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GM Should Tumble on Merrill's Pessimism

Merrill Lynch downgrades General Motors (GM) to Underperform from Buy, lowering their price objective significantly to $7, and lowering estimates to significant losses for 2008 and 2009. The key change in the firm's outlook is a much lower forecast for U.S. auto sales that is driving a higher cash burn, necessitating a much larger capital raise than the market is currently anticipating. Furthermore, Merrill believes there is potential downside in the stock below $7 and that bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised. Although they believe GM has made strides in restructuring and has built a solid product pipeline, there are three recent factors that dwarf management’s best efforts.

Merrill now believes that much higher cash burn is likely to result in the need for a larger capital raise than anticipated, likely about $15 billion (including revolver draws), which would materially dilute return of value to existing shareholders. They also believe the company has not recognized the stress in the capital markets. As time passes, the supply of capital for GM to bridge the gap to 2010 is becoming increasingly scarce, which is at least driving up the cost.

The recent drastic drop-off in sales, which is likely to continue through 2009, has been more severe than anyone anticipated.

The mix shift away from body-on-frame large SUVs that was generally expected over the next few years has been pulled forward to present day with the spike in gas prices and has been more extreme than expected. This has essentially rendered the large SUV segment obsolete, cutting into GM’s profit potential.

Notablecalls: Lots of unhappy buyers from yesterday. I suspect GM will trade below $11 as soon as today.

More here: http://seekingalpha.com/article/83533-gm-should-tumble-on-merrill-s-pessimism?source=yahoo

 

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Re: GM Should Tumble on Merrill's Pessimism

Sometimes I wonder if they really know what they're talking about...the entire industry's in decline isn't it? Why haven't they talked about Ford? They're doing worse than we are. Toyota was down this month, too, let's downgrade them as well. Hell, they did worse than we did this month.
I think it's time that people stopped believing every word these guys said...in reality, they're only hurting the companies in the end.
 

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then again i think they may be right, economic forces are REALLY dictating this slide. GM just seems to be getting hit the hardest due to mismanagement. The company is practically worthless compared to several others andthey have more obstacles than many others. Kind of a timing thing i suppose. IF all the companies saw a 35% loss in sales this year GM would be the one that suffered most due to operating costs.
 

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they are losing a TON of money on this 0% financing so they are almost slitting thier own throats to get these sales.
 

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Re: GM Should Tumble on Merrill's Pessimism

Sometimes I wonder if they really know what they're talking about...the entire industry's in decline isn't it? Why haven't they talked about Ford? They're doing worse than we are. Toyota was down this month, too, let's downgrade them as well. Hell, they did worse than we did this month.
I think it's time that people stopped believing every word these guys said...in reality, they're only hurting the companies in the end.
They know exactly what they're talking about.

For starters, as mentioned, GM's incentives this month saved their sales, but destroyed their balance sheets.

Ford saw a bigger sales decline, but stayed away from heavy incentives, and saved money. More importantly, Ford has Kirk Kerkorian on their team, and he is MORE than willing to put up the cash Ford needs to see itself through this crisis. Who does GM have on their team willing to put up the cash?

Ford also has competant management on the top...
 

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Re: GM Should Tumble on Merrill's Pessimism

They know exactly what they're talking about.

For starters, as mentioned, GM's incentives this month saved their sales, but destroyed their balance sheets.

Ford saw a bigger sales decline, but stayed away from heavy incentives, and saved money. More importantly, Ford has Kirk Kerkorian on their team, and he is MORE than willing to put up the cash Ford needs to see itself through this crisis. Who does GM have on their team willing to put up the cash?

Ford also has competant management on the top...
Did not Merrill Lynch recently fire their CEO Stanley O'Neal for gross mismanagement? He had a big golden parachute too. What are you saying, it takes an incompetent company to know one? My guess is that General Motors is better than the Merrill Lynch analyst states.
 

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Re: GM Should Tumble on Merrill's Pessimism

They know exactly what they're talking about.
Lol, no they don't! These are the exact same people who spew s*** "analysis" out of their mouths to boost oil prices. The only thing these people analyze is how to make their own wallet fatter.
 

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Re: GM Should Tumble on Merrill's Pessimism

Sometimes I wonder if they really know what they're talking about...the entire industry's in decline isn't it? Why haven't they talked about Ford? They're doing worse than we are. Toyota was down this month, too, let's downgrade them as well. Hell, they did worse than we did this month.
I think it's time that people stopped believing every word these guys said...in reality, they're only hurting the companies in the end.
If this market continues they will. Talk of Toyota. However, GM is near the bottom and has fewer resources to weather this storm. Toyota could face this for a decade or longer before the cash burn hurts them.
 

