Is GM Headed Back to Bankruptcy?

Given recent speculation, Republican vice-presidential candidate Paul Ryan's mention of the company in his acceptance speech last evening and the news that General Motors (NYSE: GM) will shut down production for its troubled Chevy Volt vehicle for the second time this year, that question has become immediately relevant today.

To answer the question, we'll be turning once again to our preferred tool for predicting a company's bankruptcy, the Altman Z-Score.

Here, using data published by the company in its financial reports, we'll measure how distressed GM's situation has become.

This is an exercise we've done with GM's data before. Here, when we first introduced our tool for predicting bankruptcy back in March 2006, we found that GM's Altman Z-score was 0.01.

That value indicates a very financially distressed company, where an Altman Z-score for a manufacturing company like GM would have to be above 2.67 to be considered healthy, and between 1.81 and 2.67 to be considered to be at neutral risk for declaring bankruptcy in the future. Any score below 1.81 indicates that a company is in the danger zone for going through bankruptcy proceedings in the future.

While that Altman Z-score of 0.01 indicated a highly distressed company, it was nothing compared to what we found when we revisited GM's deteriorating financial situation in June 2008, when GM's Altman Z-score fell through the floor and reached -1.35, as its future bankruptcy became inevitable.

From here, we'll pick up the story following what happened after President Obama intervened in what would otherwise have been normal bankruptcy proceedings on the behalf of his political interests and orchestrated the bailout and reorganization of GM using U.S. taxpayer dollars to support them.

Tapping Yahoo! Finance's records of GM's Income and Balance Sheet statements from 2009 through 2011, we calculated GM's Altman-Z score for the bailout year of 2009 and the post-bailout years of 2010 and 2011. Here's what we found:

• In the bailout year of 2009, GM's Altman Z-score jumped to 2.69, with the U.S. government's infusion of more than 100 billion dollars of taxpayer money putting the company immediately into the "healthy" range for manufacturing companies.


• In the following year, without the ongoing infusion of taxpayer cash to keep the company in the healthy zone, GM's Altman Z-score plummeted to 0.54, back into the danger zone, as the reorganized GM failed to generate the sales to needed to support even its greatly reduced size and liabilities.


• In 2011, GM's financial situation improved somewhat as its Altman Z-score rose to 0.66, which still places it deep within the danger zone for risk of future bankruptcy.

We next decided to go the extra mile and update GM's Z-Score through its four most recent quarters, which will indicate the company's relative financial health as of 30 June 2012. We've entered the data in our tool below (click here to visit our site if you're reading this post through sites that access our RSS feed):

Income Statement Data
Input Data	Values
Net Sales (Gross Profit)
Earnings Before Interest and Taxes (EBIT)
Balance Sheet Data
Total Current Assets
Total Assets
Total Current Liabilities
Total Liabilities
Retained Earnings
Market Value of Equity (Total Stockholder Equity)
Company Type
Manufacturing or Non-Manufacturing Company	Manufacturing Non-Manufacturing

Calculated Financial Ratios
Calculated Results	Values
Return on Total Assets Ratio
Net Sales to Total Assets (Asset Turnover) Ratio
Equity to Debt Ratio
Working Capital to Total Assets Ratio
Retained Earnings to Total Assets Ratio
Altman Z-Score
Altman Z-Score

Running the numbers through 30 June 2012, we find that GM's Altman-Z score is 0.66. The company's financial situation has not improved since the end of 2011 and it remains well in the danger zone for facing future bankruptcy, as the company's post-bailout reorganization appears to have been inadequate to really restore the company to good health.

While that doesn't suggest that the company will be filing for bankruptcy in the immediate days ahead, it does confirm that more reorganization and cost reduction efforts lie ahead for the company in the short term.

