General Motors has finally announced their fourth quarter results and its terminal. The ailing American automaker’s cash burn was a staggering $6.2 billion. That might have a little something to do with the fact that GM’s revenues shrank by 34.2 percent, from $46.8 billion to $30.8 billion. Q4 operating loss: $5.9B. Net loss: $9.6B (compared to a not inconsequential $1.5B a year previous). For those of you keeping score, today’s results mark GM’s fourth year without booking a profit and the second largest loss in GM’s entire history. Reacting to the carnage, the man at the helm recycled a press release from somewhere in the middle of this slide into bankruptcy. “2008 was an extremely difficult year for the U.S. and global auto markets,” CEO Rick Wagoner said in a statement. “We expected these challenging conditions will continue through 2009, and so we are accelerating our restructuring actions.” At GM, restructuring actions accelerate you. Nose first. Pro forma mea minimus culpa filed, Red Ink Rick is headed to DC with his well-worn begging bowl . . .
The man with a plan—cut, cut, cut, cut, cut, cut, cut—will share his vision with the Presidential Task Force on Automobiles. Wagoner’s looking for—ready?—another $16.6 billion.
That’s a genuine concern for anyone who isn’t already laughing/crying. In fact, Bloomberg wonders if GM is still, legally, a “going concern.”
GM said its 2008 annual report is likely to include a “going concern” opinion from auditors, a signal of doubt about the company’s future viability. That decision hasn’t been made yet, Chief Financial Officer Ray Young said on a conference call with reporters.
“We don’t know if we’re going to receive additional government funding,” Young said. “That’s the reason we objectively put the statement in the press release.”
Quite why anyone would believe a word coming out of GM these days is an open question. The company’s failed CEO is back at the trough after borrowing your tax money against his “worst case scenario” for all of 2009. Which didn’t even last from December to the end of March.
Closed door session? Of course.
It may be a little worse. A few websites are saying they burned through $6.2b in cash in the 4th quarter.
http://finance.yahoo.com/news/GM-posts-96B-4Q-loss-burns-apf-14475958.html
http://online.wsj.com/article/SB123564998854781393.html?mod=yahoo_hs&ru=yahoo
How anyone with half a brain can look at this mess and make the assessment that GM is salvagable (let alone VIABLE!) is beyond me. Does anyone even consider the fact that every single dollar that the government “loans” them is one more dollar that gets added to their already staggering debt? It would take YEARS of GM operating at their more profitable historical levels to repay this debt. Anyone want to wager their life savings that GM will EVER hit those levels of profitability again? This is beyond stupid!!!!!
Oh well!
Why don’t they give GM more money so Wagoner doesn’t have to keep wasting his time going back? Give them 100 billion, that way they might make it until fall, and everyone can get their summer vacation time booked without worrying about attending all these meetings.
I feel as though GM is being successful in framing their situation as sudden and largely out of their control due to the greater financial crisis. The MSM is complacent in this of course. And TTAC is doing a valiant effort swimming against the tide. But when I read a statistic like “today’s results mark four years without booking a profit” it really puts into perspective the snow job GM is orchestrating. Maybe what’s needed is a 1 page summary of GM which provides readers with facts related to their operations for some period of time (Red Ink Rick’s tenure, perhaps). Critical metrics might be graphs charting GM’s profits, sales mix between cars and SUV’s, percent of GM vehicles assembled in US-based plants (versus Canada and Mexico). The options are nearly limitless, but I’d stick to ones TTAC believes are critical at demonstrating how GM put itself into its current position. I think it’s a compelling story which deserves a little chart and graph action…
There was a chart in the New York Times a while back that showed movies sales over time. (found the link: http://www.nytimes.com/interactive/2008/02/23/movies/20080223_REVENUE_GRAPHIC.html# ). It would be cool to show GM’s passenger car line-up charted this way over say the last 25 years. Each vehicle introduction would show a spike then quickly fade to nothing, as has happened so many times. A companion chart could show Toyota’s passenger car line-up and sales over the same time. Obviously, there’d be very few introductions and very steady sales volume.
GM’s boat doesn’t float anymore. Taxpayer bailout help is simply handing them more money to continue sinking. We don’t even get any cars back for our $13 billion, instead planning on buying $300 million in cars as part of the stimulus. Hello? Anybody home? It’s like the feds are trying to drain the lake to prevent them from sinking.
