Downgrades, Bankruptcy, Closings, Layoffs . . . Oh my!

GM Shares hit biggest low in 62 years on analyst's downgrade!

We know that GM is in a world of hurt.

In today's NY Times there was an article about white collar retirees who are seeing their medical benefits and pensions cut. These are not the blue collar union workers, but the people who were engineers, managers, office workers, etc., and who had been counting on GM to take care of them for life.

DETROIT — General Motors is living on borrowed time, spending more than $2 billion in cash a month and lobbying for a government bailout to keep it out of bankruptcy.

And for about 100,000 of its white-collar retirees, time is about to run out on G.M.’s gold-plated medical benefits.

To conserve its dwindling cash reserves, G.M. is eliminating lifetime health care coverage for its legions of retirees at the end of this year, leaving people like Ken Hewitt to fend for themselves in deciding how to cover their doctor’s bills and prescription drug costs.

“Everybody felt like they were set for life,” said Mr. Hewitt, 81, who retired from the former Chevrolet Engineering Center in 1982 and lives north of Detroit. “It’s been difficult, but the information they’ve given us has been beneficial. Still, when you get to be our age, it’s tough to make any big changes like that.”

Further down in the article you read these words:

G.M. has estimated that eliminating the white-collar retiree medical benefits, in addition to pay and staffing cuts in its current white-collar work force, will save the company about $1.5 billion annually. Union contracts prevent the company from revoking coverage for former factory workers. Ford and Chrysler already have cut health coverage for salaried retirees.

In fact, paying the cost of hospital stays, surgeries and expensive drugs for retirees, a group now larger than G.M.’s active work force, is a major reason the company’s financial woes are so great. G.M. says it spent $4.6 billion in 2007 on health care for its one million employees and retirees and their dependents.

Many retirees say they are aware of the burden these costs represent to the company, so they do not blame G.M. for cutting them off. Even so, they lament the demise of such a valuable perk.“If the company goes out of business, we’ll lose everything anyway,” said Richard J. Moore, 70, who held management positions at G.M. plants in New York and Illinois before retiring in 1991 to suburban Phoenix. “You can’t survive by giving away everything.”

Later today, we saw this news from Reuters: GM shares hit 62-year lows after broker downgrades

DETROIT (Reuters) - Shares of General Motors Corp tumbled 24 percent to 62 year lows on Monday after analysts downgraded the automaker, citing cash levels that may fall below the minimum needed in the first quarter of 2009.

Analysts including Barclays Capital to Credit Suisse also warned that while government aid would decrease the risk of a bankruptcy for the No.1 U.S. automaker, any assistance would come at a significant cost to existing shareholders.

GM and Ford Motor Co reported far deeper-than-expected quarterly losses on Friday and said their rate of cash burn had accelerated, as an extended slump in car sales raised questions about the future of the U.S. auto industry.

GM burned through $7 billion in cash in the third quarter and warned its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action.

Well, I haven't looked at my own stock charts for GM in quite some time, so I'll past my monthly chart for GM which only goes back to 1990, but it is still worth viewing the fall of what was once the largest corporation on Earth:

(click on chart above to see larger image)

Circuit City files for Chapter 11 Bankruptcy!

From my hometown of Richmond, Virginia comes the sad news Circuit City (formerly Wards in the good old days) has filed for Chapter 11 Bankruptcy.

For those of you who don't follow financial news, Chapter 11 is not a final nail in a corporation's coffin. What this type filing does is allow the struggling coporation a few more breaths of life by allowing it to hold off purveyors it owes (such as Sony, Garmin, Apple, Cannon, etc.) while it tries to re-arrange financing of debt payments.

Just a week ago, Circuit City announced it would shutter 155 stores.

But as today's news says,

The Richmond, Va.-based consumer-electronics retailer, which has seen its shares tumbling 99% from a 52-week high of $8.24, negotiated a commitment for a $1.1 billion debtor-in-possession revolving credit line that will allow it to pay vendors and operate business as usual. The credit line replaced its $1.3 billion asset-based credit line provided by the same lenders. Circuit City said in the filing, made through the United States Bankruptcy Court for the Eastern District of Virginia, that it plans to emerge from the bankruptcy protection in the first half of 2009.

The company disclosed $3.4 billion in assets and $2.32 in liabilities in the filing. Unsecured trade debt owed to vendors will total not less than $650 million, Circuit City said. It buys products from Samsung Electronics to Hewlett-Packard Co.

Circuit City's move came a week after the company, suffering from declining sales, traffic and cash, said that it planned to shut 155 U.S. underperforming stores and cut 7,300 jobs in a last-ditch effort to stay afloat. Despite its aggressive efforts to talk to its vendors, their loss of confidence and fear they won't be paid made it extremely difficult for the company to have the goods and support service it needed for the critical holiday season without a bankruptcy filing, Circuit City said in the filing.

