From Fortune:

The Detroit Free Press has their own article on the subject. GM's CFO Fritz Henderson has made some comments warning about this over the past year or so, but they've been largely ignored.

Keep this issue in mind as we discuss GM's moves and product plans in the next couple of years - it'll provide at least a partial explanation for the moves GM makes in dealing with the changing auto industry.

 

I heard the other day that GM's stock is currently on par with what it was selling for in the early 70s! Sounds like it's either a great time to buy if you really believe GM will recover, or one hell of a bad time for anybody that has had GM stock since then.

 

What exactly is making GM burn all this money?

Is it payroll? Is it intrest on loans? GM's product development programs were supposedly streamlined some time ago to save large amounts of cash. GM's European and Asian arms are generating high relative profits.

I can see money incenerating at Ford. They are piling in short term cash buying out workers aiming for long term savings, they are accelerating pretty much every new car program they can get their hands on, they're spending cash to convert their plants to make some of their more successful Euro and Pacific models here saving development costs. You can actually see where the money is going at Ford.

Chrysler's cash burn in the midst of all this (what little that's seen) almost looks like nothing next to Ford and GM.

So what's going on with GM where the a planet's largest automaker has a market value a mere 13% greater than a small, predominantly North American privately run car company that was once called a truck company that makes some cars on the side.

Why is on earth is GM expected to be burning up 19 billion dollars in a mere 2 years?!

 

Just came across an article that says that Ford is in the strongest liquity position (more actual cash and credit to gamble with) than Chrysler or...gasp... GM.

So an argument can be made that right now, Ford is the most well of of the big 3.

http://www.detnews.com/apps/pbcs.dll...TO01/806210327

 

Overhead costs start to become very visible when sales drop just a bit; with sales slumping in the double-digit range, there simply isn't enough revenue to cover the costs.

Despite the fact that GM has "streamlined" its development programs, they're still expensive - figure a billion or so for a new engine or transmission, and a couple billion for a new platform. The GMT900 might have cost several billion dollars, which is why a high-volume program like that might never be profitable if the sales drop significantly.

GM needs to contribute about $4.5B to the VEBA that was negotiated with the union. This hasn't hit yet, which is bad news.

Steel costs have risen substantially in the last year; with a doubling from $0.40/lb to $0.80/lb, a truck with 4,000lb of ferrous content now costs $1600 more. The market won't allow these costs to be passed on to customers, so this sort of thing adds a couple billion dollars to material costs each year. We haven't yet touched on plastic, copper, and aluminum pricing; those all might add up to several hundred million in additional costs.

GM is on an engineer hiring frenzy; with a rumored 400 open positions, the company will end up adding $50M in salary costs.

GM spends something like $3B each year in interest costs. With its bond rating in the dumps, credit will continue to get more expensive.

The ongoing Delphi bankruptcy consumes a few billion each year. Other supplier bankruptcies drain a couple hundred million.

All those shiny new factories in China didn't come free. GM stated last year that it will invest $3B there in the next three years.

GMAC is losing truckloads of money, and GM gets to foot about half of that bill. It was a billion and a half last year, and probably will get worse as the credit market continues to deteriorate.

Sure, it's only a billion here and a billion there, but it adds up quickly.

An interesting scenario for a GM near-bankruptcy might be a government-funded buyout, perhaps by Ford GM's market cap is only $8B right now (that's fairly generous of investors, considering that GM's balance sheet shows a net worth of negative $43B). If GM edges near bankruptcy, expect the stock to drop severalfold; at that point, it'd be easy for a suitor to ask the government for guarantees to cover the acquisition costs and future liabilities (just as JP Morgan bought Bear Sterns for pennies on the dollar using Treasury money).

It should be an interesting couple of years for the auto industry.