When do they play taps at the Ren Center?
Oh yeah, I forgot. We’ve got the printing presses going at warp speed to make a couple of trillion dollars, to help bail out the
rich bankers
rich wall street speculators
bankrupt and zombie automakers
bankrupt and zombie parts suppliers to automakers
bankrupt AIG insurance co.
bankrupt quasi-governmental mortgage companies freddie mac and fannie mae
folks who bought too much house and now can’t afford the houses, or obtained 1, 2, 3, 4 or more “2nd mortgages” due to treating the “equity” in their houses like an ATM so they could buy yet more crap
Where’s MY bail outs (plural)? (tongue-in-cheek)
Why should I make MY mortgage payment?
For that matter, why should I make MY car payments?
Just why should ANY of us?
Yes, the current situation IS a moral hazard. If you understand what that means (if not, look it up).
Of course, I could also mention that adding a couple trillion to the debt / printing up more money out of “nowhere” / borrowing yet more and more and more from the Chinese (not forgetting they’ll want interest back on their loans) is “somewhat likely” to have “some kind of effect” on the value of the dollars in your bank account/wallet….
Does anyone know what hyperinflation looks like? A friend’s wife was Ukrainian and has been here 7 years, is now a proud American citizen. She says 2001 was AWFUL in the Ukraine. Hyperinflation; being payed in millions of Grivna (sp?) instead of hundreds; having “coupons” sent out by the government for staples (i.e. you didn’t use money – it was worthless – everything was RATIONED).
Look at Zimbabwe, or the history of the Weimar Republic of Germany 1920-1923. That’s what we’re allowing the imbeciles in Washington to do right now, set us up for a major fall.
“GM’s fourth year without booking a profit and the second largest loss in GM’s entire history.”
I’m actually impressed that this was only the company’s second-worst result ever – y’know, considering.
The company’s failed CEO is back at the trough after borrowing your tax money against his “worst case scenario” for all of 2009. Which didn’t even last from December to the end of March.
“You rush a miracle man, you get rotten miracles.”
A while ago one of the B&B posted the stages of grief.I stepped into the acceptance stage about a
month ago.Many of my brethren are still in denial,
some due to ignorance.Others fall into the “too big to fail”school of thought.Many of us active, and retired have the survival skills/money to carry on with our lives.Many do not!
The proverbial fit is gonn’a hit the shan,real
soon.Taxpayers on both sides of the border will not tolerate much more.As Mr Farago pointed out in DW 234 the leaders are indeed between a rock
and a hard place.All we can do is watch and wait.
No one I know would even consider a GM product if they had to buy a new car right now. Most people are looking at used cars without even a thought to new. But imports are seen as the only logical choice.
Is it allowed to state the obvious – GM is waaaaaaaaay too large, and the people who think they’re in charge lost control years ago.
GS650G, that reminds me: the guy I know that sells Nissans is #2 at his dealership.. his best tactic? Telling his customers GM/Chrysler/Ford won’t be around in a few years to honor warranties and provide parts. The customers then trade in their existing domestic horse, or maybe avoid going to any of the D3’s dealerships nearby for something new.
At first I thought this was kind of greasy, but he’s probably doing them a service. Especially with $10k off on the new Titan Gridiron edition! Call today!
GM is waaaaaaaaay to large
To its credit, I’m not sure management could shrink GM much faster.
While GM losing 9.6B is bad, did any car manufacturer escape the 4th quarter unscathed.
Remember, Toyota are going from a projected 6B profit to a 4B loss for the year, when do you think the 10B difference occured?
At $6.2B a quarter (and this will only accelerate), GM is able to pump $2.9 million an hour of printed/borrowed money into the economy.
Much more efficient than many other means.
Why do you keep referring to Rick Wagner as a failed CEO? He’s made plenty of cash from the Gov’t in 2008/09 – and he’s poised to get even more.
Isn’t Wagner an accountant? Perfect. Buy a GM car, and Rick will do your taxes – you’ll get back millions.
The “Going Concern” test accounting will be quite something to see.
@ SkiD666
GM’s full year loss is reported as $31b (!!!!!), which is quite some distance from a forecast ~$6b loss for Toyota’s full year (ending March 09).
