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Chrysler,GM discuss merger,possible acquisition

Discussion in 'The OT' started by Steve615, Oct 11, 2008.

  1. Steve615

    Steve615 Hall Of Fame

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  2. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    "The Wall Street Journal, citing people it described as familiar with the discussions, said Cerberus Capital Management, the private equity firm that owns 80.1 percent of Chrysler and 51 percent of GMAC Financial Services, proposed trading Chrysler's automotive operations to GM. The Journal said Cerberus would receive GM's remaining 49 percent stake in GMAC.

    The New York Times, also citing people familiar with the talks, said the automakers were discussing a merger. The Times did not mention GMAC, a traditional auto lender hit hard by the housing market downturn."

    They want to give up 80.1% ownership of a manufacturing company for 49% ownership of a lending company? It seems they have a lot more confidence in making money off of loans than most do at the moment.
     
  3. Richard King

    Richard King Hall Of Fame

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    I keep hearing that one of the big three could be in bankruptcy any day now. This may be the way out for two of them. :(

    My home mortgage for the house that I owned in Minnesota was through GMAC. They do lots more than just car loans. Of course, we all know that the home mortgage business is doing great these days. :rolleyes:
     
  4. rudeney

    rudeney Hall Of Fame

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    The problem when car companies merge is that instead of it resulting in the “best of the two”, it usually drops to the “lowest common denominator”.

    I’ve been following the “mortgage crisis” very carefully. I used to work in the mortgage industry as the IT manager for a large regional company about 25 years ago. My wife has been in the business for over 30 years now. Basically, there are about 60M mortgages in the US. Over the years, at any given time, foreclosures usually affect about 0.8% - 1.1% of all mortgages. With the current “crisis” the number has risen to around 2%. That doesn’t really sound bad enough to cause all the problems we have, except that the extra 1%+ are the worst mortgages on the most expensive homes. Lenders were writing mortgages for $600K on houses that were never worth that to borrowers who couldn’t pay. Everyone was gambling on property values continuing to increase. This extra 1% of failed mortgages is actually about 15% of the overall amount loaned in the industry.

    This 15% loss of about $1.2T has caused mortgage backed securities to be devalued more than 50% to near junk bond status. That’s really ridiculous because remember, 98% of mortgages are just fine and the market is still good for at least 85% of its value. This is really the fault of investors who are “throwing the baby out with the bathwater”. Instead of seeing the 85% of value in these securities, they see the 15% loss and basically declare the whole thing as worthless.
    The real problem is that most all financial companies (banks, investment firms, insurers) invested in mortgage backed securities. They didn’t make the loans themselves 9although that was the bulk of Wachovia’s problems), they just bought the funds secured by the investment in these mortgages. This is just like buying a mutual fund comprised of various stocks and other investments. Normally, these companies keep these investments on their balance sheet as cash assets. That is allowed because historically, mortgage backed securities are very liquid and safe. Because of their losses in the 15% range, and because of SOX’s regulations, they can no longer be counted as cash assets. This causes the balance sheets of many financial companies that must maintain certain levels of cash to fall out of compliance. This is what happened to AIG. Despite reports in the press, they were not insolvent; they just could not meet regulations for cash reserves because they could no longer count their investments in mortgage-backed securities at 85% of their value as they really are, but instead they had to count them at less than 50% of value because that’s what they were trading for on the open market.

    The solution, of course is for these mortgage backed securities to be shored-ups so buyers do see them at their true value based on sound financial analysis instead of some panic-sell value. It will eventually come around, but for now, all the panic is causing the market drops. Unfortunately, too few people are willing to learn what the real issues are and instead base their opinions on sound bites from the media. And then they let these opinions drive their fears and create panic. My advice is to “buy low and sell high”. The market is low right now, so BUY!
     
  5. Richard King

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    Good explaination of "Mark to Market". I have always favored that as the best way to value these securities, but am being swayed to lean the other way after the mess we are in now.
     
  6. Chandu

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    The humorous analogy which I heard about this from my father yesterday was: If 2 sick people drowning in open waters hold on to each other with the hope of saving both, will they both pull each other and drown together instead?

    On another note, it's interesting that Ford was approached by GM first, but rejected that idea. Ford isn't doing any great either.

    http://www.nytimes.com/2008/10/12/business/12auto.html?bl&ex=1223956800&en=9129ef63b50f6f1c&ei=5087

    http://www.bloomberg.com/apps/news?pid=20601103&sid=aeX21ndYuZN4&refer=us

    It wouldn't be too shocking if this ends being a 3-way merger at some point in the future.
     
  7. phrelin

    phrelin Hall Of Fame DBSTalk Club

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    Well, my first car was a 1952 Nash, so it wouldn't surprise me!
     
  8. hdtvfan0001

    hdtvfan0001 Well-Known Member

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    There's alot more to the eye on all this...it goes beyond just the car manufacturer components...there's the financial subsidiaries as well....which (like most institutions) are short on capital to make loans.

    No loans, no car sales....
     
  9. Steve615

    Steve615 Hall Of Fame

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  10. Steve615

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  11. tcusta00

    tcusta00 Active Member

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    I can't say I think it would be the worst thing to see some consolidation in the US auto industry...

    Blow #1: Quality issues of the last two decades - Germany and Japan trumping US.
    Blow #2: Gigantic pension and health care costs - Increase the prices on the same crappy cars.
    Blow #3: Soaring gas prices - Japanese and Korean imports better on gas. Trucks, where the US has excelled, aren't selling as well anymore.
    Blow #4: Credit crunch - no one without cash on hand can buy a car, and if they are they're looking for better gas mileage and lower prices... enter: the new Hyundai. If you have cash on hand you sure as hell ain't buying an American beater anyhow.

    Something's gotta change in Detroit, big time. The flash in the pan "Volt" and other Monday morning quarterback moves by these automakers will not overcome two decades of horrible policies and management. A big time shakeup may be what's needed to save US automakers.
     
  12. Chandu

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  13. Steve615

    Steve615 Hall Of Fame

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  14. Stuart Sweet

    Stuart Sweet The Shadow Knows!

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    No, it's not looking good. Personally I would hate to see Chrysler become a division of Hyundai.
     
  15. Richard King

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    Having driven a 2001 Hyundai (the same Santa Fe) for 7 years now, I would say that Chrysler being bought by Hyundai would be a step up for Chrysler. :( I would buy another Hyundai in a heart beat, and my next car will probably be another one. I'm at 139,000 miles and see no reason to swap it out for another car of any make or model. (knocking on wood) I went to Hyundai because they had an economical SUV at the time and no American manufacturer was making any competition at the time. The American auto industry and the American auto worker have done this to themselves and have no one else to blame.
     
  16. Steve615

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  17. Richard King

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    The only thing falling faster than the price of gas recently is the share price of GM. It's almost to the point where it's an even trade, one share for one gallon. GM closed today at $3.09 per share.
     
  18. phrelin

    phrelin Hall Of Fame DBSTalk Club

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    Yeah, for under $500 you can own 100 shares of each of GM and Ford. If either were to survive and become viable companies.... Probably as good odds as craps.
     
  19. hdtvfan0001

    hdtvfan0001 Well-Known Member

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    No kidding...it's almost like the ultimate insult. :eek2:

    As far as I can see things....the merger is a dead deal altogether.
     

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