Financial deals underline weakness of GM, Ford

A man scans a long line of unsold General Motors vehicles on the lot of a Pontiac-GMC dealership yesterday in the east Denver suburb of Aurora, Colorado. PHOTO: AP

Three financial deals last week underscored the lingering weakness of General Motors Corp and Ford Motor Co despite more than a year of restructuring and thousands of job cuts.

The most dramatic deal involved billionaire tycoon Kirk Kerkorian's decision to dump all of his GM stock, which up until Thursday was 7.4 percent or 42 million shares, valued at US$1.2 billion.

The 89-year-old investor had been banking on untapped potential for the company, having built up a stake in Chrysler in the 1990s and aggressively pushed the number three US automaker into a marriage with Germany's Daimler.

But he began diluting his GM position last month, after reaching a "breaking point" in his patience with company management under chairman and chief executive Rick Wagoner, according to Merrill Lynch auto analyst John Murphy.

"Signs of Kerkorian frustration became more evident [in October], following the failed talk of an alliance with Renault-Nissan that he himself had proposed," Murphy wrote in a note to investors.

"The news of Kerkorian exiting his position is what I think the market feared most," he said.

Wagoner said GM does not need an alliance with another automaker despite GM's losses, which now total more than US$13 billion since the beginning of last year.

The losses, and the subsequent decline in GM's credit rating, forced the company to sell a 51 percent interest in its consumer credit arm GMAC to a consortium led by Cerberus FIM Investors.

GM Gina Proia said the Cerberus deal had netted US$10 billion in cash when it closed on Thursday, and GM will get another US$4 billion from the deal over the next three years.

For its part, Ford disclosed over the week that it had put its factories, intellectual property and trademarks up as collateral to secure US$17 billion in loans.

The company also revealed in new regulatory filings that it expected to burn through about US$14 billion of the cash as its restructuring picks up pace over the next two years. It does not expect to turn a profit before 2009.

Sean McAlinden of the Automotive Research Center in Michigan said that such major loan transactions, which were forced by the slippage in Ford's credit rating, will force it to shrink even faster.

Ford lost more than US$7 billion during the first nine months of this year, and announced last week that more than 30,000 unionized blue-collar workers had accepted its offer of buyouts or early retirements.

The likely outcome of the restructuring is that Ford will shrink from a company that controlled nearly 25 percent of the US market in 2000 to one roughly the size of the Chrysler Group, with market share in the range of 14 percent to 15 percent, McAlinden said.

The worker buyouts and loans represent a major gamble for Ford, according to auto industry consultant Laurie Harbour-Felax of the Harbour-Felax Group.

"They're taking a huge risk," she said.