Trader Talk

GM: Day Of Reckoning Nearing


According to the Washington Post, the U.S. is preparing to steer GM into bankruptcy next week, but other sources say they have no plan to do so-next week.

One thing's for sure: this will be a huge opportunity for Asian car makers--and a few large European makers--to pick up significant U.S. market share in the next couple years.

GM in 1985 had 40 percent of the U.S. market; they currently have half that, about 19 percent. Where will they end up? GM's current plan says they will emerge from all of this with an 18 percent market share, but that is after they they sell or discontinue their Hummer, Saab, Saturn and Pontiac brands.

Huh? According to Soleil, those four brands accounted for 3.8 percent of the U.S. market in 2008, so GM's assumptions are, well, a bit rosy. More likely, Soleil says, GM will have 16 percent of market share.

Separately, the bidding for GM's Opel and Vauxhall divisions has closed, with word of 3 solid offers, and even some vague rumors that a Chinese company has expressed interest. Canadian-Austrian car parts maker Magna, Fiat and RHJ International (an industrial holding company), have all made bids for Opel.


1) President Obama is expected to sign the credit card bill this afternoon. While the impact of the legislation on card company earnings is still a bit unclear, Fox-Pitt-Kelton's note on the effect on consumers were typical of the commentary I saw from the Street this week: "Credit is likely to become less widely available, with the cost of credit also rising as industry participants attempt to mitigate the impact of the legislation."

2) Last of the big retailers reporting:

a) Gap beat expectations by a penny, despite reporting a 7-percent decline in sales. Same-store sales at its lower-priced Old Navy stores fell only 3 percent, but double-digit same-store sales declines occurred at both its more moderately priced Gap stores and at its higher end Banana Republic chain.

b) Teen retailer Aeropostale up 3 percent pre-open after beating earnings estimatesby 1 cent. Total sales rose a sharp 21 percent (though mostly inline with expectations), with comp. store sales up 11 percent. Guidance for the current quarter is impressive, as the company expects earnings between 46 cents to 48 cents vs. Street's forecast of 37 cents.

3) Mmm mmm good earnings. Campbell Soup'sQ3 earnings of 48 cents beat estimatesby 6 cents despite posting a 10-percent decline in sales. Sales were hurt by both the stronger dollar and poor volumes, but were substantially offset by higher pricing initiatives. The food maker also raises full-year guidance above analyst forecasts.

4) Triple whammy! What happens when you combine the effects of a struggling economy, weak currency, and higher fuel costs? A "toughest year ever" for British Airways. The British airline reported a record loss as traffic and revenues fell dramatically. Additionally, the company was still absorbing the high costs of oil from last summer.

CEO Willie Walsh warned that "no immediate improvement is visible," and refrained from giving any full year guidance due to the uncertain environment. The airline also suspended its dividend for the rest of the year.




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