The Most Successful Anti-Discrimination Program for U.S. Women in Modern Times

Which modern era President has done the most to materially improve the fortunes of women in the United States? Going back to 1947, when the U.S. Census began collecting data on income earners in the U.S., the choices are:

• Harry Truman (D)


• Dwight Eisenhower (R)


• John Kennedy (D)


• Lyndon Johnson (D)


• Richard Nixon (R)


• Gerald Ford (R)


• James Carter (D)


• Ronald Reagan (R)


• George H.W. Bush (R)


• William Clinton (D)


• George W. Bush (R)


• Barack Obama (D)

To answer the question, we began with the chart we previously featured showing the change in the number of men and women earning incomes in the United States, we discovered a unique surge in the number of women with incomes occurring from the years spanning 1977 through 1979, as the number of U.S. women counted as earning incomes surged by over 14.5 million:

While occurring during Jimmy Carter's presidency, which ran from 1977 through 1980, the real credit for this achievement belongs to Gerald Ford.

Here's how we know. Digging deeper into the U.S. Census' data, we found that the surge in the number of American women earning incomes occurred entirely within the ranks of those who do not earn wage or salary income:

Digging even deeper into the data, we found an even more impressive increase, as the number of women earning interest income skyrocketed from 15,435,000 in 1977 to 48,702,000 in 1979 - more than tripling in number over a two year period! And though these numbers include a large number of women with wage and salary or other income, it appears to us to have swept up some 14.5 million women who had no other source of income before, which accounts for the tremendous increase we observe in the number of women earning non-wage or salary income in the U.S. during these years.

We found the reason for this dramatic increase in the passage of the Equal Credit Opportunity Act of 1974, which was subsequently amended in 1976. Both measures were signed into law by President Gerald Ford and opened the door to women having direct access to credit.

Here, the original Equal Credit Opportunity Act (ECOA) sought to eliminate discrimination in the ability of women to obtain credit, which charged the Federal Reserve with implementing the new non-discriminatory policy in the nation's financial institutions in 1975.

However, the data for the number of women earning incomes indicates that this measure failed to achieve its purpose in the years immediately following its implementation, because the bill's principal author, Representative Bella Abzug (D-NY), failed to foresee that other means of discrimination, such as for race and other personal attributes, might be used to deny women access to credit.

In response, in November 1975, President Gerald Ford recommended that the law be broadened to include these categories. That action was achieved by the ECOA Amendments of 1976, which President Ford signed into law on 23 March 1976. The provision of those amendments were subsequently encoded into the Federal Reserve's Regulation B on 29 December 1976, which were scheduled to take effect on 23 March 1977.

Since the U.S. Census takes its Current Population Survey in March of each year, the Current Population Report for 1977 nearly perfectly captures the effects of the ECOA Amendments of 1976, as the pre-implementation number of women earning interest income, which came about as they opened bank accounts to gain access to credit, rose from 15,435,000 in 1977 to 30,155,000 in 1978, before more than tripling to reach 48,702,000 in 1979 before stabilizing to grow at a slow and steady rate ever since in 1980.

So not only did President Ford do the most of all modern-era U.S. Presidents to materially improve the fortunes of women in the U.S., he also did the most for minority women.

It's kind of interesting to review the histories published by various feminist organizations such as the National Organization of Women or other timelines that make either no mention or only token mentions of this achievement. It's almost as if they weren't really engaged in what is clearly the most successful program to eliminate discrimination against women in the post World War 2 era in the United States. We wonder if that might have something to do with some pretty notable failures, aside from Bella Abzug's poor legislative foresight, that other leading feminists have had in that area.

References

Board of Governors of the Federal Reserve System. Regulation B; Docket No. R-1008. 1998.

Cubita, Peter N. and Hartmann, Michelle. The ECOA Discrimination Proscription and Disparate Impact - Interpreting the Meaning of the Words That Actually Are There. The Business Lawyer, Vol. 61, No. 2. February 2006. [Ungated version].

Ford, Gerald M. Statement on the Signing of the Equal Credit Opportunity Act Amendments of 1976. 23 March 1976.

Mailliard, Page and Anderson, Ken. Women's Banks and Women's Access to Credit: Competition Between Marketplace and Regulatory Solutions to Gender Discrimination. 20 Loy. L.A. L. Rev. 771 (1987). [PDF document].

U.S. Census. Historical Income Tables: People. Table P-2. Race and Hispanic Origin of People by Median Income and Sex: 1947 to 2010. [Excel Spreadsheet]. September 2011.

