AFSCME 3357-HOF'S BLOG

Spotlight on General Motors' Cash Flow

Robert Farago just posted installment 122 of his GM Deathwatch series at thetruthaboutcars.com. Subtitled Burn Baby Burn, the focus is on GM's cash flow as reflected by its recent quarterly financial statement. As you may recall. GM effectively posted a break-even quarter, thanks to profits all over the world but North America, not to mention the sale of the General's stake in Suzuki. There's no question that GM is not bleeding as fast as it was last year, but it's still not a healthy company. With $24.7 billion in cash on hand, GM reported a loss of 1.7 billion, plus it had increased payables to suppliers (who are now treated as bankers) of $1 billion. Put the two together, and GM lost $2.7 in cash over the quarter.

Now is the time that GM should really be salting away the big bucks. There's a brand new line of profitable pick up trucks as well as the Envoy/Acadia/Outlook crossovers. Saturn has a product line that is top-heavy with new models -- for a change. There won't be as much new metal on the floor next year, and there will be some new competition, most notably, a new Honda Accord.

Farago gives GM two years until Chapter 11 bankruptcy at the current rate of cash burn. Is that accurate? How can you tell when the end is neigh? One sign will be massive stock-sell offs. GM officials just received permission to sell their accumulated shares. Another sign would be cancelled new models, delayed new models, or, even worse, pie in the sky announcements of models they don't have a chance at producing in the time frame announced. We're seeing some of those signs now. The rear-wheel drive platform has been delayed, and GM has made blue-sky predictions about the Chevrolet Volt electric car concept.

Make no mistake about it, if you read about the insiders selling their shares, it's a sign the rats are leaving the sinking ship, and it's time to put on your life jacket.