GM: Delaying the Inevitable

| About: General Motors (GM)

General Motors (GM) recently released another awful quarterly report, announcing a $2.5 billion loss on revenues of $37.9 billion (down $5.8 billion on Q3 2007). Over the last quarter, GM burnt nearly $50 million cash per day. Based on a 30 September balance of $16.2 billion in cash, marketable securities and readily available assets, GM has approximately 350 days of runway. This back of the envelope calculation is typically reserved for startups, not a 100 year old company with a 1/4 million employees.

The current global economic situation will have a significant impact on GM, but it is an accelerant rather than the cause of GM’s current woes.

Despite growing revenues GM has lost market share to competitors such as Toyota (TM).

click to enlarge images

Source: Reuters

Source: Reuters

GM and the US auto industry in general have failed to address the key issues (labor costs, product development and supply chain management) they are facing:

Source: Reuters

Source: Reuters

...resulting in the destruction of shareholder value:

Clusterstock provides a summary of GM’s CEO Rick Wagoner’s performance at the helm including losing $67 billion over 8 years.

GM is in the process of implementing a series of actions to improve their liquidity position by $20 billion by the end of 2009. Despite these steps there are calls for the US Government to step in and ensure GM does not have to file for bankruptcy. Based on the recent bailout of the financial sector, potential job losses and historic actions in the automotive industry it is unlikely GM will be allowed to fail without some type of intervention.

The issues faced by GM are not going to be solved by an injection of capital or tax payer gauranteed loans. Given the track record of the board and management team any bailout will only delay the inevitable bankruptcy, sell off or merger of the US’s largest auto company.

Disclosure: none