(Reuters) - General Motors Corp and Chrysler aim to drop as many as 3,000 U.S. dealers and are expected to begin sending notifications as early as Thursday, three people briefed on the still developing plans said.
GM, facing a U.S. government-imposed deadline of June 1 to restructure or file for bankruptcy, is expected to send termination notices to up to 2,000 dealers -- a third of its roughly 6,000 U.S. dealers, the sources told Reuters.
Chrysler, which filed for bankruptcy on April 30, will also tell up to 1,000 of its 3,189 U.S. dealers it is terminating their franchise agreements, according to the sources who asked not to be identified because the controversial closure plans have not been yet announced.
The moves to shut down auto dealerships underscores how the economic pain caused by the downward spiral of both automakers -- now operating under U.S. government oversight -- is spreading beyond their home base in Detroit.
The development comes as dealer representatives have stepped up lobbying in Washington to try to slow down closures they estimate would cost 200,000 dealership jobs.
The involuntary terminations are also widely expected to prompt a legal challenge from dealers who are independent retail networks protected by state franchise laws.
Chrysler spokeswoman Kathy Graham said the automaker had not announced its dealership closure plans.
"We have not announced anything at this point," she said. "We are not done with our process at this point."
A GM spokesman was not immediately available for comment.
More than 100 members from the National Automobile Dealers Association, a group representing the country's 20,000 new car dealers, met members of the House of Representatives and Senate in Washington on Wednesday, asking them to intervene with the Obama administration's autos task force on planned reductions.
"A rapid cut of dealers is a bad idea," NADA Chairman John McEleney said in a statement.
McEleney said his organization does not oppose dealer consolidation, but believes the administration and the companies are moving too fast.
NADA leaders are scheduled to meet the U.S. auto task force on Thursday.
The task force, headed by former investment banker Steve Rattner, is driving the restructuring of both companies, which are planning to close plants, cut jobs and restructure dealer lineups to establish viability.
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Wednesday, 13 May 2009
U.S. regulators seek OTC derivatives crackdown
(Reuters) - The Obama administration moved on Wednesday to exert more control over the shadowy over-the-counter derivatives market, now closely linked to the global credit crisis.
Federal regulators proposed subjecting all over-the-counter derivatives dealers -- whose trades are not made through an exchange, making them hard to monitor -- to "a robust regime of prudential supervision and regulation," including conservative capital, reporting and margin requirements.
The plan, sketched out by Treasury Secretary Timothy Geithner and top regulators at a news conference, marks a big step in the administration's push to rewrite rules for banks and financial markets in response to a credit crisis that has sent economies around the globe reeling.
U.S. officials have pumped billions of dollars of taxpayer money into banks and automakers to try to stem the crisis. Last week, they wrapped up "stress tests" at the nations 19 largest banks and told ten of them to raise a combined $74.6 billion.
The Obama administration is now aiming to bolster regulatory oversight of the financial system.
Over-the-counter derivatives are presently difficult to monitor and supervise. Billionaire investor Warren Buffett has called derivatives "financial weapons of mass destruction."
Under current law, they are only loosely policed.
"We're going to require for the first time all standardized over-the-counter derivative products be centrally cleared," Geithner told the news conference.
EXPLOSION IN TRADING
Trading of OTC derivatives, instruments that derive their value from other assets, exploded in size in recent years, with many large firms -- such as mega-insurer American International Group (AIG.N) -- charging into the burgeoning market.
The global market is pegged at about $450 trillion.
When the U.S. real estate bubble burst, firms such as AIG were left with mountains of complex, hard-to-sell financial instruments on their books.
In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), and Goldman Sachs Group Inc (GS.N). All have received taxpayer aid.
Officials did not make clear which agency would be in charge of the crackdown. They said they would work together to prevent "forum shopping" for weak rules. Lawmakers disagree over which agency should oversee OTC derivatives clearing.
Laws enforced by both the Securities and Exchange Commission and Commodity Futures Trading Commission would have to be amended by Congress to accommodate the administration's plans.
Read more here
Federal regulators proposed subjecting all over-the-counter derivatives dealers -- whose trades are not made through an exchange, making them hard to monitor -- to "a robust regime of prudential supervision and regulation," including conservative capital, reporting and margin requirements.
The plan, sketched out by Treasury Secretary Timothy Geithner and top regulators at a news conference, marks a big step in the administration's push to rewrite rules for banks and financial markets in response to a credit crisis that has sent economies around the globe reeling.
