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The Biz Roundup April 21

Yahoo! starts its long slow transformation into Yeahsowhat?

Yahoo Inc. posted a 78% quarterly profit decline as the recession hit its slumping advertising business and the Internet company said it would eliminate about 675 more jobs, or 5% of its work force.

The Sunnyvale, Calif., company was hurt across the board as companies scaled back their marketing budgets and flocked to cheaper alternatives. In particular, search-ad revenue, which had been a bright spot for Yahoo, declined 3% after several quarters of double-digit growth.

(“Yahoo Posts 78% Profit Drop, Cuts Jobs,” Wall Street Journal, April 21) I was briefly involved with Yahoo! a couple years back here in Burbank (I won’t say how or why). My impression was this: no-one really seemed to be working at the same place as everyone else. Disorganized isn’t the right word for it; amorphous seems more correct. Imagine everyone organized, arranged, and disciplined, more or less, but no-one can see more than five inches in front of their face. That’s what it was like. The people were fabulous but everything was about doing what the day — nay, the hour — put in front of your face. Every organization needs vision, a grand panorama into which every mundane chore fits. Talent, organization, and discipline aren’t enough if the whole is a dense fog of unknowing.


So, how do you negotiate a $4.7 billion disagreement? Throw in a dozen free Krispy Kremes?

In its counter-offer to the government, the creditors, which hold $6.9bn in Chrysler’s debt, rejected the Obama administration’s demand they forego the repayment of $5.8bn of debt to stave off a bankruptcy, people close to the situation said. Instead, the lenders proposed reducing their debt to about $4.5bn and taking a stake of about $1bn in preferred equity in Chrysler following its planned alliance with the Italian carmarker Fiat. People close to the lenders said the $1bn stake could be worth about 40 per cent of the company

(“Chrysler creditors reject Washington’s debt proposals,” Financial Times, April 21) So, here’s the deal. In exchange for forgiving $1.1 billion in debt, the banks Citigroup and Chase are wiling to take $1 billion in equity (at firesale prices) to take what will become the largest stake in the merged company. Should the merger work (a very strong possibility), the banks get the full par value plus interest on their debt (minus a measley 100 grand) and massive returns on their equity stake. No wonder the Obama has called this prospective return “unjustified.” The banks have laid out where they want to go: near-equal swap for equity, controlling interest in the company, near full repayment of the debt, massive upside to the equity investment. The banks are basically taking the Obama administration to the brink on this one. Joe Biden said during the campaign that you could count on some foreign power “testing” the Obama administration in its first few months. Looks like that foreign power is ruled by powerful mullahs named Dimon and Pandit. So, unless Chrysler is willing to trade the entire company for that 85% markdown on the debt, it looks like this one will end up in Judge Judy’s court.


Meanwhile . . . in China . . . GM is one of the biggest, most successful auto companies in the world.

G.M. is a powerful presence here [China] with 8 to 10 percent of the market for cars, minivans and sport utility vehicles, making it the second-largest automaker in China for such vehicles, passed only by Volkswagen. One of G.M.’s local joint ventures, Wuling, dominates the sale of bare-bones pickups and vans, hugely popular in rural areas, with nearly half the market. . . .

Unlike the gas guzzlers churned out by G.M.’s North American operation, the company’s China division has emphasized fuel-sipping models in the last decade. Two weeks ago, G.M. set a target of roughly doubling sales in China within five years, to two million vehicles a year. . . . And after the government introduced a subsidy of $730 last month for vehicle buyers in rural areas, G.M.’s Wuling operation can barely build minivans fast enough.

(“In China, G.M. Remains a Driving Force,” New York Times, April 21) So, basically, GM China did what GM North America should have done: produce well-built, high-value, fuel-efficient cars. If they can do it in China, why can’t they do it in the U.S.? Here’s the answer: they have near zero flexibility to change or retool. From management down to the unions, the whole system is set up not to change.

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