[HEVguy]

Re: GM Sells Allison Transmission for 5.6Billion!

Just as a reference, GM's entire market cap is about $21 Billion,... so Allison is being sold for 25% of that value of the entire company! That goes to show you (IMO) how undervalued GM is in general, or in other words, how much the union and pension liabilities weigh down the GM stock!! It's truly amazing and even dis-hartening to see how these liabilities weigh down on the company. However, I seem to have increasing confidence, every quarter, that GM is doing the right things to realign their business (including on this all important labor front) and become a lean, mean and dominating automotive house!!!

 

[HEVguy]

Re: GM Sells Allison Transmission for 5.6Billion!

I know a guy that worked at Allison, and said that it was a very well run/managed group. Hopefully, the portion that GM keeps, whether integrated with GM powertrain or seperate, will maintain that kind of environment!

 

[HEVguy]

Private equity groups. Too much wealth and power in too few hands and no accountability to anyone. They are going to be a big problem for all of us in the not too distant future. Mark my words!

Although I agree with you in general, I believe this Allison deal makes very good sense... and GM has been looking to sell them over the last 5 or so years anyway. Overall, the deal is 'unlocking' the value of Allison from the 'liabilities' of GM, and in doing so, I'm betting that both companies are going to be better positioned and stronger because of it.

Otherwise, GM will still be able to source Allison tranny's for their light-duty needs. AND I hope that GM stay's closely aligned with Allison, like Toyota with Aisin (except that Toy owns at least a majority in Aisin, since it is a subsidiary).

 

[HEVguy]

Originally Posted by wescoent
We aren't accountable to anyone, because even if we lose the farm due to bad decisions, it doesn't hurt anyone, since everyone in our partnership can lose all the money they want and it won't affect their lifestyle.

Um, what about the people that work for the companies that get bought? If you screw up won't they lose their livelihoods?

That is a very good point T-Type!

Moreover, the statement 'We aren't accountable to anyone' is REALLY SCARY!!! Wescoent, have you ever heard the saying 'Absolute Power Corrupts ABSOLUTELY,' I have, and it sounds like private equity is approaching it.

 

[HEVguy]

Re: GM Sells Allison Transmission for 5.6Billion!

The Dual-Mode is definitely staying with GM, but it is my understanding that the Allison in the HD trucks will go to Carlyle/Onex. That design is currently maintained by the Allison Division of GM and that is what was sold off. GM will have to source the tranny from the new group (this is no different than when Delphi was spun off years ago).

Allison only makes commercial products, so this affects ALL of their product. The tranny in the HD's is a "lite" version of their tranny for Medium Duty trucks, so it's still considered a commercial product.

The Dual-Mode staying with GM is definitely a good thing (although I'm sure both companies will share the rights to it, since Allison also uses it in heavy duty bus trannies). I know of GM using the dual-mode from Astra sized prototypes through to the Suburban, so clearly they are interested in the technologies application across the light-duty range.

As far as the Allison tranny in the full-size trucks, either keeping the technology or sourcing from Allison (in the future) makes good sense, so I'd be pleased either way.

 

[HEVguy]

1.) Gm manual trannys in CTS is Asin, not Allison

2.) Private equity groups are great because it can take companies that are public and subject to that mess Sarbanes Oxley, can reduce overhead by firing 6 million lawyers and 3 million accountants that have to manage compliance. In addition, PE can make changes that may not have great short term impact on value, but will create large long-term value in a company. If the company were public, it would be under pressure to show results every quarter. If anything is going to ruin the economy, it won't be PE, it will be government regulation in any way shape or form.

While you have some very good points, I think that a balanced view of public vs. private is actually correct. PE is getting a little aggressive of late, but when they do make good purchases, they allow for some very good things to go on within those companies. And Sarbanes Oxley (SO) does bite the big one! However, the ultimate goal for PE is to sell or IPO the companies they 'take private,' so although PE allows for some good long-term business decisions, it will most likely avoid SO only temporarily.

 

[HEVguy]

You're supposed to go into contract negotiations on the verge of bankruptcy if you expect to get concessions from the UAW. Selling off divisions to build up a cash horde just sends the wrong message that things are all fine and dandy. None of this money will go towards new products/platforms. Any hard won changes in healthcare & pensions in the upcoming contract talks will be offset by this cash horde flowing back to UAW employees to replace the payroll deductions & increased copays for healthcare that GM will impose on them. Just look at the Delphi settlement, the $7.0 billion to cushion the blow of lower wages and higher heathcare payments for hourly employees came from the partial sale of GMAC

You know, I had these thoughts in the back of my mind,... I didn't focus on them, but you are right. I wouldn't want to go into union negotiations after brokering a big contract like this. I guess we can just hope they say...