 

With Ohio being hit hard by this Recession, unemployment still way over 6%, and that's not includding people that fell off the grid b/c their benefits expired, or ones that had to take jobs at half or less than they had.
GM, as well as their competitors caused much of their own present "slump" in sales, with losses mutiplied by sudsidaries and suppliers and infastructures, etc...still caught in that race to the bottom, IMHO.

 

I know a lot of people on the various boards hate The Truth about Cars, but I found this article interesting.

http://www.thetruthaboutcars.com/gen...81-bankruptcy/

 

Yeah, that was indeed very interesting - and frightening! The scenario that's painted in the editorial is plausible, and given the sagging sales in the US market along with the troubles at GMAC and the continuing credit downgrades, things look quite bad.

I'd much prefer that things don't go down this way, but as we've seen in other major collapses this decade, big companies can go from viable to bankrupt at a scary-fast speed.

 

The sky is falling, the sky is falling!

 

I suppose I admire your irrepressible optimism, and I would go so far as to agree with you that bankruptcy is not yet a certainty, but you must realize these are really, really bad times.

GM barely escaped death two years ago by selling its most profitable finance arm (whcih turned out to be a blessing) and restructuring its union contract. It needed a strong market in order to make its Hail Mary product investments worthwhile. Instead, GM is witnessing the biggest downturn in thirty years.

This economy is dangerous for well heeled companies, and has already slayed giants like Bear Stearns. Unless things look up a bit, and soon, GM is very vulnerable.

 

Other than the fact that you like GM vehicles (I do, to!), would you care to state your reasons why there shouldn't be worry about GM's financial status?

I've got a lot more at stake than the average forum nuthugger, so I'm not going to apologize if I don't find it quite so easy to respond to unfavorably facts with a glib comment.

 

What is completely mindboggling is how fortunes have changed for the big 3 almost in a matter of months and then flip back and forth.

Think about it for a second.

Ford was collasping due to recalls and image. Then General Motors had their meltdown right about the same time they had to make a final decision on Zeta cars. Then Chrysler is down because they kept making (and forcing on dealers) vehicles that weren't selling. Then the Ford follies started again. Then GM. For the better part of the past year, Ford has been under a death watch. Now, it's Ford that's in the best position. Talk about needing a score card!

When you look at the history of Studebaker and AMC, the one thing that stands out about the death of a major automobile manufacturters is that it takes a long time. Both took over a decade to flounder, and both involved being bought out by another manufacturer (Studebaker by Packard, AMC by Chrysler). Chrysler, unlike AMC and Studebaker, was very well off when it merged into DaimlerChrysler, and had plenty of new product in the pipeline when it was bought by Cerberus.

All 3 of our manufacturers have had issues for the bulk of this decade, but, they have also pulled out some profit surprizes within the past few years. Ford, of all companies, pulled out a $100 million profit the 1st quarter of this year. Chrysler's sales of the Dodge Ram defied the large truck meltdown till recently. Both Ford and Chrysler have something of a floor that limits how far they can drop. Ford by morgaging it's assets and Chrysler by Cerberus' via Daimler's funding of their labor liabilities and product development. General Motors is now the most venerable. And ironically, despite being the world's largest car maker, a company whose value is barely worth more than the far smaller Chrysler Corperation... let alone Ford... with a much larger, far flung operation to manage.

It still seems shocking that it's going to burn through as much cash as it's expected to.

 

It is amazing. Don't forget that ten years ago, everyone was waiting for Ford to pass General Motors. Six months ago we thought Cerberus was going to give Chrysler all the money it needed. Now we have no idea what they have left, given the dire circumstances at many hedge funds.

As recently as two months ago, I had a chance to speak with some insiders, and all they could talk about was how gloomy employees were at ChryCo and Ford.

I think when we talk about any of these companies position relative to one another, it's important to keep in mind that they are all in lousy shape. If one falls, it could bring down the others (not to mention the whole economy).

 

Sort of makes your head spin.

 

This is why we should continue to support our automakers and not pump money into other economies.