And there I was, calling “profit” GM’s new “Voldemort.” Yesterday, Government Motors’ federally-funded advisers used the ‘p” word in documents filed with federal bankruptcy court. Evercore Partners predict that the zombie automaker will return to life (though not as we know it) by 2014. What’s more, stock in New GM will be worth $48 billion straight out of the gate. Hang on. I’m lousy at math (as you know). But if the United States government owns 60 percent of a $48 billion New GM, our share on day one would be worth $28.8 billion. So, if the feds dumped those shares, we’d “only” lose $19.2 billion. SELL! Of course, it doesn’t work that way. But then, I’m betting dollars to donuts (heads-up: it’s national donut day) that it won’t work the way Evercore Partners says it will, either. With a little help from the Detroit Free Press, let’s look at their numbers . . .
The company’s financial adviser, Evercore Partners, offered projections for GM’s finances in its bankruptcy case based on several scenarios. It forecasts that GM will lose $17.5 billion this year before reaching a profit of $3 billion in 2011 before taxes, rising to $7.8 billion in 2014.
The new GM will count on a rebound in U.S. vehicle sales from about 10 million this year to about 16 million by 2012 to pull back into profitability, pumping up its output from 3.8 million vehicles worldwide this year to 6 million by 2014. The estimates are slightly more pessimistic than what GM used in its Feb. 17 plan, but match those of some analysts.
Taxes? Didn’t we already establish that the Treasury Department made a special exemption for Old Skanky GM that allows the self-same beancounters to carry forward their liabilities into New GM, and, therefore, pay not dime one in taxes?
Whoa! That’s a whole lot of loss there pardner! That’s nearly three quarters of all the New money the feds are shoveling New GM’s way. Anyone remember that $10 billion pad GM needs to keep the lights on?
Even with con-concomitant federal bailouts headed to anyone who even talks about the auto industry (e.g. suppliers, dealers, customers, union members, “affected” communities, Canadians), a $10 billion cash flow safety net would leave GM with just $2.5 billion at the end of the first year. That’s hardly enough to hand-build a dozen $40,000 Chevrolet Volts.
The Freep may think that Evercore’s (an ironic name if ever there was one) projections are more pessimistic than before, but there not what I’d call pessimistic pessimistic. I mean, a six million new car sales jump in the next two years? If New GM really wants to come to the dark side, they need to do worse than that. How about flat-lining sales for another year, with, say, a 10 percent increase in the year thereafter?
Actually, let’s be even more TTACian about this: do these projections account for GM’s falling market share? I think not. What if Buick, Cadillac, Chevy and GMC continue along the same arc they’re on now? What’s going to reverse the curse? The new Lucerne, CTS Sportwagon, Cruze and rebadged somethingorother?
Bottom line: New GM won’t last much more than a year without a fresh federal funding infusion.
Shame on the Free Press for even publishing that story. You would have to be incredibly naive and moronic to believe those numbers. Oh, wait….
…16 million by 2012…
They are smoking crack. If GM needs this number to survive then they are going to die.
Same sclerotic corporate culture. Check
Same delusional sales projections. Check
Must be the “New GM”. Checkmate.
And I still ask, why do we need Buick and GMC? That would make the dealer cull a little easier, just eliminate BPG dealers altogehter and, voila! There just doesn’t seem to be any reason to keep them.
National donut day, huh? Sweet. I celebrated this morning and didn’t even realize!
These forcasters are just as stupid as the GM management was at it’s own future predictions. The “new” GM is just as wishful as the old GM was and planning their future on some pipe dream.
16m is a fantasy number, they should be setting tyhe company up to be profitable at 11-12m or better yet what it is now. And my 2012 GM will be lucky to still be holding onto a 15% market share. When they stop selling Pontiacs, Saabs, HUMMERs and Saturns their market share isn’t going to go up it is going to go DOWN.
2014 my ass, GM will be sucking up our tax dollars way longer than that.
On Tuesday, during the May Sales and Production conference call, LaNeve (I think it was LaNeve, I have difficulty distinguishing between his voice and Mike/Mickey G’s) was asked about prospects for the New GM by a reporter. Marks’ response included this (very nearly verbatim, if not exactly so):
“If you think about it, the taxpayer is invested with us, now, because of the equity position the government is going to have.”
If I recall correctly, he went on to say that this might give people a reason to consider GM, if they had written GM off previously.
I have to wonder if this sort of thinking is driving sales projections… Never mind, “Buy American” or any of that nonsense, it’s now, “Buy GM or you’ll neve see your money again.”
I hate to disappoint LaNeve, but I’ve already written that money off and a GM is not in my immediate future.
If anyone’s interested and can find a webcast or recording, it’s probably about 35-40 minutes in.
Thanks, Robert. My day was already off to a shitty start and then I had to read this post that accurately portrays how this fiasco is going to play out over the next year or two. Not even a donut is going to get this taste out of my mouth.
Plain and simple —
If GM can’t be profitable until 2014 with these optimistic assumptions and Ford will be profitable in 2011, Ford will eat their lunch!
Ford has better management, better plan, better products, growing market share, and a brighter future than the GM Zombie. The only hope for GM would be to broom most of the PC management down to the department level and replace them with engineers and others who haven’t drunk the “kool aide”. Wresting control from the “beanies” won’t be easy but it is their only hope.
I agree with mach1. Ford has actual (bread and butter, not niche) product in the pipeline and a decent set of products right now.