U.S. Census. Historical Income Tables: People. Table P-53. Wage or Salary Workers (All) by Median Wage and Salary Income and Sex: 1947 to 2010. [Excel Spreadsheet]. September 2011.

U.S. Census. Money Income in 1977 of Families and Persons, in the United States. Current Population Reports, P-60, No. 118, Table 49. [PDF document]. March 1979.

U.S. Census. Money Income in 1978 of Families and Persons, in the United States. Current Population Reports, P-60, No. 123, Table 53. [PDF document]. March 1979.

U.S. Census. Money Income in 1979 of Families and Persons, in the United States. Current Population Reports, P-60, No. 129, Table 55. [PDF document]. March 1979.

The Recession And Social Security Disability

Picking up on recent comments by Russ Roberts on the changes in the disability rolls over time, we thought we might revisit Social Security's data on the number of disabled workers collecting disability benefits for the years corresponding to the Great Recession. Beginning with the pre-recession baseline year of 2005, our first chart today shows the number of disabled workers counted as receiving Social Security disability insurance benefits for each year through 2011:

Here, we note that most of the change in the number of disabled workers from year to year is concentrated in older individuals, mostly Age 46 or older. We also note the moving peak of the leading edge of the Baby Boom generation from year to year, which we see shift from Age 58 for 2005 up to Age 64 in Age 2011.

In our next chart, we've extracted the net change in the number of disabled workers receiving Social Security disability insurance benefits from year to year, which we did by subtracting the previous year's number of disabled workers for the one-year-younger age group from the indicated age group:

This chart shows how many disabled workers were added to the number of Social Security disability benefit recipients with respect to the previous year's one-year-younger age group.

Here, we note that there is a distinct spike in disabled workers receiving Social Security disability benefits at Age 50, regardless of each year's economic climate. Here, we earlier found that this corresponds to the Social Security Administration's policy of not seriously challenging the disability claims of workers Age 50 or older.

But perhaps more importantly, in looking at the year-over-year change from 2005 to 2006 (identified as 2006 in the chart) and the year-over-year change from 2006 to 2007 (identified as 2007 in the chart), we find that the year-over-year change for these two pre-recession years are almost identical. This gives us a very good baseline from which we can determine the extent to which the Great Recession has influenced the number of individuals successfully claiming disability benefits in subsequent years.

That result is shown in our third chart, in which we've counted the number of surplus or excess disabled workers added to the number of disability claims in each year from 2007 through 2011 with respect to the net change recorded for each indicated age in 2006:

Adding up the values for each indicated age for each year, we find the number of surplus or excess disabled workers, or rather the number of disabled workers above and beyond what would be considered "normal" and might therefore be attributed to the Great Recession, were added to the disability rolls in the years from 2007 through 2011:

Altogether then, we estimate that some 695,228 individuals, above and beyond the numbers that might be considered to be normal, have filed for and received Social Security disability insurance benefits in response to the Great Recession in the years from 2008 through 2011. We also note that the timing of the increase in the disability rolls would correspond to when many of these individuals would have exhausted their unemployment benefits, suggesting that going on disability became an alternative to seeking gainful employment for these individuals.

And that's a big reason why Social Security's Disability Insurance Trust Fund is now projected to be fully depleted in less than four years time.

Data Sources

Social Security Administration.

Disabled worker beneficiaries in current payment status in December of indicated year, distributed by age and sex. 2005, 2006, 2007, 2008, 2009, 2010 and 2011. Accessed 27 August 2012.

The Minimum Wage, The Economy and Labor Force Participation

After showing how only the reduction in the U.S. labor force participation rate has resulted in a lower unemployment rate last week, a number of commenters requested that we follow up and show how the minimum wage might factor into the situation.

So we whipped up three charts to look at the period from January 2002 through July 2012 [1]. First, here's the level of the minimum wage in both the U.S. and in California [2].

In the charts we're presenting today, we're indicating the deflation phase of the Dot-Com Bubble with the green shaded vertical band on the chart, official recession periods with the red shaded vertical band, and a period of time in which the U.S. was undergoing near-deflationary levels with the blue-shaded bands. Because deflation operates oppositely to inflation, it can result in effectively increasing the minimum wage while it reigns, even though there has been no actual change in the mandated minimum wage level.

