According to Bloomberg, Lehman Brothers' top auto analyst reckons GM "may" need to raise an additional $7.3b just to stay afloat through the end of '09. And that's just the start of it. "GM may 'burn through'' $6.9 billion of cash in the second half of 2008 and another $4.4 billion next year, according to the 'base case' of Lehman analyst Brian Johnson. If a worldwide economic slowdown causes auto sales to stall in the U.S. and fall by 10 percent in the rest of the world, GM may use an additional $4.9 billion of cash through 2009, forcing the company to raise as much as $12.2 billion, Johnson wrote in a note today." With the American automaker already paying $250m per month in interest on existing loans, with all of GM's "non-core" assets either sold or unsaleable, with its credit rating at Caa1 (seven levels below investment grade), with a negative shareholders’ equity, with profits from NA ops notable by their absence (and a short-term impossibility), where the Hell is this money going to come from? Answer: federal loan guarantees. And then what?
Find Reviews by Make:
Read all comments
Answer: nowhere.
Answer: Federally guaranteed loans.
Dynamic88:
Answer: Federally guaranteed loans.
Yes, well, there is that. Text amended.
The wars overseas are eating up all the money and cutting into the military’s budget. The Government doesn’t have extra money to give away to one company when the other two are in just as bad of shape. The writing is on the wall for GM.
$15 billion is chump change to the feds. They can pay for it by just printing some more money and ignoring the runaway inflation…
And then what?
And then GM starts to rake in the cash from sales of state of the art cars that customers are lining up to buy – at MSRP. They use the money to finance a turn around program, tightly focusing on brand identity and product quality. They get the Volt finished and in production, and the price down to $18K, and they have to open a new factory just to build enough of these.
And then my alarm goes off.
What is “negative market cap”? I thought a company’s market capitalization was simply its share price times the number of issued shares. Thus, the lowest its market cap could be is zero.
Verbal:
Mr. Farago probably meant to write, “negative shareholders’ equity.”
The GM Bailout – our tax dollars used to help a failing company take longer to fail.
The GM Bailout – our tax dollars used to help a failing company take longer to fail.
If there are federal loan guarantees, they wouldn’t cost the taxpayer anything, if the loans don’t default. If the loans did default with the guarantees in place, that would be another matter…
My guess is that the deal would be structured in such a way that such a default would be unlikely. Some clever government guys — believe it or not, some of them are fairly bright — would put a deal together with enough new equity to avoid defaulting.
At the bargain price that will be struck, GM will be very attractive to someone. But when the fanboys talk about where the profits go, they’ll have to ignore it when those dollars are shipped off to Shanghai, Abu Dhabi or Moscow.
GM is no longer a company, it’s a metaphor.
negative market cap
I too was wondering what the means. How can any corporation be less that zero?
Perhaps he meant that GM is one of the few companies who has a market cap that is a fraction of it’s revenue, which it backwards from companies like Google.
GM NA is worth less than nothing. GM has a positive market cap because it has some profitable overseas operations. GM NA is projected to be a black hole sucking up dollars for the next five years at least, and the investment banking models only go out five years.
This is sad, really.
Market share around 20%, burning through billions in cash every month, another toe tag sale, even on 2009 models, credit rating is below maggot dung, huge backlog of unsold 2008 models, underfunded VEBA/pensions, now another $12 billion needed?
Other than that, how was the play Mrs. Lincoln?
So – Americans aren’t buying GMs vehicles, but as taxpayers they’ll be ok to guarentee the loans the company needs to get to 2010 when they’ll start buying them again. That will be an interesting announcement from Washington.
Pch101
It’s OK when GM buys factorie in Europe or Russia, bu it’ bad when Russians buy GM?
It should be a free market for all, not a free market for just USA!
PCH101 – By bailing out GM the same ignorant, arrogant and obtuse management will still be in charge and they’ve proven for 2 decades they really haven’t a clue as to how to run a company formerly known as GM. A federal tax payer bailout will only stave off the inevitable and those tax dollars will not get a return but be wasted on more executive management bonuses and executive salaries. When they do go bankrupt the Fed will again have to bailout the pension and healthcare issues from this tangled web of management and UAW greed – so tack on another $8-10B for that on top of the first bailout.
