TTAC has long warned of a “run on the bank” scenario, whereby GM suppliers demand cash up front for their wares, effectively eliminating the automaker’s cash pile, terminating its ability to build cars and driving the compay into C11. Over the last few weeks, it’s become increasingly clear to anyone paying attention that GM’s cash situation– hence its ability to pay its suppliers– is terminal. Its credit rating is CCC (the U.S. and international banking system is constipated anyway) and its tapped-out available credit lines. GM CEO Rick Wagoner has publicly declared that his employer has enough cash to last until the end 2009– telling the world that they don’t have enough money beyond that point. Jettisoning HUMMER– without a buyer– has sent all the wrong messages. Selling GM RenCen HQ, again without being ABLE to, is another enormous PR debacle. And if confidence in the company isn’t low enough, and it surely it is, Wall Street has finally lost faith. GM’s stock price has fallen below $10, below $8, below $5. So, we now hear that a major, overseas GM supplier has put its foot down. I can’t tell you who, what, when or where. But there’s a deadline for payment approaching, and GM can’t take the hit. Never mind the hits that follow. More info as and when. Meanwhile, check out the Chrysler/Getrag story. Now think about GM. How many billions does it buy from overseas suppliers? German banks want government guarantees; the Germans refuse unless there’s 100 percent cash collateral. This is how things fall apart.
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Jettisoning HUMMER– without a buyer– has sent all the wrong messages.
They killed HUMMER? Or is it that they just haven’t made peace with the price that it can be sold for? Winston Churchill’s comments on prostitution comes to mind…
I agree, selling HQ is as close to an admission of reality as you’re ever going to get out of current management. And to think, these guys just got a HUGE raise…
There are enough car guys in that company that it could do well if it stopped focusing on wall street. With the price that low GM should use the cash it has left and buy ITSELF out. Then they could focus on making money for themselves instead of wall street. And I bet once that’s the priority, quality products start and all this BS ends. Just my $.02 anyway.
So, we now hear that a major GM supplier has put its foot down. I can’t tell you who, what, when or where.
It can’t be Delphi. That would require them to grow a pair.
So who else has the large number of parts in GM vehicles that could demand payment like that?
If it is Delphi, couldn’t GM say ‘screw you’ and get other companies to make the parts? I’m sure a lot of those others would welcome the extra business.
SkiD666 : If it is Delphi, couldn’t GM say ’screw you’ and get other companies to make the parts? I’m sure a lot of those others would welcome the extra business.
Which leads to another question: who in the industry has the working capital to make stuff for GM without immediate payment, either part or full?
snapper35 : There are enough car guys in that company that it could do well if it stopped focusing on wall street.
Its too late for that, deck chairs/titanic/etc. Maybe in 2005 when GM still had plenty of reserves.
snapper35: if you hold to your 2 cents a bit longer, you will be able to buy a whole lot of GM stocks!
RF,
Have you heard of GM sending a letter to suppliers informing them of the new “60 day” payment terms?
Tex
What other company besides Delphi would have a tab big enough to kill GM with one big fat invoice?
No names spring to mind, but I know pretty much nothing about their supply chain. And Delphi has a bankruptcy judge and trustee to answer to, as well as that whole pension thing. It’s possible that they can’t let it slide anymore.
Twenty years ago GM could have bought Toyota for what it spent starting Saturn. Now Toyota could buy GM FOUR TIMES OVER with its greatly reduced 2008 profits. That says… everything.
The jig is up guys, game over, goodbye GM, it was fun while it lasted.
Sajeev: There is ZF, Getrag, and Bosch to name a few.
“It can’t be Delphi. That would require them to grow a pair.”
I don’t know who it is but they don’t need to be big, they just need to be less liquid than GM. With the lean manufacturing and depending on the part, re-sourcing may take too long.
Do Magna supply parts to GM? If so, that’d be my guess.
The Russian mafia guy who bought GAZ just pulled the rug out from Magna of Canada, since the Russian stock market took a massive dump – he can’t cough up the promised money for a collaborative effort. I’d guess Magna’s cash flow is getting – critical.
A year ago, Magna was the top “guess” as to which company would end up buying Chrysler.
Bet they’re thanking their lucky stars they lost THAT race.
If you have a spare $3.2B, you can own GM today.
How sad is that?
Ford is worth more than GM today.
Toyota could buy Ford and GM, and still have 4 bill left over from the 08 profit.
That is kind of treble sad.
@ski,
Coming from the auotmotive industry, I can tell you that it isn’t quite so simple to say “screw you” and find another supplier to build whatever parts that supplier happens to make. Moves of any kind like this don’t happen instantaneously. If GM did attempt this, the resulting loss to production could be staggering (and costly). And has already been mentioned, suppliers aren’t going to exactly line up outside of RenCen to take over any business to supply GM. So if there is a major supplier out there that is ready to drop the hammer (or drop the Hummer?), it doesn’t bode well for the General. With stock prices falling faster than the autumn leaves and payment terms being forced down supplier’s throats, there may be a fair number of suppliers that would actually prefer not to be doing business with GM.
Talking about the hypothetical worth of car companies it is interesting that today VW is even more valuable than Toyota if we look at the stock value.
http://wot.motortrend.com/6302021/industry-news/vw-overtakes-toyota-as-worlds-most-valuable-automaker/index.html
“SkiD666 : If it is Delphi, couldn’t GM say ’screw you’ and get other companies to make the parts? I’m sure a lot of those others would welcome the extra business.”