I’m just sitting here thinking.When I signed
my retirement request we were given a 14 month
window.I asked for Dec 09.Last fall we were given
many chances,to suggest cost savings.Mikey might
have been a little vocal,and pointed, in his remarks/suggestions.I think I might of pissed off
one of our highly incompetant,pompus,overpaid
assholes.I think I said something to the effect
of”if we are running at 60% capacity why do we keep 100% of our management”?I also asked”why do senior management drive company owned,gas supplied
Suburbans and Tahoes and a Escalade”why not a Cobalt or a G6?I mean afterall we ARE trying to
save money here.Are we not?
Oddly enough my retirement date got moved ahead 11
months to Jan 09.I can imagine senior management
figuring I can shut this Mikey asshole up,real
quick.
So out the door I went with my 100k and my new car voucher.The car is in the driveway the cash is
in RRSPs{thats Canadian for 401k}I hope all my brothers and sisters can get out before the checks
bounce,but I got big doubts.
And thank you senior management,for kicking my ass out the door when you did.As they say”timing is everything.”Something else they say, me thinks it kind’a goes”he who laughs last”
Red ink Way-goner needs to be shown the door ASAP right now today!
OK people, please write your representatives if you feel strongly on this issue.
Find your reps here:
http://www.votesmart.org/
Tell them how you feel. I did…
And I can definitely say their votes on this issue will help determine how I vote in the next election. (and I’m a Democrat)
RF, maybe you can help out here with a letter writing campaign. (If that isn’t taking TTAC too political.)
GM is very lucky that the US government owns them. Otherwise they would need to go into a bankruptcy restructuring and the UAW would be destroyed. The UAW will be saved no matter what the cost to the US taxpayer.
If I didn’t make any money for 4 years, I would lose everything.
How do the they pay their bills with 4 years of negative cash flow?
@shabatski
There was a recent election and the people voted for the most liberal member of the Senate to be President. What did you expect?
How about having the government buy 80% of the Detroit 3’s excess inventory at cost. Then 70% of those vehicles would be offered to the public at 20% below cost. Of the remainder, 20% would be offered in a national lottery with tickets at $10 a piece. The remaining 10% would be given away in a mega-Oprah extravaganza based on random drawings of some national data base. Might be fun and maybe no worse than throwing good billions after bad.
It is now fully obvious that our financial markets are not rational. On the morning that GM declares such a huge financial debacle, it’s stock is only down $0.02 per share. (But maybe that’s because nobody is buying, so nobody is selling.)
edit. OK someone must have heard me rant….it’s now down $0.13 per share…..still, seriously, dude, whose buying this?
@ RF
Interesting to note that the 2007 $38.7b loss included a $38.3b write down, while as far as I can tell this ~$31b includes special items of $3.7b.
If I understand the summary correctly, that means close to ~$27b of REAL cash was set fire compared to ~$400m in 2007.
Is that right??? Anyone?
@PeteMoran….
not necessarily…..the operating loss net of the ‘special’ items of $3.7B also does include “non-cash” expenses like depreciation and amortization, and increases in reserves for asset impairments, and decreases in asset values (like, for example, writing down the value of their inventory of cars on hand from cost to something approximating fair-market-value, which is MUCH less than the cost to manufacture the vehicles.
Still, in an industry where “cash is King”, GM is definitely guilty of serial multiple mass Regicide….
Good thing the windows on the top floors of the RenCen don’t open….
@ bluecon: Given the checks and balances in this country I would expect that the Senate would stand up to RIR/GM & Chrysler. They gave a good show last time the exec’s were there begging, I just expect more from them given the national outcry to stop the never ending allowance.
And I guess I still believe they are our representatives and if they hear from enough of their constituents it could make a difference.
And ranting here on TTAC will not.
Mark, the markets might be irrational but this doesn’t prove it.
I doubt I’m the only guy who thought, ONLY 9.6 billion this quarter? A huge loss was already in the price, cause Mr. Magoo could see this one coming.
“t is now fully obvious that our financial markets are not rational. On the morning that GM declares such a huge financial debacle, it’s stock is only down $0.02 per share. (But maybe that’s because nobody is buying, so nobody is selling.)
edit. OK someone must have heard me rant….it’s now down $0.13 per share…..still, seriously, dude, whose buying this?”
