GM's Balance Sheet: A Sign of Impending Doom

O.K class, let's discuss why General Motors (GM) is going bankrupt. Has anyone looked at their balance sheet lately? Let's review.

As of March 31st, they had cash of around $21 billion. They had receivables of around $10 billion. But they had accounts payable of $30 billion and accrued expenses of $34.5 billion. Ouch.

They have some other current assets (inventories, equipment on lease) but when you add up all the current assets it's still over $5 billion less than the current liabilities.

In addition, they have $33 billion in long-term debt, $49 billion in post-retirement benefits, and $11 billion in pensions.

One of the only things this organization seems to have as assets is deferred income taxes (a total of over $44 billion). But even with that, they still have a negative shareholder equity of over $4 billion!!!!

GM has just issued a secured loan against one of their last unleveraged assets (their equity in GMAC). So as expenses come due and if losses continue, who's going to lend to this frankenstein monster????

It may take a year. It may take two or three.

But as far as I'm concerned they are already bankrupt. Just read their balance sheet, and weep.

GM has spent the last two decades selling anything that made money: Hughes, EDS, GMAC. Yet they have emerged from this sales process with even more debt.

Now all that remains is their car business which is losing market share and probably has further to fall.

Don't get me wrong. There are many positives to GM. It is expanding internationally, it benefits from a weak dollar, Bob Lutz is unleashing creative talent and GM may achieve success in its negotiations with the UAW later this year.

However, all these positives are too little too late. This bureaucratic, old-school company has not moved fast enough and now it cannot escape that juggernaut, that reality: its balance sheet.

On the negative side, GM faces write-downs from Delphi, possible further restructuring costs and losses, and its expenses and payables coming due. Furthermore, there is increasing likelihood the U.S. economy could remain slow or even contract a little. If GM needs further financing, who will lend more money to this Frankenstein monster? I doubt any banks will lend unsecured to GM given its financial profiles, and I don't think it has many unsecured assets left!

Chrysler, which had some unsecured assets left, was essentially given away to Cerberus. GM, on the other hand, still has $17 billion in market cap at today's stock price of $30 a share. GM has had a nice bounce up, but it seems like a dead man's bounce. I doubt even private equity can save GM now.

Disclosure: Author has a short position in GM

GM 1-yr chart

Comments

[Sr. Pessimist:]

Ford and GM. Both. That billionaire dropped his offer for GM down to $4 billion. He's really paying attention. They're already in the hole $5 billion. I think he gave them a break-even exit. So his appeal to the workers was, "I'll buy this out, by settling the debt, and you guys will still have jobs. If the offer is not accepted, then the officers, shareholders, and upper management don't care if you guys have jobs or not. It's up to them." Kirk Kerkorian was his name.

2007 May 31 05:16 PM

[k_denninger:]

Ford looks like a good short play, other than being too cheap. But their just-in-the-money PUTs a week or so ago were selling in the front month with NO PREMIUM! Gee, that was nice - I jumped all over that one. A break below the $8.10 level on Ford (pretty much where all the MAs cluster right now) would be incredible, with the next real support in the $7.50 range and then at $7.

Below that the chasm yawns.... and their recent sales numbers have been nasty.

GM on a technical basis looks like dogmeat. They had their Death Cross, the stock has pretty much flatlined, it has taken several runs at getting over the MAs and yet has been unable to hold. Stochastics Friday suggest perhaps another run at the MA level, perhaps up as far as to the 100 and 200 (which are nearly at the same place), but that looks like an EXCELLENT short entry to me if it gets there and can't break it. Of course a big break downward would be a good entry too; you get below $29, which is very strong support and you've got a pretty clear path down into the ~$25 range.

There's nothing to like about the US Automakers when it comes to "the big picture". Labor is still out of control, health care costs are stratospheric and there's no sign that either of these issues can be dealt with. The companies bought off labor action with unsustainable and unaffordable concessions years ago and frankly I don't see how they can get out of the box now, other than Chap 11 the mess, repudiate the obligations and tell the UAW to go screw.

2007 Jun 04 12:13 AM