That's a lot of billions. Of course, GM camp followers will do the usual math, discounting "one time" charges to paint a more palatable picture of pissed-away profits. The New York Times does the math for those so inclined. "According to the earnings statement, the loss included $9.1 billion in one-time charges, $3.3 billion of which was for employee buyouts… Included in the results, the statement said, was $1.3 billion in write-offs that reflect the drop in value of trucks and sport utility vehicles in GMAC Financial Services’ portfolio… Excluding one-time charges, G.M. had a loss of $6.3 billion or $11.21 a share, compared with income of $1.3 billion or $2.29 a share in the same period last year." And still the spin is spun. "We have the right plan for G.M., driven by great products, building strong brands, fuel-economy technology leadership and taking full advantage of global growth opportunities," GM CEO Rick Wagoner asserted. His optimism is based on this startling stat: "North American sales were down 20 percent, or 236,000 units, while sales outside of North America grew by 10 percent or 116,000 units. A record 65 percent of G.M.’s sales for the second quarter were outside the United States, the company said, while global market share was 12.3 percent, down 0.9 percent because of the weakness in North America." GM Death Watch later today.
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The phrase “train wreck” comes to mind.
At this point, I’m truly surprised that Wagoner still has a job
The BOD revolted back in ’92 and canned then-CEO Bob Stempel.
The situation now is far more dire, yet the Board continues to sit on its hands? I don’t get it.
Ok, come on with the August incentives, I want me a new Silverado.
Luckily though, the democrats have come up with a plan to issue loan guarantees for 25BN.
That should give them at least another quarter or two to come up with a full range of desirable cars people want to buy and a cost structure that allows them to sell those at a profit.
If one time charges occur ever quarter then aren’t they just charges?
According to the press release the $15.5 billion GM lost were REAL costs (i.e American axle strike, buyouts for staff, plant closures, etc) not paper losses. Now at last check GM had a cash hoard of about $27 billion (N.B: This money was accrued from loans which haven’t been paid back yet, NOT from past years’ operating profits) so subtract $15.5 billion from $27 billion leaves $11.5 billion. Now factor in the fact that GM needs AT LEAST $10 billion for everyday running costs, this must leave GM perilously close to having naff all cash hoard.
And Rick Wagoner still has a job….?
Losses like these have to start affecting sales overseas if they haven’t already, just as many Americans in the know might not consider a 2.333 product because of their financial difficulties at the moment.
“G.M. said it would bolster its liquidity by $15 billion through a combination of cutbacks, asset sales, and debt offerings.” NYT
The interest to be paid on the “debt offering” bonds would have to be stifling! As far as assets, 49% of GMAC doesn’t sound like a hot asset at the moment, and I don’t think plants that are being closed in highly union areas would fetch more than a couple hundred million. Rencen? Are there assets I’m not thinking of?
I really want to see GM do well – until I “went import” a few years ago (due to the lack of any compelling products from GM), I hadn’t owned anything but GM products.
But come on, this is getting absolutely ridiculous. Today, I finally think that GM is doomed to Chapter 11. They can’t make money in a good market, and they sure as hell can’t make money in a bad market. They’re phenomenal at piling up jaw dropping losses quarter after quarter, year after year, though. I’ve never seen a company lose money the way GM does. They literally can’t seem to do anything right, aside from some product success (albeit probably the wrong products at the wrong time). I ask this as a serious question – has any public company in US history EVER lost the kind of money GM has lost from 2006 to the first half of 2008? And if so, have they done it while avoiding bankruptcy? It’s weird that a company that had been so successful for decades – successful enough to be able to now piss away tens of billions of dollars without yet running out – can become such an abject failure.
The fact that a few months ago, the board reinstated bonuses for execs (which I believe have since been rescinded again) and jacked their base salaries up to previous levels because the turnaround plan was “on track” proves the cluelessness of both management and the board of directors.
Rather than selling off all of the cash cows, it probably would be better for GM to cut its losses and declare Chapter 11 now, while there are still components of a viable company left to rebuild from post-BK.
Barring the literal definition – how often do these “one time charges” become commonplace that they are no longer unexpected?
@jaje:
I had to come to a similar realization in my own personal finances last month. I realized that every month has “one time expenditures,” so I might as well expect $500-$1,000 per month to pop up that I wasn’t expecting. So, my rationalization that I had that extra money toward a new car disappeared.
Katie… if you are right then GM would be within weeks of having to file.
I doubt that. I hope not anyway.
Shouldn’t Rick get another bonus to bring him to around $15 million? It seems his salary+bonuses are pretty close to 10% of a given quarter’s loss.