This raises a question in my mind: Who believes Circuit City will have a good Christmas Season this year when consumers will be afraid they cannot return products?

Meanwhile, the big winners from Circuit City's misfortune will be Wal-Mart, Cost Co., and . . . especially . . . Best Buy.

I'm not a big fan of retail stocks, but these three consumers have been holding their own during the recent market crash and with Circuit City's market share up for grabs, I'm willing to be these three retailers are going to be smiling once this Recession ends.

DHL to stop overnight deliveries in USA. Will close 18 hubs.

Here's another story showing how the global meltdown is affecting companies from other countries. Deutsche Post's DHL road and air package service is cutting way back in the USA as of today. In fact, as the story in Business Week says,

Package delivery company DHL may have conquered the world, but it admitted on Nov. 10 that it couldn't conquer the U.S. The unit of Germany's Deutsche Post (DPWGN.DE) announced it will stop making express deliveries within the U.S., close all of its 18 main distribution hubs there, and lay off all but a few thousand of its remaining 13,000 U.S. workers.

Although DHL will continue to make deliveries to and from the U.S. and other countries, its withdrawal from the domestic express business is another setback for a blue chip German company in the world's biggest market. Last year carmaker Daimler (DAI) sold its stake in Chrysler after it was unable to turn around the No. 3 American automaker.

DHL has lost nearly $10 billion in the U.S. in the five years since it purchased Airborne Express in an attempt to challenge FedEx (FDX) and United Parcel Service (UPS). Despite its dominance in the rest of the world, DHL was never able to take enough share from the two major carriers in their home market. The company's decision to largely withdraw from the U.S. will push parent Deutsche Post to an estimated $1 billion loss for the full year as it books writedowns totaling $3.9 million to cover severance payments to workers and other restructuring.

Okay, so the eventual winners here are already named in this story: Fed Ex and UPS. Sometime this week we'll take a gander at their charts and financials and talk about them on this blog.

Nevertheless, the cuts at DHL don't seem to be helping another delivery system: the US Postal system is announcing layoffs for the first time in its history. . .

US Postal Service looking to cut 40,000 jobs!

I never thought I'd see the day a headline such as the one preceding this sentence would be written, but there it is.

From a KSLA news story we get this:

SHREVEPORT, LA (KSLA) - "We lost 2 billion dollars and like any other business we have to stay afloat." And to keep from sinking, the United States Postal Service is considering cutting thousands of jobs nationwide. Lavelle Pepper with the post office in Shreveport says they too are feeling the affects of the same disease hitting the country... a struggling economy. "We employ about 685,000 people. If we do layoffs it would include clerks, carriers, mail handlers across all crafts."

Pepper says the postal service is looking to eliminate 40,000 jobs nationwide. There's not an exact number on how many of those could be from the Ark-La-Tex. Pepper says workers who are not part of union with six or less years of service would likely be the first on the chopping block. "We've identified 16 thousand people that are not covered under contract. We'll see what those numbers add up to."

The postal service is also offering early retirement packages to workers over the age of 50 who have more than 20 years on the job. But according to pepper it may not be enough. "The preliminary numbers look like it's not going to be enough and we may have to do something else." But despite what may happen, Pepper says customers will not feel the pain they're going through. "The general public when it takes place won't see any decrease in service.. They largely won't know about it."

To which I must ask, "Why are the lines so long now in our local Key West Post Offices?"

I'll guess we'll see if we, the general public, ". . . won't see any decrease in service . . ." or " . . . largely (not) know about it."

Meanwhile, I don't know about you, but I personally continue to find new online ways to pay my bills. Every new online account I open for a credit card or utility or whatever is another .43 cent stamp I save every month, plus, the my payment is credited in 24 hours or less.

Lastly, with all these bankruptcies, closings, and layoffs, we can expect the national unemployment rate to become worse. Well, today, a new headline surfaced telling us unemployment hit a new 26 year high:

Jobless ranks hit 10 million, most in 25 years

The Associated Press brings us this news story:

WASHINGTON (AP) — The nation's jobless ranks zoomed past 10 million last month, the most in a quarter-century, as piles of pink slips shut factory gates and office doors to 240,000 more Americans with the holidays nearing. Politicians and economists agreed on a painful bottom line: It's only going to get worse.

The unemployment rate soared to a 14-year high of 6.5 percent, the government said Friday, up from 6.1 percent just a month earlier. And there was more grim news from U.S. automakers: Ford Motor Co. and General Motors Corp., American giants struggling to survive, each reported big losses and figured to be announcing even more job cuts before long.

Regulators, meanwhile, shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.

To which I say, damn, folks, it's only Monday. What will tomorrow bring?

Caveat Emptor,

Rock Trueblood

p.s. Note to myself: look into Best Buy, Costco, Fed Ex and UPS as future investment ideas.