U.S. officials have pumped billions of dollars of taxpayer money into banks and automakers to try to stem the crisis. Last week, they wrapped up "stress tests" at the nations 19 largest banks and told ten of them to raise a combined $74.6 billion.
The Obama administration is now aiming to bolster regulatory oversight of the financial system.
Over-the-counter derivatives are presently difficult to monitor and supervise. Billionaire investor Warren Buffett has called derivatives "financial weapons of mass destruction."
Under current law, they are only loosely policed.
"We're going to require for the first time all standardized over-the-counter derivative products be centrally cleared," Geithner told the news conference.
EXPLOSION IN TRADING
Trading of OTC derivatives, instruments that derive their value from other assets, exploded in size in recent years, with many large firms -- such as mega-insurer American International Group (AIG.N) -- charging into the burgeoning market.
The global market is pegged at about $450 trillion.
When the U.S. real estate bubble burst, firms such as AIG were left with mountains of complex, hard-to-sell financial instruments on their books.
In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), and Goldman Sachs Group Inc (GS.N). All have received taxpayer aid.
Officials did not make clear which agency would be in charge of the crackdown. They said they would work together to prevent "forum shopping" for weak rules. Lawmakers disagree over which agency should oversee OTC derivatives clearing.
Laws enforced by both the Securities and Exchange Commission and Commodity Futures Trading Commission would have to be amended by Congress to accommodate the administration's plans.
Read more here
Tuesday, 12 May 2009
Ford raises $1.4 billion through offering
(Reuters) - Ford Motor Co said on Tuesday that it raised $1.4 billion through a 300 million share offer for $4.75 per share, a move that its chief executive said was an important step toward getting profitable again.
Ford said the proceeds would be used for general corporate purposes, including to fund a portion of its obligation to a union-run fund set up for retiree healthcare expenses.
Selling the stock "is another key step in our plan to transform Ford into an exciting, viable enterprise poised to return to profitability," Chief Executive Alan Mulally said in a statement.
Issuing equity now and possibly funding a larger portion of its retiree obligations with cash would help Ford improve its balance sheet and reduce the potential impact of those obligations on its shareholders, Mulally said.
Ford is the only U.S. automaker that has not sought government aid.
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Ford said the proceeds would be used for general corporate purposes, including to fund a portion of its obligation to a union-run fund set up for retiree healthcare expenses.
Selling the stock "is another key step in our plan to transform Ford into an exciting, viable enterprise poised to return to profitability," Chief Executive Alan Mulally said in a statement.
Issuing equity now and possibly funding a larger portion of its retiree obligations with cash would help Ford improve its balance sheet and reduce the potential impact of those obligations on its shareholders, Mulally said.
Ford is the only U.S. automaker that has not sought government aid.
Read more here
Oil Companies May Wait for Hedges to End to Go Bargain Shopping
(Bloomberg) -- Quantum Energy Partners, the Houston private-equity firm that put together a $3.5 billion bankroll to go bargain-hunting for acquisitions after oil and natural-gas prices plunged, is waiting for a better time to pounce.
Buyers will accelerate acquisitions late this year and in early 2010 as the hedging contracts that shielded potential takeover targets from tumbling prices expire, said Wil VanLoh, Quantum’s chief executive officer.
“By the first quarter of next year, we’ll be pretty darn active,” VanLoh said in an interview at his downtown office. “Many companies are very well hedged for 2009, so the squeeze hasn’t happened yet. The point of capitulation probably will arrive in the fourth quarter or the first quarter of 2010.”
The record drop in crude prices from 2008’s all-time high hasn’t triggered a surge in takeovers because would-be sellers are demanding mid-2008 valuations, said Michael Bodino, director of research at Sanders Morris Harris Inc. in Dallas. That will change, Bodino and VanLoh said, as hedging contracts drop off, forcing the weakest producers to sell or face bankruptcy.
The number of oil and gas deals last month fell 35 percent from a year earlier, and the value of transactions dropped 60 percent to $5 billion, according to data compiled by Bloomberg. UTS Energy Corp. of Calgary repulsed a third and final takeover bid of C$830 million ($680 million) by Total SA last month, saying the company is worth more.
Time is Wrong
“Now is not a good time to buy because sellers have unrealistically high price expectations,” said Michael Harness, chief executive officer at Osyka Corp., a closely held oil producer in Houston. Harness, a former Amoco Corp. engineer, expects expiring hedges to begin forcing rivals to put oil and gas fields on the auction block as soon as July.