Holy eff. Wasn’t WSJ pegging a $3-4B loss yesterday? I agree with Katie, these sound like real losses, not deferred net loss/profits expected to acrue from past yield dividend asset reductions or some such accounting bs.
If there is a federal loan to GM, I want Rick Wagoner brought before a Senate investigation hearing.
let’s see, the second quarter loss is more than twice the company’s valuation. someone help me with the math here as to how there still is a GM. stack that on top of the previous tens of billions in losses and realize Red Ink Rick isn’t just CEO, he’s Houdini (remember he said he would come back)
But you can kiss the “we have enough cash to last until the end of 09” stuff away.
I think the true problem with Chrysler, GM and Ford is that this country has been so damaged by lobbyists (oil, foreign, etc) that the country is at a standstill and has no idea where to go next.
we tried flexifuel with Ethanol and damn near caused widespread famine.
Hydrogen isn’t a good solution for the infrastructure.
Water fueled cars is never going to happen here (it possibly could in Japan though).
What America needs is to move to an infrastructure that is entirely nuclear. We start with fission and gradually move towards technology that gets us FUSION. Fusion unlike fission doesn’t leave behind massive amount of waste and is more efficient and safer.
America needs a Fusion powered electric infrastructure which means we’ll need to invest in our own future to get a better electrical power grid.
What is a water fueled car?
Do you mean hydrogen?
Also, Gm lost 6 bill on ops this quarter.
So is the official cash burn now 2 billion a month?
If that rate continues GM is cooked within a year. It also brings up a possibility even us GM haters haven’t discussed— Chapter 7 liquidation. If they keep going like this by the end of the year the company may well be irrecoverable even with C11.
Stempel, (the last real ‘car guy’ at the helm of GM) was fired for much less than Red Ink Rick’s lack of leadership. How much has GM lost under his inspired leadership-in excess of $50 Billion?
will be curious to hear how LaNerve’s damage control to the delaerships in Michigan works out today.
Actual cash burn was only about 3 billion for the quarter, which leaves right at 20 billion left in cash. It does keep up the trend of a billion a month cash burn, though.
The breakdown in red ink is spelled out in the Detroit News.
A titanic loss signaling intent to file. Look for the Board to remove Rick this month.
OUCH!!!!… that hurts.
And I’m a GM fan
This is a big ass amount of money.
And sad…
Why Wagoner is still CEO?
How have the people of detroit/michigan not collective took up arms/pitchforks/torches and forced these guys out of the company?!
the fact that Slick Rick still has a job makes me think he has an ace up his sleeve (CH11) and the BOD is in on it. Even when losing billions it was ok because that was the plan! The newly announced “turn around” plan is just a cover so when they do go under he can say “well we tried are best”. scum bag.
The question that nobody here has asked is:
If GM can lose $15.5 billion in one quarter, why can’t it lose another $2-3 billion and get rid of some dead brands?
Now is as good a time as any…
very true. 1 Billion to close the dead brands sounds like a bargain right now.
I agree with Stingray. I want to see GM survive, if only because I shudder at the thought of buying a Toyota, but if they keep piling up the losses, I’m getting worried. I want a new Camaro, and I want GM to be around when I get one this time next year. Maybe it’s time for new leadership…
last year would have been a better time
To GM-All 3 american manufacturers bleed billions, while all japanese raise profits in billions.How come? This is what happens when Big 3 don`t want to accept rules of fair game, but just fuck around with vapourware promises, and factories get shuttered one by another.
How much would it have hurt to roll your fucked from sloth swollen hands up and for a change create some platform yourself instead of borrowing and borrowing. I want to puke on you , how low will you go, soon probably you will beg from Yugo Zastava to borrow their floorpan, just to avoid any elbowgrease yourself.
This is real America, everything generic, borrowed and rebadged, and then you wonder that your dollar is falling and debt skyrockets. Do you really think that japanese and germans, and chinese will sweat hour for hour cutting out every single precision part and assemble every new car, and you think they will not learn how to succeed? And you think you will just buy /sell estate, move lawns, fuck Iraqi land, sell dot coms and live forever rich?
Sorry, the time to pay debts slowly comes! And those who were sweating details, now reap profits!Oh, your mazda or toyota dealers service attitude sucks? Guess who works there? Japanese? nope, your American fellows. 15bn loss is just a normal consequence of cranking out rare, subpar rebadged products.
What America needs is to move to an infrastructure that is entirely nuclear. We start with fission and gradually move towards technology that gets us FUSION. Fusion unlike fission doesn’t leave behind massive amount of waste and is more efficient and safer.
