What is 230? Marketing Evolution

GM's attempt at a "viral" marketing campaign - coined "What is 230" - is just the latest corporate attempt to seize upon the internet and it's ability to rapidly disseminate information. Other recent attempts featured Twentieth Century Fox's scheme to market it's now failed motion picture "I Love you Beth Cooper". This ploy involved an under-the-table cash transaction between Fox and the valedictorian of a local Los Angeles high school, in which the GPA champion was enticed into blurting out her "love" for a classmate during the standard commencement speech. In case you don't "get it", the point was to create buzz about the studio's upcoming movie, which featured a scene similar to that re-enacted in real life.

Although these marketing techniques would appear to be attempts to capitalize on the ubiquity of internet communication these days, they are also a necessity. Most of us are sick of commercials on television; I personally avoid them as much as possible, a goal easily accomplished by paying an extra $10 a month for DVR service. Product placements also piss me off, as they insult my intelligence and clog up my favorite programs with camera shots that freeze on a corporate logo.

As for GM's "What is 230" campaign, there is little doubt it will be criticized and ridiculed beyond recognition across the internet. It will be labeled a failure. However, in some sort of perverse way, GM has succeeded in creating buzz about the ridiculous headline that it's new product - the Chevy Volt - will achieve 230mpg. Always a skeptic though, I have to point out a footnote on GM's Volt website, which states:

"The EPA procedure for plug-in vehicles, which is still being finalized, assumes a single charge each day".

The question is, after the EPA revises the Volt's mpg estimate downwards, will GM just roll out a new marketing campaign? Perhaps "What is 197"? Sphere: Related Content

GM's Bankruptcy to be "Expedited" Through Kangaroo Proceedings

Last night, the day after the fourth of July - and a Sunday - Judge Robert Gerber, a federal bankruptcy judge for the Southern District of New York, penned an opinion which approved the sale of Old GM's viable assets to New GM. The sale will proceed pursuant to Section 363 of the Bankruptcy Code; a section that specifically calls for an "expedited" process when, basically, it can be shown that a lengthy visit to bankruptcy would be particularly destructive to the value of the failed entity. Section 363 is also especially convenient in the event that a Government - let's say of the Federal variety - wishes to avoid the rather Inconvenient issues of creditor's rights and the like that would arise under a more prolonged set of proceedings. Of course, the latter explanation is purely speculative in nature.

We've included the full text of the order below, as we found it to have some significant humor value; primarily this is the product of Judge Gerber's stating of obvious circumstances in very candid terms, for example:

"Importantly, the DIP financing to be furnished by the U.S. Treasury and EDC is the only financing that is available to GM. The U.S. Treasury (with its Canadian EDC is the only entity that is willing to extend DIP financing to GM. Other efforts to obtain such financing have been unsuccessful."

"While the Liquidation Analysis projected some recoveries for secured debt and administrative and priority claims, it concluded that there would be no recovery whatsoever for unsecured creditors. The Court has no basis to doubt those conclusions. The Court finds that in the event of a liquidation, unsecured creditors would recover nothing."

"In Chrysler, Judge Gonzalez discussed at great length the evolution of the law in this area and its present requirements,28 and this Court need not do so in comparable length. " *way to throw Judge Gonzalez under the bus for creating a skewed set of precedent

"Bondholder Parker (so far as the Court can tell, the only one of the 850 objectors) objects to the 363 Transaction on the additional ground that the U.S. Government was not authorized to use TARP funds to assist the auto industry, and hence that the 363 Transaction is unlawful. The Court agrees with the United States Attorney that the issue of the U.S. Treasury’s lending authority now is moot, and that Mr. Parker lacks standing to raise the issue. Thus the Court does not need to reach the third issue." *a nice bit of political dodging on Judge Gerber's part; failing to address the argument itself in politician-like fashion.

"Many GM stockholders, understandably disappointed that the 363 Transaction will leave them with no recovery, have voiced objections. Once again, the Court is sensitive to their concerns, but cannot help them. GM is hopelessly insolvent, and there is nothing for stockholders now. And if GM liquidates, there will not only be nothing for stockholders; there will be nothing for unsecured creditors. Under those circumstances, GM stockholders cannot claim to be aggrieved by the transactions before the Court here."