On the other hand, GM never really *has* to be profitable ever again. They seem to be inexorably tied to the government and I don’t see that changing for a very long time. What motivation is there for GM to be profitable? None that I can see but I might just be thinking pessimistically.
I can, however, say with certainty that any GM product will fall at the absolute bottom of any list of vehicles I would ever consider from here out, while Ford would be at, or very close to, the top. In fact, walking would probably be a strong contender against a GM purchase at that point.
Cool – I’m not worried anymore that we, the taxpayers, won’t get repaid then. This made my day.
In other news, Osama Bin Laden converts to Christianity and Robert Farago is named editor in chief for Motor Trend.
Should we believe GM’s math? They’ve made a lot of mistakes before.
– Under-estimated how far the new car market would drop. I think The Rick predicted it would drop to 12-13 million. It ended up dropping to 10 million.
– Under-estimated how much money they would need from April 1, 2009 to May 31, 2009. The money they asked for barely got them to May, or a little over a month.
– How many times have they had to re-state earnings the past few years?
Of course, they are going to need a lot more money from us. $20B was barely enough to keep them propped up for six months. How long do you think the new $30B will last? My guess is that it won’t last until 2011 when they will supposedly be profitable, and perhaps not even the seven months until the end of 2009.
“pumping up its output from 3.8 million vehicles worldwide this year to 6 million by 2014.”
So, after ditching 4 brands, + Opel & Vauxhall, absorbing higher CAFE standards which (may) make SUV’s more expensive to sell, etc., etc., GM will almost double their worldwide output?
Based on the Camaro and Volt we already know it takes GM at least FOUR years to go from drawing board to your driveway, so factor that delay into their “turnaround” plan.
The new GM will count on a rebound in U.S. vehicle sales from about 10 million this year to about 16 million by 2012 to pull back into profitability, pumping up its output from 3.8 million vehicles worldwide this year to 6 million by 2014.
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Very very funny.
GM current market share in the US is roughly 20%. And they are going to cut Saturn, Pontiac and Hummer. And they are supposed to get leaner on the remaining brands to gain better margin.
Can I safely assume that their US market share would be 12% (60% of current level) at most in 2012? Otherwise, how can it be lean?
Let’s optimistically assume that sales does recover to 16 million. Multiply 12% will give you 1.92 million units sold in the US.
How is GM going to sell 6 million world wide? It seems they have to sell twice as many cars in China than in the US to archive that goal.
If the market doesn’t recover and stays at 10 million, then GM would sell 1.2 million in US. Then, they have to sell 4 times as many cars in China than in the US to archive that goal. We know China is good. But that good?
No, don’t count on European sales. Opel and Saab would be gone, remember?
I imagine GM will mostly keep its Pontiac fleet volume, which is a distressingly large chunk of their sales. I don’t know how they’ll badge it and sell it but I do see them hanging on to that market.
One question: is that supposed profit after the interest expense?
I mean, GM is on a government loan of $50~100B. If the interest rate is 5%, that would be $2.5~5B per year.
And that’s already with government support. GM would be lucky to borrow at 50% interest in a real capital market.
wsn Don’t they have until like 2020, to start paying on all the money they owe. Well the money they owe us taxpayers. And is it really a loan if we are purchasing stock. Even if it is a loan there is a high chance the government might just forgive it “because they have been making good on their turnaround”. Funny how the government never asks us who have to pay the debt if we want it forgiven, like in the case of other countries.
For the next 5 years there is only one real way for GM to turn a profit in the US: sell a lot more pickup trucks AND reduce incentives on them.
Is that likely?
By 2014 the auto world will be a very different place, so who knows what will happen to them by then?
Bankrupt companies tend to lose market share and are otherwise in tremendous turmoil, so it will be hard for GM to hang in there. I wish them all the best with it.
Isn’t some sort of profit target something you’ve been wanting for a long time Mr. Farago?
King Bojack
Yes indeed! And now that we have it, the flaws in GM’s logic are revealed. As they should be. Seeing as its our money and all.
Technically taxes are the government’s money after they rob your paycheck/merchants revenues.
Well, what more will it take before you’ll at least give the illusion of optimism that the government or GM are/aren’t wasting their time?
They’ve entered ch 11
They’ve raped their dealer network
Improved quality (having next to 0 resources too)
Kicked the Union in the junk
Unloaded/ing toxic brands
Canned Wagoner, Lutz is gone
Shat on debt holders
Dumped health care on the VEBA (by hook or crook)
Out of all of these the quality and deseriability of their current cars is the only one up for opinion. The rest is fact for better/worse.
What more will it take? Is a total clean up of any and all GM management what you’re after? A giant public apology? Supposing a soothsayer scares LaNeve and Fritz and co. into early retirement and the whole board dies in a train wreck, what do you and who do you suppose would be best qualified to fix it? What would you do exactly in GM’s current situation? Not flames but honest questions Mr. Farago.
This $48 billion estimate is pretty close an estimate I published a few weeks ago of $50 billion.
The article is here:
http://seekingalpha.com/article/139318-trading-the-gm-bankruptcy
Based on this I suggested people buy GM bonds when they were trading for 6 cents on the dollar. Before trading was suspended this week they had just about doubled to around 11 or 12 cents.
If GM is worth $48 billion post bankruptcy, then the equity bondholders will get will be worth more like 17 cents.
My initial estimate is the warrants that GM bondholders will get will bring up the value of the GM bonds to about 37 cents on the dollar.