Fusion is also very, very hard to do. They’ve yet to reach effective engineering break-even (energy in vs. energy out) and commercial break-even is very far away. Fusion also requires easily fusable fuel source material (well, unless you’re a sun, and even then). That material is usually hydrogen or helium, which you have to get from somewhere.
There’s no magic energy source, and the lowest-impact options (solar, tidal, geothermal) just don’t return enough because, frankly, there’s just not that much energy there to start with.
The real solution is getting consumption down. We (humanity) are using a lot of energy to maintain a lifestyle that flat out unsustainable. Drilling just puts off the problem. Fission or fusion put off the problem. At some point, we’ll have to pay the piper.
I like hybrid cars for this reason. They’re not perfect, but unlike the “magic pixie dust” approach typical of alternative fuels, the emphasis with a (good) hybrid is smarter use of energy resources through management and reclamation. We need more of that, and not just in automobilia.
If GM can lose $15.5 billion in one quarter, why can’t it lose another $2-3 billion and get rid of some dead brands?
Because that would cost real money. These accounting charges are paper writedowns that don’t consume real cash.
There are real losses contained in the write downs, but they are historical in nature, the accounting version of spilt milk. The accountants are just adjusting the books to face a previously cast reality.
What is ominous is the huge negative operating cash flow number, coupled with falling revenues and market share. Not only is the burn rate high, but they don’t have the customers they need to feed the burn rate. Bad, bad news.
Combine that with the eroding cash position and the diminishing credit lines, and you end up with a serious liquidity problem that can only be fixed with a miracle, a bailout or a bankruptcy.
But, wait, isn’t the Volt going to save them?
Pch101,
Paper writedowns might describe the impairment and accounting charges, but not the other charges. The cash outflow is simply deferred. They’ve recognized those expenses now and will have to pay them out eventually. Buyouts and payments to Delphi will cost real money, just not right now.
@ PCH101:
I don’t understand your statement that these are just paper losses that don’t consume real cash. For example $2.8 B paid to help Delphi, how is that not real cash? Or $3.3 B in buyouts? Or $1.1 B in restructuring NA plants? Those all sound like actual cash payments to my not an accountant mind. Seriously, I’m not arguing that your statement is true or exactly how these losses are viewed in the financial world, I just don’t understand.
@PCH101: I usually am nodding my head when I read your posts, but not today.
The $9B in one time charges aren’t just accounting charges. $3.3B was handed out to workers to stop coming to work. That’s cash in the form of a paycheck to you and me.
The $1.3B in losses due to SUV’s and pickups having a lower value in the market is real money that’s disappeared down the rabbit hole. GMAC and the dealers are taking it in the ass.
The $200M to American Axle is a cash buyout of those workers. So no, I don’t buy the “non-cash” one time charges.
Oh, and revenues fell by half. This company isn’t a going concern by 2010.
Heard this news driving to the office this morning, I was expecting hear about a $3 billion quarterly loss, but $15 billion in three months? That nearly as large as the California state deficit and Arnold just whacked the income of 200,000 state employees yesterday down to $6.55 per hour. I read GM took in an average on slightly over $17,000.00 per vehicle sale in July, compared to $21,000.00 per vehicle sale in previous quarters.
How can they not file bankruptcy?
I’m waiting for GM to offer its products on Woot.com.
Seriously, can someone tell me why management/Board is not sitting down with the other stakeholders (unions, vendors, creditors, etc.) and hashing our a survival strategy? Otherwise it is clear that Chapter XI is inevitable.
They won’t file because it’s GM dammit, and who wants to be the guy who turned out the lights on the once-upon-a-time greatest company in the world.
They can’t survive without a bailout. I just don’t see how they could make it out of a C11 with the resources they have now. Between the sales hit they will take with the lease thing (and that isn’t even on the books), odds are the next quarter will be a whopper too. They need to file ASAP. Even if they get a bailout, they will need to file to get the house in order.
By comparison Ford is looking pretty good right now eh? 700 mill in operational losses vs. 6 billion.
And they have more cash. And they have proven small cars so they are even ahead of GM on that metric, even though they aren’t, you know, selling them.
Perhaps Rick is still there because he IS DOING WHAT the BOD wants.
Perhaps C11 is the exit strategy and they just want it to appear they are trying. If so Waggy is on game.
Bunter
I don’t understand your statement that these are just paper losses that don’t consume real cash.
Take a look at the financial statement highlights, and you’ll see the details.
http://media.corporate-ir.net/media_files/IROL/84/84530/earnings/Q2_2008_Financial_Highlights.pdf
For example, you have a $1.3 billion charge to impair the value their ownership interest in GMAC, which is a writedown of the asset value. That sort of change is just an adjustment to a figure on the balance sheet that was overstated, because GMAC’s value is falling like a rock.
