General Motors is teetering on the brink of financial chaos. GM says that its cash on hand is being depleted to levels where it will no longer be able to operate unless it gets $2B USD in additional loans at the end of March.
GM is pleading with the government to give it an expanded bailout, while President Obama and his staff are considering cutting GM off and letting it go bankrupt. GM has warned in the past that it cannot survive bankruptcy, and now it is "warning" the government yet again that it will go bankrupt without intervention and of the consequences that would have on the economy.
Its auditors are growing increasingly antsy as its losses pile up. They have issued a statement saying they have "substantial doubt" that GM will be able to continue to pay its debts. Initially they demanded GM repay $6B USD of credit, based on GM's announcement that it could go bankrupt and the company's growing financial problems. However, GM has brokered a deal with them to stay their hand while it seeks $30B USD in federal aid.
After losing $30.9B USD in 2008, GM's business units are in freefall. Sales have plunged by millions of units and the company is burning through billions in cash quarterly. With such a bleak outlook, it correctly warned that auditors Deloitte & Touche would question its ability to make payments, which according to its recent statements, they did.
The information was revealed in reports to U.S. Securities Regulators and a 25-page plea to the government. The plea explains GM's perspective that it is facing insurmountable hardship from tight credit, troubled suppliers, and sinking demand. GM hopes that the government will come to its aid, bailing it out once again.
GM is slashing brands left and right, but can't seem to stop its losses. Even if GM manages to muster enough cash to sustain its operations, it may still go bankrupt at the start of June, when one of its $1B USD convertible debentures matures. If it cannot find additional funds to make this payment, it will be forced into bankruptcy.
GM says that a bankruptcy would result in a liquidation of its assets -- in other words there would be no reorganization and no more GM. It insists that restructuring would be hopeless and consumers would be even less likely to buy from it and that it lacks enough assets to finance a full reorganization.
In order to even have its request for assistance considered, President Obama and his auto task force have demanded that GM convince the United Auto Workers and bondholders to reduce its debt load in order to show that it can be financially viable. GM writes in the annual Securities Regulators report, "Our future is dependent on our ability to execute our viability plan. If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. bankruptcy code."
GM's future is now largely in the hands of automotive debt owners. Its creditors may begin to slash the credit lines of its suppliers, which could further damage GM's sales and production. Further, the creditors are opposed to the government plan, which asks them to convert $27B USD of the company's debt -- approximately a third of it -- to equity. They say they want government guarantees on their repayment of the remaining debt or they will make no deal. Government officials thus far have refused to make this guarantee as they don't want to be forced to pay these billions out of taxpayers' pockets if GM folds.
Globally GM's sales are down 24 percent,from a peak in January 2008 and in the U.S. they are down over 40 percent from their peak in 2007. GM has lost $82B USD since 2005. It says it may lose $1B USD for its trouble Saab unit, alone. GM recently started reporting Saab's revenue separately and hopes to sell the unit, if someone wants to buy it.
quote: It would be silly of them to hold an investment in a competitor instead of investing in their own business.
quote: Also, I don't think there's any truth to the rumor that GM owns a sizable amount of Toyota stock. It would be silly of them to hold an investment in a competitor instead of investing in their own business.
quote: Saturn could probably stand alone since their products aren't as in-breed as pontiac-buick-chevrolet. But they're not serious about shopping it.
quote: They'll survive IF they get assistance.
quote: I'm not saying that this is going to be easy, but I'll be honest - I don't want my tax dollars going to bail out a poorly managed company.
quote: My economic beliefs are very heavily rooted in free-market principles.
quote: By the way, I thought they were suppose to immediately pay back the government loan they got several months ago if they couldn't produce a plan to become profitable? What happened to that?
quote: To a consumer, an automotive OEM in "bankruptcy" is effectively out of business. Sales would tumble drastically
quote: As apposed to the booming sales they have now ?
quote: As long as sales are not zero, they can still fall, right?
quote: I also think that there's a bit of a surplus in produced vehicles, so a strike won't have quite the stinging effect.
quote: It's not the current UAW contract that is the problem, it is the number of years GM has been around coupled with a low worker to retiree ratio. Companies like Toyota haven't been here for 100 years.
quote: We as a country need to tighten our belts, but not stab the elderly in the back out of greed.
quote: That's a silly theory man. Toyota isn't as old as GM, sure, but it's certainly not a young company. If they were throwing away money to retiree's as much as GM is, we would have seen it by now.
quote: Yea, but do you hear your what you are saying. You are trying to blame GM needing 10s of billions of dollars on employee's making 30$ an hour.
quote: but they're a lot better off than the big 3
quote: But in addition to that advantage, they benefit from a very uneven playing field.
quote: Now I'm not saying that the US companies are as well run as some of their Japanese counterparts. But in addition to that advantage, they benefit from a very uneven playing field.
quote: Are you saying that Japan and Europe don't have stiff import tariffs that make importing cars into those regions economically impossible?
quote: No, I'm not a "union stooge or a GM employee." And I'm not an idiot either.
quote: In other news, American taxpayers say, "Don't let the door hit you on the way out!". Seriously, their past performance indicates any kind of handout will just delay the inevitable. Bankruptcy now instead of later I say.
quote: GM says that a bankruptcy would result in a liquidation of its assets -- in other words there would be no reorganization and no more GM .
quote: And that's ignoring the fact that the union workers would burn the plants down if they even tried it!
quote: Escalade or Denali? SRX, Trailblazer, or Enclave? GMC Sierra or Chevy Silverado? Chevy Colorado or GMC Canyon? Yukon or Suburban?
quote: The Cobalt SS 2.0L turbo is a great tuner car
quote: If GM tanks, it will be a good thing for the rest of th automotive industry.
quote: The amount of money paid out to various companies should be a good indicator that nothing is stopping this depression. The longer we prop GM up, the farther out we put recovery.
quote: GM brought this on themselves, they must be allowed to fail.
quote: GM's overall financial weakness is largely their own problem, but they certainly did not cause the recession. That was triggered by the banking/credit crisis.
quote: the government has two choices, either give loans to the US car companies and keep them running until consumer confidence returns
quote: Which do you think is better for our economy
quote: Tell me, what businesses can survive when their sales decrease by 35-55% year-to-year?
quote: Your post does a good job summarizing the ignorance that the typical American has towards the auto industry. The real story is that if GM tanks, it is going to take a lot of our economy with it, and it will probably happen in the middle of this recession, making it deeper and recovery much longer.
quote: The real story is that if GM tanks, it is going to take a lot of our economy with it, and it will probably happen in the middle of this recession, making it deeper and recovery much longer.
quote: If working in a car assembly plant required no knowledge/experience as you suggest, then the going rate for auto workers would converge to minimum wage. Has that happened yet?