Next, we looked at the labor force participation rate for the entire working age population (Age 16+) for the United States:

This data is identical to what we previously posted showing the change in the U.S. labor force participation rate from January 2002 through July 2012. Here, we see that declines in the labor force participation rate largely coincide with recessionary or deflationary periods, however we also note that outside these economic event, increases in the minimum wage (at the federal or state level) tend to also precede declines in the labor force participation rate.

In our next chart, we focused in on the labor force participation data for U.S. teens. This segment of the U.S. work force is the most likely to reveal correlations between the timing of minimum wage increases and changes in their labor force participation rate, because roughly one of ten working teens in the U.S. earn the U.S. federal minimum wage, who in turn, make up nearly one out of four members of the U.S. minimum wage earning work force.

Judge for yourself whether a causal relationship might exist between when a minimum wage increase occurs and when declines in the labor force participation rate take place.

Notes

[1] The choice of dates is arbitrary, and in this case, chosen by the Bureau of Labor Statistics data jocks, who have the default starting and ending years for their online database for the Current Population Survey set at 2002 and 2012 respectively. If you don't like it, well, go to their site and select your own dates to get the data to make your own charts.

[2] We're showing the U.S. federal and California minimum wage levels because California's minimum was so elevated with respect to the U.S. federal minimum wage during this period, and because California is home to one out of every eight Americans. That's a pretty large segment of the population, so what California does will show up in the national level labor force participation rate data. We should also note that a number of smaller population states set their minimum wage at levels similar to those of California during this period of time, with the result being that about one out of five Americans lived and worked in states with higher minimum wage levels than the federal minimum wage. For these reasons, we believe that changes in California's minimum wage level then will work as a fairly good proxy for this portion of the U.S. population.

One Inventor's Stick-to-itiveness

Over the last several months, we've been featuring a number of patents that, well, can only be described as "unusual". Our list so far includes:

• The Best Mousetrap Ever,


• A "Drink Swinging Apparatus",


• One heck of an "ass kicking machine", and of course,


• "An Apparatus for Simulating a High Five"!

What all these patents have in common is that they involve some degree of unique creativity by their inventors. Our unusual patent today however involves just about absolutely no creativity on the part of the individual who filed the patent, except perhaps for their ability to convince the U.S. Patent and Trademark Office to issue them a patent for their "invention" in the first place.

To see why, just consider Figure 1 from U.S. Patent Number 6,360,693, which was issued on 26 March 2002 to Ross Eugene Long III of Oakland, California, for what he titled an "Animal toy":

Yes, someone actually convinced the U.S. Patent Office to issue them a patent for a stick. Really. We're not making this up. Here's the patent's abstract:

An apparatus for use as a toy by an animal, for example a dog, to either fetch carry or chew includes a main section with at least one protrusion extending therefrom that resembles a branch in appearance. The toy is formed of any of a number of materials including rubber, plastic, or wood including wood composites and is solid. It is either rigid or flexible. A flavoring (scent) is added, if desired. The toy is adapted to float by including a material therein that is lighter than water or it is adapted to glow in the dark, as desired, by the addition of a fluorescent material that is either included in the material from which the toy is made or the flourescent [sic] material is applied thereto as a coating. The toy may be segmented (i.e., notched) so as to break off into smaller segments, as is useful for smaller animals or, alternatively, to extend the life of the toy. Various textured surfaces including camouflage colorings are anticipated as are straight or curved main sections. The toy may be formed of any desired material, as described, so as to be edible by the animal.

We really like the part where inventor Ross Eugene Long III allows that the "apparatus" might be made from wood. But really, the genius of the patent lies in describing the field of the invention:

The present invention, in general relates to animal toys and, more particularly, to devices that a dog can chew and carry in its mouth.

Dog chew toys are well known and include a wide variety of devices, some of which rapidly disintegrate--as is well known to most dog owners.