That’s not a good thing, so the fanboys should give their pom poms a break. On the other hand, though, the losses don’t consume cash, they just erode value.
It’s a bit like losing equity in your house — it isn’t worth as much as it used to be, but you still own a house and your cost of ownership remains the same. You’ve lost value, but you haven’t lost any cash.
In my opinion, the cash flows are more important, because that’s how the bills get paid. GM is bleeding substantial amounts of cash, and comes nowhere close to supporting the business with its operations.
What I’m getting at is that the situation is actually much worse than the operating statement implies. GM uses far more greenbacks than it earns, and there is no apparent plan to stop the bleeding.
Wagoner’s response is the same old same old cutbacks and asset sales. But he’s running out of things to cut and sell, and he has no revenue plan.
As someone mentioned above, Wagoner is actually increasing the likelihood of a future bankruptcy filing turning into a Chapter 7 liquidation instead of a Chapter 11 reorganization because he won’t have any more assets left to sell in order to pay for it. If GM ends up in 7, it’s literally dead, as in gone, history, sayonara. The more assets that he sells off, the more likely that becomes.
It’s not some elaborate plan to make it look like they are doing something. Even GM doesn’t blow 30 billion or w/e they lost this year alone to keep up appearances. And appearances mean dick all to a bankruptcy court; what matters is cash. The less you go in with, the harder it is to get out of it.
This is stupidity, pure and simple. They simply cannot believe that the situation is as bad as it is. Right now they are hoping for something, anything to save them. Maybe they will get it, but barring a sizable government bailout its game over for GM. Frankly Wagonners promise that GM had the cash to last until the end of 2009 is looking a bit optimistic. It assumes that continued 1bill/month burn, but they just lost a ton of leases. And it assumes that no other expenses will come up, which is laughable.
They’re lobbying tight and hard to get the price of gas under four dollars. That number was the cut-off which killed their SUVs and trucks. But it is just a stay of execution, not a reprieve.
Notice how they are throwing in the cards now that Toyota has passed them in both numbers sold and profits. They have nothing left now.
It will be gruesome. It was avoidable.
Replying to Pch101 :
It’s a bit like losing equity in your house — it isn’t worth as much as it used to be, but you still own a house and your cost of ownership remains the same. You’ve lost value, but you haven’t lost any cash.
You made a mistake here. You need to remember that GM doesn’t really have its own cash.
The so called “cash” that GM can use, are from debts backed by assets. So, when asset value drops, GM will have a huge problem borrowing more “cash” in the future. In essence, asset value = equity cash; lost value = lost cash.
It’s like, you have a house and you have taken all the equity out of it. And then, the asset value drops. You cannot borrow any more from the bank and the bank will likely foreclose you. The bank may force you to pay the upside-down gap, even if you keep up with your payments.
@wsn
Yes – the whole “just accounting maneuvers” argument is silly. Notice how, when things are going according to plan, these “accounting maneuvers” are considered as solid as gold — and how, when things go south they’re just not relevant and something one wanted to get rid of anyhow.
I’m not happy that GM is going to hell. I’ve been quite certain it was going to happen for a long time, the company just didn’t have its priorities right: they just didn’t love cars, or making them, and kept coming up with all kinds of other ways to make money financing and dealing with cars.
The GM management, from the early 90s onwards, have been brandkillers – in other words: value destroyers.
And if it takes the mother of all bankruptcies to put an end to it, then let it happen.
It’s like, you have a house and you have taken all the equity out of it. And then, the asset value drops. You cannot borrow any more from the bank and the bank will likely foreclose you. The bank may force you to pay the upside-down gap, even if you keep up with your payments.
That’s not inaccurate, but it’s still a mistake to confuse a charge off with a loss of cash.
I think that all of us in this discussion understand that GM’s ability to obtain credit is falling. My point is to point out the difference between a “loss” and a reduction in cash position — they are not the same thing.
At this stage of the game, cash is most important, because GM is running out of it and seems to have no way to replace what it is burning. The critical number is the burn rate.
Money to a corporation is like blood; if you have too little of it, you’re dead. GM is about on their last transfusion. They’re going to need a federal bailout, a gift from above, or else they’re going to file.
Mr. Farago has been well ahead of the curve in alerting the public to this fact. I’m betting that the feds will save them, but we’ll see if that happens. In any case, a bailout will ultimately prove him right, because it’s only this situation that makes the bailout necessary in the first place.
“Ok, come on with the August incentives, I want me a new Silverado.”
