This from Today’s Financial News:

Just like most of the nation, I too view General Motors (NYSE:GM) as one of America’s great corporations. The company epitomizes every thing that made this country great, at least over the past few decades. Right now, on the other hand, it represents some of the nation’s greatest problems.

GM, just like its union-fed employees, wants something for nothing. The American taxpayer did not get the automaker into this trouble. Its management and its union concessions did.

You and I are not the ones that promised to pay defined retiree benefits for hundreds of thousands of past workers. We are not the ones that promised to pay wages to a “bank” of workers we no longer need. And we are not the ones that produce inferior products few consumers demand or are proud to own.

We all know, if you or I ran our businesses the way GM is run, we would have been on our butts a long time ago. And most certainly, there would be no congressman pulling strings to hand us huge sums of money to fix our senseless mistakes.

In America, we have two choices that must be made today. We can take the easy route and write a check to Detroit and its supply chain, essentially putting off the auto industry’s problem until the next recession.

Or we can make the hard choice and let GM fight for its life in bankruptcy court, just as the free market is dictating. Yes, this would propel America into a deeper recession and unemployment would almost certainly reach double-digit proportions. But most importantly, it would ensure that 10% unemployment, like Europe has become used to, does not become the accepted norm in America.

Temporary pain, permanent improvement

If we cut GM loose, we will endure a lot of temporary pain, but the nation’s future will be much brighter. The wounds will heal. The job market will rebound. And a new, much more profitable industry will emerge from the ashes.

We already have a huge segment of the nation’s population trapped in the gutter thanks to overly ambitious social welfare. Now America is about to make an even larger mistake and embark on what will essentially be permanent corporate welfare.

It is a mistake that will haunt this country and its growth potential for generations. If Bush signs any legislation into law, the corporate nation will never look the same.

Life support is for bodies that have a chance at healing and getting stronger, not for fat ladies that will continue to eat themselves to death.

It is time to pull the plug on GM and see what happens.

Source: General Motors (NYSE:GM): Let the fat lady sing

This from Today’s Financial News:

If you are a retailer, you are at the mercy of your suppliers. A bad decision by some CEO or marketing manager that you have never met will greatly affect your future profitability. The way a retailer defends his supply-chain inferiority will directly translate into his success.

Wal-Mart (NYSE:WMT) is particularly good at managing its suppliers. In fact, the mega-retailer is so good at it, it does not have to manage its supply chain. It dictates it.

Sam Walton created this power through large-volume ordering, constantly demanding the lowest prices possible and diversifying his product line. If one supplier acts up, Wal-Mart simply replaces them. And because the company sells just about every product man has ever created, Wal-Mart can afford to weather out downturns in a few of its product lines.

In other words, if one of its suppliers goes bankrupt or consumers suddenly refuse to buy a certain brand’s products, Wal-Mart’s profitability does not disappear. The company has a well-diversified product line.

If Wal-Mart and its thousands of products are the best example, car dealerships have to be the absolute worst.

One product, one shot at success

Think about it. Most dealerships sell one, maybe two brands of cars. You go to one dealer for Fords (NYSE:F), one dealer for General Motors (NYSE:GM) and another for Toyota (NYSE:T). Buyers have lots of options and industry competition is huge, but individual dealers are at the utter mercy of countless variables outside their control.

Right now, the downturn in consumer spending, the lack of credit and the notion of bankruptcy in Detroit is driving potential buyers out of showrooms. Most dealerships are in dire financial situations.

Mike Jackson, the CEO of the country’s largest dealership, Auto Nation (NYSE:AN), says at least a thousand dealers will lock their doors this year and just as many, if not more, will follow next year. The only dealers that will escape unscathed are those that were smart enough to diversify their product offerings.

For example, Sonic Automotive (NYSE:SAH), one of the nation’s top dealerships according to sales, sells over 30 different brands in fifteen states. It also owns and operates 34 body shops. If the company is going to make it through this recession, its product diversity will be the only thing that gets it there.

Unfortunately, like so many of its competitors, Sonic has a horrid balance sheet. As of last quarter, it was sitting on well over one billion dollars worth of inventory. With just $7 million in cash, it will be interesting to see how it pays for that inventory.

If the company can find the capital to get itself through this downturn, it will be able to survive. But right now, few investors are willing to take any risks in the auto industry.

When we boil it all down, Sonic Automotive, Auto Nation, and the nation’s 21,000 other dealerships are at the mercy of Detroit, which is in the hands of Washington. A lot of things have to go right before investors should think about going long on the industry.

If you are an investor looking to take advantage of the market’s downturn and snag shares of the nation’s retailers at rock-bottom prices (which is a good strategy), be sure to choose the companies with diversified offerings that are not at the mercy of their suppliers.

Wal-Mart and its index-smashing performance is a great example of the opportunities that lie ahead.

Source: Retail Bottom Fishing: Will Auto Nation(NYSE:AH) or Sonic Automotive (NYSE:SAH) survive?

