Posted on 05/12/2008 6:19:32 AM PDT by equaviator
General Motors Headquarters, Detroit(DETROIT) -
General Motors Corp. says it has bought its previously leased headquarters in downtown Detroit's towering Renaissance Center for $626 million. GM revealed the May 1 purchase in a filing Thursday with the U.S. Securities and Exchange Commission. GM says it paid $626 million cash for the headquarters and $200 million cash for two office properties in nearby Pontiac, Mich. GM moved its headquarters from Detroit's Midtown neighborhood to the Renaissance Center in 1996 and has spent tens of millions of dollars on improvements to the complex, which includes Detroit's tallest building.
I understand why the moved to the Renaissance Center. That place has more security than the whole town of Detroit. It’s a self contained city. The rest of Detroit is a ghetto.
Boy, this is dumb.
GM is losing billions in lost car sales and mortgages, but they can afford to purchase this facility?
The next time someone says that Detroit is in trouble because of union greed show them this article. It’s management malfeasance that’s killing GM. They can afford to buy this building but can’t afford to make a decent small car?
Yeah, must be nice to have over 1/2 billion dollars of cash laying around when you’re losing money every year.
I’d hate to see what their interest expense on debt service.
Maybe they paid in Canadian $.
Isn't it ironic that there was no renaissance in Detroit after the Renaissance Center was built?
Actually that's the first thing I'd look at when assessing a deal like this. If the interest and property taxes are lower than the lease payments they're making now then it might be worthwhile.
In the overall scheme of things that wouldn't make much difference. Our dollar has been floating between $0.98 and $1.03 for the past year or so.
Canadian and American money are worth almost exactly the same now. $1.00 American is $1.01 Canadian. I remember going up there in the early ‘90s when it was about 60-some cents to our dollar.
“Isn’t it ironic that there was no renaissance in Detroit after the Renaissance Center was built?”
With the Tri-county area being so polarized, it’s no wonder.
Maybe the North American common-currency conspiracy theorists were right. If the peso starts to equal our dollar, we’ll definitely know they are.
Thanks! I was sort of thinking out loud there for a second.
I’d give about three-fitty for that monstrosity. That’s $3.50. ;-)
Well that’s true....and perhaps their credit isn’t as good as it used to be making it more sense to purchase in cash rather than finance.
Driven an HHR, or Solstice lately!
There are also expense write offs as well. A company owning it’s HQ building is usually normal and smart. Also since they have already sunk “10s of millions” into the place why not buy instead of losing the value of the improvements.
No, but I have driven a Cobalt. Hence my point. And the Solstice also makes my point. There should be one small, sporty convertible, not two that compete against each other for customers, development money and advertising dollars. That's a management mistake of the first order. I hear that the Solstice is being marked down $6K off sticker because they can't move them.
Detroit is THE American tragedy and horror story. All urban leaders should study Detroit and do EXACTLY THE OPPOSITE.
but we did get the federally funded people mover ( and where are all the people this thing is supposed to move? )
A company owning it’s HQ building is usually normal and smart.
The cost of leasehold improvements is more readily deductible than the depreciation expense of building ownership.
Maybe you’re on to something there- after all, our dollar’s rise is almost entirely due to the price of oil (we’re the biggest supplier to the USA) so I guess Big Oil is in on it ;-)
Then, move up to the Malibu and Silverado, and the quality blows the Japanese out the door.
“The next time someone says that Detroit is in trouble because of union greed show them this article. It’s management malfeasance that’s killing GM. They can afford to buy this building but can’t afford to make a decent small car?”
That would do no good on FR. There are many here that hate unions with such passion that they rival libs who have Bush Derangement Syndrome in their narrow focus.
To those on FR who hate unions with this passion, management=good, union=evil, and their is no compromise, nor recognition of management’s role.
City is in turmoil with the mayoral scandal.
The Michigan real estate glut is the worst in the nation.
This may be the look like the smartest contrarian moves of the decade if the Feds ever clean up the Kawame Mess and the Chevy "Volt" is the game changing car I think it will be for them.
It may be the ultimate buy low and hold of all time.
But if my memory is correct due to conservative accounting rules, they may not be able to show an increase in value of the property on the balance sheet if and when it occurs, since it is an operating asset, unless they consider it "investment property".
As I explained my Cobalt experience may have tainted my view of GM's small cars. And read what I said about the Solstice. It may be a good car but GM can't sell them. One reason is the internal (and destructive) competition against the Sky. And then there is the whole botching of the Pontiac brand. As for the Malibu I've heard good things but this is the first truly competitive family sedan Chevy has introduced in decades. Think of all the lost sales to Honda and Toyota during that time. Can GM win those customers back?
GM's problems are 100% the fault of management, IMO.
“GM’s problems are 100% the fault of management, IMO.”
I wouldn’t go that far. The unions really did all they could to kill the goose that lays the golden egg. But since management has to agree to demands, even though they are coerced, I’d say it’s like 60/40, with management being 60% responsible: Poor product offerings, hostility towards customers, quality issues, agreeing to unreasonable labor demands, etc.
