According to reports on the Railpace website General Motors is very close to a deal selling the Electro-Motive Division (EMD) to two private equity firms, Berkshire Partners and Greenbriar Equity Group. The sale is possibly only days away according to this report.
Here’s the link:
http://www.railpace.com/hotnews/
LC
Interesting, I guess the loss of market share to GE has finally gotten bad enough to actually concern GM.
~METRO
Not really news anymore. It is well established that GM wants to concentrate on 2 busineses: autos & light trucks and financial services. All of its other divisions are toast or will soon be. EMD is peanuts anyway. According to a story in the Wall Street Journal last year, EMD accounts for less that 1% of GM’s revenues . They do have a large pension liability, so they are milking the potential buyers for every penny they can. The only question that remains is whether the new buyers will really make a go of it, or just split EMD up in a few years to maximize the profit for their investors.
Acctually M.W. if you look at the end of the story they do credit Reuters. This is a interesting story becasue if GM is making so much money off of EMD why would they want to sell it??
Actually, If I recall right, GM did meet its full pension funding last year, contributing something like $20 Billion to the fund. Even after that, they still made around $4 Billion in profits.
GM makes around $200 Billion in revenues per year, which is what, like 10 times the combined revenues of UP+BNSF+CSX+NS.
I really don’t think you can compare the General to a small potatoes company like SP.
Yes, currently the auto side is not the best sitution, contributing only around 600 Million in profits. They rest of their profits comes mainly from GMAC. But if they didn’t sell large amounts of auto/light trucks, would GMAC have the volume business it has? Kind of like what came first, the chicken or the egg?
Also, not to sound morbid, but that large pension liability is only going to live so long. After their many retired (and now mostly elderly) pensioners die off, GM (and Ford for that matter) will be lean, core product focused companies (compared to their past history).
That’s interesting. A recent GM study stated that Toyota puts $1000 more materials into the Camry than GM puts into similar cars. The study stated the better materials is what makes the Camry more reliable than GM cars, not the engineering or manufacturing. Interesting on how GM has to contribute around $1000 more to employee pensions than Toyota! You are right, it is amazing how well GM and Ford can make cars with the cost handicaps they have.
As a sidebar to all of this…
Anyone catch the new TV commerical, where the female “financial advisor” in the white coat is selling the locked interest rate concept.
Besides the fact that most of the commerical is CGI, and that Monday, the car in the background was a Pontiac, and last night a GMC Surban, the really subtle part of the commerical is what they are selling…
Not cars, or trucks, but the locked in interest rate on your next purchase.
The deal is quite simple, buy a GM product today, and what ever interest rate you can get from GMAC today is what they, (GMAC) will give you on your next purchase of a GM product.
The catch is you have to buy your next car/truck from GM.
If you buy a Chevy truck today, and next year buy one of your kids a Dodge Neon, the deal is off, you have to purchase your very next car/truck through
GMAC, and it has to be a New GM product.
Odd that GM is concentrating on the financial end of the car sale, not the car itself, although I have noticed a lot more GM auto/truck TV adds this month than before.
Both Mercedes and British Leyland have the same type of offer, overseas at least, and have found it to be a very succesful tool in bringing back the repeat customer, which is what most car makers have to have to survive.
Brand name loyal customers are rewarded with this, according to a buddy of mine who worked for Rover, and it almost guararenteed their return business.
Rover did not offer this to the general public, but only to customers who had already purchased a new car from them, as a sales incentive to return.
Note GM is offering this to the general public, as an inticement to buy their products for the first time, and then to repeat your product choice again.
I would assume that, if GM is willing to let all that money in interest go, then they have to have ready cash now, and are trying to generate a base line cash flow fo
Very interesting dialog.
One thing I don’t understand though. If these are big problems for GM, how is ANY European car manufacturer still in business? State subsidies? Sure, they have Mark’s stated benefit of socialized medicine but they also have a lot higher taxes. Also, European employee benefits rival those of ours.
GM is the largest company in the World right? Wow, the thought of that going under really depresses me.
Gabe
…Just noticed a “crawler” across the bottom of the TV screen this morning that GM was close to selling off their “Locomotive business”.
The initial post mentioned “Greenbriar” as one of the buyers. Could this perhaps be Greenbrier, the same company that owns Gunderson and a couple of other carbuilders, plus a whole heap of old SP freight cars?
I don’t like the looks of the two alleged potential buyers… They don’t look like the types to really want to take the business and run with it. I was hoping more for CAT, although some speculated they were just in it for the diesel technology.
EMD might seem really successful to some, but to a company like GM, it didn’t mean anything… From what I’ve heard from people that worked there, GM viewed EMD about the same way UP views shortline business… It’s not worth the trouble. The railroads have apparently beat both EMD and GE down over the years quite a bit, by insisting on better and better deals, and playing the companies against each other. The efforts and cash flow are huge, and the profits are minimal. It’s a shame really that we now live in a bussiness atmosphere, where a company that makes a great product like EMD, is beat down so bad by the customers, that they don’t even want to bother anymore. The big roads better hope somebody steps up to the plate to keep the competition going with EMD, or it’s really going to come back and bite them on the butt.
