Summit Notebook

BMW keeping wary eye on rivals

After a year of unprecedented turmoil in the auto industry, BMW’s U.S. head smells blood in the water.

Changes in ownership at some of its historic European rivals may present the German luxury automaker with a chance to grab market share. 

But even as Jim O’Donnell saw weaknesses to exploit, he raised the worry that one of Detroit’s most storied car brands, Cadillac, could take out of the market of the company that calls its vehicles “the ultimate driving machine.” 

As Cadillac’s parent company, General Motors Corp, went through a bankruptcy that forced it to cut thousands of jobs and shed brands, BMW picked up Cadillac customers and dealers. But a slimmed down GM could present a renewed threat, said the president of BMW’s North American unit. 

“Going forward, I actually see Cadillac as one that could be potentially a serious rival,” O’Donnell told the Reuters Autos Summit in Detroit. “Now that GM is only going to concentrate on four brands, if I was at GM, I would concentrate on Cadillac and really try and reestablish it. But if you look at the last year, and no wonder because of the turmoil in the marketplace, has been losing sales quicker than the market.”

Even as he sees a renewed threat from Detroit, O’Donnell said he thought European rivals could become more vulnerable. BMW sees a chance to snatch customers from Saab — which GM aims to sell to Swedish luxury car maker Koenigsegg — and Volvo — which Ford is negotiation to sell to Chinese automaker Geely. 

“Where are all the Saab customers going to go? And there’s a great deal of uncertainty over Volvo. Where are all the Volvo customers going to go? Even though they’ve done well these last three months, I still think as they come under the ownership of Geely, will they have the same believe in the brand? I don’t know,” O’Donnell said. “But we will try to exploit it.”

Tinkering whilst debt burns

What have Liverpool Football Club, French building materials firm Materis and German forklift truck maker Kion got in common?

They have all been beneficiaries of European banks’ preference to tinker with company balance sheets rather than fundamentally restructure indebted businesses, one speaker said at this week’s restructuring summit.

However, such easy conditions — primarily because banks are reluctant to take big hits on their balance sheets — will not last long if banks’ balance sheets continue to strengthen, speakers said.

“Come the new year there will be a new spate of companies being allowed to go to the wall,” Blackstone’s Simon Davies said.

Tony Lomas, who heads the business recovery services group at PricewaterhouseCoopers, said many companies would need to go back to their banks for restructuring.

“I cannot see an upturn in the UK, Europe or the world that will be quick enough or healthy enough to sort these problems out,” he said.

Tiffany unlikely to sell lawn chairs

Tiffany & Co has no intention of selling garden furniture and risking brand dilution, steering clear of the product mix of bankrupt rival jeweler Fortunoff , CEO Michael Kowalski hinted this week at the Reuters Global Luxury Summit in New York.

Fortunoff filed for bankruptcy in February in part because of dismal holiday sales in 2008 and the high expense of expanding into Lord & Taylor stores, and was bought by liquidators, marking the end of an 87-year iconic presence in the New York area during which it was known for its jewelry and home furnishing.  It had been bought by Lord & Taylor’s owner NRDC Equity Partners, in March 2008 for $100 million.

Asked if Fortunoff’s demise offered his company any lessons, Kowalski declined to address Fortunoff directly but said it would be better for Tiffany to continue to concentrate on what it is known for.

 ”We are relatively focused on jewelry and watches, ” Kowalski.  “We look at ourselves as a jeweler not a lifestyle brand.”

In other words, don’t expect Tiffany-branded deck chairs any time soon.

(UPDATES TO INCLUDE MORE DETAIL ON ITS BANKRUPTCY, AND TO REFLECT IT HAD BEEN SELLING HOUSEWARES FOR MANY YEARS.)

from Funds Hub:

Counting sheep

By Lorraine Turner

Speakers at the Reuters Hedge Fund and Private Equity summit this week were asked "what keeps you awake at night" and the answers were wide-ranging, from "my 7-week old daughter" to "the next meteorite".

AUDIO – For the automakers — No Chapter 11, please

The plans are in.

Now comes the waiting, which, as Tom Petty can tell you, is the hardest part.

Now that General Motors Corp and Chrysler LLC have filed their plans of reorganization to the U.S. government and have started what looks like a long and not-painless process to make themselves smaller, more profitable and better suited to the current U.S. demand for new cars.

For Bill Diehl, chief executive of manufacturing consulting firm BBK, one thing that he would not favor would be a Chapter 11 bankruptcy filing by one of the two troubled automakers.

Diehl, speaking at the annual Reuters Manufacturing and Transportation Summit, said it is unclear to him how the automakers would get through what would be a particularly tricky process of trying to reorganize themselves under Chapter 11.

The Reuters Summit program is in its fifth year, and in 2009 will include top-level executives from  industries and sectors including everything from Infrastructure; to Mining; to Investing in India, China, Japan and Russia; to Food and Beverages.

AUDIO-”Lost Decade” is not in the cards for U.S. economy — Sun Capital

Enough with the view that the current credit crisis will drag the U.S. into a “lost decade” similar to the one that Japan suffered in the 1990s, says Gary Talarico, managing director of Sun Capital Partners.    Talarico lived in Japan for 12 years and worked with Ripplewood Holdings as an adviser on the hugely profitable Shinsei Bank rescue deal. He says the U.S. is much more willing to take the pain of the crisis and emerge much stronger because of it.    Japan’s strategy to cope with their crisis leaned more to the left, Talarico told the Reuters Restructuring Summit in New York. And because of that, the Japanese economy stagnated for years.   As for what is happening in the U.S. right now?    “Creative destruction is a good way to describe it,” Talarico said in reference to the failure of Lehman Brothers, the buyout of Merrill Lynch and the government takeover of AIG.    “These things have to happen. I’m very sad about Lehman. I worked there for 15 years and I absolutely loved the firm. It’s a possibility that if the government moved faster, they might still be alive today. A lot of things might be different. Unfortunately, it is very hard to see the future.   But things have to fail, he said.   “There is no doubt that reckless things were done. Reckless people have to take their pain. But what we can’t afford is a systemic meltdown. It has global implications as well. So, unfortunately, tax payers have to carry some of that burden.”   To hear Talarico’s view on why the U.S. is not headed for a Japan-style slowdown, click here

AUDIO-$700 bln bailout sparks inflation, moral hazard fear

Martin Fridson — known as the “Dean of the high yield bond market” — is concerned about what we don’t know when it comes to consequences of the U.S. federal government’s $700 billion bailout to help move toxic mortgage debt off their balance sheet.   Fridson, the Chief Executive of Fridson Investment Advisors,  told the Reuters Summit on Tuesday that beyond the unforeseen consequences that scare him most, moral hazard and inflationary pressures from the historic government action top his list of concerns.  To listen to Fridson’s comments, click here

After Lehman, who do YOU think is next?

“Bankruptcies, they fall out of the sky, as we’ve all seen in the last two or three weeks,” Rob McMahon, managing director for restructuring at GE corporate lending, told the Reuters Restructuring Summit in New York this week.      The credit crunch has triggered Lehman’s bankruptcy and the $85 billion U.S. government rescue of American International Group.      At the Reuters Restructuring Summit, journalists at Reuters offices in New York and London are talking to bankruptcy industry insiders about who will be the next to fall.      What do YOU think is the next sector, or company, at risk for going bankrupt, and why?