In case anyone glazed over the section above, a federal bankruptcy judge has referred to GM as being "hopelessly insolvent". Not only is this funny, but it is also extremely obvious in light of the fact that the US Government was the only entity willing to offer DIP financing to GM. This little fact arose in Judge Gerber's opinion, and explains why the SDNY is no more than President Obama's puppet at this point; the federal Government has stated it's willingness to provide DIP financing only in the event that the bankruptcy proceed according to Section 363, leaving the Court without any real voice of it's own. Judge Gerber did give appearing independent the old college try though.


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Why Shouldn't GM Be Allowed to Lobby?

The latest illogical attack that is running rampant through Washington and the media has to do with the lobbying activities of General Motors. The argument goes that, as a recipient of extraordinary aid from the federal government, GM is essentially lobbying itself when it pays a consultant to have dinner with a member of Congress. We believe that this sort of argument ignores the true interests of taxpayers, and succumbs to the misplaced reasoning that generally pervades every form of public discourse concerning federal-aid-receiving corporations these days.

As a taxpayer, the number one priority should be the safe return of all principal that you have effectively loaned to any number of American corporations. In order for this to be achieved in a timely fashion, recipients of aid, including GM, must be allowed to make prudent decisions that are in the best interest of the business. In other words, in all bailout scenarios, taxpayer interests are most closely aligned with the ability of the various corporations to make the most profitable decision at a particular point in time, every time. Lobbyists, disliked as they are in general, are held in such contempt because of a perceived unfair advantage they afford to the corporations on whose behalf they act. In the case of GM, the taxpayer should be cheering for the lobbyist, who will presumably be advocating for measures that will maximize the profitability of the auto-maker. Who wouldn't want GM to conduct lobbying activities? Why, politicians of course. The reason: the introduction of lobbyists into the current power structure would weaken their ability to influence GM's business decisions in favor of a particular Congressional district, but to the detriment of the Company as a whole. In a recent op-ed in the Wall Street Journal, we learned that, upon hearing the news of a pending plant closure in his district, Barney Frank proceeded to dial-up GM's newly appointed CEO and "persuade" him that, perhaps another plant should selected for closure (we presume he was leaning towards the "not one in my district" direction). According to the same article, this abdication by GM opened up a Pandora's Box, filled exclusively with members of Congress eager to avoid further job losses in their precious district.

So we pose the question(s): As part of its ongoing restructuring, would it be reasonable to assume that, when GM decides to close a manufacturing facility, it has made the decision based upon economic/supply chain/productivity/needs based analysis that has as its ultimate goal the profitability of the company? We hope for the sake of your intelligence that you answered "yes", and that, based upon the immutable rules of logic, Barney Frank chose to act against the economic best interest of GM. Therefore, Barney Frank chose to act against the economic interests of the taxpayer, for the purpose of securing his seat in Congress for another go-round.

Could lobbyists have stymied such an intervention? Maybe not. What we do know however, is that for the sake of the taxpayer, there needs to be someone allowed onto Capitol Hill who can advocate for the proper operation of GM. The alternative, we fear, is another Amtrak.

InfoNgen was used to research the content of this article.

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Rate of Job Losses Slows, But For How Long?

This morning, the Department of Labor, Bureau of Labor Statistics, in a preliminary estimate, reported that US nonfarm payroll employment fell by 345,000 in the month of May. This report marked the most substantial departure from the rapidly accelerating decline in payrolls that has transpired in each month since the collapse of Lehman Brothers. Economists and analysts, understandably focused on the deciphering of trends, will be sure to note that while the US economy is still losing jobs, it is no longer losing jobs at an increasing rate. (Calculus geeks might note that while the second derivative "flatlined" several months ago, this month's data marks the first time that the anticipated change in the first derivative has occurred). Considering this positive development, we find it ironic that the major job loss inflection points have been marked by the bankruptcy of a major US corporation. We wonder then, to what degree will the collapse of GM continue to affect the labor markets?

