Long time readers will know I've been advising them to watch GM's cash flow. The fact that the automaker has been selling everything that wasn't nailed down– propping-up their bottom line with tens of billions of dollars worth of "income" from former assets– was/is a sure sign GM was/is hurting for life-sustaining liquidity. Last week, I posted that "Our spies tell us GM's set to top-up its cash hoard by $10b– which would raises its debt to $50b." Confirmation came today via Bloomberg. "General Motors may borrow $10 billion as early as next quarter because rising commodity costs and falling U.S. sales are crimping cash flow, an analyst at JPMorgan Chase & Co. said. The largest U.S. automaker may secure a bank loan by borrowing against foreign operations, inventory, trademarks or its stake in lender GMAC." GMAC? I don't think so. CNNMoney reports that Moody's has just downgraded GMAC deeper into "junk status" (to B3 from B2). Lest we forget, GMAC recently obtained a new $11.4b credit line, partly to lend Residential Capital (resCap) $3.5b to keep their mortgage subsidiary solvent. GMAC's exposure to ResCap has increased from $750m to $4.6b. If ResCap fails… Meanwhile, even worse, "The downgrade also reflects growing pressure on the profitability of GMAC's auto finance operations, arising from higher average borrowing costs and weakening asset quality." Fan. Excrement. Collision.
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The lamestream media, especially the Detroit variety, as well as the autofan magazines are all going to be blind-sided. You’ll see headlines resembling “How could General Motors have failed?” and you’ll see recriminations in Congress.
What you won’t see is jail time for the folks who caused it to happen, because the filthy rich elites always stick together no matter what mud they throw at each other in public. This goes for our politicos, as well.
Instead, you’ll see golden parachutes and nice retirements in the sun for those responsible for all of this, while the working stiffs will simply – be stiffed. And not be working.
oh boy. is it really going to happen this fast?
But the Volt will still be launched sometime in the next 10 years. Right.
A co-worker told me he thought GM was too big to fail. The government would not let it happen. Right.
There is NO light at the end of the tunnel right now. Maybe Toyota will pick up a few assets at the auction.
These greedy wall street types deserve the hosing that they will be taking on GM and its’ subsidiaries. Couldn’t happen to a nicer set of people. Can’t tell who are the biggest gluttons. Wall street bankers or GM [Management and unions]. YUCK. They both deserve each other.
But fear not, just allow more offshore drilling and all will be well. Not.
To paraphrase economist John Keynes: If GM owes the bank five billion dollars, the bank owns them; if GM owes the bank FIFTY billion dollars, GM owns the bank.
Perhaps GM is too big owes too much money to fail.
They are TRYING to fail to shed all sorts of agreements with the unions and auto dealers and helthcare/retirement benefits.
They’ll return to the market ten years later a much leaner and more competitive company after throwing part of the American economy into a tailspin. There will be all sorts of fingerpointing and name calling but ultimately alot of average folks will be ruined and alot of rich people will get richer and I expect a few middle managers to get jail time for trying to do what they thought was the right thing to keep the company alive.
I wholly recommend “Atlas Shrugged” by Ayn Rand. Interesting way to look at American business. I think what she did was apply the various Russian political and economic collapses to the American business-scape. Folks lining their pockets, collecting dirt to throw later when it benefits them, and meanwhile the apatheic masses get what’s coming to them. Wikipedia has a great article about it. Lots of folks thinking too hard about the story though… VBG!
Yes and when everyone owes everyone else, everyone owns nothing.
Am I the only one who thinks that, over the long term, a GM bankruptcy would unlock the creativity and talent currently stifled by bad management?
GM has a decent dealer network (there are just too many of them), modern, up-to-date factories and world-class engineering and styling facilities. They just aren’t being used properly. Someone would pick them up at bargain prices and use them to their fullest potential.
We aren’t talking about Studebaker, folks, where the factory was basically worthless, the dealer body was mostly gone and the styling and engineering capabilities had atrophied to virtually nothing by December 1963, when it closed the South Bend plant…
A GM bankruptcy would really take us into uncharted territories in more ways than one…
This country would function more smoothly and be a lot less surprising to a lot of people, if everyone could just read a set of operating statements and mortgage documents.
Maybe these should be required subjects in high school, because anyone who can read a balance sheet can see that GM is in deep. There really shouldn’t be anyone believing otherwise, the numbers tell the story very plainly.
But in this case, it won’t matter, because GM is going to end up with a loan guarantee package ala Chrysler, no matter who is elected in November.
Am I the only one who thinks that, over the long term, a GM bankruptcy would unlock the creativity and talent currently stifled by bad management?
I don’t. Forcing GM into BK would be like sending a junky into rehab who hasn’t yet hit bottom or asked for the help. They’ll go through the program if forced, but then go right back to their old habits the first minute that they have the chance.
The company needs a full housecleaning at the top, both with the executive officers and the board of directors, but you can see that this is not going to happen anytime soon. Things are too far gone for that.
Busbodger:
Couldn’t agree more with the Atlas Shrugged recommendation/parallel. The similarities to the auto industry are amazing.
Stock under 15 and falling…..
Is this a good time to pull my money out of GMAC bank?