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Re: GM Should Tumble on Merrill's Pessimism

Did not Merrill Lynch recently fire their CEO Stanley O'Neal for gross mismanagement? He had a big golden parachute too. What are you saying, it takes an incompetent company to know one? My guess is that General Motors is better than the Merrill Lynch analyst states.
No... I'm saying the humble analyst putting in 100 hour weeks know what he's talking about. Merrill's executive management has nothing to do with this, any more than the competance of a GM assembly line worker has nothing to do with how competant Rick Wagoner is.

The key issue here is that GM needs cash. It needs cash to fund product development, and it simply did not anticipate a sales slide this severe. Ford did, and got a loan a couple of years ago to cover their asses just in case.

If GM can't get the cash, they're up the river. Hence, the stock downside.
 

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Re: GM Should Tumble on Merrill's Pessimism

Lol, no they don't! These are the exact same people who spew s*** "analysis" out of their mouths to boost oil prices. The only thing these people analyze is how to make their own wallet fatter.
As a former analyst myself, I assure you... we know what we're talking about, even if you don't like what we're saying.
 

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Up Yours Merrill Lynch, you market people are so freaking smart , no wonder the country is in such a mess. Get your heads out of your beehind, you have no clue what GM will do in the next 12 months, or the economy.
 

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Re: GM Should Tumble on Merrill's Pessimism

If this market continues they will. Talk of Toyota. However, GM is near the bottom and has fewer resources to weather this storm. Toyota could face this for a decade or longer before the cash burn hurts them.

It doesn't have a cash burn. It's profitable with a positive cash flow. The decline in sales simply means a decline in profits. But to a company with no debt it's like your neighbor who has a paid off house, boat, 3 cars and vacation house saying that his small business had it rough last month. It only made $500,000 instead of the $600,000 it made in May.

OTOH that means that he's $500,000 better off than he was the month before.
 

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Re: GM Should Tumble on Merrill's Pessimism

As a former analyst myself, I assure you... we know what we're talking about, even if you don't like what we're saying.
Still, sometimes I wonder. It seems as if whenever an analyst says something, everyone goes crazy and paranoia breaks out at Wall Street. In effect, this could end up with the same result as the analyst predicted BECAUSE he or she said it would happen. Cause and effect. Let's say, for example, that an analyst predicts that GM stock will fall below $7/share. People panic and unload their stock in droves. Sooner or later, GM stock does indeed fall below $7/share. But, one must wonder, if the analyst kept his mouth shut, would that have happened?
 

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Re: GM Should Tumble on Merrill's Pessimism

Still, sometimes I wonder. It seems as if whenever an analyst says something, everyone goes crazy and paranoia breaks out at Wall Street. In effect, this could end up with the same result as the analyst predicted BECAUSE he or she said it would happen. Cause and effect. Let's say, for example, that an analyst predicts that GM stock will fall below $7/share. People panic and unload their stock in droves. Sooner or later, GM stock does indeed fall below $7/share. But, one must wonder, if the analyst kept his mouth shut, would that have happened?
The best analogy I can think of would be a weather forecaster predicting a flash flood due to a rainstorm, and causing people to evacuate an area. If he didn't say anything, people would evacuate anyway once they were knee-deep in water, and they didn't get a chance to save their valuables. However, if he predicted this flash flood, and people evacuated, and the rain never came, they'd be calling for his head on a stick.

If the analyst kept his mouth shut, and GM reported a MASSIVE 2nd quarter loss, GM shares would fall below $7 anyway. The purpose of an analyst is to research the market, and give both stock investors and their investment firm a heads-up as to likely future events.
 

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Re: GM Should Tumble on Merrill's Pessimism

The best analogy I can think of would be a weather forecaster predicting a flash flood due to a rainstorm, and causing people to evacuate an area. If he didn't say anything, people would evacuate anyway once they were knee-deep in water, and they didn't get a chance to save their valuables. However, if he predicted this flash flood, and people evacuated, and the rain never came, they'd be calling for his head on a stick.