Its not as simple as that. First, Delphi wouldn’t just hand over the tooling even if in Ch 7. Second, if you move a whole assembly line to a different place with different operators and work rules you have to at minimum re-ppap the whole line. That entails building, measuring, and testing lots of parts and filling out ungodly amounts of paperwork. At worst you have to create new processes that could end up driving design changes, which could drive design changes to other parts as well and so on. This stuff doesn’t happen fast or cheap. Whats GM do in the interim?
Also, there are any number of suppliers that can shut GM down. No matter how small a part, if it isn’t available, vehicles aren’t going to be built. Seat rails, radios, door handles, etc. could be shared across many vehicle lines.
Given RF’s hints (overseas supplier, and reference to the Chrysler/Getrag article), I’d say it’s Getrag. And yeah, if they’re the ones pushing for payment, that would definitely leave a mark.
Seems like Wall Street is clued in on the debacle, given how GM’s stock is circling the drain today. This may all come to a head rather quickly.
Edit: Ah, now I see that TEXN3 named three German companies; I’ll bet he’s right that it’s one of those three. (Besides, looks like he’s got a connection to suppliers.)
My game plan may work yet… in a few days I will buy GM with my credit cards, use their cash reserves to give me a lump payment salary large enough to pay off the cards and salt away a few bil and…BU-WA-HA-HA-HA…dang, was I typing out loud?
Averisiously,
Bunter
I’m taking to the lifeboats its every man for himself.If you see me out there rowing,throw me a 6 pack, a sandwich and a job in that order.
Keep the cheerleading down folks.After the ship goes down,if make landfall I’ll get back to you.
I can’t row and type at the same time.
Bye for now
Michael
@mikey
Godspeed to you, and to all of my friends and family in Lordstown, if this comes to pass.
GM business plan was
If you cannot compete in the segment get out
Got out of subcompacts
Got out of compacts
Got out of middle size
Got out of family sedan
SUV only thing left and there’s no gas.
Only a fool would think that you could win in anything by quitting.
NOTE the UAW’s inadvertent cause of this.
UAW labor costs have been so uncompetitive for so long that over the years GM (and Ford and Chrysler) could not be vertically integrated, and so over time the “THE big THREE” have incrementally outsourced manufacturing to suppliers (who were also less prone to being shut down by a UAW strike).
Of course, the UAW started to realize the game, and forced THE big THREE to lean on their suppliers to “recognize” the UAW.
So now THE big THREE have the worst of all worlds – uncompetitive UAW labor / featherbedding costs throughout their supply chain (again), and outside suppliers who (unlike a vertically integrated internal entity) are going to start demanding cash on the barrelhead.
If you want your company to go out of business, if you want to lose your job, go union.
People don’t get it. The days where the people of the USA bitch and moan that things are not right since they are not living in the comfort they think is their right are over. Things are going to change big time and it is going to be dog eat dog. The government has no money that they don’t confiscate though taxes and that gravy train just dried up.
GM failing will ripple through the economy.
The Obama idea of taxing the rich is so stupid. The rich will just not invest and just move their money where Obama cannot touch it.
With the market capitalization being low enough that Toyota can purchase it. It would seem to me that they should buy and dump it in the trash.
This would provide them with an increase in market share world wide. They certainly do not need any of the managerial talent or the union headaches.
What does GM have of Value??
stock market crash+unions+gas$$$+mgmt = Das Perfekt Sturm?
Guys, I’m pretty sure it’s not Delphi…RF says that it’s an overseas supplier and Delphi certainly doesn’t qualify for that.
So my guess would be Bosch, possibly Schaeffler.
Schaeffler has recently taken over Continental/VDO which is a major supplier for GM, so there could be a change in policy…
Anyway, did I understand correctly that GM won’t be able to pay? Or will it just suck the remaining cash out of GM? Both would be horrible for the General, but the second option would at least give them a little more time to beg for a government bailout…
What was wrong with my post?
blindfaith :
With the market capitalization being low enough that Toyota can purchase it. It would seem to me that they should buy and dump it in the trash.
At first, I thought this was perfect. Then I realized that Toyota would have the perfect self-contained laboratory test opportunity here.
Instead of dumping it in the trash, they should encase the entire bunch of dinosaur managers in amber and study them so that all of society can learn how to avoid becoming extinct. It may work even if we just always do the opposite of what the dinosaurs did…
You don’t need a huge tier-1 supplier to halt the lines; just a key supplier of one essential component. For example, occupant restraints: airbags, or seatbelts. Line down.
@bluecon The Obama idea of taxing the rich is so stupid. The rich will just not invest and just move their money where Obama cannot touch it.
If you will look at historical U.S. tax rates, the argument just doesn’t hold up. There are actually wealthy people in Japan, Germany and France who keep working there. I wonder why? The wealthy stayed here in the 1950’s when the top tax rate was 90%.
And if what we “lost” were wealthy tort lawyers, wealthy financial manipulators and “investment bankers”, where’s the loss?
Whether the game is to tax the rich, or simply reduce taxes and spend the money anyway, someone has to pay the bills. The pyramid scheme of believing that we can borrow our way to prosperity doesn’t work for individuals or for governments.
The situation at GM is just sad. It is easy to blame unions or management, just as in the financial crisis one can blame greedy lendors or greedy borrowers; the fact is that both are at fault and nothing gets solved when everyone is pointing fingers.