And as far as the cars go… Sorry, I don’t believe for one second GM would take that extra $1000 it supposedly has to pay into employees and put it back into the cars. It’s obvious to me that the mindset for both GM AND Ford is that they don’t want to make a car that people want to keep, or are even able to keep, for more then a certain amount of time… And that time period is not long. The design turnover rate for both companies is much higher then any of the Japanese companies.
Dave
Los Angeles, CA
-Rail Radio Online-Home of the “TrainTenna” RR Monitoring Antenna-
http://eje.railfan.net/railradioonline
Another great American company going. I hope the new folks are American
I don’t think it looks good for EMD long term either.
One has to wonder what the folks at GE Transportation in Erie are thinking. If you look at GE’s profits, revenues, and market cap., Erie has A LOT of firepower behind it. Those two firms rumored to be buying EMD, can’t compete with GE $ for $ on new locomotive technologies. Even big GM didn’t want to spend the quarter-billion GE spent on the new Evolution Series locomotives. I have a strong feeling that the SD70ACe/SD70-2 (or what ever the DC version is called) may be the last EMD ever.
The top brass at Erie is probably having strategy meetings right now to come up with a plan to finish EMD off for good.
Toytota and Honda autos are simply put just better made all around then GM cars today (( but I hope I won’t need one)). GM killed off all the great steam engine factories like Balwin, Alco and Lima, so now EMD at GM might become a casualty of cut throat bussiness, nothing has changed.
I think many GM locomotives are great American made railroad locomotives, all over the world, but I also liked the Alcos and Limas and GM had no mercy for them so … so all I can say is enjoy the product and sc##w the company.
I just hope the new owners will continue to build high quqlity,durable locomotives that will last as long as EMDs traditionally have.I sincerely hope that there will be EMD units built by the new owners, still in service 40 years from now.
This will be long after the last GE Dash 9s are in a museum,or scrapped.
The most profitable part of GM is it financial division. Anything to do with manufacturing is not making very much profit, if at all. As much as railfans would like to think EMD is a great business, it is not, financially speaking.
If EMD was so profitable, on a per unit basis, it would make more sense for GM to hold on to it long term, than to dump it off in a measly sub-billion dollar deal. Many of the top financial publications have stated EMD has been a money pit for the past decade, and I tend to believe them.
Just because an investment group is willing to put up several hundred million dollars to buy EMD is no indication they are willing to keep it intact long term. EMDs true value may be in its various parts, such as service contracts, real estate, etc, and not in producing new locomotives. Remember, this company that is buying EMD is in business to make a quick profit for its investors, not long term manufacturing!
I have seen many of these investment companies buy old line manufacturing divisions for the past 20 years stating they “will turn them around” only in a few years to sell them off piece by piece to maximize the profit for the investors. I still say this doesn’t look good for EMD long term!
The company that is interested in buying EMD is the same one that created the Wisconsin Central out of what was basically “surplus” track in SOO’s eyes. I don’t think that Berkshire is exactly known as a corporate raider type.
Hi All
In an accountants world EMD would be a nightmare. The perfect world companies are the dot com companies. Little or no manufacturing with little overheads, if they fail change the name lease another office and start again. EMD or GE locomotive maufacturing both are high cost companies. Look at the overheads and then look at the production quantities. It seems more and more often companies need high turnover or production with little profit to be seen to be successful such as any car company. Locomotives form a very small market worldwide and dare I say it EMD might be a vitim of its own success as maybe its products last too long. Even the new Metra loco’s have copies of GM 645 engines.
EMD will survive in some shape or form as your Government suppports a competition policy. If there is only one company in the market then its not competition is it? Like that rubbish Microsoft, it had to support Apple and became a large non controlling sharehholder in its darker days otherwise it would have been so heavily regulated by the Federal Government it would have almost impossible to trade if its only competitor had gone under ( where would it go for all of its ideas as well ). EMD and similar small production companies need someone like Ed Burkardt who has a passion for the industry to survive and prosper otherwise accountants take over and it is simply easier to fold the compay and sell it off. As mentioned before, Wisconsin Central was born out of apparently unprofitable companies to become a strong profitable regional. When CN took over it promised more economies as it had a large market and support, but did rates go down, no only the employment numbers did and CN’s profits grew. I’m getting a bit off track so I’ll return to the subject. EMD will survive in some shape or form, lets hope someone who knows the industry and has a passion for it takes over if it is for sale. I think GM simply doesn’t know what to do with it as it is not core business anymore. Cars and light
There’s a good question for our experts: Does GMAC, or another financial division of GM, have a locomotive equipment-trust department, or liaison with banks or trust companies that do equipment trusts either with market-favorable terms or some tangible benefit to GM other than profit on locomotive manufacturing?