How Is GM Still Alive? 26 comments
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In the world of eye-popping earnings, GM has managed to beat even Exxon Mobil (XOM). Exxon made a profit of $11.7 billion in the second quarter; GM has managed to come out with a $15.5 billion loss, or $27.33 a share.
How this company is still operating as a going concern is really beginning to baffle me:
GM, turning 100 this year, in 2007 reported its largest annual loss, $38.7 billion, after a tax-accounting change. It hasn't posted a profit since 2004.
Check out the penultimate line in GM's 20 pages of "financial highlights". It shows a "total stockholders' deficit" of $57 billion, up from a deficit of less than $4 billion a year ago. Yet the decline in market capitalization over that time is less than a quarter of that: the company was worth about $18 billion then and is worth about $6 billion now. Was the market really pricing in $40 billion of losses a year ago? And more generally, how and why is the market keeping this insolvent company afloat?
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They have a huge cash position still, of $20 billion, that comes from big bank credit lines. But at the current rate, they could run through that in 4 months. They will try to cut costs enough to stetch that to a year or two, and then hope something else comes up. (Or, that gas prices plummet).
The stock is a pure call option at this point, since even the junior creditors will be lucky to get 80 cents on the dollar.
What are people hoping for with GM? One big cost is their retirees - there are as many former workers drawing generous UAW benefits as there are current workers - at least. But that older generation of former workers at a large company, are dying off. Over the next 10 years or so, that headwind will begin to ease off. In 15 or 20, only the much smaller work force of the 1990s or so will be part of the retiree pool, and later still it will be the present much reduced set.
But it is quite unlikely the present shareholders will enjoy any benefit from that demagraphic change. Bank debt will own the company well before then.
For that matter, the UAW may rob the new owners (current creditors lending to GM, the more secure types I mean) again. GM lost $10 billion so far this year to strikes alone. You have to be criminally insane to strike a nearly bankrupt car maker losing money on this scale, but the UAW is a Pavlovian animal and it does not think at all.
Don't get me wrong - the management is as dumb as a bag of rocks too.
The right way to think of GM is as a socialist state the size of Belgium with a raging class war and a corrupt and incompetent political class - minus any elections. The mystery is merely why anyone would lend them a dime.
Interestingly, the primary reason for their fatal problem is, ironically, mostly the same thing that made them giants in the first place, but they do not, will not, and and seemingly cannot see the forest for the trees. Times change? Not to Detroit.
When America was fast building up after WWII, and Detriot cars were the only cars we could buy, "3 years and trade it in" was something that worked great for them, as cars from Detroit were even worse quality then than they are today and wore out quickly. But, when we became able to buy much better cars from abroad that would last 10 years or more instead of 3, Detroit started the decline that will continue until its demise, as it won't build competitive cars with those from Japan and elsewhere because it cannot due to its hidebound '50's marketing mentality along with the burden of the almost militantly resistant, semiskilled workers it must employ under very onerous union work clauses, and the bloated expense of almost gov't level employee retirement benefits.
Honda, e.g., builds great cars and takes sales from Detroit every year, as that is how car companies grow now...by taking sales from other makes by being better and more efficient, but Detroit can't and won't ever do that as its top executives are still stuck in the '50's with that same old school marketing mentality and warlike unions, making inferior quality vehicles that cannot compete in today's world marketplace. The end is near.
world.honda.com/FuelCe.../
www.hydrogenassociatio...
Back in the early 90's people said no one would use the internet.
Charles H. Duell, US Patent Commissioner, in 1899 said, "Everything that can be invented has been invented."
Personally my Honda has 180,000 miles on transmission and still shifts like new. Several relatives have had heavy duty GM Suv's and just used them as a Soccer Mom vehicle and transmissions have went out at about 60,000 miles. Another friend had a brand new Mustang (44,000 dollars top of the line). He had to take it back to dealer and they have had it 2 months and can't figure out what the problem is.
GM products are cheaper than Honda's and Toyota's. But who wants a product that can't out last the payment book?????
Not mocking legit hydrogen fuel-cell cars like the Honda FCX Clarity, but just how do you propose to fuel them? Not until most gas stations in the U.S. has a hydrogen-dispensing pump will FC vehicles become practical.