GM’s miserable performance is already priced in.
What toxic said :-)
So, this time, will it be horse and buggy to D.C? Or are they pushing their cars, to demonstrate that they have liberated themselves from oil?
As has been pointed out here before – it’s hard to stop a supertanker, and there comes a point where you realize you started too late, and you know it’s going to hit, and all you can do is watch it strike.
That’s where we’re now.
Honda and Toyota were successful for years … and just dumped their CEOs for not being prepared well enough for these difficult times. Meanwhile, Rick still has a job instead of a jail cell.
Objectively, Japan is a more “socialist” overall country than the US is … universal health care, a well funded public education system, relatively small wage gap from top to bottom and so on. BTW, Japan spends 8% of GDP on health care and has far better health outcome statistics than the US. The US spends over 15% of GDP on health care and ranks at the bottom of industrialized nations for health outcomes.
Americans like to thump their chests about being capitalists, yet we have dismal failures like Waygoner being paid amazing sums to run companies into the ground and we have the worst bang-for-the-buck health care system in the world.
I kind of like Oldowl’s lottery idea. At least it would let us have a little fun while we are throwing our money around.
The part about selling the cars at cost won’t fly though. GM’s net loss was about 20% of its total revenue. So they are basically selling the vehicles 20% below cost anyway. At least they were in the 4th quarter of 08. Now they could be even cheaper.
There was a chart in the New York Times a while back that showed movies sales over time. (found the link: http://www.nytimes.com/interactive/2008/02/23/movies/20080223_REVENUE_GRAPHIC.html# ).
That’s an AWESOME graph. Top Gun in 1986 had consistent popularity that lasted for more than half a year.
But in the past few years it’s been massive hits layered on top of each other with a quick fizzle after a month or two.
There has got to be an easy way to get ahold of a database of sales data across all manufacturers across several years.
From ym point of view, GM was already in a bad situation, but the credit amrket made a bad situation dire (and generally good situations for Toyota and Honda bad.)
A looka t autofinancing terms proves one big obstacle to anyone buying new cars – the fact that auto loans are being capped at 75-80% of the trade-in value.
Not so long ago, maybe a few years, Capital One, BMW Financial, GMAC, etc., would finance a car up to 125% of its trade-in or MSRP. This allowed poeple who were upside-down to trade-in vehicles. Does it make financial sense to do this? Of course not, but zero-interest mortgages don’t either . . . banks (and consumers) took a hiatus from common sense for a few years, and now we are all paying for it.
People are unsure about the economy, so they are holding off on big purchases. People who took big loans – over the value of their cars – can’t get new cars because, no matter what they’re credit score, banks got smart enough to not finance a car for more than it’s worth. For manufacutres that were doing OK, it spells trouble ahead. For GM, Chrysler, and likely in another quarter or two Ford, it spells a minor catastrophe.
How anyone with half a brain
TexN, look at who is doing the salvaging…
Here are three German NATO ships on maneuver. The captain of one forgets he’s not in a dingy with a beer, and decides to have some fun. Two POVs on the maneuver.
I think Rick Wagoner probably felt good after having evaded the first ship (first installment from D.C.,) but reality is a bitch. Stupid is as stupid does.
(And in the second POV, note the music in the background as Germany’s finest destroy two warships, all on their own. I have a feeling they were just as serious at RenCen, as they steered GM straight into a sheer cliff.)
NickR,
True that! At what point does the American taxpayer say, “Screw it!” and just drop out of society? Our government abandoned us years ago, but they’ve only gotten more brazen about their disregard for taxpayers in the past 20 years.
Tex
p.s. Dear Congress, it’s not YOUR money, idiots! It’s OUR money!
@TexN
Actually, it’s your grandchildrens’ money.
But there’s a reason why one should pay one’s taxes. Anthropologists now have incontrovertible proof that living in the time before organized societies was not that much fun – there was constant warfare, raiding parties, and cannibalism. Central Europe was a riot.
Voters should maybe pay a little more attention to what kind of morons they send to Congress? Because there are a lot of morons in Congress. Maybe voters should even vote for the few who want to hold business accountable, instead of just taking handouts from lobbyists? Just saying.