More from The Sovereign Society:

In 1955, U.S. manufacturing was approximately 55% of the nation’s GDP. Today, manufacturing is barely 15% of GDP as the United States and other industrialized countries continue to transition to service-based economies. Unfortunately, the backbone of American industry is now coming apart at the seams and desperately hungry for a government bailout.

In 2004, I predicted that one of the Big Three auto companies would fail in a few years. Though not a bold forecast by any measure – the autos were long bleeding before 2004 – my target back then was Ford. At the time, I plugged put options on Ford Motor and made a profit on that trade; now I wish I had purchased long-term LEAP put options. Ford in July 2004 traded north of $13; today, Ford Motor (NYSE:F) fetches just $1.76.

Ford’s stock price chart starts to resemble everything else…

Detroit is home to America’s Big Three auto companies. It’s also home to one of the worst contractions in manufacturing activity accompanied by seemingly never-ending losses.

General Motors (NYSE:GM), Ford and Chrysler are bleeding profusely and need emergency cash funding right away. Of the three, General Motors is headed into bankruptcy first unless the government comes to the rescue.

The world’s second largest car company (Toyota is now #1), GM has just enough cash to last until January at the latest. Chrysler and Ford probably have enough funding for another 6-12 months. Beyond that period, it’s Game Over.

Bailout Bonanza

The scope of Washington’s bailout reach is now extending: mortgages, banking, investment banking, insurance and now auto manufacturing. Pretty soon it might extend to the airlines, real estate companies and who knows, maybe even every industry that comprises the S&P 500 Index. This whole bailout thing is totally out of control.

Should the government let the Big Three fail? Combined, these three goliaths employ more than 300,000 people worldwide with most of that total in the United States. The pressure is on the government to bailout the autos. Paulson isn’t too keen on extending TARP to the auto companies but Obama certainly is. I reckon Detroit’s odds of obtaining a bailout are pretty good.

With the economy showing no signs of bottoming as we shortly conclude a miserable 2008 for investors it would only seem prudent to remain underweighted stocks. The market shows no convincing ability to bottom; every major rally is met by big selling as investors eagerly grab short-term gains to raise cash.

This recession will be a long, drawn out affair, probably lasting throughout 2009, possibly 2010. Housing is at the core of this secular bear market. I don’t see housing bottoming or at least stabilizing until at least mid-2009 with inventories still rising in Q3. Mortgage rates, which declined following the initial Paulson Fannie Mae and Freddie Mac government guarantee in September, have since risen again. Mortgage rates must come down.

It’s now time for America to become thrifty again. The correlation between a rise in the savings rate and corporate earnings growth is negative. Earnings expectations remain too bullish for 2009 and must still be revised lower. Earlier this fall I had expected a rally following the post-October 9 crash; thus far, the Dow is up just 7% off its low for the year or 42% off its October 2007 high. Now I’m beginning to think we might test fresh lows and soon.

Equity Markets in line for another Beating

The Dow will test its October 2002 low of 7,286. In my mind, there’s no way this bear market is not as severe as the 2002 debacle. It’s much worse.

Should stocks decline another 15% from current levels the Dow would sit 57% off its best level in October 2007 but still about 30% above the trough of the 1932 lows. From October 1929 until late 1932, the Dow collapsed a cumulative 86%. I doubt we’ll see that sort of spectacular decline; yet it’s pretty likely that a 42% peak-to-trough loss thus far won’t kill this bear.

If one of the Big Three is allowed to fail, watch out. That would trigger another crash. The market is drunk, expecting another industry bailout. Let’s not disappoint Mr. Market.

Source: The Beginning of the End for U.S. Auto Manufacturing

If it doesn’t happen as one of the final acts of the Bush administration, it will happen as one of the first acts of the Obama one.

The question is, will it help the fast-falling auto industry?

It’ll help retailers. The overwhelming evidence is that the last round of stimulus checks helped pick up consumer spending in the second and third quarters.

But big-ticket retailers like auto dealers play in another sandbox entirely. Unless these checks have a couple of more zero’s than the previous ones, the auto industry’s fate is tied to getting another $25-billion loan package from the government.

The auto industry needs it. And from Obama’s latest statements, it looks like it will get it. And just in time.

The auto industry is getting battered from three trends…

1. A worsening global economic slowdown

2. A global credit crisis which has dried up lending (including for autos)

3. A strengthening dollar, which makes American cars more expensive in overseas markets

The numbers published last week on October sales were abysmal. Toyota (NYSE:TM) reported a 23 percent drop, Ford (NYSE:F) a 30 percent drop, GM (NYSE:GM) 45 percent and Chrysler 35 percent.

GM is burning cash so quickly it warned this past Friday it’ll run out of money during the first half of next year. It sounds like GM is in shock: “In my 27 years, I have never seen a month like this. It was like somebody turned off the lights in the month of October,” a GM official said.

The auto industry is in a free fall. September’s auto sales numbers were terrible. It showed a loss of 30 percent. October’s was worse. It showed a loss of 33 percent.