Other dog chew toys are sometimes used in fetching training exercises or simply for play but they may be difficult for the dog to pick up off of the ground. If tossed onto a body of water, they may sink. Furthermore, while a dog may see the toy at night or in dim light, the owner is unable to do so and therefore the toy cannot be used in dim light.

Other variations, such as it being edible or chewable (to relieve the natural tendency dogs have to chew) are also desirable features to incorporate in any dog chew toy design.

It is a natural tendency for dogs to chew and they often make inappropriate selections as to what they will chew. A scented or flavored animal toy that encourages a dog to chew, and possibly to consume it, would be useful.

When training dogs, especially hunting dogs, to fetch or when deciding which dog is especially good for the scent discrimination purpose, it is necessary to asses their ability to detect objects based solely on scent. Therefore an animal toy that is camouflaged would be useful in training and determining a dog's ability to locate hard to find objects based solely on scent.

Accordingly there exists today a need for an animal toy that floats, is easy to pick up off of the ground, can be seen in dim light, is made from a variety of possible materials, and which dogs may chew.

Clearly, such an apparatus would be a useful and desirable device.

Clearly, the U.S. Patent and Trademark Office agreed, and that's what makes inventor Ross Eugene Long III a true patent pioneer!

Unfortunately for our hero, he failed to make his first patent maintenance fee payment and as a result, the patent fell into the public domain on 26 March 2010. Now, anyone can produce a stick and profit from it!

We did say we're not making any of this up, right?

A Missed Prediction

We're not wrong often, but we're happy when we are.

The reason why is because that means the world has turned out to be a much more interesting place than we had previously supposed.

Today's celebration of wrongness on our part comes from the first public prediction we've offered in a very long time that we missed. Here, on 6 August 2012, we looked at the rising level of the national average price of gasoline in the United States and predicted that we would see an upward shift in the number of new jobless claims filed each week some two to three weeks after they rose above the $3.50 per gallon mark.

Here, we noted that they had risen above that mark on 30 July 2012, which would have our predicted surge in new jobless claims sometime between 11 August 2012 and 18 August 2012 (or as we had described it on 6 August 2012, "either with this week's jobless claim data or with next week's data").

Today's initial data release for the week ending 18 August 2012 from the BLS, although showing an "unexpected" increase, doesn't qualify as the upward shift we had expected. Our chart below shows where the latest data fits with respect to what we've identified as Trend J, which ended on 30 June 2012.

Thanks to volatility in the data related to how the BLS does its seasonal adjustments, which didn't match up with the timing for when a number of U.S. automakers actually took their mid-year plant shutdowns this year, we don't yet have enough data points to indicate the current Trend K (ideally we need at least six to ten weeks of consistent data to model a trend using our methods). Using our statistical control chart-inspired equilibrium limits however, you can see that Trend K so far appears to paralleling Trend J's upward trajectory, which indicates continuing weakness in the U.S. job market.

And that's pretty much where we're at today. We'll be exploring what factors might be behind our missed prediction in our next post on the topic, but here's a short list of what we're weighing today:

• On 30 July 2012, the national average price of gasoline was recorded at $3.508, barely above the bottom level of where we've previously considered the critical threshold to be (between $3.50 and $3.60). One week later, the national average price of gasoline per gallon was $3.645, so perhaps we will see that expected surge in new jobless claims in next week's data.


• After so many months of high gasoline prices for consumers, the sudden break below $3.50 per gallon unleashed pent up consumer demand, which has carried through even though gasoline prices have risen back to a high level. If this is the case, we might see a gradual rise in new jobless claims back to the levels they were previous as the high level of gas prices erodes the purchasing power of consumers and the momentum of pent up demand wanes.


• The price of gasoline in the U.S. is really uneven - perhaps the average gasoline price for the nation was high, but not in the regions showing the greatest economic growth. The comparatively strong growth of those regions then helped keep new jobless claims at their lower level, even though the national average gasoline price rose .

We're psyched for next week's data! And the best part is that we don't know which of these options, or others we've not yet listed, might apply!