It’s not just the congressmen and senators and administration who are morons. A lot of voters are, too.
Look at it this way.
Something like 28% of the voting age public just voted a system into place which quite obviously failed the Soviet Union, North Korea, Eastern Europe and which has been abandoned for all intents and purposes, by China and Vietnam.
The system can be boiled down to this: society is made up of two groups.
Doers and users.
Doers, do. And thrive, when the climate is possible for them to do so.
Users, use. They are the equivalent of the chicken theives in the Ozarks in the 19th century.
The system recently put into place (essentially, over two years ago when the Demoncrats got total control of the CON-gress) can be simplified down to this:
Users can’t be arsed (bothered) to get off their dead asses to steal from Doers directly, so they vote in a bunch of people to do it for them via the “government”.
Before you Repugnicans get all up on your high elephant and trumpet, most of your politicians are nothing more than RINOs, not elephants.
Time for both old political parties to go away.
Time for the people to take back our country, one state at a time.
It may be happening as we speak, in a way that “almost nobody” expected.
http://canadafreepress.com/index.php/article/8233
Apparently, some 30 states are on-board with this process. Just 34 are needed (2/3 of the states) and the Federal Government WILL be reined in – or else I suspect that the US military will actually turn against their overlords in Washington DC and side with the people.
That is what I think we have a good 1 in 10 chance of having happen. Just a wild ass guess.
But I’ve been watching the patriotic underground web and I suspect that the groundswell of people who do not want what 28% of us have “elected to do” to the rest, is going to stand.
GM is only a side-show.
Holy gallopin’ horses. I think it’s time for a vacation. :-)
Americans like to thump their chests about being capitalists, yet we have dismal failures like Waygoner being paid amazing sums to run companies into the ground and we have the worst bang-for-the-buck health care system in the world.
Correct. The claim that the US has a capitalist system if a fraud successfully perpetrated by corporate types for their own benefit while depriving those lower on the economic ladder. Look at the goodies handed out to agribusines. Farmers are subsidized in various ways to the likes of Cargill and ADM can squeeze them and profit mightily. The players in the real estate industry are subsidized by mortgage payment deductions at tax time. Without this, real estate prices would come down, and the only sure losers would be those in the industry from what I can see. Non-profit hospitals pay huge salaries to their administrators, but a recent study found most do little in helping low/non paying patients. So why the non-profit status? Our medical system is run to the benefit of insurance and drug companies. It’s going to be almost impossible to change this mess.
Stein
But there’s a reason why one should pay one’s taxes. Anthropologists now have incontrovertible proof that living in the time before organized societies was not that much fun – there was constant warfare, raiding parties, and cannibalism. Central Europe was a riot.
Oh Leviathan save us from ourselves
and after the establishment of ‘organized’ societies their was constant warfare, raiding parties rape murder mayhem, just on a much bigger scale and for the benefit of only a few
Ie the second world war
To put this in perspective General Motors only EARNED about $47 Billion between 1994 and 2004.
What? No bonus!?
Something like 28% of the voting age public just voted a system into place which quite obviously failed the Soviet Union, North Korea, Eastern Europe and which has been abandoned for all intents and purposes, by China and Vietnam.
I’ll agree with much of what you say, but what’s happening in the US today is nothing even remotely like what happened in any of the states you’re mentioning, and it’s certainly not what they voted. I know you’re trying to raise hackles, but equating what’s happening now with Communism or Fascism isn’t true.
The state is not seizing the means of production. I wish they were, because at least we’d get some value for our money. What the state is doing is basically providing patchwork loss insurance to business with absolutely no strings attached. That’s about as far from Communism or Fascism as it gets, because all the government is getting out of this is liability.
I know a lot of actual hard-core leftists (real ones, not lightweight centrists like the Democratic Party) and they’re even more unhappy about this kind of thing than the Libertarians seem to be, if for entirely different reasons.
@ John Horner :
Great article in the NY Times about the new CEO of Toyota, an actual Toyoda:
http://www.nytimes.com/2009/02/15/business/15toyota.html?_r=1&scp=1&sq=toyoda&st=cse
he seems like the type of leadership the domestics are lacking!
@ Stein X Leikanger :
That’ll buff right out.
