Blog: Detroit seen through the eyes of money men
Dave Leggett | 23 June 2009
Breakingviews.com is an online publisher with a mission that can be summarised as getting the 'what does it actually mean?' area of news analysis as quickly as possible to its clients who are mainly made up of banks, financial institutions and hedge funds people. It has offices in New York and London. Their 'views' are a timely input to subsequent actions by people mainly working in or for the money markets.
We have had some contact with the guys there, prompted by seeing a few insightful articles related to the automotive industry. We republished an article from them on just-auto a couple of months ago: COMMENT: Fundamental problem
Anyway, they have bundled their articles written about General Motors over the last few years into a kind of compendium – or pdf 'book'. It's an interesting read, chronicling GM's slow descent into Chapter 11 and their take on it. Their financial world perspectives make for some interesting observations and deductions. And they write well and clearly.
Here's an extract (the last para very neatly summarises Washington's dilemma):
So for taxpayers to be made whole, the new mini-GM would have to produce earnings sufficient to support an enterprise value of at least $95bn - the sum of a $69bn market cap and its $26bn of consolidated debt and preferred stock. Using market valuation multiples of five times profits, that means New GM must generate ebitda somewhere in the order of $19bn annually.
That would require boosting annual sales to some $150bn - almost 50% more than the entire company is expected to generate this year - and matching the whopping 14% ebitda margin that Toyota achieved in its best year ever. It requires a vast leap of faith – or an audacity of hope – to believe that can happen.
Of course, the US government is not a professional money manager. The decision before it was not whether to invest either in GM or another business that would generate an acceptable return. It had to weigh up two unpalatable choices: throw taxpayers' money onto GM's bonfire in the hope an expedited trip through the Chapter 11 mechanic's shop would produce a souped-up, successful carmaker; or risk having to mop up a bigger mess if a liquidated GM brought the entire US car sector down with it.
The full 'Detroit Do-Over' pdf is downloadable free-of-charge and in a jiffy by clicking the below link.
I'm starting to get a small idea of the scale of things here in China, but really, I'm only scratching the surface of this vast country....
Given the startling complexity of obtaining a journalist visa for China - the code 'J2' is now indelibly stamped on my mind - it was with some surprise how swiftly I managed to sail through airport im...