The High-Low Dilemma: Recommendation for Presenting Culture

Assumed knowledge:

• The difference between high and low context cultures
• How this difference can impact communication

Issue:

The difference between high and low context is a theoretical concept that is difficult to translate into activities for training.  The trainer can either present the theory and use examples to illustrate the difference, or they can show 'model' communication to mitigate the risk of misunderstanding.  Furthermore, because high and low context is not exclusive to national culture, the learners must be able to identify different communication styles in various situations.  This effectively eliminates the value of trainer generated models because they may not be appropriate to the situation.  Therefore, it would be best to give the learners a more solid understanding of how cultural context affects communication and let them apply the lesson to their needs.

Discussion:

There are many points of view on the topic, but I will highlight just two.  Going back to 2010, Evan Frendo offered an outstanding menu of comparing and contrasting activities.  They were all based on input from the trainer on the theory.  The learners are then ask to apply, analyze, synthesize, and evaluate the differences.  The weakness in the approach is in the presentation phase.  I feel that presenting Edward Hall's theory as an academic topic is not a guarantee for comprehension.

Another approach is that from authors Bovèe and Thill from Business Communication Essentials (Pearson, 2012), a fairly standard university text book.  The book echoes a wide range of business communication material when it states, "The different expectations of low- and high-context cultures can create friction and misunderstanding when people try to communicate across cultural boundaries."  While certainly sound, this doesn't give the trainer or participant much to work with.  The authors then provide a model of effective intercultural communication with some basic tips.  Sadly, the model consists of a sterilized business letter.  While extremely clear it does little to support Bob Dignan's ideas of building relationships, influencing people, or building trust.  Effective for the immediate event, it does little for the long-term business relationship.

Recommendation:

So, to compliment Frendo's activities, a better method of presentation is needed.  From this, the learners can create their own trainer supported models to fit their communication needs.  One method is to link lesson plans we are already using to illustrate the difference between high and low cultures.  After all, the employees are already living in a high-context company culture.  Also, they all remember starting at the company and trying to understand 'the way things are done'.

1.  The Unwritten Rules of the Company

A good model for this lesson can be found in Vicki Hollet's series Lifestyle (Intermediate by Iwonna Dubicka and Margaret O’Keeffe).  This will help define the company culture.  In the lesson, the learners discuss and formulate the unwritten rules of the company. Language point - modals of obligation

2.  Your First Day

Learners tell stories about the challenges they faced during their first day/month at work.  Language point - past tenses and past obligation

Some guiding questions can help the lesson:

• What company/school did you come from?  How was it different?
• Did anyone help you understand the unwritten rules?
• Did you come in and give lots of recommendations or sit back and listen?  Why?
• Do you remember any mistakes you made?  How did your colleagues handle them?
• What were the most important lessons you learned?  How did you learn them?
• Did you understand what everyone was talking about (terms, projects, people, etc.)?
• What did you think about your new colleagues?  How did they treat you?
• Did you ever hear...
• That won't work here.
• We don't do it that way.
• Trust me, this is the best.
• We already tried that xx years ago.

3.  The New Hire's First Day

From here the lesson moves to giving advice for an employee's first day.  Using the previous lessons, the learners must 'sponsor' a new employee.  This could be done as a role-play, a written list supported by instruction, etc.  The new hires should prepare a list of questions for their sponsors to help make the transition faster.  Language point - giving advice, modal question forms

4.  Reveal the Learning Point

It is at this point that the trainer reveals that their company is a high-context culture.  It has its own traditions, conventions, symbols, etc., everything that makes a culture.  The trainer can also show the difference between the way they talk to each other in class (high-context) and the way they explain things to the trainer (low-context).  Because the difference is already illustrated using a personal situation, it is much clearer for them to understand.  One visual way to reveal this is to board the advice under the title "Company", then replace with "China". 

5.  Replace Company with Culture

Now that the learners comprehend the difference, it will be much more fruitful for them to do activities like Evan Frendo's or create models for their communicative situations.  Now they can better analyze their communication.  Furthermore, the tips they gave to the new hires and the questions they wrote for the sponsor are great resources.  They will mirror the advice given by Dignan, Bovèe, Thrill, and others.  The questions are very useful when working with their foreign contacts when they need help navigating the confusion.

Question for the reader:
This post uses a specific communication style.  Did it feel strange to read such a blog post?