Hold out till September, they will pay you to take one away.
Everything is fine. Let’s pretend it’s just paper losses and have a beer!
Yep, nothing to see here.
But GM says they are burning cash at a rate of $1 billion per month. It can’t go on forever (Chapter 11 will end that). I think they should cut the brands to trim the future red ink, incurring today’s costs.
After all, a billion dollars in cash to kill Pontiac will only shorten GM’s life by one month (at the current burn rate), but it might help to right the boat if the boat doesn’t sink.
Gasoline is at about $3.60 a gallon in OK today. So where do gas prices start? Do they start in the central states and spread to the coasts or do they start at the coasts and spread inward?
Is the cost of gas that simple as starting somewhere and spreads? I ask b/c cheap gas will change the game back to Detroit’s favor. Of course they will instantly forget all their small car woes and go back to what they were doing a year or two ago and the sheeple will likely go back to buying larger vehicles.
What happens when GM files for bankruptcy protection? What responsibilities do they shed? Dot hose responsibilities stay gone (like credit card debt for a private person as I understand it) or do those ducks come back after the begin showing a profit again?
Will GM go broke and start lobbying for labor laws that favors them more and favors the UAW less? Are they counting on Obama and the “National Healthcare Plan” to be elected so that they can shed their legacy costs onto the taxpayers of America?
Just curious.
You made a mistake here. You need to remember that GM doesn’t really have its own cash.
Sorry, I forgot to comment on this. As of June 30, GM had about $20.5 billion in cash and marketable securities, so the company does have some cash.
Before anyone starts dancing on tables, though, that’s not much money, and they can’t run that account down to zero before hitting the wall. This is the bottom of the eighth inning.
Here’s a mysterious accounting item:
“Accrued Expenses & Other” +5.9B
It’s on page 34 of the slide set.
That’s a $5.9B positive boost to cash flow in Q2.
It helps to make Q2 cashflow much better than the huge loss number.
Does anybody know what this is?
Let’s give ’em a loan!!! That should fix everything!
After all, they have the right leadership, product mix, vision for the future, planning of brand strategy, and they have products that are as good as or superior to their competitors.
It’s just that they don’t have enough money.
Of course.
Here’s a mysterious accounting item:
“Accrued Expenses & Other” +5.9B
It’s on page 34 of the slide set.
That’s a $5.9B positive boost to cash flow in Q2.
It helps to make Q2 cashflow much better than the huge loss number.
Does anybody know what this is?
That’s just an accounting entry that is used to convert the results of the income statement into a statement of cash flows. In and of itself, that isn’t necessarily anything to worry about.
However, if you look at the balance sheet, you can see that during the last six months, current liabilities (bills that have to be paid within 12 months) increased by about $5.2 billion. That’s not necessarily problematic, but it’s a higher balance than has been carried during the last year, so it might be a sign that some effort is being made to delay payments in order to conserve cash.
If you look at the cash flow statement, you see that normal automotive operations have been burning about $1.2 billion per month. Wagoner is trying to cut expenses with the job cuts and slowdowns, but all of the incentives required to sell those vehicles that they can’t move are probably going to reduce revenue, too.
I’d say that it’s likely that the burn will stay high, or perhaps even increase. The alleged “liquidity plan” is supposed to slow the burn, but I wouldn’t hold my breath.
Meanwhile, GM’s credit facility is down to $7.5 billion. That’s a bit more than six months of the current burn rate. Getting new credit will be very difficult, and whatever they get will probably be costly, so I doubt that number is going up very much.
The writing is on the wall: $15 billion of annual burn, with the ability to grab about $27 billion worth of cash, assuming that the credit line isn’t cut. The burn may get larger, with all of that rebate money hitting the hoods. There isn’t much to sell, and anything that they can sell will get dumped at fire sale prices. They are really, really on the brink, and it is far more serious than GM would care to admit.
Wagoner obviously read “Rich Dad, Poor Dad.” One of the chapters is about how you pay yourself first, before everyone else.
psarhjinian: There’s a lot of potential for renewable energy in the US. Geothermal in the Sierras and Rockies, tidal off both coasts, solar in the Southwest. Few want to follow up since initial cost is high and produces no returns.
Wow, numerous posts with the same question. Everybody is asking why Wagoner still has a job.
Me too. Why, praytell?
I know very little about Chapter anything, but how could GM (or the others) survive a C11? Surely everything becomes cash on the nail?
Supplier calls GM “hey, those seats going into you this afternoon… we need to adjust the 30/60/whatever day terms to like, cash on delivery, ok?”. If that’s the way it goes, we’d have GM owning the parts on delivery and getting paid when the vehicle is sold to the dealer, so suddenly they’ve gone from an effective zero cash cost inventory to an $OMG bil they’ve got to fund.
