For the week ending May 29, 2009, these are the most important or newsworthy reels to hit this blog’s radar, summarized in 1,000 words (give or take a few thousand):

gm

Waiting for GM to Buy the Farm, with Bated Breath…

Most of the news this week has centered around the twin crises of General Motors and Chrysler, for good reason. After all, they were part of the Big Three of automaking for several decades before the rest of the world caught up with them. For all the wheeling and dealing GM’s leadership pulled out of its bag of tricks – among them an agreement with its bondholders for a securities swap, as well as a last-minute concession from the United Auto Workers for reduced health care and other labor-related costs – alas, the march continues on to Bankruptcy Protection. The official announcement is expected Monday, June 1. Several billions in taxpayers’ funds will be used, as the government becomes custodian to yet another problem child, responsible for 72.5% of whatever incarnation the new GM becomes.  This, after getting another $15 billion under the Troubled Asset Relief Program (TARP) just a month earlier. Thanks, Guys.

Clearly, this company has become one of the biggest Busts of the Century.  You know it’s downright bad when you hear that GM is expected to be removed from the Dow Jones Industrial Average (DJIA) once they have officially gone into Chapter 11 hearings. It would be the first company in 27 years to be removed due to bankruptcy. The last one was Johns Manville, which has now since been owned by American Express. The last non-bankruptcy removal was only last September, when AIG was ignominiously removed from the royal rosters and replaced by Kraft (KFT). There are whispers that other laggards such as Citigroup (C) are soon to follow. Waiting to barge in the DJIA: High-rollers like Apple (AAPL), Google (GOOG) and Goldman-Sachs (GS).

… Meanwhile, Chrysler Drops the First Shoe

After last week’s dramatic announcement of closures, bankruptcy hearings for the other major automaker have been moving along quietly in comparison to its rival General Motors. Unlike GM, Chrysler had chosen to seek out a buyer, even an overseas one. Duplicating its previous successful (albeit short-lived) merger with Daimler AG, it found a willing new partner in Italian-based Fiat SpA. The White House has said it is pleased with how the proceedings are going, and hope that the Bankruptcy Court can declare “Fiat!” on the Fiat-Chrysler deal.

Analysts and economists have indicated skepticism about long-term success for either automaker, should they emerge from bankruptcy. Both are expected to exit rather quickly. All that really does, however, is assure that they stay afloat for a short while longer. What happens next is anyone’s guess, as fewer and fewer people are willing to buy new cars. Made in the US. At a time like this. Unless Chrysler and GM drastically overhaul and streamline their respective operations, the end will come, soon enough. And by that time, many in America may no longer care.

goodbye-aol-logo

And Now, for Something Completely Different…

  • Digital Sky Technologies, the largest provider of Russian-language internet services, acquired a 1.96% stake in Facebook. According to CEO Yuri Milner, the $100 million offer was not too expensive and “suitable.” (Wow, such chutzpah!) Wait… what’s that?  You haven’t heard of Facebook?! Well, in that case, let me introduce you to my Russian friends – you will know all about social networking after five minutes in a dimly-lit dark room with them!
  • Unfortunately, not all unions were built to last. On May 28, Time-Warner, Inc. (TWC) announced that it would split from former internet heavyweight America Online (AOL). After nine years of marriage and failure to deliver on hyped-up expectations, the pressure for AOL to live up was so great that it never did get past its pay-for-internet service novelty. A slightly-trimmer Time Warner would now be a content-only company that would concentrate primarily on its existing cable business, where it had seen previous success. While growth in the TV market has leveled off, Time Warner still has the luxury of having sufficient cash to buy back its shares to pare down debt significantly. AOL, on the other hand, may take on an additional $1.5 billion in debt  to boost itself in the internet race. With increased broadband speeds and wireless technology, it has fallen badly behind in the race.

What a difference 15 years makes: In 1994, AOL was all the rage since it provided quick access to the internet over a dial-up line, but at hefty prices. Ever since then, DSL and other increased broadband services (faster speeds to you non-geeks) began to erode its already lumbering market. And then there was the email. Once upon a time, we all had to pay for email. Then in 2003, I realized that I was old and foolish when a young girl exclaimed, “Pay for email? That’s just stupid!” Welcome to the Digital Age. Where (most) everything is free…

Copyright Anabasius 2009

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