There has been much ado lately about the very sick state of our domestic auto industry. As you may know, Rick Wagoner, CEO of GM, has been lobbying the Treasury and the White House for approximately $10 billion in funds, which is supposedly needed to push through a merger between General Motors and Chrysler (majority owner by Cerberus Capital, which acquired 80.1% of Chrysler from Daimler AG (DAI) for $7.4 billion last year). It seems that no one has the want or the ability to lend GM the money in the private sector, their creditors included. So apparently Mr. Wagoner goes to Washington can be seen as sort of a last ditch effort. The trouble is, the Treasury announced on Halloween that there would be no treats awarded to Wagoner and his lobbying efforts and that GM would not receive a loan to bail out Chrysler.
Was this the right move? Let's start with the business position of the two companies: General Motors is burning through over a billion in cash every month like a pyromaniac. With about $20 billion dollars in cash, analysts estimate that GM needs at least $14 billion to maintain operations. Analysts expect that, with 14 million units in industry sales next year, GM will be down to the wire by the end of the summer. That outlook is awfully rosy, as some analysts have estimated 12 million units or worse (outlays for all durable goods items year-over-year for the third quarter were down by double-digit figures and will almost certainly get worse).
The final blow, in my humble opinion, is that given this rash of news, very few are going to want to purchase an automobile from a company that may not be around long enough before the warranty on it runs out, much less be able to provide