Don’t throw good money after bad management I always say – no matter how much they won’t use it for the best interests b/c if you recall GM made 10’s of billions in SUV profits and pissed it away.
This article explains the economic situation in a nutshell. GM is just the canary in the coal mine.
“I hate to tell you, but the storm has reached your location and it is a Category 5 hurricane. The levees are leaking. Ignore it at your own peril. The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end. The American consumer will not go without a fight. For the last seven years the American consumer has carried the weight of the world on its shoulders. This has been a heavy burden, but when you take steroids it doesn’t seem so heavy. The steroid of choice for the American consumer has been debt. We have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live above our means. It has been a fun ride, but the ride is over. We can’t get steroids from our dealer (banks) anymore. ”
http://www.prudentbear.com/index.php/commentary/guestcommentary?art_id=10098
I don’t know how this bailout works, but when the Govt did it for Chrysler Iacocca was the new leader who promised to clean the mess up. (As an aside Iacocca said he doesn’t get paid if his magic didn’t work, I liked that) If we give it to the old entrenched leaders at GM it seems it’s good money after bad. However Wagoner and Lutz can put their pension and salaries on the line with the baiilout ala Iacocca) Is GM too big to fail? By the time the RR’s and Bethlehem steel and a whole host of other biggies died, they were no longer too big to fail. The economy simply went on without them. This is what the great capitalist thinkers and economists have always said. When a company can no longer attract capital it will move to ones that can do the job. Thus we refresh ourselves by purging those that have become to bloated, inefficient and obsolete. Does this remind anyone of some current companies?
It’s OK when GM buys factories in Europe or Russia, but it’s bad when Russians buy GM?
For the domestic fanboys, it would be. And being that Russia is returning to the old days of acting as a despotic kleptocracy, I’m not exactly thrilled about it either. But we’ll need their money.
By bailing out GM the same ignorant, arrogant and obtuse management will still be in charge and they’ve proven for 2 decades they really haven’t a clue as to how to run a company formerly known as GM. A federal tax payer bailout will only stave off the inevitable and those tax dollars will not get a return but be wasted on more executive management bonuses and executive salaries.
I suspect that if there is a federal bailout, it will **also** include additional equity, and that equity will come with strings attached. Most of the people that we love to hate wouldn’t survive this transition, because the business guys involved in the deal will require them to leave. The feds won’t object to that.
At GM the “business guys” are no longer in charge or in position to take control – most left this sinking ship years ago. All that’s left that leads the company are the accountants and waste of space they call the BOD – which is lead around by the nose by the head corrupt accountant.
Pch101: Most of the people that we love to hate wouldn’t survive this transition, because the business guys involved in the deal will require them to leave. The feds won’t object to that.
Yes, but will the new management really work at slimming down the brand portfolio? Once this all hits the fan, I see the Pontiac-Buick-GMC and Saturn dealers descending on Capitol Hill, explaining why they must stay in business, for the “good” of their respective local town, city, etc.
That is the kind of argument that sways federal politicians, even though, as you’ve explained before, GM only needs two brands (Chevy and Cadillac) and its current brand portfolio is a burden rather than an asset.
Near, far, wherever you are
I believe that the heart does go on…
I feel like I’m watching the Titanic sink, in reaaaaally slow motion. I have no idea why we the humans like to observe monumental failures so much – I just can’t help but awe.
A federal bailout will also not allow GM the flexibility to pare down it’s bloated network and workforce in order to right its size for its diminished demand. They need the protection of CH11 in order to throw out the contracts and overcome the franchise laws. A bailout cannot help them with this problem except to spend it on millions in settlements and ransom to the UAW.
Yes, but will the new management really work at slimming down the brand portfolio?
If the new guys understanding marketing and finance (which, believe it or not, the current guys do not), then they would take the low cost approach and starve them out. Since killing them outright is expensive and they can’t afford it, putting them on the back burner will have to do.
Ironic that Lehman Bros. prolly needs $12B to stay afloat too!
Any investment in GM will be like pouring water into a seive – only the holes in this seive pass more water than the supplier – GM are on limited time