Producers that pre-sold their September 2009 output a year ago locked in a price of $106 a barrel, based on New York Mercantile Exchange futures. If that’s the last month for which they have hedges in place, the best they can hope to get for October production is $58 a barrel, or 45 percent less.
At Quantum, VanLoh and co-founder Toby Neugebauer gathered the managers of their portfolio companies last month to order a halt to acquisition activities on expectations that asset prices will decline more.
“We are still being very, very patient,” VanLoh said in an April 30 interview. “Everything is too expensive, given where prices are going.”
Alberta Acquisition Search
Quantum has invested in 23 companies that later were sold or went public. The firm staked Linn Energy LLC with $15 million in 2003 and took the partnership public in 2006. Houston-based Linn has a market value of more than $2 billion today.
In the Canadian province of Alberta, home to an oil industry that five years ago surpassed Saudi Arabia as the biggest crude exporter to the U.S., cratering stock values and lower energy prices have prompted the C$70 billion ($61 billion) Alberta Investment Management Corp. to step up the search for investment opportunities.
“With commodity prices where they are now, Alberta is looking like it’s going to present a lot of opportunities for us,” Chief Operating Officer Jagdeep Singh Bachher said in a telephone interview.
Edmonton-based AIMCO, as the Crown corporation is known, agreed last month to acquire a 20 percent stake in Calgary-based Precision Drilling Trust, Canada’s largest oil driller. AIMCO’s next move will be to sift through the market wreckage and find companies with assets and management teams most likely to excel even if energy prices remain depressed, said Brian Gibson, senior vice president for public equities at AIMCO.
Read more here
Buyers will accelerate acquisitions late this year and in early 2010 as the hedging contracts that shielded potential takeover targets from tumbling prices expire, said Wil VanLoh, Quantum’s chief executive officer.
“By the first quarter of next year, we’ll be pretty darn active,” VanLoh said in an interview at his downtown office. “Many companies are very well hedged for 2009, so the squeeze hasn’t happened yet. The point of capitulation probably will arrive in the fourth quarter or the first quarter of 2010.”
The record drop in crude prices from 2008’s all-time high hasn’t triggered a surge in takeovers because would-be sellers are demanding mid-2008 valuations, said Michael Bodino, director of research at Sanders Morris Harris Inc. in Dallas. That will change, Bodino and VanLoh said, as hedging contracts drop off, forcing the weakest producers to sell or face bankruptcy.
The number of oil and gas deals last month fell 35 percent from a year earlier, and the value of transactions dropped 60 percent to $5 billion, according to data compiled by Bloomberg. UTS Energy Corp. of Calgary repulsed a third and final takeover bid of C$830 million ($680 million) by Total SA last month, saying the company is worth more.
Time is Wrong
“Now is not a good time to buy because sellers have unrealistically high price expectations,” said Michael Harness, chief executive officer at Osyka Corp., a closely held oil producer in Houston. Harness, a former Amoco Corp. engineer, expects expiring hedges to begin forcing rivals to put oil and gas fields on the auction block as soon as July.
Producers that pre-sold their September 2009 output a year ago locked in a price of $106 a barrel, based on New York Mercantile Exchange futures. If that’s the last month for which they have hedges in place, the best they can hope to get for October production is $58 a barrel, or 45 percent less.
At Quantum, VanLoh and co-founder Toby Neugebauer gathered the managers of their portfolio companies last month to order a halt to acquisition activities on expectations that asset prices will decline more.
“We are still being very, very patient,” VanLoh said in an April 30 interview. “Everything is too expensive, given where prices are going.”
Alberta Acquisition Search
Quantum has invested in 23 companies that later were sold or went public. The firm staked Linn Energy LLC with $15 million in 2003 and took the partnership public in 2006. Houston-based Linn has a market value of more than $2 billion today.
In the Canadian province of Alberta, home to an oil industry that five years ago surpassed Saudi Arabia as the biggest crude exporter to the U.S., cratering stock values and lower energy prices have prompted the C$70 billion ($61 billion) Alberta Investment Management Corp. to step up the search for investment opportunities.
“With commodity prices where they are now, Alberta is looking like it’s going to present a lot of opportunities for us,” Chief Operating Officer Jagdeep Singh Bachher said in a telephone interview.
Edmonton-based AIMCO, as the Crown corporation is known, agreed last month to acquire a 20 percent stake in Calgary-based Precision Drilling Trust, Canada’s largest oil driller. AIMCO’s next move will be to sift through the market wreckage and find companies with assets and management teams most likely to excel even if energy prices remain depressed, said Brian Gibson, senior vice president for public equities at AIMCO.