GM is still too big to fail. That’s why it will have to get smaller before it actually fails. Remember, British Leyland was huge at one point, and it wasn’t until just a couple years ago that the last remains of it (Rover) went kaput. (Of course, some parts live on, namely Jaguar and Land Rover. But that will be the case for GM (and Ford and Chrysler) as well.)
Does anybody remember the old buggy whip factory or the push-pedal sewing machine or the new and improved singe blade horse drawn plow? What if we started to think about the auto industry that way. That the death of GM is a harbinger for the future of the WHOLE industry. That the oil crunch is for real and that since cars burn most of the oil the conclusion is that the car industry is crunched. That transportation in the future will not be by personal car but by public transport or not at all. Any sceptics? Please invent the fuel that is going to power all these nice new autos. The nuclear fusion scientists have only been working on their idea for the last fifty years and they still think they are fifty years away from a solution. So don’t hesitate they obviously need help. Unless of course you do have something better.
Pch101: The company needs a full housecleaning at the top, both with the executive officers and the board of directors, but you can see that this is not going to happen anytime soon. Things are too far gone for that.
But who will give it that housecleaning? I don’t see the government doing that, even as a condition for the loan guarantees. Any loan guarantee will become so caught up in politics, with management, the UAW and the dealer body scrambling to protect their positions and make sure that they can continue business as usual, that not too much will change.
ji1280: What if we started to think about the auto industry that way. That the death of GM is a harbinger for the future of the WHOLE industry. That the oil crunch is for real and that since cars burn most of the oil the conclusion is that the car industry is crunched.
Except that not all companies are on the verge of collapse. Some are doing okay, and some are doing well. The days of GM=auto industry are long gone.
The problem is that GM has been poorly managed for at least the last 35 years, and its current management team bet the farm on a line of redesigned full-size trucks and SUVs, which debuted just before gasoline prices started increasing. That’s a GM problem, not an auto industry problem.
And please note that the “oil crunch” hasn’t meant any interruptions in the availability of oil, and consumers are responding rationally to higher prices by driving less and buying more fuel-efficient vehicles (which is why GM is in trouble, and Honda and Toyota aren’t, as the big trucks and SUVs were paying the bills for GM).
“That the oil crunch is for real and that since cars burn most of the oil the conclusion is that the car industry is crunched. That transportation in the future will not be by personal car but by public transport or not at all. Any sceptics?”
Yeah, not everyone has access to public transport (think rural areas), hell, I can’t even get cable or even DSL where I live, you think anyone is going to run a rail line or even a bus run anywhere close to me? It would be cheaper to buy my gas than do that. A wide spread public transit system would be vastly more expensive overall in this country than continuing to make fuel available for individuals. I think many of the other uses for oil will be greatly curtailed before its use for transit will be ended. Remember that politicians are elected and the one that ends use of the personal car is the one quickly unemployed.
But who will give it that housecleaning?
Nobody. But the government will bail them out, with or without a housecleaning.
The bailout of GM will be undertaken just as much for the banks as it will be for GM. The feds can’t afford to allow those institutions to take such a huge hit. When it comes, the aid package will benefit New York, not just Detroit.
10 billion eh? Hmmmm….. that should buy us another 15 months or so.Good plan,just as long as I don’t haft’a co sign.
MIKEY-sorry buddy, but the cash burn has been 1b per month and I suspect it accelerated in the last two. That 10b represents south of 10 months cash.
Keep in mind it increases the debt that needs to be serviced also.
And your right not to co-sign.
I’ve been where you are, hope you are mounting a search for an alternative…no, make that I hope you have one well under way. Seriously.
You seem to be a decent guy, I wish you God’s blessings. Hope it turns out well for you.
Bunter
@ jl1280 :
Car sharing. Check out Philly Carshare – growing by 4000 members a month.
geeber : Am I the only one who thinks that, over the long term, a GM bankruptcy would unlock the creativity and talent currently stifled by bad management?
Yes, you’re the only one.
The current management team will be a parasitic drag on any turnaround. GM needs an outsider to go in and start hacking. What a mess.
Thanks bunter 1,I got all kinds of back up plans
With 35.8 years in I’m going to ride the GM train utill it comes off the tracks.10 months is a lifetime these days,so we carry on.
That transportation in the future will not be by personal car but by public transport or not at all. Any sceptics?
Electric cars. Solar power. Wind power. Hydroelectric power. Geothermal power.
Mass transit is grossly inefficient outside of major cities. Compact electric motors recharged nightly with solar cells and wind turbines will transport most of America.
Am I the only one who thinks that, over the long term, a GM bankruptcy would unlock the creativity and talent currently stifled by bad management?
I agree with you and I think I have already said it a bunch of times. Quite possibly a new renaissance of American auto manf. Think about it starting from scratch with a new business model using the hidden talent trapped in GM and resources that are left. Provided is wasn’t started with the same crap management that infests so many Amercan businesses today. I’m kind of excited about what might be coming from it, something that could whip the Japanese asses and that we can all be proud of as Americans.
It wont be GM though that name will be too damaged to resurrect, plus its not a brand. It will just be one or maybe 2 of their brands, Chevy and maybe Cadillac, the rest are garbage. Pontiac could survive as a small niche brand, but would probably need to be bought by a large company to work.
mikey-glad your OK man.
Take care.
Bunter