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Old 16 Nov 2005, 22:41 (Ref:1462719)   #1
mogwai
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mogwai should be qualifying in the top 10 on the gridmogwai should be qualifying in the top 10 on the grid
GM's demise...

GM may potentially cut the dividend on the preferred stock, the common stock is at an 18yr low and bond prices for GM are are falling significantly, it seems more and more likely that GM will either file for bankruptcy or achieve some major concessions from the Unions and cut costs drastically. Either way, it seems that they are in for one hell of a rocky road...

I begin to wonder if the works Corvette's could go the way of Jaguar in F1...that is, being sold off to be run as privateers? Anyone have any thoughts on this?

Any guesses on how much the C6R teams get from GM to support their racing programs?

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Old 16 Nov 2005, 23:11 (Ref:1462755)   #2
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There has been plenty of problems at GM for years, though this is becoming more commonly known to many people.

There a few things worthy of note though.

1. GMAC is a VERY profitable business. This is likely to be spun-off into its own company, with GM retaining some form of majority ownership. This has the potential to raise between $USD 20-35 Billion depending on how much is sold off. The Balance sheet would look much better under this scenario, and GMAC bonds would become rated more highly, being seperated from GM. This should potentially lower borrowing costs for GM.

2. The Union already gave concessions.

3. GM is building plants in China, for export to North America.

4. GM spends a great deal in racing. NASCAR, ALMS, Speed World Challenge and Grand Am to name a few, with NASCAR taking a huge percentage of that cut. I don't like NASCAR personally, but I wonder what marketing gains there are, or halo marketing in racing cars that look nothing like your product, aren't a display of technical gee whiz, and don't really share anything at all with the cars it is named after.

Sure, it's possible that racing program spendings could be cut, and the ALMS program is one that could go.

5. Perhaps GM should concentrate on building cars people actually want to buy, which has been one of their biggest problem for years now... shrinking market share.
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Old 16 Nov 2005, 23:42 (Ref:1462784)   #3
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GM puts LOADS of money into their Nascar programmes. However, if they had to cut something, im sure it would not be their Nascar stuff. It would probably be ALMS or Grand Am. I think Pratt and Miller will be around for a long time racing Corvettes. The question will be if GM will be able to give them full funding like they are now, or will they have to cut back some? We will have to wait and see..
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Old 17 Nov 2005, 13:40 (Ref:1463181)   #4
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Thanks guys for the responses. I hadn't thought about NASCAR as I don't follow it at all, but sounds like it a sinkhole as well.

Fogulhund - although the unions did give concessions, it certainly is not enough. Like you said, making cars that more people will buy would help their bottom line, but dinosaurs like Ford and GM don't adapt quickly...the fact that Toyota can float Aaa rated paper just 3 weeks ago while GM was downgraded to junk shows the state of american car makers. The plants overseas may help in the long term, but the near term cost structure is untenable.

GMAC should be spun off, but the dollars will be a short term fix to a problem that is indemic, The bond markets seem to already be pricing in the fact that the chances of GM filing banruptcy in the next 6 months is greater than 50%. Although the cost of borrowing should decrease it doesn't seem enough to stave of filing.

So, (back to the original question) how does this affect their racing programs and the potential competitiveness of the cars (thinking primarily ALMS, but i suppose NASCAR is another one to consider)? More money and factory sponsorship definately increases the chances of success so is it feasible that the C6-R's will, next season, drop down the pack? Are the cars good enough, without such large backing, to be worthwhile racing for a privateer?

If GM has to stop the works team, and the works team has been invited to Le Mans, what happens to their entries?

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Old 17 Nov 2005, 13:59 (Ref:1463196)   #5
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No matter what, the C6.R's will race next year in the ALMS through Pratt & Miller. Could GM's financial situation effect the Corvette program? Possibly, but not in 2006. In my mind the Corvette people have bigger things to worry about, like who they're going to race against in GT1 in 2006.
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Old 18 Nov 2005, 05:19 (Ref:1463805)   #6
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Originally Posted by mogwai
GM filing bankruptcy in the next 6 months is greater than 50%
If GM does file for bankruptcy in 6 months, then I don't see Corvette Racing going to Le Mans 2006, full stop.
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Old 18 Nov 2005, 07:13 (Ref:1463835)   #7
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I'll admit, I hadn't reviewed the GM situation for a couple of months now. Obviously the company is talking up their liquid reserves (19 billion +-).

