been tendered and about $2 billion, or 21%, of the outstanding ResCap notes have been tendered, GMAC said.
If the offers aren't successful, GMAC said it will withdraw its application to become a bank holding company and it's unclear what its next move would be.
GMAC said that if it's unable to transform into a bank holding company and complete the GMAC and ResCap offers by the end of the year, it would have a "near-term material adverse effect on GMAC's business, results of operations, and financial position."
The company, which is 49% owned by GM and provides both home-mortgage and vehicle loans, has been hemorrhaging money this year, hurt by both the crisis in the mortgage lending industry and slumping demand for vehicles.
Last month, GMAC warned that ResCap could fail. The business accounted for about $1.9 billion of GMAC's total $2.52 billion third-quarter loss.
GMAC has also slashed its costs in an attempt to stem the losses. In September, the company said it would close all of its 200 retail offices and lay off about 5,000 employees, with the bulk of cuts coming at ResCap. "


Summary. They've extended the deadline 3 times already... and this 3rd time they only got 3 days?
They need 30 billion and only got 8.3 billion so far...
Somehow, I don't think they will raise the other 22 billion in 3 days. How about you?

The point is, if they could raise 30 billion, they wouldn't need a 10b bailout effective immediately, would they? !!!

So, yet another "clever scheme" unravels.

FAIL.

Agent Zero/Rocket Rod

Excerpts taken from http://www.thestreet.com/story/10447426/1/analyst-does-a-u-turn-on-gm.html

A Deutsche Bank analyst recently came out with a price target for General Motors: zero

Who was this man? Rod Lache

Let's take a lo0k back to a few years ago.

In July 2005, when automobile sales hit a record thanks to heavy promotional activity, Agent Zero was quoted prominently in a New York Times story. "'The industry is on fire,'" Lache said.

Less than a year later: "Dow Reaches 6-Year High After Analyst Upgrades G.M." "G.M. rose $2.25, to $25.80, after Rod Lache, an analyst for Deutsche Bank, raised the stock one notch to hold, citing progress with its revamping and recent moves to generate liquidity."

February of 2007, Deutsche Bank analyst Rod Lache raised his rating on GM and Ford to buy from hold, saying that there is an 'increasingly high probability that U.S. automakers will be able to restructure and settle their retiree healthcare obligations at a discount"

September 2007, "Deutsche Bank analyst Rod Lache reiterated to clients in a note that if GM is able to reach a deal to shed billions in retiree health-care liabilities and shield itself from future health-care inflation, the stock could break into the $50 range."

January 2008: Agent Zero/Rocket Rod was quoted as saying that automakers had already priced in a recession, and said General Motors was a safe investment.

November 2008: Rod Lache declares that General Motors has a Target Price of ZERO.


Conclusion: Rod Lache. You SUCK. You suck ASS.

General Motors

Summary at the end as usual.

Well, basically, everyone knows about General Motors, right?
A bailout would require probably USD50billion, I guess. You might think my figures are wrong, but let’s face it, look at AIG, it is obvious that even the best economists and financial guys have no idea what a bailout will end up costing. But, I’m basing this on the fact that they burnt through 6.9b in 1 quarter. It looks like the automobile industry might take years before recovering. As I said, it’s just a guess on my part.
However, letting GM go under is not really an option either. They are estimating (maybe overestimating) that GM going bust would mean a loss of 2.5million jobs in America. Oh dear. That’s not good at all, especially in a recession! … The thing is… it has been stated that EVEN WITH a bailout, many many jobs will be lost. There’s just too much excess production capacity.
Anyhow… there is a 3rd option that I have come up with. It’s cheap, and it’ll save the most jobs too!
Nationalize General Motors.
Why not? It’s practically a household American name anyhow. It’s not really doing that well profit wise. Most importantly, at the current share price, IT WILL ONLY COST USD1.6BILLION.
Yeah. We’ve reached the point that a bailout for GM, instead of being like 10% of the company’s value, or even 50%, is in fact more than 10 times.
So, it is the cheapest and most effective measure at this point for US government to just force a mandatory purchase of GM. Heck, they can even afford to give current shareholders a 50% premium on the market price. It’ll still cost under 3b, which is WAY WAY WAY cheaper than any bailout could ever be for GM.
Everyone in Malaysia talks about taking companies private when the share price is too low. In fact, GM is currently the best candidate to be taken private. But ONLY if it’s by the American Government. Unless… well, maybe Warren Buffet used up his warchest too fast? hahaha, but he’s still got plenty of money left. Buffet, put your money where your mouth is and BUY AMERICAN. This is the patriotic thing to do!

Summary: US goverment should just buy up all outstanding General Motors shares, and nationalize the company. It’s CHEAP and EFFECTIVE!