It’s bad and getting worse. By all means don’t go bottom-fishing in this sector now. If anything, shorting the sector makes much more sense.

Source: What’s Going to Stimulate Auto Sales?

This from Taipan Daily:

Last week, I wrote to you as to how our local hausfraus had found a convenient way to raise funds without the trouble of visiting such sordid places as pawnshops. Their solution: gold-selling parties wherein nice men would come to the house and relieve them of their excess jewelry.

Apparently the need to convert baubles to dollars is not limited to the Maryland upper middle class these days. According to Bloomberg, the pawn business is booming in, of all places, Beverly Hills. Except, as usual, Cali has to do poor Maryland one better, so the “nouveaux pauvres” are cashing in Rolexes and Picassos in record numbers.

Most American investors consider China the hottest emerging market in the world. Unfortunately, they’re dead wrong.”

India has seven times more impact on the U.S. than China!

What I’m about to share with you is a chance to own “the sleeping giant of India.” Through a secret back door, you can own this stock for only $4.50 a share.

Follow this link to learn more…

But these suddenly cash-strapped suntan state dentists and lawyers can’t hold a candle to the humongous cash hole Detroit’s “Big Three” find themselves desperately trying to fill.

Can I Get $25 billion for a Cup of Coffee?

Late last week, an ad-hoc committee from GM, Ford and Chrysler flew down to Washington and went down on their collective knees before Nancy Pelosi and Harry Reid begging for a second $25 billion hit.

That’s right, I said second hit, because about four weeks ago, Cap Hill approved another $25 billion in low-interest loans to help the automakers and their suppliers keep plant doors open.

Apparently, this was only a drop in the old coffee cup, because the very next day after visiting the Capital, Ford (NYSE:F) posted third quarter losses of $129 million, and announced that it would have to lay off another 2,260 white-collar jobs.

Hemorrhaging Cash Onto the Factory Floor

Actually, if you dig into the report a bit, you find that Ford really lost some $2.7 billion making cars and the like. Fortunately for stockholders, Ford managed to off some $2 billion in health care costs onto union workers.

Its compadre in pain, General Motors (NYSE:GM), announced that it also lost $2.5 billion in the third quarter – and even went so far as to plainly state that it would simply run out of cash in 2009 if Washington doesn’t bail it out.

All three manufacturers have made it quite clear that these losses and layoffs are trivial compared to the pink-slip blizzard that will engulf us if they do not get a sizable chunk of Washington’s trillion-dollar bailout fund.

Those 2,260 Ford execs will have plenty of company kicking around on America’s collective street corner. October saw another 240,000 workers turned out into the brisk fall breeze.

It’s a Pink-Slip Parade!

That hit was on top of the 127,000 guys and gals fired in August, and the 284,000 let go in September. Tot it all up and so far this year, some 1.2 million jobs have spiraled down the maw of “the recession no one would name,” raising our national unemployment rate to a 14-year high of 6.5%.

When the usual crowd of economists saw these figures, they were shocked and dismayed. The slide-rule types had actually been calling for the unemployment rate to ease a bit. Now they are being forced to trade in their predictions of a short and shallow recession – most probably over before it is even officially pronounced – for warnings of a long hard slog.

So how did investors take this news? They loved it!

After a drubbing in the form of two straight days of 400-point-plus losses, the selling actually paused for a moment on Friday, when the market caught wind of rumors of yet another round of Fed rate cuts.

How Cheap Is Cheap Enough?

I can’t tell you for a fact whether the Fed will actually venture into the sub 1% realm, or whether this is just more smoke. Practically speaking, the Gray Men of C Street really don’t have to do much of anything more right now, as the London credit benchmark has already plunged to a four-year low.

At 2.29%, LIBOR (the rate that banks loan to each other) is at its lowest level since November 2004. The TED spread (the gap between bond rates and borrowing rates) is down under 200 points for the first time since the Lehman collapse. By some measures, in other words, credit is actually cheap again.

So hey, if credit is this cheap, why isn’t Detroit going to a bank for much-needed spending cash? Or selling bonds on the open market for that matter?

Take revenge on Wall Street… and make a fortune in the process!

Would you be comfortable exploiting Wall Street’s pain… if you knew it could supply you with a steady flow of easy cash payments… as much as $4,565 every week? Learn how to make it happen…

For the same reason Ford, GM et al. aren’t selling stock shares for more than a couple of bucks a pop: risk-wise, they stink!

Rotten Through and Through

These guys were teetering on the edge of bankruptcy long before our great financial houses managed to shoot themselves in the collective foot with bogus mortgage bonds. Now the only way they can cover payroll is by begging from Uncle Sugar.

In the end, Uncle will somehow manage to keep their doors open, if for no other reason than to prevent rioting outside plant gates across America. But I strongly suspect that both share and bondholders will get screwed along the way.

My call: Short Detroit with both hands and both feet.

Source: “Will Work for $25 Billion” – Why Detroit Might Be Saved, But Shareholders Won’t