And how long would that take? 10 years? 15 years? Not fast enough to save GM's bacon, I'm afraid.
That applies not only to GM, but more and more to the ENTIRE U.S. ECONOMY. If we don't wake up soon, we may as well all go on SS.
And our politicians are no help, either. All they accomplish with their endless regulatory schemes is to make things that much worse.
Soon they will be in a position where they will need to bail out the autos, airlines and numerous other industries to keep them afloat.
Since they are leading co-conspirators in their demise, why would anyone believe even GREATER government intervention could work?
It's like the family everyone knows who looks for all the world as if everything's fine. Except they can't pay their mortgage, car notes, tuition expenses (past or future) and other bills, and are maxing out their credit cards to get by.
Well, guys, that's us. And I don't mean just "us," it's our entire economy and way of life at stake now.
And our politicians are like the rest of us. Far from grasping the gravity of our situation, they stay busy passing new laws with increased regulatory burdens that only make things worse.
We're all just, "Whistling past the graveyard," as the old saying goes.
It's a known FACT that GM and Ford won't survive in their present mode of operations. I believe we all pretty much agree on that.
Meanwhile, sales of some of their European models that achieve 40+ mpg's are doing well. So well, in fact, they plan to sell them here by 2010-12.
So, why wait? Call the Congressional delegation, lenders, suppliers, lobbyists, and whoever else and start LOADING THE BOATS! Congress could pass the necessary exemptions in an afternoon. Then start building them here when they see which ones are selling best.
Oh, but we can't! Why, the EPA and NHTSA wouldn't let us. The bankers wouldn't go for it. The unions would rebel. Besides (Ah, ha!), the Congress will bail us out if we don't make it anyway. Oh, and Obama's now proposing $1,000 quarterly gas rebates.
Like I said, just more "Whistling past the graveyard," and, "Fiddling while Rome burns!"
And the U.S. auto Mfg's won't make and fuel a car themselves that will get you home when the oil is gone.
Sounds like a holding hands--off-the--cliff, Lovers-Suicide-Pact to me.??
Talks of hydrogen are interesting but when you consider it loses 33% of its efficiency being converted back to electricity in a vehicle, what's the point? In this case, even plug-in hybrid work better and why not just start investing in battery technology, which, by the way are growing leaps and bounds and start driving on electricity alone. electricnick.com/2008/...-techno…and-better-and...
If it costs around $4 million to build a hydrogen station when you have electric wall sockets pretty much anywhere, aren't we, the government, our clueless Detroit fearless leaders and most "experts" going down the wrong road again?
Again, why do we hail technologies we can barely explain as to why it makes more sense economically, and to whom? Indeed, you can try to force Detroit to bring in their cheaper European cars but that won't solve anything in the meantime. They are already well settled out there and still turning out a profit. They have different plans here and will wait for the government to once again bail them out.
In the meantime, remember those newer more nimbler kids on the blocks? Like the Japanese did in the 60s and 70s, they are cropping left and right and capturing a big part of tomorrow's pie.
You are confusing accounting rules with operational realities. GM did not lose $15.50 billion in cash. This was a write down. An accounting write down. Now, when GM writes down assets is has lees to borrow from. But GM still has over $15 billion in cash and the actual real cash burn this past quarter was about $2.3 billion. Assuming things get no worse (they may get much worse) and not much better (they may get much better) then GM has 7 quarters of cash left. GM told the world that they will be raising several billion. My guess is their news cash will come from three possibilities:
1. Selling assets. Keep in mind, both Fiat and VW are looking for production capacity in the U.S. GM may sell a plant to either these Italians or to the Germans
2. GM can issue debt or convertible securities might be a smarter move
3. GM can issue more common and dilute the common at the same time.
GM is far from bankruptcy. I see GM doing much better after 2010. Now, bankruptcy would not be that bad a move for GM, however. It would give them the room to deal with the unions in a more affective way and it would also allow them to shed their pension and medical liabilities as well. One must remember, over the past 15 years GM paid about $50 billion in medical costs to their retirees and about $50 billion in pensions. They only paid about $15 billion in dividends to their shareholders. One has to ask themselves, who owns GM given the above calculus?
> jack