Possible Bailout Breakdown for Detroit's Big Three

Executives with Ford Motor Co. (F), General Motors Corp. (GM) and Chrysler LLC marched into the U.S. Senate banking committee Tuesday to launch their biggest selling job in decades. Their message: Help us survive the worst financial crisis in a quarter century or the U.S. economy will suffer yet unimaginable pain.

In the end, federal aid is more likely than not, JP Morgan analyst Himanshu Patel wrote in a note Wednesday, although the timing of the aid is “not imminent” as key differences remain amongst influential power-brokers.

Any cash handed to Detroit’s three as part of a $25-billion U.S. government-engineered rescue package will likely be parceled out based on the market share of each company, the analyst said. As the largest automaker, GM would get between $10 to $12-billion. Ford would receive between $7 to $8-billion and Chrysler $7-billion. The levels would generally compensate for the companies’ projected cash burn in 2009, the analyst wrote.

Itay Michaeli, analyst with Citigroup Global Markets, said that GM’s request for $10 to $12-billion “would likely prove insufficient” to fund 2009 cash burn, its health care payment commitments, debt maturities and a more competitive level of capex.

He said in a note:

We would continue to view a $25-billion loan package as a near-term bridge to buy more time ahead of an inevitable restructuring that further addresses costs and high financial leverage.

Mr. Michaeli has a “sell” rating on GM and Ford shares.

Comments

[PeteK:]

$10 to $12 billion "would likely prove insufficient" to fund 2009 CASH BURN.
How terrible this sounds !!
How the hell it gets to this ?
Taxpayers will never have any CASH to BURN.
Automakers just drop dead and start all over again.
That's the only way.

2008 Nov 20 06:00 AM

[anonymae:]

This was posted on Bloomberg.

""GM said Nov. 7 it may run short of the $11 billion minimum cash it needs to pay its bills each month by the end of this year and will fall ``significantly'' short of that level by the middle of next year.

To contact the reporters on this story: John Hughes in Washington at [e-mail]... Jeff Green in Washington at o [e-mail]...
Last Updated: November 20, 2008 13:10 EST"""

Dec to July is 7 months. 7x11 = $77 Billion

This means GM must be turning a profit by July to survive. There is no way this will happen and the money will be wasted.

If GM fails, it by no means everyone is out of a job. What will happen is the good parts will be bought by Chrysler, Ford, and other companies. If they fail, private equity firms will carve the good stuff out. Just think, wouldn't it help the problem for the industry to purge its inefficiency quickly, however painfully, and get back on track. This package just delays the inevitable.

I am Democrat and big Obama supporter, but this simply does not make any sense.
On Nov 20 06:00 AM Allears wrote:

> $10 to $12 billion "would likely prove insufficient" to fund 2009
> CASH BURN.
> How terrible this sounds !!
> How the hell it gets to this ?
> Taxpayers will never have any CASH to BURN.
> Automakers just drop dead and start all over again.
> That's the only way.

2008 Nov 20 01:43 PM