A few CEOs and their thoughts on the recession

Interesting article posted at:

http://finance.yahoo.com/career-work/article/106252/The-Recession:-What-Top-CEOs-Are-Thinking

A few comments that really rang a bell with me.

1) Robert Nardelli, CEO of Chrysler, said he could see unemployment at 10% +. Based on his record as a CEO I don't really know how valuable his information/thoughts are. The guy had a VERY unsuccessful tenure at Home Depot after leaving GE and now ran into one of the worst economic climates in modern day history. Chrysler is toast in my opinion, whether or not they get some bailout or not.....

2) Lewis Hay, FPL Group (utility business) said " Probably 25% of our customers are past due. Normally, it's more like 15%. Another issue is access to capital. We had plans to invest more than $7 billion this year, and we've already cut back to about $5 billion. With such a shortage of access to capital, how are we going to get all these alternative energy projects going?" <--bold for emphasis as it is rather intriguing....I think pure play businesses have a chance at getting financing more than diversified companies. It depends on whether it is debt or equity financing though. Debt financing would be more likely with diversified energy companies since there would be more collateral and equity investments would be more likely with "pure play" alternative energy companies because they would provide more upside in the long-term (higher risk/reward).

3) When asked "How long or severe do you think the recession will be?" most said mid 2010 and one CEO commented that, "The key is inflation. If inflation stays under control and confidence returns, we'll come back early. If inflation starts to roar in mid-2009 and thereafter, we have a problem. It might start to look like the mid-1970s."

I think that is one smart CEO re: concern about inflation. While we are experiencing deflation right now there is increasingly a higher probability that the U.S. dollar will fall vs. other currencies and spike inflation since the U.S. government is printing ALOT of them. If this happens we see higher commodity prices again.

Dan Ross

A Tale of Two Layoffs.....Auto workers vs. non Auto Workers

Interesting thoughts. Frankly, the auto companies policies are more socialistic/European in nature but the rest of the country isn't that way and doesn't want to bail out U.S. auto companies so they can continue to offer such benefits to their workers since most don't get comparable treatment themselves.

Dan Ross
http://www.BetterBizBooks.com

Roubini says Auto Debt/Equity holders to get wiped out...

He is basically saying the auto guys (shareholders/debtholders) are toast. I'd back his position because I agree with it.

There is simply significantly too much capacity and not enough demand. The auto companies would burn through $35 billion in NO TIME at all given the 35% Y-Y decline in auto sales. They need to shut down factories, DRASTICALLY reduce costs and eliminate brands/models that simply don't sell enough units to generate profits.

"Loss Leaders" for one model is one thing but an ENTIRE brand is another. I don't understand what most U.S. auto companies brands actually stand for in the first place! Chevy is value, Cadillac is supposed to be luxury (VERY expensive domestic luxury auto company).....what does Chrysler, buick, dodge, GMC (professional built?), Lincoln and Mercury Mean?

This is another reason for my "eternal pessimism" re: the markets of late....

Dan Ross
http://www.BetterBizBooks.com

Chrysler hired Bankruptcy Firm.....Interesting...

So this is the banking/death spiral that can occur.

If the auto companies file bankruptcy banks face up to $300 BILLION in write-downs on their balance sheets. Essentially, auto industry woes then pour back into the banking system, causing their balance sheets to erode further and re-endangering some banks. Does this completely diminish the benefit of the TARP program?

Everything I see and hope seems to indicate that there is political will t0 protect GM and Ford but I don't see any desire to bail out private equity funds that made a bad investment in Chrysler......



Dan Ross

Chrysler CEO says industry Ripe For Consolidation??

Chrysler's CEO says auto industry ripe for mergers

Chrysler's Nardelli says US sales slump creates environment for auto industry consolidation

Chrysler LLC Chief Executive Bob Nardelli said Thursday that a steep decline in U.S. auto sales has created an environment for industry consolidation, but he would not comment on reports that talks are accelerating for General Motors Corp. to acquire his company.

Cerberus bought its stake in Chrysler in 2007 from Daimler AG in a $7.4 billion deal. Cerberus and Daimler confirmed last month that they are in talks for the private equity firm to acquire Daimler's remaining 19.9 percent Chrysler stake.


http://biz.yahoo.com/ap/081016/gm_chrysler_merger_talks.html

Speaking on the CNBC cable channel, Nardelli said Chrysler has been open about looking for partners and creating alliances, but he would not address the GM discussions. However, he said the U.S. auto sales slump has set the stage for industry consolidation.

"It certainly creates an environment for consolidation where you can get synergies of productivity that will allow you to be more competitive, not only here in the U.S. market, but on a global basis," he said.

GM has discussed a merger or acquisition with Cerberus Capital Management LP, the New York private equity firm that owns 80.1 percent of Chrysler, a person familiar with the negotiations told The Associated Press last week.

My Take: Look, the private equity guys have gotten their tails kicked in the mortgage industry. They got in over their heads with Chrysler and I think they are trying to find a way to get out of this deal ASAP!

If you have read the papers over the last few years you would know that the private equity guys raised a TON of $$$ and chased ALOT of investment deals and have been BURNED by many of their investments. This one really has my eyebrows raised since GM has no $$$ to buy other companies as their existing business is hemorhaging $1 billion a month!. They are a DYING company themselves!

Owning an auto company as people talk about the next "great depression" seems pretty NUTS to me, let alone talking about one U.S. auto company running at 60%-70% capacity buying out another one. Consolidation will likely happen but due to BANKRUPTCY. Will the "greater fool" theory winout and GM buys Chrysler?

Dan Ross
http://www.BetterBizIdeas.com/