Read more here
Monday, 11 May 2009
GM exit from the Dow looking more likely
(Reuters) - The potential for changes in the blue-chip Dow Jones industrial average remains high, according to the head of the index's oversight committee, the same day the head of General Motors said bankruptcy had become more likely.
Both GM and Citigroup have needed large infusions of capital from the government to stay alive, and while the automaker edges closer to bankruptcy, Citigroup's capital cushion still remains tenuous.
"The chain of events involving GM and Citi seem to be marching in a certain direction," said John Prestbo, executive director of Dow Jones Indexes and the chairman of the DJI oversight committee.
Monday, Fritz Henderson, the chief executive officer of GM, said it was "more probable" the automaker would need to file for bankruptcy in order to restructure, though there was still a chance it could be avoided.
GM might not be the Dow's only casualty, however, as Citigroup may also be on the chopping block because the financial institution has seen its market capitalization shaved to a fraction of its peak and faces the chance that the government may increase its stake in the company.
Read more here
Both GM and Citigroup have needed large infusions of capital from the government to stay alive, and while the automaker edges closer to bankruptcy, Citigroup's capital cushion still remains tenuous.
"The chain of events involving GM and Citi seem to be marching in a certain direction," said John Prestbo, executive director of Dow Jones Indexes and the chairman of the DJI oversight committee.
Monday, Fritz Henderson, the chief executive officer of GM, said it was "more probable" the automaker would need to file for bankruptcy in order to restructure, though there was still a chance it could be avoided.
GM might not be the Dow's only casualty, however, as Citigroup may also be on the chopping block because the financial institution has seen its market capitalization shaved to a fraction of its peak and faces the chance that the government may increase its stake in the company.
Read more here
Thursday, 07 May 2009
DJ to double investment in India
Dow Jones has major expansion plans for India and will double its investment in its Indian operation in each of the next two years, the company said today.
“India is an increasingly important market for us. The opportunities are significant and will only continue to grow as the Indian market becomes more and more hungry for high-quality business news and information,” Dow Jones vice-president, Mr Bruce MacFarlane said in a release.
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“India is an increasingly important market for us. The opportunities are significant and will only continue to grow as the Indian market becomes more and more hungry for high-quality business news and information,” Dow Jones vice-president, Mr Bruce MacFarlane said in a release.
Read more here
Wednesday, 06 May 2009
Ford May Suffer as Chrysler Shutdowns Reach Suppliers
(Bloomberg) -- Ford Motor Co., the only self- sufficient U.S. automaker, may be hobbled should prolonged shutdowns at Chrysler LLC and General Motors Corp. lead to failures of essential partsmakers.
Ford, launching three critical models, is at risk of periodic shutdowns if suppliers it shares with GM and Chrysler collapse, analysts said. GM is closing 14 North American plants for as much as nine weeks this summer and Chrysler, which filed for court protection from creditors on April 30, plans to close its factories until emerging from Chapter 11 in a month or two.
“There’s definitely potential for sporadic shutdowns at Ford,” said Mike Wall, supplier analyst at industry consultant CSM Worldwide in Northville, Michigan. The idling of plants at Chrysler and GM “is going to shoot a significant amount of stress through the supply chain.”
Ford is vulnerable because of the interwoven nature of the auto-supply network. Ford shares 70 percent of its suppliers with GM and 64 percent with Chrysler, according to CSM. Asian- based automakers share 59 percent with Chrysler and 58 percent with GM. The loss of a single part can close a plant, Wall said.
“Our ability to unilaterally carry the supply base through this, we just can’t do it,” Ford Executive Chairman Bill Ford told reporters today at a Wayne, Michigan Ford factory. “We’ve spent a lot of time talking to the Automotive Task Force about keeping the viability of the supply base. This is a major issue.”
‘Fluid Situation’
Toyota Motor Corp. and Honda Motor Co. may also be disrupted if suppliers who lose business during the GM and Chrysler shutdowns can no longer afford to stay in business, said Craig Fitzgerald, a supplier consultant at Plante & Moran in Southfield, Michigan.
Chrysler purchasing chief Scott Garberding said in court documents that the failure of suppliers to the Auburn Hills, Michigan-based automaker would “cause severe production problems” for other carmakers, “including GM and Ford.”