Instead of cackling with glee over the size of GM’s loss, people should be thinking about the wider implications of this. Businesses with large overhead are getting slaughtered in this economic environment. It does not matter how well run they are. A thirty, forty, or fifty percent decrease in revenue will kill many businesses. How many quarters can Toyota go before they have to batten down the hatches by taking drastic action? Right now they are watching money they hoarded over a period of years go up in smoke.
If the economy continues like this for another two or three quarters then we are all in deep dog doo. GM failing will be the least of our worries.
Qwerty: thanks for putting things into perspective for those of us who haven’t actually donned our tinfoil hats today while listening to Radio Paranoia.
Qwerty actually has a point, the official recession has now been on for 15 months, and men such as Paul Volker (former Fed Reserve Chair), George Soros, and even Warren Buffet are now talking about a Depression (with a big D) to rival that from 1929-1937. Many companies might not survive a protracted downturn. That said, GM seems to be ahead of the field in the failure department.
GM had 32% fleet sales in Q4. Their annualized retail sales in the US were only 1.6M. That’s lower than Toyota. Retail customers have gone on strike!
On top of that they lost a lot of money in Asia, South-America and Europe. Everywhere!
I don’t see how the government can salvage this wreck.
Who’s in charge here?!? Would our parents condone this unbriddled spending on failed enterprises?!?
A Proposition to Save our Auto Industry
Andrew Gross, Chairman & CEO, Automotive Consulting Services, LLC.
On the matter of what’s needed now to unclog inventories of existing new vehicles on-ground at dealerships and factory lots in the US set to put people back to work at US Company owned factories in the US (and elsewhere) ASAP, I propose:
1. Offer direct federal access to funds to franchised new vehicle dealers for the purpose of accelerating loans for qualified consumers and fleet operators.
Franchised new vehicle dealerships sales actualization requirements must also be taken into account in this matter as they are an integral part of the new vehicle sales “food chain.”
If traditional funding sources don’t want to, or find they simply can’t sufficiently underwrite this business, let’s seek out and provide motivated lenders who would then be provided access to special funds set aside by the Fed under special circumstances or rules established for this purpose.
2. Accelerate Special Offers for Fleet Operators to cycle their vehicles
This would include all private as well as public fleets not as yet contemplated by the present plan (i.e., non- Federal Fleet vehicles), to ensure fleets replace their vehicles as they would normally cycle them.
These offers should seek to balance alleviating inventories of existing new vehicles on-ground outside auto manufacturer factories and their franchised dealers in the US (and elsewhere), while phasing in offers for more fuel efficient vehicles as the existing inventories of new vehicles are more rationalized. The offers could include everything from accelerated depreciation, cash incentives to guaranteed residual values.
3. Auto Manufacturer and Parts Supplier Shareholders’ Guaranteed Value Plan
This proposal would reward long term stockholders of companies who pass similar, so-called stress tests now planned for the banking sector. For this purpose, “long term stockholders” could be defined as those who retain the stock for an agreed-to period of time.
The plan would contemplate developing a formula which would guarantee a certain “floor price” for qualified stock.
The benefits of such a plan would include taking a great deal of uncertainty out of the value of companies who remain in this space by virtue of a larger group of shareholders who, in effect, have been encouraged through this guarantee to hold onto their stock. These companies, in turn, would benefit from access to funds from the stock purchases as well as other financial benefits associated with increased stability.
4. National US Auto Industry “Super Sale”
Designate a short, specific time period where consumers would benefit from the acquisition of a new vehicle through any number of offerings (i.e., large cash incentives, pre-paid maintenance, extended warranties, accelerated tax incentives beyond those passed in the stimulus bill, etc.) all set to, again, unclog existing inventories and get people back to work.
While I hate to admit it, it does same as though the our esteemed elected officals in Congress were right after all. A million here, a million there and pretty soon you’re talking real money.
That coffin reminds me of a scene out of “The High Plains Drifter”, when Clint Eastwood says to the undertaker “Get two coffins ready”. He then proceeds to shoot three bad guys, goes back to the undertaker and says “My mistake – make that three.”