I'm not that charitable. Every word of every line of every contract is approved by management. It's the union's job to ask for the moon and management's job to say no. The fact that they lacked the guts, or intelligence, to say no is why the contracts are out of control. The fact that GM hasn't had a strike in decades (the farce of a few months ago doesn't count) testifies to their refusal to act properly. Each management generation just tried to kick the problem to the next. And now GM is on the brink of bankruptcy.
“...unless they consider it “investment property”. “
I think the hotel went with it.
“As for the Malibu I’ve heard good things but this is the first truly competitive family sedan Chevy has introduced in decades.”
Yeah, A nice sedan for a small family.
I sat in one at a car show, it seemed OK. But I hear sales aren't lighting the world on fire.
BTW, I don’t really think of the HHR as a small car. I’m sure it runs fine but I don’t much like the look, either.
Perhaps GM might try looking into building good cars. (Confession: I purchased a 2005 Corvette and it has been completely trouble free, all the parts fit - very well, there are NO rattles and clanks, and - get ready for it)- - , the darned thing has averaged 22 mpg for city/commute driving, and right at 30 mpg on the highway. Ancient engine? Yes. But, it does prove that GM has a competent engineering staff that can make quality when it has to. Management? That’s a different question.
Real reluctant to go with GM, but those who've forgotten more than I'll ever known telling me Gm products are a no-brainer, is winning me over--as are the test drives???
Yeah, but GM management hasn't. Give me five years of reliability data on the new CTS or Malibu and maybe I'll plunk down several tens of thousands of dollars on one. GM has to do a lot more than they have done to win back customers the domestic auto industry has lost.
Perhaps it is cheaper to buy than to lease?
When they made the move to lease the RenCen back in ‘96, did anyone doubt that GM would eventually buy it if the price was right?
The political scandal there is probably going to flush out a lot of bad blood.
This may be a good move.
They have little choice... where else would they move to?
Long term, this isn’t a bad move. The building was built explicitely for them, now they control it, they don’t have to worry about a property holder holding them hostage for retns, or going BK or anything else.
At the 626M purchase price, they are guaranteed about $16M depreciation annually on their taxes, plus thanks to the Bush tax bills of 2004, depreciation on improvements made are on a 15 year schedule. If they financed it, mortgage interest is also a deduction against income.
I don’t think its outrageous that GM own its own headquarters building. They are the largest car maker on the planet, the fact they didn’t own it to begin with speaks more to the rediculousness of tax accounting in the first place, that would make renting a “smarter” decision than owning.
“This may be a good move.”
Yes indeed. Perhaps it was financially right-headed.
“This may be a good move.”
Yes indeed. Perhaps it was financially right-headed. Not to mention “socially responsible”.
Ding Ding Ding.. we have a winner.
Not only MAY it be a good move... it IS a good move.
Think about it in your own life... You are in a house and you plan to be in that house for the next 50 or 100 years... now is it more prudent to rent or to own?
Own of course. GM is the largest car maker on the planet, they aren’t going anywhere Detroit is their corporate home, this building was built explicitely for them. Why would anyone who’s thinking LONG term rent an asset like that?
We aren’t talking about some company that would take up a floor or two of an office park building, we are talking about GM.. that’s their headquarters building, it was built for them, and they should own it, preferably out right. Its a far wiser move for a company to own a long term asset like that than lease.
Leasing makes fiscal sense when you have a product with a relatively high purchase cost, and quick replacement schedule.. it makes no sense when you are talking about a gigantic company that’s not moving to rent its headquarter building. The only reason anyone ever does that in the first place are paper tax shufflings, which are stupid.
I don't need pictures. The Ren Cen is in one of the best areas in Detroit. Downtown isn't a bad area. I have no problems walking through Downtown Detroit at night....and I'm white.
Not all of Detroit is the ghetto.
Does GM have a long term? They are bleeding cash, haven't been profitable in years, have sold off everything they can sell off and have a bloated, over-lapping product lineup that they can't afford to support properly. They need their cash to shut down divisions like Pontiac and Buick and probably more as well if they have any hope of returning to profitability. They need to put all their available resources into their products, not their real estate. I understand in principal that if GM were a thriving business this purchase might make sense but GM is looking at the real possibility of Chapter 11.
“Does GM have a long term?”
You need to get your head out of your butt if you think GM is going anywhere.
GM had over $207 BILLION dollars of revenue last year alone, owns assets worth over $186 BILLION dollars, and was the Fortune Global 500 company #5 company. They are #1 revenue generator in their sector.
They are NOT going anywhere, have they had losses? Sure, but you are smoking beyond crack if you think this is a company that is going to be shutting down operations anytime soon.
They have had their issues, and are paying the price for many stupid decisions over the years, but they are hardly company that is going away.
GM buying their HQ building is a good thing, and it removes a monthly rent obligation from their payment schedules, and gives them a hard asset on their books. I had to listen to all this stupid crap about Ford a few years ago, and people were insane predicting their demise then, just as you are predicting GM’s now.
The doom and gloomers who were sounding Ford’s death knell, missed an insane buying opportunity. F at $5 a share? Not something you are likely going to see again in your lifetime.
Thanks for the colorful metaphor. I don't do flames. Adios.
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