BTW – how is Wagoner still there? What kinda dirt does he have on the BoD and the major shareholders?
Dave— That’s the question in my mind too. I really think that if the C11 window isn’t closed already its swinging shut hard. And given their level of denial, they won’t file until its long past shut.
They will have to have the cash to survive the massive sales collapse that would happen if they declared (though how much worse can it get), money to buy parts, money to develop the cars they need to get competitive, etc. And I don’t know how they would get any credit lines. They don’t have a hell of a lot of assets left to hawk.
And I don’t think a 25billion loan would do much besides draw out the downward spiral a year or two longer. I think if GM is to survive they need to declare C11 and then get a bailout.
I know very little about Chapter anything, but how could GM (or the others) survive a C11? Surely everything becomes cash on the nail?
For Chapter 11, GM would have to have a reorganization (turnaround) plan, and the creditors and the court would have to approve it.
I suspect that the creditors would approve one, although there would be major strings attached, because they are owed so much that they would like to avoid booking the losses and taking a full hit. They might ask for government help, given that the feds wouldn’t want GM to disappear, either.
If the plan is rejected, the company goes into 7. Everything gets sold off to pay the creditors as much as possible. The stockholders would lose everything.
EPIC FAIL!
At what point do GM’s suppliers start backing out? With payments being delayed, C11 writing on the wall, etc, I wonder if the suppliers are just going to cancel/end contracts and cut their losses.
It is really sad that GM is on the brink … the ripple effects of a C11 or C7 will be widespread and devastating.
Thank Pch101, so a C11 depends on the creditors approving the plan, that makes sense and avoids the cash on delivery and having to increase GMs cash short fall, etc. So the really big question is would the creditors have confidence in any plan GM has? I mean, this has been going on how long? And how many restructurings have they had?
Don’t get me wrong – I really want GM (and the other 2) to survive as what’s I see happening is just tragic – one of the icons of the business world being mismanaged into the ground. How the hell could shareholders and the BoD let this happen?
If you ask me, what is currently happening to GM was unavoidable. Everybody should have known that GM was doomed the day that Roger Smith retired, with their market share down to only 35%, them losing $2,000 on every GM10 sold, and with Cadillac’s reputation destroyed while all of their other brands wandered around aimlessly. GM wouldn’t have come any close to peril if that dumbass wouldn’t have been allowed to set foot in the manager’s office. Anybody who researches that guy will learn that he screwed up GM to the point of no return.
Actually, I bet that if the SUV boom never happened, GM would have gone under in 1996 at the very latest. I was too young to know if Clinton would have bailed them out, however. I was only in the 2nd grade when he left office.
That is why I don’t like it a lot when people accuse Red-Ink Rick of running GM into the ground. What you see before you is actually Roger Smith’s handywork. GM probably would have been consistantly profitible if it weren’t for him and his so called “streamlining”.
Should they file C11 the restructuring plan better involve turfing Wagoner, Lutz and the entire board of directors. If I was a major creditor I would reject anything less.
That’s $27.33 per share. At close on Friday, GM only cost $10.23 a share. So, their loss in one quarter was more than double their market capitalization. Of course, it doesn’t compare to the $38.6 billion they lost in the third quarter last year (mostly a paper loss, but still…).
I’m with the others who said that for a few billion more, they could have off-loaded a name or two. Do they think getting rid of Oldsmobile was a mistake? GM always quotes the $1B price tag for getting rid of the nameplate, but they never say how much money they have saved since that point. Just imagine how bad the financials this quarter would have been had Oldsmobile had it’s own G6/Malibu/Aura, Enclave/Equinox/VUE, and Cobalt/G5 to also promote and market.
The average mind can not comprehend what a 15.5 billion dollar loss is in 90 days, try this one on for size; and don’t give me that crap about most if it being funny money, that’s GM spin….it’s real money whether you classify it as past monies, current monies, or future monies.
15.5 BILLION DOLLARS over a period of 90 days =
~172,000,000 Dollars per DAY
~120,000 Dollars per MINUTE
~2,000 Dollars Per SECOND
GM is bankrupt, they can not respond fast enough to stop the bleeding. There is no light at the end of the tunnel, and no chance of survival. They lack management with the balls to do anything about it. A government bailout will only prolong the inevitable, so there will be none offered. GM will no longer exist, sooner rather than later.
Runfromcheney :
That is why I don’t like it a lot when people accuse Red-Ink Rick of running GM into the ground. What you see before you is actually Roger Smith’s handywork. GM probably would have been consistantly profitible if it weren’t for him and his so called “streamlining”.