The first two coffins represent GM & Chrysler. If things don’t go well, Ford could very well represent the third coffin…
Oh yeah, I forgot. We’ve got the printing presses going at warp speed to make a couple of trillion dollars, to help bail out the …
That’s not what’s happening now. The money supply has only been expanded by about 10% in the last year, to improve liquidity. Unlike some past eras, and acute periods of monetary inflation elsewhere, we’re so far using or planning to use debt to provide some equilibrium to the economy.
We have a “balance sheet” recession, wherein everyone at once is trying to get square. What’s sensible for individual companies and individuals is seriously dysfunctional en masse. It can spiral out of control; it doesn’t have to. The whole point of the Federal government jumping in is to put a floor under an economy suffering from the anomaly of an unwise and unmitigated mega-correction by all other parties. It doesn’t have to be inflationary in the least if the resulting debt is paid back from growth. Of course, for everything to work properly over the longer term, when the private sector’s spasm of mass correction wanes, then the Federal government can back off and tend to its own balance sheet. We did this during the 1990s to pay down an appreciable portion of the Reagan era debt.
I repeat, the Federal government is doing the right thing; in fact it should do more. I would have liked to see a $1T stimulus bill more tightly focused on infrastructure renovation, expansion of mass solar energy, and education.
Similarly, the float to GM (and eventually Ford) is precisely for bridging a crisis. Who cares if without Federal financing GM would now cease to be a going concern? The whole point here is to fix a broken company and float it to a point when a healthier market gives it a fighting chance. Every major player is struggling not to lose alarming amounts of capital. GM’s loss was smaller than I expected.
I don’t care if it costs $100B to bridge GM. Yeah, it should come with conditions, along with board & management changes. But financing a radical restructuring of GM and Ford at $100B or $150B will be cheaper than the consequences of losing them precipitously. They can take 40 years to pay it back for all I care. The terms just don’t matter.
There is *no way* to shrink a modern corporate entity at a pace that matches contraction of a market. Once you start down that path of belief, you will almost always come to grief. Businesses *must* operate on a growth mentality, with tactical retreats when necessary. Everyone here who thinks GM isn’t shrinking fast enough seems to lack any actual operating perspective. While it’s true GM waited too long to address many of its problems, their pace of adjustment over the past 4 – 5 years has been impressively rapid relative to their size and starting point.
No, that’s not an endorsement of the current CEO, because there’s so much else he and his team did not do, or did badly.
The current problem exceeds any trans-nationally-scaled company’s ability to manage for any extended period of time. The Federal government, and governments elsewhere may have to think more radically about putting purchasing power and incentives to spend in the hands of individuals to get things moviing again. These bailout figures are trivial compared to the consequences of global seizure due to unmitigated, irrational groupthink.
Managed correctly, we can get through this recession with less unemployment than in 1980, and a ramped adjustment to our consumption patterns for more sustainable economic performance. But it will take cool heads and enough level-headed optimism in the middle to sideline the ideologues retarding practical action.
Phil
The thing that scares me is that GM wants at least $40 Billion to “tide them over”. I think the government needs to force them into CH 11 – style reorganization, and let Cerberus figure out what happens to Chrysler and Nardelli without any more of our money either.
One poll I saw (maybe here yesterday) showed 75% of the country is against a bailout for GM and Cerberus. If the politicans screw this up it may be pitchfork time at the Capital before they know it, so they need some plan that does not sink our cash any further into this mess or the honeymoon is over.
They will have to spend some of our money, but they better get very good at convincing us it is to build for the future instead of putting TP into the executive’s outhouse at RenCen.
Phil: thanks for a much-needed dose of business perspective. Do you work in the financial world?
cpmanx,
Most of my career has been spent in management of growth tech companies, especially software, and all have been international even when small. I recently spent 5-1/2 years in venture capital and am now back in an operating role. My core management background has been marketing, strategy and operations. I don’t mind answering the question because I’m easy to research anyway via any search engine.
Phil
Ressler: “GM’s loss was smaller than I expected.”
History suggests we wait for the restatements to finish before deciding whether or not the loss was smaller than expected.
Ressler: “There is *no way* to shrink a modern corporate entity at a pace that matches contraction of a market.”