There are numerous and obvious distinguishing factors between the Lehman Brothers and GM bankruptcies:

• The Government is holding GM's hand through the bankruptcy process.
• GM will restructure, and emerge as a leaner entity.
• The Lehman collapse put the entire financial system at risk.
• The Lehman collapse caused the failure of a multi-billion dollar Money Market Fund
• and the list goes on (further than we care to take it)

Due to the obvious differentiating factors between these two embarassing chapters in US corporate history, it at least appears that the immediate and severe fallout witnessed in the Lehman debacle will not repeat itself in the wake of GM's failure.

We are sure that, somewhere, an economist has attempted to calculate the overral effect that the GM bankruptcy will have on the labor market. While such an analysis might be useful from an academic perspective, we are of the opinion that the downsizing of GM will bring with it a multitude of incalculable shock waves. The two that come to mind are 1) How will the bankruptcy affect the general attitudes of prospective car buyers? and 2) Will car dealers anticipate a subsequent round of dealership closings, and how will they respond to this perceived threat? These are both highly unknown variables that will largely determine the labor market fallout that results from the downsizing/bankruptcy of GM. We will not pretend to be able to calculate the impact.

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Why GM's Financial Projections Are Invalid

GM Financial Projections

When General Motors submitted its proposed Restructuring Plan to the federal government in late February, one could hypothesize that, absent some sort of miraculous revelation being contained within the proposal, the resultant outcome would be a bankruptcy petition. In our opinion, the Restructuring Plan did in fact provoke a miraculous revelation on the Government's part: Even when the future viability of the Company depends on it, General Motors is unable to produce a valid set of financial projections showing that it could ever turn things around.

General Motor's restructuring plan is a full 117 pages long. The majority of the document is comprised of claims that the company will fulfill the following goals: manufacture more fuel efficient cars, reduce labor costs, kick unsecured bond-holders to the curb, and solicit additional aid from foreign governments. These are great ideas, however, we took 30 seconds or so and came up with the following problems:

1. GM doesn't know how to profitably design/manufacture/market/sell fuel efficient cars.
2. The UAW will not want to give management concessions.
3. A large portion of GM's bond holders are individual retail investors-they will pen op-ed's in the WSJ and inspire an outpouring of empathy.
4. Foreign governments are not happy with the US right now. There will be no free foreign lunch for the GM boys.

Having confirmed that the prose section of GM's proposed plan is basically worthless, let's assess the quantitative portion of the document. To begin with, we were a bit insulted to see cash flow projections as far as five years into the future. To illustrate our reasoning, please select any five year window of time during this decade, and consider the significant changes to the world and the economy that occurred during that time. 

Our primary grievance with GM's financial projections has to do with the methodology used to calculate the Enterprise Value of the Company, and the inherent deficiencies in the GM brand that render those calculations invalid. Specifically, we refer to the fact that in a calculation of Enterprise Value, a Peer Group is a necessity that allows the analyst to apply a set of standardized EBITDA multiples to the Company in question. The following companies were used as GM's Peer Group:

• Daimler AG
• Toyota
• Honda
• Nissan
• Hyundai
• Renault

The problem, as we see it, is that these companies do not belong in any "Peer Group" of which General Motors is also a member. None of the companies listed above have a horrible reputation for producing shoddy vehicles. In fact, surveys have shown that the more educated an individual is, the more likely he is to avoid the purchase of an American car. We don't understand why Evercore selected these companies for inclusion into GM's peer group, however, it may be because every member of GM's real Peer Group is either in Chapter 11, or teetering on the precipice of such.

Ultimately, the most painful insult that can be given to a Company is the determination by the Federal Government that you are bloated and unprofitable, and need to shed some of your outsized liabilities. Sounds similar to a cliche we heard once concerning a pot and a kettle.

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GM Bankruptcy Petition

The included document became available shortly after 8 A.M this morning, following the General Motors filing for Chapter 11 creditor protection.
GM Bankruptcy Filing

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