Fair enough, but Red-Ink Rick has not helped. While some people accuse Rick of ruining the company, I think that TTAC and many of the best and brightest (including myself – not that I’m the best or the brightest) would agree with your assessment that GM has been in decline for a while. People are critical of Rick because he is another delusional “leader” and has no accountability. Rick should have been booted long ago instead of receiving bonuses!
So the really big question is would the creditors have confidence in any plan GM has?
I think that the question is more a matter of what has to happen exactly to give them that confidence.
This would be a unique situation, because this is such a large and important corporation that would be crashing and burning during a rather uniquely troubled time. You would likely have a government, many large creditors and numerous suppliers who are all highly motivated to make it work. So there would be some deal cutting involved in putting that plan together.
If this were to happen, my guess is that the creditors would also receive stock and/or convertible bonds in the “new” GM. They would also get board memberships and there would be a major housecleaning at the top of the company.
The current shareholders would probably get little or nothing from the proceedings. The UAW is going to find that a bankruptcy wiped out their pensions, and a lot of employees and dealers are going to be left holding a bag.
Oddly enough, I wouldn’t be shocked that if at the end of this, Bob Lutz still had a job in this scenario. Rick would be heading for the exits, though.
To correct a point that I made earlier, I was using the term “burn rate” when I should have been using “operating losses.” The “burn rate” (the operating expenses that need to be hurdled for GM to breakeven) is actually quite a bit higher than the $1 billion/mo. amount. Those operating losses are the difference between what GM takes in and what it spends for normal operations. Sorry for the brain freeze.
At what point do GM’s suppliers start backing out? With payments being delayed, C11 writing on the wall, etc, I wonder if the suppliers are just going to cancel/end contracts and cut their losses.
Suppliers are backed into a corner. Their contracts are firm and they will not be able to break them…..this includes any attempts to change the conditions of payment. Unfortunately, many of them are so dependent on the domestics they are hostage to current events….suppliers do not have any wiggle room. They can’t drop the domestics because they do not have any revenue sources that can offset the sales loss with domestics.
At the beginning of the Delphi bankruptcy the court ordered all suppliers to continue supplying Delphi at the prices Delphi was accustomed to receiving for one full year. Failure to do so would result in contempt charges. Same thing will occur when GM & Chrylser files.
This is a high magnitude economic earthquake in the making. Ramifications and fall-out will be staggering.
Interesting :
Suppliers are backed into a corner. Their contracts are firm and they will not be able to break them…..this includes any attempts to change the conditions of payment. Unfortunately, many of them are so dependent on the domestics they are hostage to current events….suppliers do not have any wiggle room. They can’t drop the domestics because they do not have any revenue sources that can offset the sales loss with domestics.
I agree, but let me paint a hypothetical situation. Material & energy costs are increasing, interest rates climbing, GM may file (leading to decreased orders or even terminated contracts), and suppliers are having to support “loans” because of the “extended” (delayed) payments. The banks that are supporting these suppliers are going to be very reluctant to loan money. The suppliers are really squeezed.
Is it conceivable that a supplier comes to the conclusion that, from a financial/business perspective, it is better to cease operations, declare bankruptcy, and cut its losses? I know this would mean that the supplier would have to shut down, but if GM is going to end the contract anyway, why not? Let us say that the payments to suppliers are being delayed by 3 months. If the writing is on the wall (and i’m not saying that it necessarily is right now), would it not be better for the supplier to stop operations and not get paid vs. continuing operations for 3 months and still not get paid.
What would be the financial/legal ramifications of terminating a contract?
Rob,
Assuming the supplier is able to stay in business and they have made the decision to cease ongoing contracts with one of the domestics. The suppliers financial ramifications would include; all costs related to re-certifying a new supplier, all costs if one of the domestic’s production lines went down due to the lack of that supplier’s product and all costs if the new supplier were higher in the price charged to the domestic. Those penalties would remain in effect thru the remainder of the contract period.
Auto suppliers are sweating; banks will not lend additional funds to most of them. Their revenues are tanking, re-tooling their facilities is costly and they are worried about further price reduction and payment delays with the domestics. Most of them are trying to re-structure debt and cut costs; but there is only so much they can chop. Tough times and alot of anxiety for many of the suppliers to the auto industry
GM wants out of NA. They want to close their manufacturing plants, stiff their retirees, and ax most of the NA dealer network. GM NA will be chapter 11 sooner than most of us imagined. When they come back it’ll be Chevy/Cadillac with most/all of the product manufactured overseas.