'Sorry guys, that Allison money is already spent on new product development. You (the UAW) like to complain that if we (GM) designed competitive products, then we wouldn't be laying off union workers, so now we are doing it. You (the UAW) also know that to design competitive products in the long-term, we have to have competitive cost basis. Well we (GM) are financing the product development in the short term by these non-core business sales, but now we need to re-allign our wage, health-care, and pension costs so that we'll be able to stay competitive in the long-term. So let's sit down and talk about the pork we can cut from this union contract.'

 

[HEVguy]

Hate to be the bearer of bad news for you GM folks, but Allison still "owns" the stuff that GM is using. Nobody has commented on this in this thread, but the ONLY reason GM has a 2-mode hybrid is because Allison Engineering developed it, and as such they still will most likely retain the patents and intellectual rights as well as the engineering rights. Also, the Allison that's paired with the D-max is going to be built in a GM facility but engineering still belongs to Allison, and after the current iteration product who knows what the agreement will be. But I wouldn't think that a smart PE company would pay a premium price for Allison if it didn't include some real good reasons for doing that, such as the things GM is currently borrowing from Allison. To think the private equity group wouldn't retain that would be kind of silly.

How GM is going to compensate the new stand-alone Allison for using their products might not be finalized yet, but all signs point to Allison retaining
their intellectual property and expertise...

You clearly don't understand that the legal ownership of IP and patents can and will be shared. Allison was a part of GM when they made all these development, and I guarantee you that GM will retain ownership (joint) in Dual-Mode hybrid tranny technology. Allison, I'm sure, will also retain (joint) ownership, as both Allison and GM are manufacturing dual mode hybrid trannies.

 

[HEVguy]

How is private equity being too aggressive, exactly?

Good question. IMO, the number of deals for taking large public companies private has been increasing at a staggering rate. Also, some of the valuations paid to take certain companies private have been quite 'generous' in comparison to their current market cap. Of course, that is just my opinion, but recently we've also seen increasing government scrutiny on PE taxing and operations, so I think there is an increasing concern in general. However, I am not advocating an end to PE either, there are definitely advantages to going private.

 

[HEVguy]

Re: GM Sells Allison Transmission for 5.6Billion!

While I understand your point, HEVguy, I know that you know that you also can't just discount certain negative aspects of a company-and in this case pension obligations are a big negative for GM, as is long-term debt-and point out the positives and conclude the Company is undervalued.

We are saying something similar. I just mentioned GM as undervalued, and qualified that with their liabilities weighing them down, because I am taking a positive outlook on them correcting how these liabilities have gotten out of hand. However, I also don't believe you can purely value a company based on 'short-term' financials: profit, margin, etc. There is also significant value in companies facilities, patents, technologies, capabilities, supply chains, sales chains, brands, etc. If you had to start over with GM (fire everyone), you'd still have a lot of these things. Considering the amount of these 'assets' and the countries they are established in, the value of GM when 'sold off' or 're-started' from a clean employees slate, would be more than its current valuation (IMO). Just look at how much other automotive companies/brands have been sold for recently. Now, I am not saying they should be worth that sum now, but I am pointing out or even questioning how much their liabilities subtract from that value.

 

[HEVguy]

[/b]Wow, right on the money. But only in a perfect world, therefore don't hold your breath

Yeah, we can wish can't we!! Unfortunately, the real world doesn't place the importance on wishing that Disney World does!

 

[HEVguy]

Delphi is (was?) core, as is Allison. The larger, and more complex the part, the more "core" it is. Transmissions are definitely more complex and more specialized than most of what Delphi makes, so I would say that Allison is more core than Delphi.

Carmakers definitely want to finance their car sales. Look at GMAC over the past 20 years and you will see they they have been much more consistent in their profitability than the car making part of GM has been. GMAC has kept GM afloat during many lean times. And that GMAC profitability is not just from housing loans.

While knowledge is one part of the reason internal suppliers can't compete, the bigger reason is that they are insulated from competition and then they get fat and sloppy. The vertically integrated approach to design and manufacture automobiles works very well, as GM proved last century, but if it leads to internal fiefdoms that don't have to compete against leaner, meaner suppliers, then those internal suppliers start costing too much.

If you want a good example of a profitable, vertically integrated manufacuture, look at Toyota. According to one report,
http://www.sme.org/cgi-bin/get-newsletter.pl?LEAN&20051209&4, they are not only the leanest auto producer, they are also the most vertically integrated.

All very good points! I believe GM only sold 51% of the mortgage/commercial side of GMAC, not the car side. Am I just remembering wrong, or do they still control/own their vehicle loans business outright???

As far as the correct level of vertical integration. It is a tough question to answer. In many ways Delphi has become a better business as a stand-alone supplier that sources multiple brands. Overall, I'd tend to think that a balance of some vertical integration and some outside sourcing is probably the right approach. Further, with the way US culture is, in my observation, it is difficult for a highly integrated vertical structure to stay that way over the long-term. Due to many factors I don't care to even try to analyze, the businesses are either split-off, the industry as a whole selects a 'de-facto' standard supplier for certain components (PC industry), or many other outcomes.