As I reported Thursday, Friday was a day of an important announcement for General Motors. GM released its 3rd quarter financial results. It's amazing how many news organizations completely focused on the wrong numbers, especially the $2.5 billion quarterly loss. Far more critical was the disclosure of a $6.9 billion in negative cash flow, with total cash reserves including (aparently those held for VEBA disbursements) down to $16.2 billion. Even General Motors doesn't know the minimum amount of cash it takes to keep the lights on and running as a going concern. Various estimates have ranged from $10 to 14 billion. This leads us to the key statement in the whole presentation.
Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. The success of GM’s plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe.
What this means, in plain English is that even if GM does everything right and saves all the money it can between now and the end of 2008 -- not 2009, mind you, 2008, as in 6 weeks from now -- GM will not be able to continue operating. It will cease to be. It will be an EX-carmaker If, however, someone (Uncle Sam, Santa Claus) comes to the rescue with new money, GM could hold out longer. It could hold out, for example, until sometime in 2010, when the Chevrolet Volt is ready for sale. Of course, GM plans on losing $10,000 or so for each Volt sold, so that won't really be much of a boost.
What about bankruptcy, GM could keep operating in Chapter 11 bankruptcy, right? Well, Rick Wagoner continues to say that bankruptcy is not an option, and GM is not planning for bankruptcy. Hey Rick, your company has $59 billion more in liabilities than assets and is losing $2 billion a month, do you have any better options? If he does, he's keeping pretty quiet.
Congress just released $25 billion in loans for tooling up for energy efficient cars. The Department of Energy just released draft regulations for applying for these loans. Wouldn't you know it, the DoE had the audacity to require that a company applying for billions of dollars in taxpayer money must be able to show that it is solvent, or at least has a plan to become solvent. Curses, foiled again.
As it stands now, Rick Wagoner's complete failure to be honest and plan for hard times shows every sign of killing the American institution from where he has drawn at least $100 million in paychecks. Wagoner points to a company-funded study that says most consumers won't buy a car from a company in Chapter 11. What makes him think customers will be more likely to buy cars from a company that is being shut down a little at a time because it can't pay its bills? At least in a Chapter 11, you can make plans for continuing warranty coverage. Rick could have planned for bankruptcy early this year, when it still had some cash. GM knew a year ago that money was tight for debtor-in-possession financing, because it couldn't get money for Delphi. Now, if GM needs DIP financing, the only realistic source would would be the federal government.
The government, in rare bipartisan cooperation appears to be ready, willing and able to bail out General Motors, but it also appears that the government will require a level of fiscal responsibility and accountability that GM has been so far unwilling to provide. It's really not a difficult concept, Rick, when you apply for a business loan, you submit a business plan. We're not being unreasonable here.
Perhaps Congress will pass a Band-aid(tm) for GM in the next few weeks. Amything done before January 20 will likely be in the form of life support so they can figure out whether they want to operate or pull the plug after the Obama administration takes over.
It seems to me that GM is heading for some form of involuntary receivership. Either a creditor or the government will have to take over the rudderless-ship called General Motors. One creditor with an interest in keeping the company going is the trust set up to run the company's retiremee healthcare VEBA. A huge VEBA payment is due soon. Right now, it doesn't look like GM will have the cash to pay it.
Assuming GM does not file bankruptcy, one thing to look for as a sign that GM has run out of cash is that it will simply start defaulting on its bills. One bill that it should refuse to pay is any salary or severence benefit for Rick Wagoner. Good luck on collecting that one, Rickster.
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