The biggest near term threat is Delphi's bankruptcy proceedings. Should the workers at Delphi go on strike, GM would very quickly run out of parts to build new cars. Amazingly, many of the analysts are suggesting that GM would burn through their liquid reserves in TEN weeks.

Assuming business as usual, with GM maintaining current marketshare, no strikes, and no downturn in the economy, they should be good for another 3-4 years before Chapter 11 becomes a reality.

Blatantly stolen from Forbes.

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Reason No. 1: You have to be eligible to declare bankruptcy; you can’t just decide it would be strategically beneficial to do so. General Motors (nyse: GM - news - people ), with $19 billion in cash and a book value of $40 billion, hardly meets that test now or for a number of years.

Reason No. 2: GM doesn’t need a bankruptcy threat to win concessions from its unions. It has Delphi (nyse: DPH - news - people ) to do that for them. When the Delphi bankruptcy is concluded, the unions will know what they can expect to win from GM if they force it to use the bankruptcy route. Chances are, they will settle for something close to the Delphi concessions because they have even more to lose with GM.

Reason No. 3: GM as a business is a very valuable franchise. Before it goes into bankruptcy, it would likely reach a merger agreement with a foreign car manufacturer much as Chrysler did seven years ago when it “merged” with Daimler to form DaimlerChrysler (nyse: DCX - news - people ).

Reason No. 4: Unlike the airlines, GM and its unions have it within their power to fix the problems. There are a variety of ways this can be done short of bankruptcy. The main battle may well be within the United Auto Workers, pitting young workers against those who are either retired or about to retire.

Reason No. 5: A bankruptcy filing would be most devastating to GM shareholders. It is the duty of the board of directors and management to do everything to prevent that from happening. While this principal seems to have been ignored in several recent bankruptcies, it seems less likely to happen here. Besides, we have Kirk Kerkorian watching to make sure this doesn’t happen. I’d be more worried if he had bought GM debt instead of stock.
Suffice to say, what happens with the current Delphi negotiations are going to go along way in knowing what is going to happen with the next round of GM negotiations.
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Old 18 Nov 2005, 07:22 (Ref:1463839)   #8
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Now, I wanted to post this in a seperate post.

Pratt & Miller currently has quite a nice little business building cars for GM's road racing endeavours. You have to wonder a little if it might make some sense for P&M to be pushing their customer just a little harder to allow for sales of more of these cars they are building. Certainly in selling say 10 C6.R's (wild assumption that there is a market for such a thing), that P&M might make enough profit to greatly reduce GM's cost here.
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Old 24 Nov 2005, 16:12 (Ref:1469400)   #9
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I think GMAC is profitiable primarly on paper. The rates being offered for vehicles are incredibly low, much lower than say what a bank would give. To clear out '05 models they were doing 0% financing/leasing. How does one make money when giving away financing?!? They shuffle the numbers around to make the auto side of the business take the hit on the financing loss and make it look like the financial arm is doing well.
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Old 24 Nov 2005, 17:53 (Ref:1469481)   #10
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I think to get the 0% percent interest, you have to meet certain conditions, which most people can't.

Despite all of GM's internal problems, the key problem is that they build a crap product. The ergonomic design in the interiors is a prime example. It looks like a crack addict has designed it.
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Old 29 Nov 2005, 03:55 (Ref:1472631)   #11
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No there's no unusual conditions to get 0% financing with an automaker (I sold an '05 model a couple of hours ago with 0% financing for 60 months - let last of that model on our fairly large Ford lot). With those lenders there's one rate and one rate only. You more or less qualify or you don't. Most banks are more or less the same, but may have more of a tendancy to apply conditions such as a certain amount down, etc. Some like Wells Fargo will approve riskier applicants but slap on a higher interest rate to justify the risk they are taking.

I absolutely agree with the diagnosis for the biggest reason behind GM's problems.
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