Interesting:
Thanks for the details. I suppose the suppliers will just have to stick it out.
Robert Schwartz: “Hold out till September, they will pay you to take one away.”I read a great analogy which said that GM’s current product line-up (particularly the pickups and SUVs) is rather like two year old computer software sitting in a store’s discount bin. IOW, you can’t give that stuff away.
Fusion is also very, very hard to do. They’ve yet to reach effective engineering break-even (energy in vs. energy out) and commercial break-even is very far away. Fusion also requires easily fusable fuel source material (well, unless you’re a sun, and even then). That material is usually hydrogen or helium, which you have to get from somewhere.
There’s no magic energy source, and the lowest-impact options (solar, tidal, geothermal) just don’t return enough because, frankly, there’s just not that much energy there to start with.
The real solution is getting consumption down. We (humanity) are using a lot of energy to maintain a lifestyle that flat out unsustainable. Drilling just puts off the problem. Fission or fusion put off the problem. At some point, we’ll have to pay the piper.
I like hybrid cars for this reason. They’re not perfect, but unlike the “magic pixie dust” approach typical of alternative fuels, the emphasis with a (good) hybrid is smarter use of energy resources through management and reclamation. We need more of that, and not just in automobilia.
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We just need to borrow Tony Stark’s Arc Reactor. The third reactor he built generated about sixteen million horsepower. Should be good enough.
So the Court orders the supplier to honour the contract or they’re in contempt. The bank refuses to extend their credit “as times are hard, and most of your business is high risk with the domestics”. But they need more credit to a/ finance GMs extended terms, b/ put capacity in place for the EuroFords that are comming to the US and the ‘next big thing’ for GM.
How’s this going to work? “Your Honour, I tried to keep going but the bank refused more credit/foreclosed on me. What am I to do?”. Bang of the gavel “I find that XYZ co are in contempt of court”. Do teh CEOs of the luckless suppliers jump a plane to Brazil?
Delphi filed C-11 in late October, early November ’05. Most of their supplier contracts expired on Dec. 31. The piss-off level was high. Many companies wanted nothing to do with Delphi and were willing to walk away. Recognizing that; the Delphi b-ruptcy attorneys petitioned the court to force the supply base to stay intact. Otherwise Delphi could not re-organize. The court granted the request. Delphi’s attorneys rationalized itto the supply base by saying it was either forced renewals of supplier contracts or a recall of all cash payments made to suppliers within the 90 days prior to Delphi’s filing. The payment recall is a fall-back position for many companies that file and can not get post-petition debt financing.
Bankrputcy laws operate outside the normal rules of business law. With good attorneys the defaulted company is able to get away with anything. Delphi gave GM and others the blueprint on how to break the union and proceed through bankruptcy. Undoubtedly others have studied this and are making refinements for their eventual walk through C-11. The current condition of GM and probably Chrysler is worse than Delphi when they filed in 2005.
I feel sorry for the dealers, sort of. They have little say in the product. If I had a dealership and was ready to retire and sell it, the price that I receive for all the years building it is now much lower than it would have been many years back.
It’s not really about the money.
If GM doesn’t have a competitive product that people want to buy and doesn’t straighten out their manufacturing production to match their sales they are toast.(they are) To keep paying the huge legacy costs to the retirees and running the uneeded plants producing unwanted product is a quick route to CH11. I think they have already starting the plan forward for CH11 as they realize there is no other way. Shed all those retiree’s cost and they are back in business.
rev0lver :
August 1st, 2008 at 8:46 am
If one time charges occur ever quarter then aren’t they just charges?
And
ChrisHaak :
August 1st, 2008 at 9:21 am
@jaje:
I had to come to a similar realization in my own personal finances last month. I realized that every month has “one time expenditures,” so I might as well expect $500-$1,000 per month to pop up that I wasn’t expecting. So, my rationalization that I had that extra money toward a new car disappeared.
I made a similar remark over a year ago when the GM fans were trying to defend GM’s incredible losses by pointing out that they were “paper losses”, which just means they were costs incurred during prior “profitable” years that just weren’t reported until 2007, and that they actually did okay if it weren’t for “one-time charges”. A)One time charges occur every quarter/year and B) they are still charges not profits.
As you already pointed out, any household budget should include not just money for rent/mortgage, food, gas, etc. but also money for our own “one-time” charges like car or house repairs, doctor’s bills, etc. While we may not face a known charge for these items every month, we know that they occur and we should be prepared for them when they do.
What happens if the supplier files for bankruptcy? Can their judge get them out of the contracts forced on them by GM’s judge? Just how silly-or frightening-is this?