DETROIT SHOW: Car maker gets bank boost as investor predicts 2007 recession
General Motors reportedly received a welcome boost from Goldman Sachs on Monday (10 January) when the investment bank upgraded the ailing car marker's rating. But legendary investor George Soros warned the same day that the US Federal Reserve's monetary squeeze could trigger a recession in 2007.
According to the UK's Daily Telegraph newspaper, Goldman Sachs analyst Robert Barry said a Chapter 11 bankruptcy filing by GM was "unlikely" as he changed his rating to "in-line" from "underperform".
Barry reportedly said there were many potential catalysts that could improve sentiment this year, including the avoidance of a strike at supplier Delphi and the sale of a stake in financing arm General Motors Acceptance Corp.
The Telegraph noted that the upgrade came as GM chief executive, Rick Wagoner, unveiled a host of new models at the opening of the motor show in Detroit.
The report added that this is a critical week for the major car makers - a welcome reception for new models could help the likes of GM and Ford stave off bankruptcy and return them to financial health after a period marked by crippling healthcare and pensions costs and frantic competition from Japanese rivals such as Toyota, which yesterday said it wanted to boost sales in the US by 10% this year.
Yesterday, according to the Daily Telegraph, Wagoner said a bankruptcy filing was "remote".
"We think we're moving in the right direction," he told the paper. "I think we are getting the benefit of some gathering momentum."
The paper noted that many of the company's new models are revamped sports utility vehicles, which are still the most profitable sector of the market, although the high oil price last year cut overall sales from around 900,000 to 750,000.
Wagoner reportedly said the figure was likely to stay at the same level in 2006, but forecast that the improved quality and fuel efficiency of the new models would help GM improve its market share.
According to the Daily Telegraph, Wagoner said the company's financial performance was set to improve from this month as it enforces a restructuring plan involving swinging job cuts and plant closures after striking a deal with unions.
Meanwhile, Ford's chief executive, Bill Ford, told the paper the company would post an overall profit in 2005, but his top goal this year was to end losses at its ailing North American unit.
"We are going to be solidly profitable in 2005 when we close the books," he reportedly said.
The Daily Telegraph noted that the results will be released on 23 January, the same day that it unveils its own restructuring plan, dubbed the "Way Forward", which is also expected to include plant closures and the loss of many thousands of blue-collar jobs.
"It's not about fiddling around the edges," Ford America's president Mark Fields told the paper.
The Daily Telegraph said the third major US car maker, DaimlerChrysler, also signalled its intent yesterday, launching its own new SUV, the Jeep Wrangler, by driving it through a plate glass window.
The paper reported separately that legendary investor George Soros yesterday warned that the US Federal Reserve's monetary squeeze could hit the country's economy just as the American housing bubble bursts, triggering a recession in 2007.
Soros reportedly said a string of 'time-bombs' could all go off at same time, including a sharp fall in the dollar and a sell-off in the bond markets.
The Daily Telegraph noted that the Federal Reserve has raised US interest rates from 1% to 4.25% in 13 steps since June 2004, but a monetary time-lag means that the full effect of this tightening will not be clear for months.
Soros expects rates to peak at 4.75% this spring, high enough to risk an accelerating downturn, the report added.