GM is sized for a bigger share of the market and more units than they are going to get in your or my lifetime. GM, either through willful negligence or intransigent neglect, allowed their share to creep steadily downwards for a decade while they were credit-pumping the auto market. GM knew GMAC was writing irresponsible loans to ease people out of upside-down cars and into new GM iron. GM had to know (or should have known) that a market correction was going to occur. They couldn’t predict the drama of the current adjustment but they should have known it was coming because they helped it along.
GM’s monthly sales report has about 70 vehicle models listed on it (I removed totals and vehicles that are still on the list but phased out). Perhaps 10 of these are in segments uncontested by Toyota (Savana van, for example).
Toyota’s monthly sales report has 30 vehicle models listed on it. Three of these are in segments uncontested by GM (the Prius, the Yaris and the Sienna).
Why does GM need an extra 30 models?
There is a way to shrink GM. Chapter 11. Get rid of the things that are not needed (at least twenty models, for example, and three or more brands) and make it the right size for the market it can get.
Ressler: “I don’t care if it costs $100B to bridge GM.”
Most of us do care. That’s $300/person or something like $1000 per taxpayer.
The median wage at GM, after givebacks, is higher than the median US wage. Propping GM up is crazy.
Ressler: “The Federal government, and governments elsewhere may have to think more radically about putting purchasing power and incentives to spend in the hands of individuals to get things moviing again.”
Why would we incentivize people to buy something that they don’t need and which does not increase the productive capacity of the country? Are we going to continue writing loans to 130% of value? What got us into this in the first place?
Why does GM need an extra 30 models?
They don’t, but product proliferation and duplication isn’t the first order problem depressing revenue at GM. Their lineup should be rationalized but they can also succeed while having more models than Toyota if the first order problems are addressed.
Most of us do care. That’s $300/person or something like $1000 per taxpayer.
As with RTC, we won’t know the cost per taxpayer until we know how much has been recovered through repayment of the loans. And if it’s $1,000 per taxpayer but that cost is distributed over many years, the incremental cost is easily born. I’d be happy to see that cost distributed in this case over a few decades.
Why would we incentivize people to buy something that they don’t need and which does not increase the productive capacity of the country? Are we going to continue writing loans to 130% of value? What got us into this in the first place?
People aren’t refraining only from buying what they don’t need. They’re holding back from buying what they do need. We don’t have to write — and shouldn’t — 130% loans. But we can make funds available to people wherein their access is specifically contingent on a retail or housing purchase. Or we can think more holistically about the problem. The country’s largest, most productive, most vital state economy by far, California, cannot uncork its housing market until obstacles to jumbo loan financing and refinancing are removed or lowered. Want to unleash a wave of buying power into the market? Set a 4.5% maximum interest rate for performing home mortages for the next ten years. The banks will make plenty of money on that. Policy makers and private sector parties of influence have to get creative holistically to get ahead of the problem. Mostly, we’ve been reacting to this crisis with excessive incrementalism. It requires dramatic response.
We had a condition of no-vetting of borrowers. Extreme vetting to the point of capital unavailability is equally wrong and more precipitously traumatic and damaging. The Federal government can be an agent for equilibrium when no other influencers of sufficient size are willing or available.
Phil
Phil Ressler: As with RTC, we won’t know the cost per taxpayer until we know how much has been recovered through repayment of the loans.
Which is why any bailout should include a REALISTIC assessment of the probability of the loans being repaid. Loaning money without any assurances that it will be paid back is part of what got us into this mess. The last thing we need is the federal government doing the same thing on a large scale.
Right now, the probability looks to be very low. GM was a very sick company before 2008. The recent crash in auto sales exposed its weakness.
Even worse, GM doesn’t just need more money. It needs a wholesale culture change. And it also needs to shed lots of jobs – both blue-collar and white-collar jobs – and dealers and divisions. I doubt that any government loan package will face that reality, because it is too politically unpopular for BOTH parties.
Phil Ressler: The country’s largest, most productive, most vital state economy by far, California, cannot uncork its housing market until obstacles to jumbo loan financing and refinancing are removed or lowered. Want to unleash a wave of buying power into the market? Set a 4.5% maximum interest rate for performing home mortages for the next ten years.
California’s economic problems go far deeper than a depressed housing market. And housing prices in California (and more than a few other states, as well). If anything, housing prices need to fall more in the state to bring them in line with incomes.