If the analyst kept his mouth shut, and GM reported a MASSIVE 2nd quarter loss, GM shares would fall below $7 anyway. The purpose of an analyst is to research the market, and give both stock investors and their investment firm a heads-up as to likely future events.
Yes, however, weather forecasting is not the same as an analysis of the stock market. People can't control the weather. However, I still say that an analyst's negative comments about a certain company can end up with that same result BECAUSE he said it would happen. With a weather forecast, a weatherman can say, "It'll rain tomorrow," and it will not rain just because he said it would. The stock market, on the other hand, relies on investing and money moving around. Therefore, the stock market, and stocks in general, can be controlled by money and the purchasing or selling of stock. If an analyst says, "GM is going to be in bad shape soon," people will start selling off their stock, and GM WILL end up in bad shape because of that. It's unknown as to whether or not GM would end up like that if there was no prediction.
I'm no economic expert, nor am I the ultimate authority about the stock market. But at my young age, I've done some investing of my own, and it really does seem as if the analysts' predictions can cause damage to companies. Just my $0.02.
 

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A classic case of "shooting the messenger".

If anyone thinks GM is a "BUY" then they should buy!!

Curious, GM's SEC filings do not reveal any stock purchases by Wagoner or Lutz.
Maybe they are buying Ford shares with their millions...
 

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Re: GM Should Tumble on Merrill's Pessimism

Yes, however, weather forecasting is not the same as an analysis of the stock market. People can't control the weather. However, I still say that an analyst's negative comments about a certain company can end up with that same result BECAUSE he said it would happen. With a weather forecast, a weatherman can say, "It'll rain tomorrow," and it will not rain just because he said it would. The stock market, on the other hand, relies on investing and money moving around. Therefore, the stock market, and stocks in general, can be controlled by money and the purchasing or selling of stock. If an analyst says, "GM is going to be in bad shape soon," people will start selling off their stock, and GM WILL end up in bad shape because of that. It's unknown as to whether or not GM would end up like that if there was no prediction.
I'm no economic expert, nor am I the ultimate authority about the stock market. But at my young age, I've done some investing of my own, and it really does seem as if the analysts' predictions can cause damage to companies. Just my $0.02.
You are correct. Many investors will not buy stocks that already have a "BUY" rating. Instead they find solid companies (in their opinion) that have a "hold" or "sell" rating and sell on the possible upgrade. Even the "experts" and analysts are wrong nearly half the time.

I would not buy GM stock right now. Too many variables that are out of the company's contral are impacting sales.
 

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Re: GM Should Tumble on Merrill's Pessimism

Yes, however, weather forecasting is not the same as an analysis of the stock market. People can't control the weather. However, I still say that an analyst's negative comments about a certain company can end up with that same result BECAUSE he said it would happen. With a weather forecast, a weatherman can say, "It'll rain tomorrow," and it will not rain just because he said it would. The stock market, on the other hand, relies on investing and money moving around. Therefore, the stock market, and stocks in general, can be controlled by money and the purchasing or selling of stock. If an analyst says, "GM is going to be in bad shape soon," people will start selling off their stock, and GM WILL end up in bad shape because of that. It's unknown as to whether or not GM would end up like that if there was no prediction.
I'm no economic expert, nor am I the ultimate authority about the stock market. But at my young age, I've done some investing of my own, and it really does seem as if the analysts' predictions can cause damage to companies. Just my $0.02.
It seems we're confusing two different ideas here... the company, and the company's stock.

The price of GM stock has no bearing whatsoever on General Motors. So, an analyst prediction isn't "hurting GM"... it would be hurting GM stock.

The main factor that affects GM stock is the health of GM itself. The analyst is commenting on the health of General Motors, whether on liquidity issues, sales, and such. Based on his observation of GM's health, he makes a prediction on price. If he's wrong, and his comments beat the stock down, there will be a rise once the actual figures come out.

If you don't believe the analyst, ignore their comments. If the analyst is wrong, then the facts on GM's health will boost the stock. If he's right, you ignored a warning.

By the way... I know at least two analysts covering GM lurk on this forum, so be careful with your words.
 

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Re: GM Should Tumble on Merrill's Pessimism

The best analogy I can think of would be a weather forecaster predicting a flash flood due to a rainstorm, and causing people to evacuate an area. If he didn't say anything, people would evacuate anyway once they were knee-deep in water, and they didn't get a chance to save their valuables. However, if he predicted this flash flood, and people evacuated, and the rain never came, they'd be calling for his head on a stick.

If the analyst kept his mouth shut, and GM reported a MASSIVE 2nd quarter loss, GM shares would fall below $7 anyway. The purpose of an analyst is to research the market, and give both stock investors and their investment firm a heads-up as to likely future events.
The problem is that analysts aren't any more accurate than the weather man. These days they are probably less accurate with this somewhat flat, but volatile market in a flat economy.
 
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