Ford doesn’t anticipate production disruptions in the next 30 days, said Todd Nissen, a spokesman for the Dearborn, Michigan-based automaker.
“We don’t see any short-term issues with continuing production,” said Nissen. “Beyond that, we’re all looking at the same things. It’s a fluid situation.”
GM, the largest U.S. automaker, has until June 1 to meet a government-imposed deadline to negotiate concessions with labor and lenders or file for bankruptcy. GM is operating on $15.4 billion in government loans and requested $11.6 billion more.
‘Really Worried’
“Take a supplier with 50 percent GM and 50 percent Ford, if GM files, suddenly their book of business is cut in half,” said Keith Francis, managing director at restructuring firm Hydra Professional in Farmington Hills, Michigan. “Ford, which has positioned itself to stay out of the bailout, has increased risk with its supply base because of what’s happening.”
Ford, Toyota and other automakers are probably “really worried” about the fallout from the production shutdowns and managing their supply bases, John Plant, the chief executive officer of TRW Automotive Holdings Corp. said on a conference call today.
The Livonia, Michigan-based company, the world’s largest supplier of vehicle-safety equipment, managing distress among its own suppliers because of the drop in vehicle production, Plant said.
Ford rose 41 cents, or 7 percent, to $6.26 at 4:00 p.m. in New York Stock Exchange composite trading. Ford has more than doubled this year. GM fell 19 cents, or 10 percent, to $1.66. GM has declined 48 percent this year.
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Ford, launching three critical models, is at risk of periodic shutdowns if suppliers it shares with GM and Chrysler collapse, analysts said. GM is closing 14 North American plants for as much as nine weeks this summer and Chrysler, which filed for court protection from creditors on April 30, plans to close its factories until emerging from Chapter 11 in a month or two.
“There’s definitely potential for sporadic shutdowns at Ford,” said Mike Wall, supplier analyst at industry consultant CSM Worldwide in Northville, Michigan. The idling of plants at Chrysler and GM “is going to shoot a significant amount of stress through the supply chain.”
Ford is vulnerable because of the interwoven nature of the auto-supply network. Ford shares 70 percent of its suppliers with GM and 64 percent with Chrysler, according to CSM. Asian- based automakers share 59 percent with Chrysler and 58 percent with GM. The loss of a single part can close a plant, Wall said.
“Our ability to unilaterally carry the supply base through this, we just can’t do it,” Ford Executive Chairman Bill Ford told reporters today at a Wayne, Michigan Ford factory. “We’ve spent a lot of time talking to the Automotive Task Force about keeping the viability of the supply base. This is a major issue.”
‘Fluid Situation’
Toyota Motor Corp. and Honda Motor Co. may also be disrupted if suppliers who lose business during the GM and Chrysler shutdowns can no longer afford to stay in business, said Craig Fitzgerald, a supplier consultant at Plante & Moran in Southfield, Michigan.
Chrysler purchasing chief Scott Garberding said in court documents that the failure of suppliers to the Auburn Hills, Michigan-based automaker would “cause severe production problems” for other carmakers, “including GM and Ford.”
Ford doesn’t anticipate production disruptions in the next 30 days, said Todd Nissen, a spokesman for the Dearborn, Michigan-based automaker.
“We don’t see any short-term issues with continuing production,” said Nissen. “Beyond that, we’re all looking at the same things. It’s a fluid situation.”
GM, the largest U.S. automaker, has until June 1 to meet a government-imposed deadline to negotiate concessions with labor and lenders or file for bankruptcy. GM is operating on $15.4 billion in government loans and requested $11.6 billion more.
‘Really Worried’
“Take a supplier with 50 percent GM and 50 percent Ford, if GM files, suddenly their book of business is cut in half,” said Keith Francis, managing director at restructuring firm Hydra Professional in Farmington Hills, Michigan. “Ford, which has positioned itself to stay out of the bailout, has increased risk with its supply base because of what’s happening.”
Ford, Toyota and other automakers are probably “really worried” about the fallout from the production shutdowns and managing their supply bases, John Plant, the chief executive officer of TRW Automotive Holdings Corp. said on a conference call today.
The Livonia, Michigan-based company, the world’s largest supplier of vehicle-safety equipment, managing distress among its own suppliers because of the drop in vehicle production, Plant said.
Ford rose 41 cents, or 7 percent, to $6.26 at 4:00 p.m. in New York Stock Exchange composite trading. Ford has more than doubled this year. GM fell 19 cents, or 10 percent, to $1.66. GM has declined 48 percent this year.
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